TransCanada Lawsuit: Obama’s Keystone Denial Was “Purely Political” and Unconstitutional

We've already blogged on TransCanada's suit against the Obama administration, which strung the company along for seven years before the president denied the application to build the Keystone XL pipeline.

In hindsight, it seems that President Obama was always going to deny the permit but wanted to get past the 2012 election. He appears to have had no compunction about holding hostage a project that would have brought us fuel from a friendly country and created jobs for Americans.

Now, Kristine Delkus, executive vice president and general counsel of TransCanada, has a piece in the Wall Street Journal explaining why the company has taken this action. TransCanada alleges that the president's cancelation of the pipeline was "a purely political move that violated the law and the U.S. Constitution."

TransCanada also gave notice of its intent to recover damages and says that the denial was in violation of the North American Free Trade Agreement (Nafta). The wait for the denial was unprecedented. Indeed, Enbridge, a TransCanada competitor, in fact received a permit in 2009 from Hillary Clinton's State Department after two years of review.

The Keystone XL pipeline, by contrast, was studied repeated for seven years and the environmental impact was expected to be negligible. But this didn't placate the radical environmentalists. Delkus notes:

But environmental activists made rejection of the project a litmus test of the president’s climate-change credentials. The State Department’s official Record of Decision reasoned that permitting the pipeline to proceed would “undermine U.S. climate leadership” because “the understanding of the international community”—contrary to the administration’s own findings—was that the pipeline would increase greenhouse-gas emissions. Permitting construction would “undercut the credibility and influence of the United States” in negotiating with other countries, including at the coming Paris climate conference.

In other words, the pipeline and its benefits were sacrificed to increase the president’s negotiating leverage with other countries.

And I might add negotiations about climate change!

Okay, but is this unlawful? TransCanada thinks it can make the case that the denial was illegal:

This decision was unlawful in two respects. First, it was contrary to basic principles of constitutional law. The president can exercise only powers granted by a statute or the Constitution. The administration acknowledged that no statute supports its action. Nor does the Constitution.

The Supreme Court’s famous 1952 ruling in Youngstown Sheet & Tube Co. v. Sawyer, rejecting President Truman’s claim that he could seize private steel mills, sets out the governing principles that also defeat President Obama’s similar claim of unilateral power. Unless Congress expressly or implicitly approves of presidential action, the president has no independent power to act unless the matter falls beyond the scope of Congress’s constitutional interests.

Article I of the Constitution provides Congress with power over the domestic and international commerce at issue. And in early 2015, both houses of Congress passed legislation—later vetoed by the president—directing that the Keystone XL pipeline be constructed without any further presidential action.

Still, even if Congress had not acted, Mr. Obama’s action is unlawful because it falls far outside of the limited tradition of presidential-permit approvals. Presidents have for many decades lightly regulated certain border facilities through a permit-approval process focused on distinctly cross-border and operational concerns. No president before has prohibited construction of a major infrastructure project affecting such extensive domestic and international commerce. Nor has any other president ever claimed the power to block cross-border trade to enhance his negotiating power abroad.

Second, the administration’s decision violates international agreements. When the U.S. government signed Nafta, it committed to provide Canadian investors with various protections against unfair, inequitable, and uncompensated expropriatory and discriminatory U.S. regulatory actions. The agreement enables companies, like TransCanada, to recover damages through international arbitration when Nafta’s provisions have been violated.

The constitutional matters are for a court to decide, but President Obama could have saved the Canadian company untold millions by announcing it earlier. 

Delkus concludes:

The damage to TransCanada is clear. It has lost the value of the project and incurred significant costs in pursuing what should have been a robust regulatory process based on facts and established criteria, not based on meeting misplaced symbolic political objectives.

The administration’s actions harm business and public interests that extend far beyond a particular pipeline. The decision calls into question the entire process for cross-border facility approvals. It strongly suggests that investing in the U.S. is subject to a level of “sovereign risk” usually associated with far less developed economies.

Unless they are remedied in court or arbitration, the Keystone decision and the political expediency underlying it will also encourage future administrations to conclude that they, too, can disregard the most basic legal requirements.

I hate for the American taxpayer, who already has so many Obama-related obligations, to pick up the tab. But TransCanada was treated shamefully–as were the Americans who would have gotten good jobs from the Keystone XL pipeline.