Earlier this month, the Pennsylvania Supreme Court affirmed in part and reversed in part a preliminary injunction issued by the Pennsylvania Commonwealth Court with respect to newly promulgated regulations regarding unconventional well drilling. Marcellus Shale Coal. v. Dep't of Envtl. Prot. of Commonwealth, 115 MAP 2016, 2018 WL 2452607 (June 1, 2018). In the decision, the Court rejected the argument that courts should defer to a regulatory agency when deciding a preliminary injunction with respect to the agency’s authority to issue regulations, and also shed light on how it interprets allegations of vagueness and conflict in agency regulations. The majority opinion was authored by Chief Justice Saylor and was joined in full by all the associate justices except for Justice Donohue, who authored a concurring and dissenting opinion. Justice Donohue’s opinion, perhaps most notably, voices her disagreement with the Commonwealth Court’s interpretation of Article 1, Section 27 of the Pennsylvania Constitution, known as the Environmental Rights Amendment.
In Marcellus Shale Coal., the Marcellus Shale Coalition (“Coalition”) filed a petition with the Pennsylvania Commonwealth Court, challenging the validity of several regulations relating to unconventional gas well operations, which include hydraulic fracturing and horizontal drilling in the Marcellus Shale. The regulations, promulgated on October 8, 2016, are governed by Pennsylvania’s Oil and Gas Act of 2012, known as Act 13, and contained in Title 25, Chapter 78a of the Pennsylvania Administrative Code. Along with the petition, the Coalition requested a preliminary injunction to stay the challenged regulations pending a ruling regarding their validity. The Coalition named as respondents the Pennsylvania Department of Environmental Protection Agency (“DEP”) as well as the Pennsylvania Environmental Quality Board, the agency responsible for adopting DEP’s regulations (collectively, the “Agencies”).
As discussed more fully below, the Coalition challenged various discrete areas of regulation within Chapter 78a, including, inter alia, rules pertaining to public resources, area of review, impoundments, and site restoration. The Coalition alleged that the regulations were void and unenforceable for multiple reasons, including that the regulations were vague, lacked statutory authorization, and conflicted with other regulations and statutes applicable to the industry. The Commonwealth Court, acting as a trial court, issued a single-judge, unpublished opinion which granted in part and denied in part the Coalition’s requested preliminary injunctive relief. The Coalition did not present any witnesses at the hearing, while DEP presented the testimony of DEP Deputy Secretary Scott Perry, who heads the agency’s Office of Oil and Gas Management. At the hearing, Secretary Perry presented information concerning unconventional gas drilling and the substance of the disputed regulations, including the process by which they were finalized.
Because DEP only appealed the parts of the opinion which granted the preliminary injunction, and the Coalition did not file a cross appeal, the Supreme Court addressed only those portions of the regulations for which the preliminary injunction was granted. While each of these counts are discussed below, it is first worth discussing the Supreme Court’s determination on the proper standard to apply in such petitions for preliminary injunctions.
As preliminary matter, the Pennsylvania Supreme Court rejected the Agencies’ general argument that the Commonwealth Court failed to employ the proper standard for a preliminary injunction because the lower court did not provide sufficient deference to the Agencies. The Agencies asserted that when adjudicating the validity of a regulation adopted pursuant to an agency’s rule-making power, courts apply a three-part test to ensure the regulation is (1) adopted within the agency’s statutory power; (2) issued pursuant to proper procedure; and (3) reasonable. Focusing on the third prong, the Agencies argued that a regulation can only be deemed unreasonable if it was fashioned in bad faith or is otherwise arbitrary or a gross abuse of discretion. The Agencies further argued that in reviewing the reasonableness prong, courts should apply the same level of deference to an agency’s interpretation of its enabling statutes in reviewing a preliminary injunction as would be warranted in a post-enforcement challenge to the regulation.
The Supreme Court rejected the Agencies’ argument, noting that a legislative rule is only valid if it falls within the scope of rulemaking power granted by the Pennsylvania General Assembly. In the context of a motion for a preliminary injunction, a court does not need to decide the merits of the petitioner’s substantive claims. Rather, to obtain a preliminary injunction the challenger must demonstrate, inter alia, whether a “substantial legal issue” exists that must be resolved to determine the parties’ rights and obligations. This standard, the Court found, implicates a less deferential standard relative to an agency’s interpretation of the governing statute than would be applicable to a court’s final merits determination.
