In a stunning rebuff of Governor Corbett’s and the Pennsylvania General Assembly’s efforts to promote Marcellus Shale development, an en banc panel of the Commonwealth Court on July 26, 2012 voted 4 to 3 to overturn key provisions of Pennsylvania’s Unconventional Gas Well Impact Fee Act (“Act 13”). In Robinson Township v. Commonwealth, Case No. 284 M.D. 2012, 2012 PA. COMMW. LEXIS 222 (July 26, 2012) (“Robinson Township”), the Commonwealth Court declared as unconstitutional, and therefore null and void: (1) the provision of Act 13 (58 PA. CONS. STAT. § 3304) that preempts local municipalities from enacting zoning ordinances that are more restrictive than the uniform requirements established by the General Assembly in the statute; and (2) the provision of Act 13 (58 PA. CONS. STAT. § 3215(b)(4)) that authorizes the Department of Environmental Protection (“DEP”) to grant waivers from setback requirements for oil and gas wells from the waters of the Commonwealth.

The Secretary of the DEP and the Chairman of the Pennsylvania Public Utility Commission (“PUC”), two of the respondents sued in the case, immediately filed appeals, sending the case to a shorthanded Pennsylvania Supreme Court. The Supreme Court currently has only six available members, one Justice having been suspended while she defends criminal corruption charges. A tie vote would result in the Commonwealth Court decision being upheld.

Under Pennsylvania’s Rules of Appellate Procedure, the taking of an appeal by the Commonwealth or a Commonwealth official acts as an automatic supersedeas, staying the effect of the order being appealed. But on August 15, 2012, in response to an application filed by the Petitioners, the Commonwealth Court vacated the automatic supersedeas as to Petitioners’ challenge to Section 3304, while permitting the supersedeas to remain in effect as to Section 3215(b)(4). As a result, the Court’s Order invalidating and enjoining the zoning provisions of Section 3304 remains in effect during the pendency of the appeal to the Supreme Court.

Background

On February 14, 2012, Governor Corbett signed into law Act 13, which amends title 58 (Oil and Gas Act of 1984, 58 PA. STAT. § 601.101 et seq.) of the Pennsylvania Consolidated Statutes. Act 13 resolved the controversy in Pennsylvania as to whether the Commonwealth should tax natural gas production from the Marcellus Shale by opting, instead, to allow counties to pass ordinances to impose an impact fee on unconventional gas well producers and, alternatively, allowing municipalities, under certain circumstances, to adopt resolutions compelling the imposition of fees if a county elects not do to so.

Act 13 created a chapter 32 of title 58 that substantially replaced the former Oil and Gas Act of 1984. Chapter 32 establishes a new statutory framework for well permitting registration and identification; well location, site restrictions, plugging and site restoration, protection of surface and groundwater supplies; corrosion control; gathering lines; treatment of wastewater; and reporting requirements. Responsibility for administering chapter 32 was delegated to the DEP.

Act 13 also created a chapter 33 of title 58, intended to promote reasonable development of the Commonwealth’s oil and gas resources by restricting the ability of local municipalities to adopt their own patchwork of regulations on oil and gas operations. Section 3302 forbade municipalities from adopting any local ordinances purporting to regulate oil and gas operations regulated by chapter 32, unless the ordinances were adopted pursuant to the Municipalities Planning Code (“MPC”) (which governs zoning) or the Flood Plain Management Act. Section 3304 further provided that even zoning ordinances would be allowed only if they conformed to specific, uniform standards set forth in section 3304 itself. Among these standards is a requirement that local ordinances authorize oil and gas operations, other than activities at impoundment areas, compressor stations and processing plants, as a permitted use in all zoning districts, including residential districts. 58 PA. CONS. STAT. § 3304(b)(5).

On March 29, 2012, seven townships, an environmental association, and several individuals (the “Petitioners”) commenced Robinson Township by fi ling a 108 page Petition for Review in the original jurisdiction of Commonwealth Court challenging the constitutionality of Act 13. The Petitioners alleged that they had close to 150 unconventional Marcellus Shale wells drilled within their borders, that Act 13 required them to modify many of their zoning laws, and that Act 13 prevented them from fulfilling their constitutional and statutory obligations to protect the health, safety and welfare of their citizens.

Acting on preliminary objections filed by the Commonwealth and cross-motions for summary relief, the Commonwealth Court issued its ruling on July 26, 2012.

Section 3304 of Act 13: Is the “Pig in the Parlor Instead of the Barnyard?”

Writing for the majority in Robinson Township, Judge Pelligrini of the Commonwealth Court accepted the Petitioners’ argument that section 3304 violates substantive due process under article 1, section 1 of the Pennsylvania Constitution and the Fourteenth Amendment to the U.S. Constitution, because it forces municipalities to enact zoning ordinances that permit oil and gas operations in all zoning districts, including residential districts.

