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Commonwealth Court Ruling on Act 13 Oil and Gas Regulation is Not the Last Word.

Posted By Cliff Tuttle | July 29, 2012

No. 894

On July 26, 2012, the Pennsylvania Commonwealth Court decided a Constitutional challenge to Act 13, the latest legislative attempt to regulate the booming oil and gas industry.  By a 4-3 vote it found certain provisions of the statute unconstitutional. See Robinson Township et al. v. Commonwealth, No. 248 MD 2012, not yet found in the Atlantic Reporter.  A link to the slip opinion has been provided at the bottom of this post.

The Governor promptly announced that the Commonwealth will appeal to the Supreme Court.  This would seem to be an appeal that the Supreme Court is likely to accept.

The challenge came from a group of municipalities and related parties who view Act 13 as an infringement upon zoning power, conferred by the Municipal Planning Code.

Oil and gas regulation and zoning have a history. The Department of Environmental Protection claims expertise in the field of oil and gas regulation.  Municipalities claim expertise in the field of community planning.  From the perspective of the DEP, the municipalities should defer to it on issues regarding well setbacks from houses and streams, regulation of wastewater disposal and the like.  From the perspective of municipalities, the community planning mission cannot be properly exercised if they cannot exclude oil and gas operations from what they view as incompatible land use — including planned future land use.

The Pennsylvania Supreme Court has previously denied preemption to the oil and gas statute in force before Act 13 over municipal zoning functions. In Huntley v. Oakmont Borough, in 2007, the Commonwealth Court refused to allow Oakmont to regulate well-siting. The Supreme Court reversed on preemption, but affirmed the Commonwealth Court on other issues.

Act 13 rewrote and modernized Pennsylvania’s existing oil and gas law in response to two emerging technologies — horizontal drilling and hydo-fracking in the deep Marcellus Shale horizon. It drew a distinction between “conventional wells” that were drilled into relatively shallow formations where natural gas had migrated from below and “unconventional wells” that yielded much larger quantities from deep gas-generating formations.

With the increasing number of unconventional wells, the Legislature sought to re-gain complete control over the regulation of oil and gas development from municipal zoning boards and to establish uniformity of oil and gas regulation.  In particular, the statute declared oil and gas development (subject to DEP regulation) to be available in any zoning district.

The Petitioners filed a Petition for Review in the Commonwealth Court and sought an Injunction against enforcement of the Act.  The Commonwealth filed Preliminary Objections.  The Preliminary Objections raised issues of standing and justiciability, which were resolved for the plaintiffs.  It then raised numerous constitutional objections. In Counts I, II and III it contends that the enactment violates the due process rights of members of the community.  The Commonwealth Court majority agreed.

The Commonwealth contends that Act 13’s requirement that municipal zoning ordinances be amended to include oil and gas operations in all zoning districts does not violate due process under Article 1 Section 1 of the Pennsylvania Constitution and the 14th Amendment of the U.S. Constitution because they have a rational basis and constitute a proper exercise of the Commonwealth’s Police Powers.

The municipalities can still enact ordinances, argues the Commonwealth, in accord with Act 13 and other state law.  The state preempts the field of environmental regulation, which the municipalities cannot constitutionally refuse to observe.

The municipalities respond that the requirement that gas operations be a permitted use in any zoning district makes zoning regulation “irrational.”

President Judge Pellegrini, author of the majority opinion, likened the presence of an oil and gas well in an incompatible zoning district to a “pig in a parlor.”  He views the purpose of zoning to keep pigs in the barnyard. However, in order to exclude the pig from the parlor, “a substantive due process inquiry must take place.”

The court noted that there are legitimate reasons for the exercise of police power in both oil and gas regulation and zoning.  But the goals of the two are to some degree incompatible.

Quoting the Pennsylvania Supreme Court in Hopewell Township Supervisors v. Golla, the Commonwealth Court opinion said:

“The Court went on to state that under that standard for zoning to be constitutional, it ‘must be directed toward the community as a whole, concerned with the public interest generally, and justified by a balancing of community costs and benefits. These considerations have been summarized as requiring that zoning be in conformance with a comprehensive plan for growth and development of the community.'” Id. (Emphasis added). Thus, to render due process, the interests of the community must be balanced.

