OOGA Bulletin
On October 14, 2015, the United States District Court for the Western District of Pennsylvania invalidated several sections of a Grant Township, Indiana County, Pennsylvania local ordinance that was enacted to prevent an oil and gas operator from operating an underground injection well that had been permitted by the United States Environmental Protection Agency. In Pennsylvania General Energy Company, L.L.C. v. Grant Township, Civil Action No. 14-209, 2015 U.S. Dist. LEXIS 139921 (W.D. Pa. Oct. 14, 2015), Pennsylvania General Energy Company, L.L.C. filed a complaint in federal court against Grant Township to challenge the constitutionality, validity and enforceability of a Grant Township ordinance that sought to establish a self-described Community Bill of Rights Ordinance (the Ordinance).
PGE drills for and produces natural gas in Grant Township and other municipalities in Pennsylvania. PGE took steps to reclassify an existing vertical gas well located in Grant Township as an underground injection well. As background, in Pennsylvania, most produced fluid from natural gas operations, particularly unconventional operations, is recycled by using it down-hole to complete other wells. Produced fluid that is not recycled is commonly treated at centralized wastewater treatment facilities or injected into permitted disposal wells. Most of the injected material is brine and other produced fluid that returns to the surface after drilling and during operation of a well. However, there are many fewer commercial and captive injection wells in Pennsylvania than there are in Ohio at this time.
In Pennsylvania, EPA is responsible for implementing the Underground Injection Control Program under the federal Safe Drinking Water Act, and for regulating the construction, operation, permitting, and closure of injection wells. When reviewing a UIC permit application, EPA evaluates whether the proposed injection will protect underground sources of drinking water from the subsurface injection of fluids. UIC permits, including the permit issued to PGE, often condition subsurface operations on stringent well integrity and operational requirements.
On March 19, 2014, EPA issued a UIC permit to PGE to authorize the injection of brine and produced fluids into the former production well. Three residents of Grant Township appealed the permit in April 2014, but the United States Environmental Appeals Board dismissed their appeals in August 2014. EPA then issued the permit in final form in September 2014.
Approximately three months after EPA issued the UIC permit, Grant Township adopted the Ordinance on June 3, 2014, to prevent PGE from injecting produced fluid under the UIC permit. The Ordinance stated that it is “establishing a Community Bill of Rights for the people of Grant Township, Indiana County, Pennsylvania, which prohibits activities and projects that would violate the Bill of Rights, and which provides for enforcement of the Bill of Rights.” The Ordinance expressly prohibited any corporation or government from depositing within Grant Township waste from oil and gas extraction activities, and invalidated any state or federal injection well permit. “Depositing of waste from oil and gas extraction” was defined broadly in the Ordinance to include:
The depositing, disposal, storage, beneficial use, treatment, recycling, injection, or introduction of materials including, but not limited to, brine, “produced water,” “fract [sic] water,” tailings, flowback or any other waste or by-product of oil and gas extraction, by any means. The phrase shall also include the issuance of, or application for, any permit that would purport to allow these activities.
The Ordinance likewise broadly defined “extraction” to mean “the digging or drilling of a well for the purposes of exploring for, developing or producing shale gas, oil, or other hydrocarbons.” Corporations that violated or tried to violate the Ordinance “shall not be deemed to be ‘persons,’ nor possess any other legal rights, privileges, powers, or protections,” and were denied the right to challenge the Ordinance on preemption or other grounds.
PGE filed its Complaint in the United States District Court for the Western District of Pennsylvania in August 2014, challenging the Ordinance on several federal grounds including equal protection, due process and the supremacy provisions of the U.S. Constitution. It also challenged the Ordinance on state law grounds. PGE requested (i) a declaration that the Ordinance is unconstitutional and invalid under state law, (ii) an injunction to prohibit Grant Township from enforcing the Ordinance, and (iii) compensatory damages, attorneys’ fees and costs. PGE subsequently moved for Judgment on the Pleadings in which it asked the court to enter judgment in PGE’s favor as a matter of law based on the factual and legal averments in its Complaint.
On October 14, 2015, the District Court granted PGE’s Motion for Judgment on the Pleadings, in part. The court invalidated, and enjoined Grant Township from enforcing, several provisions of the Ordinance on three state law grounds. First, it held that the provisions making it unlawful for a corporation to deposit oil and gas extraction waste and the provisions nullifying state or federal permits were invalid and unenforceable under the Pennsylvania Second Class Township Code. This Code is a state statute that grants legislative authority to Pennsylvania second class townships. The court held that Grant Township exceeded its authority under the Code. Second, the court struck down these provisions of the Ordinance as being exclusionary. Pennsylvania law prohibits local governments from enacting ordinances that ban legitimate uses of property. And third, the court invalidated the provisions that attempted to strip corporations of their legal rights and prevent them from legally challenging the Ordinance as being preempted by the Pennsylvania Limited Liability Company Law (which expressly provides that corporations have the legal capacity of natural persons to act) and the Second Class Township Code (which expressly provides that persons aggrieved by a local ordinance have the right to challenge an offending ordinance in court). However, the court declined to rule on the constitutionality of the Ordinance because it invalidated several provisions under state law.
Shortly after the court released its opinion, Grant Township moved the court to reconsider its decision. The court denied that motion on February 5, 2016. A trial on PGE’s damages and its remaining constitutional law claims is currently scheduled for May 16, 2016.
While the above litigation was proceeding, Grant Township developed a proposed Home Rule Charter for the Township that adopted verbatim many of the provisions of the Ordinance, including the prohibition against “depositing” oil and gas extraction waste and the provision invalidating any federal or state permit that would violate the Charter. As under the Ordinance, corporations that violate or try to violate the Charter are not deemed to legal “persons” and are stripped of their legal rights. The residents of the township voted for the Charter in November 2015, and it now replaces the Ordinance. However, this action is form over substance; provisions of the Charter violate the same laws as did their counterparts in the former Ordinance.
Grant Township is represented on a pro bono basis by Community Environmental Legal Defense Fund. CELDF has tried to convince communities across the country to enact self-styled Bill of Rights Ordinances that are designed to stop activities such as oil and gas production and management of wastes from those activities. Like in the PGE v. Grant Township case, CELDF has urged courts to modify or eliminate well-established legal principles. The Western District of Pennsylvania rejected CELDF’s effort on the basis of decades-long precedent. With respect to the remaining issues of damages, attorneys’ fees and costs, CELDF will again face century-old legal precedent interpreting and applying constitutional rights under the Supremacy Clause and the First and Fourteenth Amendments to the United States Constitution. In this regard, the United States Supreme Court has long held that corporations are deemed to be “natural persons” under the United States Constitution with the same constitutional rights as individuals.
The law firm of Babst, Calland, Clements and Zomnir, P.C. in Pittsburgh, Pennsylvania represents PGE in this case. If you have questions regarding this decision, please contact Kevin Garber at (412) 394-5404 or kgarber@babstcalland.com or Jim Corbelli at (412) 394-5649 or jcorbelli@babstcalland.com. Mr. Garber is a shareholder in the Environmental and Energy & Natural Resources Groups of the Pittsburgh law firm of Babst, Calland, Clements and Zomnir, P.C. Mr. Corbelli is a shareholder in the Litigation and Energy & Natural Resources Groups of Babst Calland. Mr. Garber and Mr. Corbelli represent energy clients in environmental, natural resource and energy disputes.
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