Pa. Envtl. Def. Found. v. Commonwealth

Decision Date21 July 2021
Docket NumberNo. 64 MAP 2019,64 MAP 2019
Citation255 A.3d 289
Parties PENNSYLVANIA ENVIRONMENTAL DEFENSE FOUNDATION, Appellant v. COMMONWEALTH of Pennsylvania, and Governor of Pennsylvania, Tom Wolf, in His Official Capacity as Governor, Appellees
CourtPennsylvania Supreme Court

John E. Childe Jr., Esq., for Appellant Pennsylvania Environmental Defense Foundation

Stephen S. Aichele, Esq, Philadelphia, Mary Abbegael Giunta, Esq., Howard Greeley Hopkirk, Esq., Office of General Counsel, Harrisburg, Audrey F. Miner, Esq., Pennsylvania Department of Conservation & Natural Resources (DCNR), Gregory George Schwab, Esq., Pennsylvania Office of Attorney General, for Appellee Governor of Pennsylvania, Tom Wolf.

Joshua D. Shapiro, Esq., Pennsylvania Office of Attorney General, Harrisburg, for Appellee Commonwealth of Pennsylvania.




I. Introduction

This decision is the final resolution of a lawsuit brought by the Pennsylvania Environmental Defense Foundation ("PEDF") challenging amendments to the Fiscal Code1 by the Pennsylvania General Assembly that diverted to the General Fund revenues generated from oil and gas leases on state forest and game lands. The challenge asserted that the legislation was violative of Article I, Section 27 of the Pennsylvania Constitution,2 typically referred to as the Environmental Rights Amendment (the "ERA").

This case returned to the Commonwealth Court following PEDF II ,3 where this Court adopted the plurality approach in Robinson Township, Washington County v. Commonwealth , 623 Pa. 564, 83 A.3d 901 (2013), and held that the ERA created a constitutional public trust that is subject to private trust principles. Applying trust law, we determined that royalty revenue streams generated by the sale of gas extracted from Commonwealth lands represents the sale of trust assets and must be returned to the corpus of the trust. To the extent that 72 P.S. §§ 1602-E and 1603-E diverted royalties to the General Fund, we found the provisions violated the ERA. We lacked sufficient advocacy to determine if the remaining three revenue streams, consisting of large upfront bonus payments, yearly rental fees, and interest penalties for late payments that were allocated to the General Fund under Sections 1604-E and 1605-E, as well as Section 1912 of the Supplemental General Appropriations Act of 2009, also constituted the sale of trust assets. We were thus not able to adjudicate whether the diversion of these revenue streams to the General Fund violated the ERA. We instructed the Commonwealth Court, inter alia, that, "to the extent that the lease agreements reflect the generation of revenue streams for amounts other than for the purchase of the oil and gas extracted," its role was to determine "in the first instance and in strict accordance and fidelity to Pennsylvania trust principles ... whether these funds belong in the corpus of the Section 27 trust." PEDF II , 161 A.3d at 935-36.

On remand, the Commonwealth Court, sitting en banc, determined that the three revenue streams did not constitute the sale of trust assets. The court concluded that "proceeds designated as ‘income’ are not required to remain in the corpus of the Section 27 trust and used solely for the conservation and maintenance of our public resources," and therefore "may be appropriated for General Fund purposes." PEDF III , 214 A.3d at 774. It concluded that these incomes could be distributed between two classes of beneficiaries: (1) current Pennsylvania citizens, which the court treated as life tenants, and (2) future generations, treated as remaindermen under its analysis. It further determined that, per a 1947 statute governing the distributions of income that was the law at the time of the ERA's enactment, one-third of the revenues could be used for non-trust purposes and the remaining two-thirds must be returned to the trust. This outcome corresponded to the court's conclusion that the ERA created life tenants (entitled to the one-third as income) and remaindermen (entitled to the remaining two-thirds as principal that must be reinvested). The court deemed it "necessary to make this analogy" to life tenants and remaindermen because of the unique legal issues involved in mineral rights. Id. at 761.

We find that the Commonwealth Court's holding is at odds with our decision in PEDF II , principles of private trust law, and the plain language of the ERA. As explained in this opinion, we agree with the Commonwealth Court that all three revenue streams at issue qualify as incomes generated from trust assets. However, the viability of the Commonwealth Court's holding turns on its erroneous conclusion that the ERA created successive beneficiaries in the form of life tenants and remaindermen with entitlement to income. Another remand is unnecessary, however, as the record is now sufficiently developed and based upon that record we hold that the incomes generated under these oil and gas leases must be returned to the corpus. As a result, we reverse the decision of the Commonwealth Court.

