The U.S. Supreme Court heard arguments on Nov. 9 about whether state or federal law governs the award of attorney’s fees in a case arising from the taking of property through eminent domain, as an energy company is trying to avoid paying hundreds of thousands of dollars in legal fees.
In Hoffmann v. WBI Energy Transmission, a privately owned natural gas company was able to acquire easements across ranch land for a new pipeline in McKenzie County, North Dakota, by filing eminent domain claims after getting authorization for the pipeline from the Federal Energy Regulatory Commission.
The landowners, led by Leonard Hoffmann, disagreed with WBI about the market value of the land, and the parties spent years in court in a dispute over the price. After a district court sided with the landowners, the parties agreed to a settlement.
But then, another disagreement arose after the district court ordered WBI to pay the landowners the $383,375.76 in attorneys’ fees and other costs to dispute the case. Requiring the fees is permitted under North Dakota state law, but WBI argued that it was operating under the eminent domain authority of the federal government and was immune from such fees.
Instead, WBI argued, it owed only the “just compensation” required by the Fifth Amendment, which doesn’t include attorneys’ fees. The Eighth U.S. Circuit Court of Appeals agreed.
The easements were taken under Section 7 of the Natural Gas Act, but that law doesn’t say exactly how a court should decide the value of land taken by eminent domain. The landowners contended that under established precedent, when a federal law doesn’t answer the question directly, state law should apply.
“Nothing in the statute extends the United States’ sovereign immunity to private companies, and that means they don’t have it,” Robert McNamara, deputy litigation director for nonprofit law firm the Institute for Justice, representing the landowners, told the court.
Several justices seemed to disagree, and to side with WBI during Monday’s oral argument.
Chief Justice John Roberts said that the federal government could have just seized the land on its own, then sold it to WBI.
“In other words, it doesn’t take much to avoid your position,” he told McNamara.
“And it seems to me it’s just a more efficient process to have a private developer get the land under the same terms as the federal government without having to pay the attorneys’ fees that the state wants to insist on.”
Justice Sonia Sotomayor said that she agreed with Roberts.
McNamara said he wanted to separate the federal government’s right to eminent domain from the issue of fair compensation.
Sotomayor cited an 1893 ruling, in Monongahela Navigation Co. v. United States, that said eminent domain and the right to compensation “may be said to exist not as a separate and distinct principle, but as parts of one and the same principle.”
“I mean, doesn’t that just end your point?” she asked McNamara.
The landowners had cited rulings in other federal courts that seemed to bolster their arguments. Justice Elena Kagan asked WBI’s attorney, Paul Hughes, why so many courts had erred in this regard.
Hughes said the courts had given deference to a 1979 case, U.S. v. Kimbell Foods.
In that case, a company called O.K. Super Markets defaulted on debts owed to Kimbell Foods and a loan backed by a federal agency, and there was a dispute about which lender could seize its assets.
The Supreme Court unanimously ruled that state law should determine which creditor had priority, finding that “the prudent course is to adopt the ready-made body of state law as the federal rule of decision until Congress strikes a different accommodation.”
Correction: An earlier version of this story misattributed a quote by Supreme Court Justice Sonia Sotomayor. The Epoch Times regrets the error.