So there is not a “pig in the parlor instead of the barnyard,” the majority explained, municipalities must implement a rational plan of development under the MPC, adopting comprehensive plans that denominate different zoning districts. By requiring municipalities to violate their comprehensive plans for growth and development, the majority opined, “58 PA.C.S. §3304 violates substantive due process because it does not protect the interests of neighboring property owners from harm, alters the character of neighborhoods and makes irrational classifications—irrational because it requires municipalities to allow all zones, drilling operations and impoundments, gas compressor stations, storage and use of explosives in all zoning districts, and applies industrial criteria to restrictions on height of structures, screening and fencing, lighting and noise.”

The dissent took issue with the validity of the majority’s porcine metaphor. “The problem with the majority’s analysis is that this particular pig…can only operate in the parts of this Commonwealth where its slop can be found,” the dissent said. “The natural resources of this Commonwealth exist where they are, without regard to any municipality’s comprehensive plan.” The dissent pointed out that the General Assembly recognized the ubiquity of the pig when it crafted Act 13 and “decided that it was in the best interest of all Pennsylvanians to ensure the optimal and uniform development of oil and gas resources in the Commonwealth, wherever those resources are found.”(Emphasis in original.)

Invoking the United States Supreme Court’s decision in City of Edmonds v. Oxford House, Inc., 515 U.S. 725, 732-33 (1995) and the basic precept that “[l]and-use restrictions designate districts in which only compatible uses are allowed and incompatible uses are excluded,” the majority dismissed the dissent’s analysis, noting that if a municipality cannot constitutionally include allowing oil and gas operations, because it would be “spot zoning,” it is no more constitutional just because the Commonwealth requires that it be done.

Section 3215(b)(4): The Non-Delegation Doctrine

The majority also ruled that section 3215(b)(4) was unconstitutional, violating the non-delegation doctrine embodied in article 2, section 1 of the Pennsylvania Constitution. Article 2, section 1 vests the legislative power of the Commonwealth in the General Assembly, a grant which the courts have held prohibits delegation of the legislative function to administrative agencies, absent adequate standards to guide and restrain the exercise of the delegated administrative functions.

Section 3215(b)(4) authorized the Secretary of DEP to grant waivers of the setback requirements contained in section 3215(b)(1)-(3), which imposed mandatory setbacks of well sites from water bodies and wetlands. But in authorizing a waiver, section 3215(b)(4) gave no guidance to DEP as to how DEP is to judge operator submissions. Citing the Supreme Court’s decision in Pennsylvanians Against Gambling Expansion Fund v. Commonwealth, 583 PA. 275, 877 A.2d 383 (2005) (PAGE), the majority ruled that the existence of general goals contained in other provisions of Act 13 was insufficient to provide adequate standards to guide and restrain the DEP’s exercise of the delegated authority in section 3215(b)(4). The court observed, however, that its “…holding does not preclude the General Assembly’s ability to cure the defects by subsequent amendment that provides sufficient standards.”

Cross-Appeals May Be Expected For the Petitioners’ Remaining Contentions

Although it agreed with the Petitioners that Act 13 violated article 1, section 1 of the Pennsylvania Constitution, the Fourteenth Amendment to the U.S. Constitution, and article 2, section 1 of the Pennsylvania Constitution, the Commonwealth Court rejected a fusillade of additional legal claims that the Petitioners had asserted to invalidate the statute. The Court sustained the Commonwealth’s preliminary objections to the following claims advanced by the Petitioners:

  • That Act 13 is a “special law” in violation of article 3, section 32 of the Pennsylvania Constitution. The Court ruled that while Act 13 does treat the oil and gas industry differently from other extraction industries, it is constitutional because the distinction is based on real differences that justify varied classifications for zoning purposes.
  • That section 3241(a) of Act 13 violates article 1, sections 1 and 10 of the Pennsylvania Constitution and the Fifth Amendment to the U.S. Constitution because it allows private persons to take property for storage reservoirs and protective areas around those reservoirs without just compensation. The Court held that the Petitioners had alleged no facts to demonstrate that their property was in imminent danger of being taken and, further, that the exclusive method to challenge the condemnor power to take property is the filing of preliminary objections to a declaration of taking.
  • That chapter 33 of Act 13 violates article 1, section 27 of the Pennsylvania Constitution because it takes away the ability of local municipalities to act as “trustee” to conserve and maintain the Commonwealth’s natural resources for the benefit of all the people. The Court ruled that because Act 13 preempted the municipalities’ obligation to plan for environmental concerns for oil and gas operations under the MPC, Petitioners had not made out a cause of action under article 1, section 27.
  • That section 3305(a), conferring authority on the PUC to issue non-binding advisory opinions regarding the compliance of a local zoning ordinance with the requirements of Act 13, violates the Separation of Powers doctrine. The Court disagreed, because section 3305(a) did not give the PUC any authority over the judiciary with regard to the constitutionality of the ordinances and, to the contrary, specifically provided for de novo review by the Commonwealth Court of PUC final orders under Act 13.
  • That the setback, timing and permitting provisions under Act 13 are unconstitutionally vague. The Court ruled that the Act provided specific information regarding the local ordinance requirement and were not unconstitutionally vague.

Although the Commonwealth Court ruled in the Commonwealth’s favor concerning these challenges, the Petitioners can be expected to fi le a cross-appeal to the Pennsylvania Supreme Court, raising these contentions once again.