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April 14, 2015

Issues at Stake in Act 13 Litigation Impact the Commonwealth's Business Community

This year, the Pennsylvania Supreme Court is expected to revisit Act 13 of 2012. In so doing, it will decide: 1. Whether the Public Utility Commission will keep its authority, established in Act 13, to police distribution of the “impact fee” paid by oil and gas producers; 2. Whether the Department of Environmental Protection will continue to be able to inform local communities when oil and gas operations threaten the safety of a public water supply; 3. Whether Act 13 allows private corporations to take private property for private use; 4. Whether Act 13 prohibits doctors and other healthcare professionals from disclosing trade secrets they receive from oil and gas operators about the chemicals the companies use in their extraction technology; and 5. Whether the Court should revisit its 2013 interpretation of the Environmental Rights Amendment to the Pennsylvania Constitution.

 

Over three years ago, the General Assembly passed into law Act 13 - a comprehensive revision of the Commonwealth’s longstanding Oil and Gas Act, which regulates oil and gas extraction and production in Pennsylvania. The purpose and effect of Act 13 has been debated from the time it was passed, but most informed individuals would at least agree that the General Assembly intended to make access to natural gas in the Marcellus Shale easier.

 

As is often the case with controversial legislation, Act 13 was quickly made the subject of a high publicity lawsuit (brought by a number of entities and individuals - primarily local governments in the Commonwealth Court.)  That lawsuit is commonly referred to as “Robinson Township,” which is the name of a municipality in western Pennsylvania that was once the lead plaintiff.

 

The plaintiffs in Robinson Township originally claimed that various provisions of Act 13 were unconstitutional. In an earlier appeal to the Supreme Court, three of the plaintiffs’ challenges met with success: First, the plaintiffs objected to Act 13’s new statewide ban on local zoning ordinances regulating “where” oil and gas exploration could take place. Second, the plaintiffs went after Act 13’s requirement that the Department of Environmental Protection grant so-called “setback waivers” upon request of a company prospecting for oil and gas. (A “setback” is the minimum permitted distance between an extraction site and a residential property.) Third, the plaintiffs objected to the fact that Act 13 did not permit a local government to appeal the DEP's decision to grant a well permit. Three of the four Justices in the 2013 Supreme Court majority cast their votes to invalidate these features of Act 13 based on a 1960s environmental rights amendment to the Pennsylvania constitution (the amendment is also known as “Section 27”.)  However, this rationale did not command a majority of the Court. And although a new Justice (Correale F. Stevens) was a member by the time the case was decided, he did not vote on the outcome.

 

This year, Act 13 returns to the Pennsylvania Supreme Court for a second time. Below, we identify some of the issues that the Court is being asked to resolve. Several of these issues should be of interest to the business community.

 

For example, one issue the Court is being asked to decide concerns the Public Utility Commission’s ability to police distribution of the so-called “impact fee” imposed on the oil and gas industry by Act 13. The impact fee is distributed to local governments in areas where oil and gas exploration takes place. Act 13 allows the Commission to withhold the impact fee from local governments not in compliance with various parts of Act 13 and other laws (for example, the Municipalities Planning Code, which sets a baseline for how local governments pass zoning ordinances). The problem is that some sections of Act 13 that local governments are required to comply with in order to receive the impact fee have been invalidated. The Court must decide whether the Commission’s ability to enforce the remaining provisions can stand. The Commonwealth Court decided that it could not. The Commission questions whether anyone can now enforce the standards local communities are required to meet in order to be entitled to receive the impact fee.

 

Another challenged section of Act 13 requires the DEP to inform local communities when oil and gas operations threaten the safety of a public water supply. The plaintiffs say that it is unconstitutional to not also require the DEP to make notifications about threats to private water supplies. This presents what is often called an “equal protection” challenge. Essentially, the plaintiffs claim that the government does not have a reason for treating two situations, which they see as similar, differently. The Commonwealth Court disagreed and decided that this provision of Act 13 was acceptable.

 

Also being challenged is Act 13’s provision that allows certain entities to exercise eminent domain (that is, to take private property—usually land—from private owners.)  The plaintiffs believe that the section in question actually allows private corporations to take private property for private use. They argue that this is unconstitutional because the Pennsylvania and United States constitutions only permit the taking of private property for public use. Again, the Commonwealth Court was unconvinced by this argument.

 

Next, the Supreme Court will also be asked to pass on a section of Act 13 that prohibits doctors and other healthcare professionals from disclosing trade secrets they receive from oil and gas operators about the chemicals the companies use in their extraction technology. The plaintiffs contend that this prohibition jeopardizes public health and prevents doctors from treating patients effectively. In essence, they argue that doctors will be unable to consult with their colleagues as professional standards require. The Commonwealth Court also disagreed with this contention.

 

Finally, the Supreme Court will be asked to revisit its 2013 interpretation of Section 27. As summarized above, three members of the Supreme Court previously set out an expansive description of the purpose and function of Section 27. Now, the Public Utility Commission will ask the Supreme Court to revisit this plurality assessment and return to the traditional understanding of Section 27, which generally said that it was up to the General Assembly - and not local governments or the courts - to balance environmental protection and economic development. 

 

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