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Webster v. National Fuel Gas Supply Corp.

April 3, 2006


The opinion of the court was delivered by: John T. Curtin United States District Judge


Defendant National Fuel Gas Supply Corporation*fn1 ("Supply Corp.") has brought a motion to dismiss plaintiffs' action for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Item 3. This case involves the underground storage of natural gas by the defendant and plaintiffs' attempt to recover damages for the defendant's interference with the use of their property by virtue of the storage. Against the backdrop of this litigation, the defendant and some of the plaintiffs have been involved in state court proceedings pursuant to the New York State Eminent Domain Procedure Law ("EDPL"). Defendant commenced condemnation proceedings against some landowners to acquire easements for the underground storage of natural gas, and those landowners have been awarded compensation for the use of their property. Both the condemnation and the compensation have been affirmed on appeal by the New York State Supreme Court, Appellate Division, Fourth Department.


This action was commenced with the filing of a complaint on May 29, 2002. Item 1.*fn2 Plaintiffs' complaint asserts twelve causes of action, including two federal claims. In their First Cause of Action, plaintiffs allege "Inverse Condemnation," an illegal and unconstitutional taking of property belonging to the landowners without notice, adequate notice, and/or an opportunity to be heard, in violation of the Fourth, Fifth, and Fourteenth Amendments. Id., ¶¶ 94 - 102. In their Twelfth Cause of Action, plaintiffs allege a violation of substantive and procedural due process, in that the EDPL does not provide adequate notice and an opportunity to challenge the taking under New York law. Id., ¶¶ 187-90. In addition, plaintiffs assert ten common law claims under New York State law, including: Unjust Enrichment, Nuisance/Trespass, Property Damage, Duress/Coercion, Breach of Contract, Fraud and Misrepresentation, Unconscionable, Tortious Interference with Contracts, Interference with Quiet Enjoyment, and Violations of the Rule Against Perpetuities. Id., ¶¶ 103-86.

Plaintiffs include 94 landowners in the Town of Concord, New York. Underneath or adjacent to plaintiffs' land is a naturally occurring underground storage field called the Zoar Storage Field, where defendant stores natural gas in underground rock formations and, plaintiffs allege, has done so since approximately 1916. Item 1, ¶ 25.*fn3 In 1948, National Fuel's predecessor was granted a Certificate of Public Convenience and Necessity by the Federal Power Commission (predecessor to the Federal Energy Regulatory Commission--"FERC"), covering multiple storage fields in Erie County, New York. Id., ¶ 26. This certificate established certified boundaries for the Zoar Storage Field. Id., ¶ 27.

In approximately 1977, upon learning that the boundaries of the Zoar Storage Field were larger than it originally believed, defendant applied to FERC for a permit to certify the Field with larger boundaries. Item 1, ¶ 73. FERC granted the application and issued an Order Amending Certificate dated July 29, 1999. Id., ¶ 74. Defendant sought to obtain storage leases from some landowners within the larger Zoar Storage Field, and was authorized in the Order Amending Certificate to condemn storage easements under the property of the remaining landowners.

In May 2000, Supply Corp. commenced 62 condemnation proceedings pursuant to the EDPL in New York State Supreme Court seeking easements permitting the underground storage of natural gas. Item 1, ¶ 81. The plaintiffs, as respondents in that action, interposed three counterclaims--the first alleging an unconstitutional taking, the second alleging public health and safety dangers, and the third alleging interference with property rights. Item 22, Exh. B. These counterclaims were dismissed without prejudice by New York State Supreme Court Justice Eugene M. Fahey in an order dated September 5, 2001 as falling outside the purview of the EDPL proceeding. Id., Exh. C. In a Memorandum Decision dated July 31, 2001, Justice Fahey granted the petitions and concluded that the EDPL proceeding did not violate the plaintiffs' due process rights. Item 3, Exh. E. Some landowners appealed these rulings to the New York State Supreme Court, Appellate Division, Fourth Department, specifically raising the constitutionality of the application of the EDPL. Item 3, Exhibit F. Justice Fahey's determination was affirmed on appeal. See National Fuel Gas Supply Corp. v. Town of Concord, 752 N.Y.S.2d 187 (App. Div. 2002).

