Penn. High Court: Eminent Domain Power Not Required For Liability in Inverse Condemnation Action

by: Michael Realbuto
15 Dec 2021

In late November 2021, the Pennsylvania Supreme Court addressed a rather interesting question regarding inverse condemnation liability in Hughes v. UGI Storage Co., et al., No. J-69A-2021 (Nov. 29, 2021). There, the Court sought out to answer whether, to be held liable for damages under Pennsylvania’s inverse condemnation statute, an entity must be clothed with the power of eminent domain – not only in a general sense, in that it must be a governmental or quasi-public entity to which condemnation powers may be delegated – but also, the entity must be invested with eminent domain authority specific to a particular property in issue.

The relevant background facts that led to the dispute are as follows: In 2009, defendant, UGI Storage (“UGI”), filed an application with the Federal Energy Regulatory Commission (“FERC”) and sought a “certificate of public convenience and necessity” that would it allow it to acquire and operate certain interstate natural gas facilities. UGI wanted to acquire and operate underground natural gas storage facilities including a 1,216-acre facility, as well as a 2,980-acre buffer zone around the storage field. Plaintiffs’ properties were within the proposed buffer zone.

FERC ultimately granted the application to permit UGI to acquire and assume the operation of the storage field, but denied the request for a certificate relating to the entire 2,980-acre buffer zone on procedural grounds. Instead, FERC granted a partial certification, which was limited to the buffer property that the company had acquired the “necessary property rights” or would be able to acquire such rights. Plaintiffs alleged that, although UGI’s effort to obtain certification of the entire proposed buffer zone failed, it nonetheless utilized properties within the uncertificated segments to the same extent as the properties within the certificated area. Plaintiffs asserted that the company had effectively prohibited all hydraulic fracturing activities and substantially limited access to retrieve the gas deposits located on the properties. In sum, plaintiffs argued that they suffered a “de facto condemnation” and tendered a demand for just compensation pursuant to the Pennsylvania Eminent Domain Code.

The lower court found in favor of UGI because “[it] lacked the power of eminent domain” for relevant purposes. The Court relied on the fact that the FERC certificate of public convenience had excluded plaintiffs’ properties from the proposed buffer zone, and federal law permitted UGI with the power of eminent domain only for lands within the scope of the certification. (Emphasis added). In the lower court’s view, a property-specific power of eminent domain was required to support an inverse condemnation action.

After a convoluted ping pong match between the intermediate court and the lower court, the case finally made its way up to the Pennsylvania Supreme Court. The Court began its analysis by stating that the Pennsylvania legislature has prescribed that “the Eminent Domain Code is intended to provide ‘a complete and exclusive procedure and law to govern all condemnations of property for public purposes and the assessment of damages.’” 26 Pa.C.S. §102. Moreover, since the legislature cannot abridge the constitutional rights of citizens – such as their right to just compensation when their property is taken for a public purpose – the Court noted that it has set out to construe statutes in a manner which is most consistent with the constitutional norms. Upon review of the inverse condemnation statute, the Court found that the text raised no suggestion of a necessary connection between the power of eminent domain and a specific piece property. Rather, the Court held that liability may be found when the condemning authority proceeded pursuant to general authority of law for a public purpose, as UGI  did in this case.

In addition to the Court’s reliance on the language and plain meaning of the Pennsylvania Eminent Domain Code, the Court also set forth a constitutional justification for its holding. The Court made it clear that the Fifth Amendment to the United States Constitution does not limit the prohibition against the exercise of governmental power to take private property for public use without just compensation to instrumentalities of government possessing the power of eminent domain. Finally, the Court observed that there is a progeny of U.S. Supreme Court case law concerning regulatory takings and exactions. In those cases, the Court noted that SCOTUS did not parse through whether or not each offending agency had a power of eminent domain prior to addressing the litigant’s takings claim.

There is no question that it is extremely difficult for a property owner to succeed on an inverse condemnation claim. However, the Pennsylvania Supreme Court sent a clear message in Hughes v. UGI Storage Co., et al. that proving liability under the state’s inverse condemnation statute should be no more complicated than it needs to be: If an entity was acting pursuant to general authority of law for a public purpose, then it is potentially liable if it “take, injures, or destroys” private property.

To see the full decision from the Pennsylvania Supreme Court, click here. To read another blog post about the decision, written by our colleague Robert H. Thomas, Esq., click here.