A U.S. appeals court on Sept. 10 barred PennEast Pipeline Co. from using a federal law to seize properties controlled by the state of New Jersey in order to build a proposed $1 billion natural gas pipeline.

The U.S. Court of Appeals for the Third Circuit said in its decision that the U.S. Natural Gas Act does not allow companies to condemn state controlled land in federal court because states enjoy sovereign immunity from such actions under the Eleventh Amendment of the U.S. Constitution.

PennEast obtained approval from the U.S. Federal Energy Regulatory Commission to build the pipeline from Pennsylvania to New Jersey in January 2018 and promptly sued in federal district court to use the federal government’s eminent domain power to gain access to 131 properties along the route in New Jersey under the U.S. Natural Gas Act.

New Jersey, which opposes construction of the pipe, did not consent to PennEast’s condemnation suits on 42 of the 131 properties it controls. The state holds possessory interests in two of the properties and non-possessory interests in the rest, most often through easements requiring the land be preserved for recreational, conservation or agricultural use.

PennEast needs the land to build its 120-mile pipeline, which is designed to deliver gas from the Marcellus Shale formation in Pennsylvania to customers in Pennsylvania and New Jersey.

The Third Circuit decision reverses an earlier district court ruling that had allowed PennEast to condemn the state controlled properties.

“We will not hesitate to stand up to private companies when their actions violate the law—or, in this case, the U.S. Constitution,” New Jersey Attorney General Gurbir Grewal said in a statement.

Patricia Kornick, a spokeswoman for PennEast, said the company “will review the Third Circuit Court’s opinion and determine what our next steps will be.”

She said the company anticipates starting construction on the pipeline in 2020.

The companies seeking to build PennEast include units of New Jersey Resources Corp. (NJR), South Jersey Industries Inc. (SJI), Southern Co., Enbridge Inc. and UGI Corp.

The companies with contracts to use the project include units of NJR, SJI, Southern, Public Service Enterprise Group Inc. and Consolidated Edison Inc.

Onshore