Thereafter, the plaintiffs served claims for compensation under the EDPL. Item 22, Exh. D. Defendant moved to dismiss portions of the damages claims, and the motion was granted in part. In an order dated February 18, 2003, Justice Fahey found that the applicable limitations date for valuation purposes was May 1997, and that no claims would lie for any period prior to that time. Id., Exh. F. This order was appealed, but the appeal was dismissed for failure to timely perfect. Id., Exh. H.

The parties then proceeded to the compensation phase of the EDPL proceeding. After hearing testimony regarding the value of the easements, Justice Fahey, in a Memorandum Decision dated August 7, 2003, awarded compensation in the amount of $7.50 per acre, retroactive to the date of the commencement of the EDPL proceedings. Item 22, Exh. I. Justice Fahey awarded no compensation for "property damages resulting from the takings or any other possible trespassing" by Supply Corp. as "no competent proof" had been presented as to those issues. Id., p. 20. The valuation determination was affirmed by the Appellate Division, Fourth Department. See National Fuel Gas Supply Corp. v. Goodremote, 787 N.Y.S.2d 570 (App. Div. 2004). Plaintiffs declined to pursue an appeal of this decision to the New York State Court of Appeals.

The 94 plaintiffs, all property owners affected by the underground storage activities of defendant at its Zoar Storage Field, fall into three categories. The first group consists of those landowners who own land within the storage field and have signed leases with defendant (referred to by defendant as the "Contract Landowners," Item 4, p. 5). This group generally contends that their agreements with defendant are invalid for various reasons, as outlined in the common law causes of action. The second group is comprised of those landowners who have refused to sign leases but have gas stored on their land (referred to by defendant as the "State Court Condemnees," Item 4, p. 6). Defendant initiated condemnation proceedings in New York State Supreme Court against the members of this group. Finally, the third group is comprised of those plaintiffs who own property adjacent to the storage field, but not in it (referred to by defendant as the "Adjacent Landowners", Item 4, p. 6). These plaintiffs contend that they are prevented from utilizing the natural gas beneath their properties because, due to New York State Department of Environmental Conservation regulations, they cannot place a gas well within 1,320 feet of the storage field.

On July 23, 2002, defendant brought this motion to dismiss the complaint, arguing that this court has no subject matter jurisdiction over the plaintiffs' claims. Item 3. Specifically, defendant contends that plaintiffs have either failed to state a claim under 42 U.S.C. § 1983, that the federal claims are unripe for review, or that this court should abstain from considering the claims.

On September 16, 2002, plaintiffs submitted an Attorney's Affirmation with exhibits in opposition to the motion to dismiss. Item 6. Oral argument was heard on September 20, 2002. At the court's invitation, the parties filed supplemental memoranda of law on November 5, 2002 and November 13, 2002. Items 11, 12. Following the compensation phase of the EDPL proceedings and at the court's request, on October 23 and 27, 2003, the parties submitted additional memoranda regarding the effect of the state court proceedings on the motion to dismiss. Items 19, 20. Defendant submitted a reply affidavit on November 19, 2003 (Item 22), and plaintiffs submitted affirmations on December 10, 2003. Items 26, 27.

The parties asked for permission to submit additional memoranda on the recent Supreme Court case, San Remo Hotel, L.P. v. City and County of San Francisco, ____ U.S. ____, 125 S.Ct. 2491 (2005), and its possible application to this case. Plaintiffs filed their memoranda on July 23, 2005 (Item 37), and defendant filed its memoranda on August 2, 2005. Item 38. Both parties filed reply memoranda on August 30, 2005. Items 40, 41. Plaintiff ...

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