Having addressed the applicable standard, the Supreme Court then reviewed each of the Coalition’s counts for which the Commonwealth Court granted the preliminary injunction. Each of these counts, and the Supreme Court’s rulings, are discussed briefly below in turn.
- Count I – Public Resources
In Count I, the Coalition argued that the regulations impermissibly expand the list of protected resources beyond the purview of Act 13. Section 78a.15(f) of the regulations requires drilling applicants to provide pre-application notice when drilling within certain distances of “public resources.” The term “public resources” is not defined in the regulation, but includes by reference “common areas on a school’s property or playground” and “other critical communities.” The term “other critical communities” is defined in the regulations to include plant and animal “species of concern” identified by in Pennsylvania’s Natural Diversity Inventory (“PNDI”). The Commonwealth Court found that the Coalition raised a “substantial legal question” with respect to whether the Agencies applied an overly broad interpretation of “public resources” in Act 13 by promulgating a regulation which included private resources that are open to the public, such as playground and common areas of schools.
The Supreme Court affirmed the Commonwealth Court’s finding and cited to the lower court’s observation that such a broad interpretation of “public resources” could justify the inclusion of places like shopping centers, motive theaters, and sports stadiums, all of which are likely not contemplated by Act 13. The Supreme Court also noted the lower court’s reasoning that the Environmental Rights Amendment provides that the Commonwealth must conserve “public natural resources” and not private resources. Thus, a substantial question was raised as to whether it would be proper to interpret Act 13 as authorizing regulations which subsume private resources that are open to the public.
Further, while Act 13 indicated that public resources included habitats of rare and endangered species, and “other critical communities,” Secretary Perry testified at the Commonwealth Court that the designation of a species as threatened or endangered proceeds from a rigorous process which includes notice-and-comment. Conversely, a “species of concern”, as identified in the PNDI database, did not require such a rulemaking process. Thus, the Supreme Court held that while it was not making a final determination on the issue, it agreed with the Commonwealth Court that, at a minimum, a substantial legal issue on this point had been made.
- Count II – Area of Review
In Count II, the Coalition raised a number of challenges with respect to portions of the regulations which require well operators to identify, monitor, and remediate certain gas and oil wells within a certain distance from the operator’s well bore. See Sections 78a.52a, 78.73(c) and (d). The rules are designed to address DEP’s concern with the unintentional migration of fluids and other materials associated with unconventional drilling from the target well to nearby orphan, abandoned, or plugged wells. While the Commonwealth Court rejected most of the Coalition’s challenges to these rules, it granted a preliminary injunction with respect to the Coalition’s argument that the provisions gave rise to “significant implementation” issues since the provisions required well operators to “trespass” onto adjacent lands to address nearby wells.
On appeal, the Agencies argued that ordering well operators to access nearby private land was within their statutory power, since the Pennsylvania Clean Streams Law allowed the Agencies to order landowners to provide access to their land. The Supreme Court affirmed the Commonwealth Court’s preliminary injunction, noting that pursuant to the Clean Streams Law, DEP can order a landowner to allow access to their property only when there is a danger of, or actual pollution, on or emanating from the landowner’s property. The regulations requiring monitoring activities did not require such a pollution event and, therefore, a substantial legal question remained regarding the validity and implantation issues of the monitoring provisions.
- Count IV – Impoundments
In Count IV, the Coalition challenged several portions of the regulations relating to both well-development impoundments and centralized impoundments. The Commonwealth Court explained that well-development impoundments are used to store freshwater for use in drilling operations, while centralized impoundments store wastewater generated during drilling activities. The Coalition alleged, inter alia, that the new regulations contained burdensome new requirements for both new and existing well-development impoundments at Sections 78a.59b and 78a.59c., including the requirement that existing well-development impoundments be upgraded to meet new construction standards by October 8, 2017. The new construction standards require that impoundments be constructed with a synthetic and impervious liner and either be surrounded by a fence or be continuously monitored by an individual to prevent damage from third parties or wildlife. The Coalition asserted that there was no change in the governing statutory law which would authorize DEP to retroactively change the construction standards for impoundments built years ago in reliance on DEP’s prior authorization. The Coalition also argued that the regulations require that centralized impoundments either be closed or re-permitted by a certain date pursuant to Pennsylvania’s Solid Waste Management Act.
