Pa. Envtl. Def. Found. v. Commonwealth

• Decision Date: 07 January 2015
• Docket Number: No. 228 M.D. 2012,228 M.D. 2012
• Citation: 108 A.3d 140
• Parties: PENNSYLVANIA ENVIRONMENTAL DEFENSE FOUNDATION, Petitioner v. COMMONWEALTH of Pennsylvania, and Governor of Pennsylvania, Thomas W. Corbett, Jr., in his official Capacity as Governor, Respondents.
• Court: Pennsylvania Commonwealth Court

108 A.3d 140

PENNSYLVANIA ENVIRONMENTAL DEFENSE FOUNDATION, Petitioner

v.COMMONWEALTH of Pennsylvania, and Governor of Pennsylvania, Thomas W. Corbett, Jr., in his official Capacity as Governor, Respondents.

No. 228 M.D. 2012

Commonwealth Court of Pennsylvania.

Argued Oct. 8, 2014.

Decided Jan. 7, 2015.

Reargument Denied Feb. 3, 2015.

John E. Childe, Jr., Camp Hill, for petitioner.

Sean M. Concannon, Deputy General Counsel, Harrisburg, for respondent Thomas W. Corbett, Jr.

Howard G. Hopkirk, Senior Deputy Attorney General, Harrisburg, for respondent Commonwealth of Pennsylvania.

BEFORE: DAN PELLEGRINI, President Judge, and BERNARD L. McGINLEY, Judge, and BONNIE BRIGANCE LEADBETTER, Judge, and RENÉE COHN JUBELIRER, Judge, and MARY HANNAH LEAVITT, Judge, and P. KEVIN BROBSON, Judge, and ANNE E. COVEY, Judge.

OPINION BY Judge BROBSON.

I. INTRODUCTION

Before the Court for disposition are cross-applications for summary relief in this original jurisdiction matter. Petitioner Pennsylvania Environmental Defense Foundation (PEDF) seeks relief under the Declaratory Judgments Act¹ with respect to (a) the past and future leasing of State land for oil and natural gas development and (b) the use of monies in the Oil and Gas Lease Fund. Respondents are the Commonwealth of Pennsylvania and its Governor, in his official capacity (Commonwealth Respondents).

II. BACKGROUND

This lawsuit, originally filed on March 19, 2012, relates to actions by the legislative and executive branches of the Commonwealth to address lean budget years through revenue generated from the leasing of State lands to private parties for natural gas development. Though the leasing of State lands for oil and gas development is not a recent practice, the demand by private parties to access natural gas reserves under State lands has increased exponentially in recent years due to improved technologies for extraction of natural gas in what has been known for more than seventy-five years as the Marcellus Shale Formation.²

A. DCNR

In 1995, through passage of the Conservation and Natural Resources Act (CNRA),³ the Department of Environmental Resources (DER) was renamed the Department of Environmental Protection (DEP) and a new agency, DCNR, was born. According to the legislative findings in the CNRA, the General Assembly believed that the structure of the former DER did not allow enough attention, financial and otherwise, to be afforded to the protection of our State forest and park lands, warranting the creation of a new cabinet-level agency to advocate for those interests. Section 101(a) of the CNRA. In those same findings, the General Assembly expressly recognized Article I, Section 27 of the Pennsylvania Constitution, also known as the Environmental Rights Amendment: “Pennsylvania's public natural resources are to be conserved and maintained for the use and benefit of all its citizens as guaranteed by section 27 of Article I of the Constitution of Pennsylvania.” Id.

The primary mission of DCNR, as set forth in the authorizing legislation, is as follows:

The primary mission of [DCNR] will be to maintain, improve and preserve State parks, to manage State forest lands to assure their long-term health, sustainability and economic use, to provide information on Pennsylvania's ecological and geological resources and to administer grant and technical assistance programs that will benefit rivers conservation, trails and greenways, local recreation, regional heritage conservation and environmental education programs across Pennsylvania.

Section 101(b)(1) of the CNRA. Among the powers conferred on DCNR is the authority

to make and execute contracts or leases in the name of the Commonwealth for the mining or removal of any valuable minerals that may be found in State forests ... whenever it shall appear to the satisfaction of the department that it would be for the best interests of this Commonwealth to make such disposition of those minerals.

Section 302(a)(6) of the CNRA (emphasis added).⁴

B. The Lease Fund

Under a 1955 law known as the Oil and Gas Lease Fund Act (Lease Fund Act),⁵ all “rents and royalties” from gas leases on Commonwealth land are to be deposited into a fund called the Oil and Gas Lease Fund (Lease Fund). The Lease Fund is to be “exclusively used for conservation, recreation, dams, or flood control or to match any Federal grants which may be made for any of the aforementioned purposes.” Section 1 of the Lease Fund Act. The Lease Fund Act places the determination of “the need for and the location of any project authorized” by the Lease Fund Act within the discretion of DCNR. Section 2 of the Lease Fund Act. The Lease Fund Act expressly appropriates “[a]ll the moneys from time to time paid into” the Lease Fund to DCNR to carry out the purposes of the Lease Fund Act. Section 3 of the Lease Fund Act.