“If the Commonwealth-proffered reasons are sufficient,” states PJ Pellegrini, “then the Legislature could make similar findings requiring coal portals, tipples, washing plants, limestone and coal strip mines, steel mills, industrial chicken farms, rendering plants and firework plants in residential zones for a variety of police power reasons advancing those interests in their development.  It would allow the “proverbial pig in the parlor instead of the barnyard.”

The opinion goes on to argue that requiring municipalities to “violate their comprehensive plans for growth and development, 58 Pa. C.S. Sec. 3304 denies 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.” Thus, the Court overruled Preliminary Objections to Counts I – III of the Complaint, relating to Article I, Section 1 of the Pennsylvania Constitution and the Fourteenth Amendment to the United States Constitution.

After sustaining the Commonwealth’s Preliminary Objections under Counts IV through VII, the majority overruled the Preliminary Objections at Count VIII on grounds that the statute fails to provide sufficient guidance to the DEP in waiving statutory requirements, such as setback of operations from streams, houses, wetlands and similarly protected structures and monuments.

In this regard, the court relies upon Pennsylvanians Against Gambling Expansion Fund (PAGE) v Commonwealth, 583 Pa. 275, 877 A.2d 383 (2005) wherein the Supreme Court found that the statute providing that zoning powers cannot be used to exclude a gaming facility from a location did not contain sufficient language to provide guidance to the state agency in performing the functions ordinarily performed by zoning ordinances.

After a review of Act 13, the majority concluded that Act 13 did not provide adequate guidance to the regulators. The Commonwealth Court thus provided summary relief to the Petitioners with respect to Counts I. II, III and VIII.

Of course, this was a 4-3 decision with a dissenting opinion and anything can happen in the Supreme Court. Since the new Act was written with the purpose of reinstating DEP control after Huntley, it would be surprising if it didn’t have something to say.

The arguments advanced by the majority for the primacy of zoning under the new statute are not unassailable.  One of the driving forces behind this provision was to take away the decision-making power from hundreds of municipalities who  would decide questions such as the proper setback for a gas well from a house with little or no technical expertise. However, it also permits the municipalities to exercise all other powers not inconsistent with the Act.  Thus, the DEP could specify uniform setbacks, while the municipalities addressed land use questions that did not contradict the narrow adjudications of the DEP.  The Supreme Court, notwithstanding its prior holding on preemption in Hunltley, might well be willing to wait and see whether the exercise of power by two agencies, with different functions, will work. In other words, while unable to exclude oil and gas operations entirely from any district, the Boards would be able to establish use criteria in some districts that oil and gas operations could not meet.

The accusation that the DEP might be expected to permit a whole array of surface facilities such as strip mines and compressors to pop up in urban and suburban residential neighborhoods belies a lack of awareness of the comprehensive regulation of the extractive industries in Pennsylvania, including Federal Regulation.  There are minimum acreages for siting gas wells and for surface mining, too.  Under DEP regulations, gas well permits won’t be available in Downtown Pittsburgh or, for that matter, in any densely populated area.

Quite simply, the author of the opinion doesn’t trust the DEP to do its job.  If he had been a coal or oil and gas lawyer in his younger days, rather than a City zoning lawyer, he probably wouldn’t have such concerns.   Long experience with the DEP and other regulators, as well as with the regulatory web that they have spun, would have convinced him long ago of the exact opposite conclusion. He might also take consolation in the Commonwealth Court’s surface mining opinion in Hoffman Mining Corporation v. ZHB of Adams Township. It held that setbacks of surface mining was a quintessential zoning function and was not pre-empted by federal surface mining law and regulations. The Supreme Court affirmed.

Moreover, with respect to the comprehensiveness of Act 13 and adequate direction, there is room for differing impressions whether this statute is sufficiently detailed to give proper guidance to the regulator. There are many short statutes that have given birth to hundreds or thousands of pages of regulations. Moreover, oil and gas operations have been going on for over 100 years and the state regulatory framework is well-established. When the subject matter is complex, scientific in nature and involves changing technology, attempts at micro-management by the lay Legislature of a professional and technically proficient regulator create trouble.

CLT

Click Here for Robinson Township v. Commonwealth, then run you cursor along the bottom of the page.  You can either open the file containing the opinion or download it.  For further instructions, consult a teenager.

 

 

 

 

 

 

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CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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