American Oil and Gas Reporter - August 2017 - 110

Pennsylvania Ruling Brings Ambiguity
HARRISBURG, PA.-The Pennsylvania Supreme Court's decision in Pennsylvania Environmental Defense Foundation (PEDF) v. Commonwealth has
upended a longstanding interpretation of
an environmental provision in the state's
constitution, but oil and gas representatives
indicate no one is certain yet of the implications of the June 20 ruling, particularly
regarding development of privately-held
oil and gas resources.
The Pennsylvania Independent Oil &
Gas Association reports that another pending Supreme Court case, Gorsline v.
Board of Supervisors of Fairfield Township, ultimately may give a clearer sense
of the court's intentions.
In the meantime, though, the new construal of the constitution already is being
employed to challenge oil and gas activity,
PIOGA warns.
ERA Interpretation
At issue in the PEDF case was Pennsylvania's Oil and Gas Lease Fund, which
holds all rents and royalties from oil and
gas leases on state-owned land. By law,
the fund is to be used by the Department
of Conservation and Natural Resources
exclusively for conservation, recreation,
dams or flood control, Babst Calland attorneys Kevin Garber and Blaine Lucas
explain in PIOGA's newsletter. Beginning
in 2009 as part of the state budget process,
the Pennsylvania General Assembly made
changes to Sections 1602-E and 1603-E
of the Pennsylvania Fiscal Code, transferring control over royalties from oil and
gas leases from DCNR to the legislature
and requiring that there could be no expenditures of royalties from the lease fund
unless the general assembly transferred
that money to the general fund.
In 2012, the attorneys recount, PEDF
filed a challenge in Pennsylvania Commonwealth Court to § 1602-E and 1603E and the appropriation of money from
the leases, among other things. The basis
of the legal action was the Pennsylvania
Supreme Court's December 2013 plurality
opinion in Robinson Township v. Commonwealth, particularly its reading of
Article I, § 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA),
which states: "The people have a right to
clean air, pure water, and to the preservation of the natural, scenic, historic and
esthetic values of the environment. Pennsylvania's public natural resources are
the common property of all the people,
including generations yet to come. As

trustee of these resources, the commonwealth shall conserve and maintain them
for the benefit of all the people."
The Commonwealth Court determined
that the plurality opinion was not controlling and found that neither the fiscal
code provisions nor the appropriations
by the general assembly violated the
ERA, and PEDF appealed to the Pennsylvania Supreme Court. The high court
heard oral arguments on two issues: the
proper standards for judicial review of
government action and legislation under
the ERA; and the constitutionality of §
1602-E and 1063-E and the general assembly's transfers and appropriations
from the lease fund under the ERA.
According to the Babst Calland authors,
since 1973, courts have used a three-part
balancing test, set out by the Commonwealth Court in Payne v. Kassab, to analyze constitutional challenges brought
under the ERA. That view began to
change with the challenge to Pennsylvania's updated oil and gas law, Act 13 of
2012, in Robinson Township.
In the 2013 decision commonly referred
to as Robinson II, three Supreme Court
justices "strongly criticized the three-part
Payne v. Kassab balancing test," Garber
and Lucas explain. "However, the Robinson II opinion was a plurality, and courts
have subsequently treated the plurality
opinion as persuasive only, including the
Commonwealth Court in PEDF."

Commonwealth Duties
A majority opinion in PEDF adopted
the Robinson II plurality view and rejected
the Payne v. Kassab test as the standard
for analyzing challenges under the ERA,
finding that "the proper standard of judicial
review lies in the text of Article I, § 27
itself as well as the underlying principles
of Pennsylvania trust law in effect at the
time of its enactment."
The Supreme Court went on to more
fully develop a new standard in the context
of PEDF's challenge to legislative action,
Garber and Lucas explain, and in doing
so relied on the three-justice plurality
decision in Robinson II. A new majority
of the court this time found that the text
of the ERA grants citizens of the commonwealth two separate rights:
* "Clean air and pure water, and to the
preservation of natural, scenic, historic and
esthetic values of the environment;" and
* "Common ownership by the people,
including future generations, of Pennsylvania's public natural resources."
In its discussion of the second right

110 THE AMERICAN OIL & GAS REPORTER

granted under the ERA, the Supreme
Court also found that the ERA established
a public trust, with Pennsylvania's natural
resources as the corpus of that trust and
the commonwealth as the trustee. The
trustee obligation is vested in "all agencies
and entities of commonwealth government,
both statewide and local," and the people
are the named beneficiaries of the trust.
According to Garber and Lucas, relying
again on the Robinson II plurality, the
court reiterated that this trust requires the
government to "conserve and maintain
the corpus of the trust" and that as trustee,
the commonwealth-that is, through "all
agencies and entities of commonwealth
government, both statewide and local,"-
has duty to act "with prudence, loyalty
and impartiality" toward the corpus of the
trust. The court found that the trust places
on basic duties on the commonwealth, to:
* "Prohibit the degradation, diminution, and depletion" of public natural resources; and
* "Act affirmatively via legislation
to protect the environment."

What Happens Now?
According to PIOGA Vice President
& General Counsel Kevin Moody, the
Supreme Court held that any revenues-
specifically royalties-derived from the
sale of public natural resources, such as
the natural gas underlying state-owned
lands leased for production, are held in
trust and may be expended only to conserve
and maintain Pennsylvania's public natural
resources. The court held that §1602-E
and 1603-E of the 2009 fiscal code amendments and the general assembly's transfers/appropriations from the Oil and Gas
Lease Fund were unconstitutional.
The court also remanded the case to
the Commonwealth Court for a determination whether the rental and bonus payments constitute revenues from the sale
of the Pennsylvania's natural gas and thus
remain part of the so-called public trust.
"That determination will, in my opinion, be secondary to what the Commonwealth Court determines constitutes 'conserving and maintaining Pennsylvania's
public natural resources,'" Moody continues, "because about two weeks after
the decision, PEDF asked the Commonwealth Court to determine that the $65
million appropriations in the 2017-18
budget bill the governor allowed to become
effective without his signature from the
lease fund to DCNR for state park and
forest are unconstitutional by reason of
the PEDF decision."
American Oil and Gas Reporter - August 2017

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