Court: No Property-Specific Eminent Domain Power is Necessary to Implicate Inverse Condemnation

The Legal Intelligencer

By Anna Jewart and Blaine Lucas

Under the U.S. and Pennsylvania Constitutions, private property may not be taken for public use without payment of just compensation to the owners, see U.S. Const. amend. V; Pa. Const., art. I Section 10. This conversion of private property for a public purpose is interchangeably known as a “condemnation” or a “taking.” In Pennsylvania, the Eminent Domain Code, 26 Pa.C.S. Section 101 et seq., provides “a complete and exclusive procedure and law to govern all condemnations.” This includes de jure condemnations initiated by condemning bodies in compliance with statutory requirements, as well as de facto condemnations, initiated by property owners when entities cloaked with eminent domain powers substantially deprive them of the beneficial use and enjoyment of their properties without initiating and following the procedures set forth under the Eminent Domain Code.

Under the Eminent Domain Code, a property owner asserting that a de facto taking of property has occurred is authorized to bring an “inverse condemnation” action against the condemnor in order to receive adequate compensation for the loss. Generally, courts considering an allegation that a de facto taking occurred place a heavy burden on the property owner to show that:

  • The condemnor had the power to condemn the land under eminent domain procedures;
  • The property owner was substantially deprived of the use and enjoyment of the property through exceptional circumstances; and
  • The damages sustained were an immediate, necessary, and unavoidable consequence of the condemnor’s exercise of its eminent domain power.

Therefore, courts have required evidence that the taking resulted from the actions of an entity “clothed with the power of eminent domain.” Both public, and “quasi-public” entities, such as corporations or public utilities to whom special governmental powers have been delegated, may hold such a power. Recently, following a protracted appellate history, the Pennsylvania Supreme Court, in Hughes v. UGI Storage, No. 49 MAP 2021, No. 50 MAP 2021, (Pa. Nov. 29, 2021), considered whether or not a condemnor must possess the power to condemn the specific land in question, ultimately holding that that a public or quasi-public entity need not possess a property-specific power of eminent domain in order to implicate inverse condemnation principles.

In 2009, UGI Storage Co. (UGI) filed an application with the Federal Energy Regulatory Commission (FERC), seeking a certificate of public convenience and necessity to acquire and operate certain facilities related to the interstate transportation and sale of natural gas owned by UGI Central Penn Gas, Inc. (CPG), a company regulated by the Pennsylvania Public Utility Commission. These facilities included an underground storage field located in Tioga County, consisting of 1,216 acres (storage field), as well as an additional 2,980-acre protective zone around the storage field (buffer zone). UGI was a quasi-public entity invested with the power of eminent domain. FERC granted the application as to the storage field, but denied UGI’s request to certificate the full buffer zone, noting that CPG had not obtained all of the necessary property rights within the buffer zone, and that UGI had failed to contact the owners of the properties in the buffer zone as required by federal regulations.

In 2015, the owners of certain parcels located within the buffer zone (owners) filed petitions seeking appointment of a board of viewers to assess damages for an alleged de facto condemnation of their properties under Section 502(c) of the Eminent Domain Code, which establishes the procedural avenue for securing just compensation in inverse condemnation scenarios. The owners’ claims were based on their allegation that although the buffer zone was not certified in its entirety, UGI was utilizing the properties within the uncertificated segments in the same manner as those within the certificated areas as protection for the integrity and security of the storage field. The owners claimed that UGI had effectively prohibited all hydraulic fracturing activities on the properties within the buffer zone, depriving them of the financial benefits of any natural gas lying beneath their lands, and resulting in a de facto condemnation. For the next several years, the case went up and down on appeal, resulting in multiple trial court decisions, as well as two split Commonwealth Court opinions.

In 2020, the case returned on appeal to the Commonwealth Court, where members of the court disagreed as to whether the owners needed to prove that UGI had property-specific powers of eminent domain in order to prove a de facto condemnation had occurred. See Hughes v. UGI Storage, 243 A.3d 278 (Pa. Cmwlth. 2020) (en banc). The majority invoked the three-part test for de facto condemnation discussed above. While the majority did not require a property-specific inquiry as to the first prong as the trial court had, it found that because UGI was precluded from exercising eminent domain powers over the owners’ properties in the absence of FERC certification, the owners could not establish that any deprivation of their properties was the “immediate, necessary and unavoidable consequence of the exercise of the power to condemn” under the third prong of the test. Judges Leavitt (concurring and dissenting) and McCullough (dissenting) authored separate opinions, agreeing with the owners’ position that the argument asserted by UGI and accepted by the majority “conflated the elements of a de jure condemnation” lawfully initiated by a condemnor “with those of a de facto condemnation, which generally reflects a condemnor’s unlawful interference with property rights.” The Pennsylvania Supreme Court granted the owners’ subsequent petition for allowance of appeal.

As an initial matter, the Supreme Court noted that as a matter of statutory construction it would construe the Eminent Domain Code in a manner most consistent with constitutional norms. It then looked to the text of the Eminent Domain Code, finding that the relevant definitions suggested no requirement of any nexus between the power of eminent domain and a specific property. More specifically, looking at the Eminent Domain Code’s definition of to “condemn,” (to “take, injure or destroy property by authority of law for a public purpose,”) the court found that it closely adhered to the constitutional conception of a taking, defined as “when government action directly interferes with or substantial disturbs the owner’s use and enjoyment of the property.” Although the court noted that the definition of “condemnor,” “interjects the concept of an ‘acquiring agency,” in turn defined as any “entity … vested with the power of eminent domain,” it found the reference to eminent domain solely depicted an attribute of an “acquiring agency,” and did not suggest any requirement of a nexus between that power and a specific property.

The court further noted that Section 502(c)(2) of the Eminent Domain Code, which describes the actionable conduct necessary to support an inverse condemnation claim, said nothing about a power of eminent domain, and that in order to effect an actionable taking it was enough that the condemnor has proceeded by authority of law for a public purpose. Consequently, the court held that the plain terms of the code do not signify a requirement of a property-specific power of eminent domain, an interpretation it found to be most consonant with both federal and state constitutional law. The court therefore held that “a public or quasi-public entity need not possess a property-specific power of eminent domain in order to implicate inverse condemnation principles.” Although the court based its decision on its interpretation of the Eminent Domain Code, it also pointed to the long line of U.S. Supreme Court decisions finding that government actions constituting regulatory takings have not “parsed through whether or not each offending agency has a power of eminent domain. The court cited as an example the Supreme Court’s landmark decision in Nollan v. California Coastal Commission, 483 U.S. 825 (1987) (Finding that conditioning issuance of a permit on the conveyance of an uncompensated easement constituted a taking). The court also quoted from the U.S. Court of Appeals for the Eleventh Circuit in Foundation v. Metropolitan Atlanta Rapid Transit Authority, 678 F. 2d 1038, 1043-44 (11th Cir. 1982) “([W]e disagree with the basic premise … that an inverse condemnation action will not lie against [a government agency] because it does not have the power of eminent domain. A taking occurs when a public entity substantially deprives a private party of the beneficial use of this property for a public purpose.”)

Although the Supreme Court ultimately remanded the case to the Commonwealth Court to address a waiver issue, its holding in UGI Storage underscores the need for state and local regulatory authorities (and private entities possessing eminent domain power) to proceed cautiously when taking actions impacting private property rights, even if the no formal declaration of taking is being filed against a specific property.

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Reprinted with permission from the December 23, 2021 edition of The Legal Intelligencer© 2021 ALM Media Properties, LLC. All rights reserved.