The Commonwealth Court determined that a substantial legal question existed based on the Coalition’s contention that impoundments constructed in compliance with prior DEP regulations must now be closed or upgraded to meet the new construction standards. In granting the preliminary injunction with respect to this rule, the Commonwealth Court also noted that Secretary Perry testified that the new rules derived not from a change in law, but from a change in DEP’s interpretation in longstanding law. The court further noted that the cost to retrofit the impoundments was substantial and potentially unrecoverable, thereby establishing irreparable harm.
On appeal, the Agencies did not argue that the authorizing statutes had changed as necessary for them to issue different construction standards. Rather, the Agencies argued that they have authority to alter the construction standards pursuant to the rulemaking process and to apply the new requirements retroactively, without violating due process. The Supreme Court affirmed in part and overturned in part the preliminary injunction with respect to these provisions by differentiating between the regulations as applied to well-development impoundments and centralized impoundments.
With respect to centralized impoundments, the Supreme Court determined that the Commonwealth Court properly determined that a substantial legal question was raised because Secretary Perry’s testimony indicated that the Agencies’ interpretation regarding the authorizing statute had changed. However, the Court found that well-development impoundments were previously only minimally regulated and, therefore, there was little in the record to suggest that the Agencies had reinterpreted the authorization statute. Rather, based Secretary Perry’s testimony at the lower court, the Agencies determined that the sheer size of new well-development impoundments made them analogous to a dam, which made the impoundments appropriately regulated under Pennsylvania’s Dam Safety and Encroachments Act. The Supreme Court noted that the Commonwealth Court had proceeded from the understanding that the Agencies’ interpretation of the statute had changed, which was not the case with respect to these impoundments, and therefore the lower court had failed to identify a substantial legal issue.
- Count V – Site Restoration
In Count V, the Coalition challenged Section 78a.65 of the regulations, which provides requirements with respect to the restoration of land surface areas that were disturbed during the creation of a drilling well. As with previous counts, while the Coalition articulated several grounds on which it believed the regulations were void and unenforceable, the Commonwealth Court found that only one of the claims raised a substantial legal question. The Commonwealth Court held that the Coalition raised a substantial legal question with respect to whether a portion of the regulations which imposed certain erosion and sediment control measures abrogated an exemption to those requirements established by a regulation promulgated pursuant to the Clean Streams Law. Specifically, the Coalition argued that Section 78a.65(d) of the drilling regulations conflicted with Section 102.8(n) – promulgated pursuant to the Clean Streams Law – because the former imposed certain erosion and sediment control measures in excess of what was required in Section 102.8(n).
On appeal, the Agencies argued that the newly promulgated drilling regulations and the Clean Streams Law regulation did not conflict. Rather, the new regulation provided clarity between site restoration under Section 78a.65 and compliance with Section 102.8(n). The Supreme Court agreed, finding that Section 78a.65(d) requiring erosion and sediment controls applied only to impervious surfaces and disturbed areas not already included in a site restoration, whereas the exemption in Section 102.8(n) applied to a certain portion of a site restoration plan. The Court noted that while there may be a perceived incongruity between the two regulations, Section 78a.65(d) narrows the scope of Section 102.8(n) because Section 78a.65(d) applies specifically to unconventional gas well sites. The Court further noted that even if a conflict existed between the two regulations, Section 78a.65(d) takes precedence over Section 102.8(n) because it is more specific (applying only to unconventional gas well sites) and was enacted later in time.
Justice Donohue’s Concurring and Dissenting Opinion
In her concurring and dissenting opinion, Justice Donohue agreed with the majority’s opinion with respect to well-development impoundments and site restoration, but dissented with respect to the preliminary injunction issued with respect to the regulations governing public resources, areas of review, and centralized impoundments. Perhaps most notably, Justice Donohue disagreed with the Commonwealth Court’s interpretation of the Environmental Rights Amendment, which she argued improperly limited the Commonwealth’s obligation to protect only natural resources located on lands owned by governmental entities (see Count 1 above). Noting that the Amendment emphasizes that “Pennsylvania’s public natural resources are the common property of all the people,” Justice Donohue argued that the natural resources at issue is not real property but “rather environmentally healthy open space for recreation with access to all members of the public.”
The Supreme Court’s majority opinion is notable for its rejection of the Agencies’ request for deference with respect to the preliminary injunction, as well as its tacit approval of the Commonwealth Court’s interpretation of the Environmental Rights Amendment. In addition, Justice Donohue’s opinion provides additional insight on her more expansive view of the Environmental Rights Amendment, a hot-topic issue that will continue to be shaped by Pennsylvania caselaw.