According to the testimony of Dr. James Grace (Dr. Grace),⁶ who served in various leadership capacities within DCNR and DER from 1987 through 2010, DCNR (and its predecessor the Department of Forests and Waters within DER) has continuously leased State land for natural gas extraction since 1947. Prior to 2008, total revenue from those leasing activities to the Commonwealth was approximately $150 million dollars.

C. The 2008 Lease Sale

In 2008,⁷ DCNR conducted its first lease sale of State land for natural gas development during the Marcellus Shale era (2008 Lease Sale).⁸ In all, DCNR leased 17 tracts, comprising 74,000 acres, and generated roughly $163 million in one-time “bonus payments” from those transactions. In one month, then, DCNR's leasing activities generated more revenue than the prior sixty years of leasing activity combined.

The lease terms provide for two types of payments to DCNR. The first is an annual rental payment. The first rental payment due was the up-front “bonus payment” upon delivery of the lease to the lessee. These bonus payments were in the millions of dollars. Thereafter, annual rental payments were calculated on a dollars-per-acre basis. In the example lease in the record of the preliminary injunction hearing in this matter (Prelim. Inj. Hr'g Ex. R–1), the rental payment started at $20 per acre for the second through fourth years of the lease and increased to $35 per acre for every year thereafter. (Id. Ex. R–1, § 3.) At its highest, excluding the first year bonus payment, the annual rental on the example lease for 3,603 acres would be $126,105.00. By comparison, the bonus payment in the example lease was $4,147,053.00. The second payment due DCNR under the lease was a gas royalty, payable monthly, which was assessed based on the amount of marketable gas extracted by the lessee. (Id. § 4.)

Following the 2008 Lease Sale, DCNR and its Bureau of Forestry decided not to enter into further leases for natural gas extraction on State lands pending study of the “Marcellus play” and development within the 660,000 acres of land already leased within the Marcellus Shale region (including State and private lands).⁹ Dr. Grace explained this decision in his hearing testimony:

A ... Now the problem that resulted from the Marcellus development was that we had leased 74,000 acres, but there was previously leased acreages of about 250,000 acres. And then there was another 290,000 acres which we did not own the mineral rights. And Marcellus activity began on all of those acreages.

So while we had just done a 74,000–acre lease, we realized that there was going to be Marcellus development on all of the lease holdings in the entire system, which totalled almost—well, it totalled at that point about 650,000 acres.

Q When you realized that, what action did you take?

A At that point, we were starting to get pressure to lease additional acreages. And we felt strongly that until we could further develop and monitor what was going on, that we believed there should be no further gas leasing because we were going to be watching a tremendous amount of gas activity on the state forest for the next 50 years.

Q Was that a decision that you helped make with the department, no further leasing?

A That was the department's decision across the board. Yes, it was the department's decision. Yes.

(Prelim. Inj. Hr'g, N.T. 36–37.) Dr. Grace testified further about pressure to engage in further leasing following the 2008 Lease Sale:

Q. You indicated earlier in your testimony that there was some concern about being required to issue more leases. Can you tell the Court what your concern was and what it was based on?

A Shortly after we had the revenue from this lease, the Commonwealth in 2009, 2010, 2011 was going under very—certainly in the initial years, there was a $2 billion shortfall in the Pennsylvania general fund budget. And we were being pressured regularly from I'd say the Governor's Office and the Legislature to make additional leases to provide revenue to reduce that shortfall.

(Id. 39–40.)

On the heels of what DCNR characterized as a “successful” lease sale in 2008, and with a Lease Fund balance at a historical high, as part of the FY 2009–2010 budget process the General Assembly and then-Governor Ed Rendell amended the Fiscal Code¹⁰ in 2009, creating a new Article XVI–E, dealing specifically with oil and gas wells (2009 Fiscal Code Amendments).¹¹ Three sections are particularly relevant. The first is Section 1603–E, which appropriated “up to $50,000,000” from “royalties” in the Lease Fund to DCNR for uses permitted under the Lease Fund Act:

Subject to the availability of money in the fund, up to $50,000,000 from the fund from royalties shall be appropriated annually to the department to carry out the purposes set forth in the [Lease Fund Act].... The department shall give preference to the operation and maintenance of State parks and forests.

Section 1603–E of the Fiscal Code (2009) (amended 2014) (emphasis added). The second is Section 1602–E, which provided that, with the exception of the appropriation in Section 1603–E, described above, “no money in the fund from royalties may be expended unless

...