II. History

The dispute in this case centers on natural gas deposits located within the Marcellus Shale gas formation and the ERA's role as a constraint on the Commonwealth's promotion of the oil and gas industry, including its leasing of Commonwealth lands for commercial purposes. While our opinions in PEDF II and the plurality in Robinson Township extensively set forth that history, our rejection of the Commonwealth Court's approach requires discussion of factual and legal developments incidental to the narrow question presented on remand regarding the classification of certain revenue streams.

Factual history

In 1955, the General Assembly established the Oil and Gas Lease Fund ("Lease Fund"), 71 P.S. § 1331, repealed by , Act 2017, Oct. 30, P.L. 725, which received "all rents and royalties from oil and gas leases" executed on Commonwealth lands. These funds were exclusively dedicated to "conservation, recreation, dams, or flood control" or to match Federal grants for those same purposes, with a Commonwealth environmental agency given the discretion "to determine the need for and the location of any project authorized." Former 71 P.S. § 1332, repealed by Act 2017, Oct. 30, P.L. 725. In 1995, the Conservation and Natural Resources Act ("CNRA") was enacted and empowered the Department of Conservation and Natural Resources ("DCNR") to "make and execute contracts or leases" on behalf of the Commonwealth for mining or removing any minerals in State forests if the DCNR finds it is in the best interest of the Commonwealth. 71 P.S. § 1340.302(a)(6). The DCNR replaced the Department of Forests and Waters for purposes of the Lease Fund and the CNRA further altered the Lease Fund to specifically appropriate all moneys in it to the DCNR.

From its inception in 1955 through 2008, the Lease Fund received a total of $165 million. The flow of revenue into the Lease Fund increased dramatically starting in 2009, the year after the DCNR first leased a total of approximately 74,000 acres for Marcellus Shale drilling. That and subsequent leases generated approximately $600 million, comprised of four types of revenue streams: large one-time upfront bonus payments, annual rent fees paid by the acre, royalties based on the amount of marketable gas extracted, and interest penalties for late payments.

The DCNR self-imposed a moratorium on further leasing of Marcellus Shale lands pending further study and development of large tracts that had already been leased. However, the large amounts of money generated by the 2008 leases inspired the executive and legislative branches to pressure the DCNR to lease more land. To take advantage of the expected revenues, the General Assembly inserted four new provisions into the Fiscal Code.

The most significant change was Section 1602-E, which stated that no Lease Fund royalty money, with an exception discussed next, should be expended unless appropriated or transferred to the general budgetary fund by the General Assembly. Thus, all the royalties in the Lease Fund would be transferred to a larger pool of money, whereupon the General Assembly would allocate back to the DCNR whatever amount it saw fit. This provision therefore overrode the "all moneys" language of the Lease Fund by restricting the formerly automatic appropriation of all Lease Fund royalty money to the DCNR. The exception was established within Section 1603-E, which annually earmarked up to $50 million in royalties to the DCNR but with the further direction that preference be given to operation and maintenance of State parks and forests (as opposed to the other uses listed in the Lease Fund).4

The Fiscal Code was also amended to transfer $60 million from the Lease Fund to the General Fund for fiscal year 2009-2010. 72 P.S. § 1604-E. A fourth provision transferred $180 million from the Lease Fund to the General Fund for fiscal year 2010-2011. 72 P.S. § 1605-E(a). These fiscal adjustments prompted DCNR to lift its moratorium and in January 2010 it leased approximately 32,000 acres plus an additional 33,000 acres in May 2010.

The legislative and executive branches took other steps that served to restrict the allocation of Lease Fund monies to the DCNR. These included using Lease Fund money to support the DCNR's overall budget – as opposed to using money from the General Fund to fund the DCNR – thereby reducing the amount of money available for conservation purposes. The legislature further specified that transfers from the Lease Fund to the DCNR from the General Fund were permissible only if the remaining balance was adequate to fund the DCNR. Additionally, Section 1605-E was amended to provide for $95 million from the Lease Fund to the General Fund for fiscal year 2014-2015. 72 P.S. § 1605-E(b). "Finally, the Supplemental General Appropriations Act of 2009 directed a transfer of $143 million from the Lease...

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