PA Marcellus Legislation Brings Several Hammers Down on Local Ordinances

February 2012Articles In the Zone

A lot has been said about the preemption of local ordinances contained in the amendments to the Pennsylvania Oil and Gas Act (HB 1950) recently signed into law by Governor Corbett. But not much has been said about the multiple hammers given to the oil and gas companies for invalidating those ordinances, including private rights of action and the ability to collect attorneys’ fees from local governments.

Under Section 3302 of the new law, all local ordinances purporting to regulate oil and gas operations governed by the new Chapter 32 of the Oil and Gas Act are “superseded.” The law states that “no local ordinance adopted pursuant to the Municipalities Planning Act or the Flood Plain Management Act shall contain provisions which impose conditions, requirements or limitations on the same features of oil and gas operations regulated by Chapter 32 or that accomplish the same purposes as set forth in Chapter 32.” Let there be no mistake. The state has preempted the local regulation of oil and gas operations. If that is not clear enough, the law includes several hammers that oil and gas operators can use against municipalities that might be tempted to pass ordinances to test what statutory authority they may have left to impose roadblocks on oil and gas development.

First, an owner or operator of an oil and gas operation who is aggrieved by the enactment or enforcement of a local ordinance is given the right to request that the PA Public Utility Commission (PUC) review the local ordinance to determine if it is subject to the preemption set forth in the new law.

Second, that same owner or operator of an oil and gas operation can jump over the PUC and immediately bring a private action in Commonwealth Court to invalidate or enjoin the local ordinance. If the PUC reviewed and found the ordinance invalid, that finding becomes part of the record before the court. Since this is a civil action, the municipality has to incur legal fees to defend its ordinance before the Commonwealth Court.

Now here’s a big hammer. If the court determines that the local government enacted or enforced the ordinance “with willful or reckless disregard,” it can order the local government to pay the successful plaintiff “reasonable attorneys fees and other reasonable costs incurred . . . in connection with the action.” So, hypothetically, say the municipal solicitor is asked for his or her legal opinion on a proposed local ordinance to be voted on by the supervisors who regulate oil and gas operations. The solicitor reviews the proposed ordinance and opines that it is preempted, but the supervisors, giving in to public pressure, go ahead and vote for the ordinance anyway. (It wouldn’t be the first time something like that happened). The oil and gas operator then brings an action in Commonwealth Court to invalidate the ordinance. To me, it would not be that much of a stretch for the court, in that situation, to find the municipality acted with “willful or reckless disregard” and hold the municipality responsible for paying the oil and gas company’s attorneys’ fees. I assume that hammer may get some municipalities thinking that it may be best just to steer clear of the entire issue.

But if that hammer is not enough, the law requires that municipalities that already enacted local ordinances before the passage of the latest amendments review and amend those ordinances within 120 days to ensure they are in compliance with the preemption limitations. If they do not go back and amend those offending local ordinances, the same procedures apply (PUC or Commonwealth Court review) and the oil and gas operators have the power to collect attorneys’ fees if they are successful in showing willful or reckless disregard. Interestingly, when those ordinances were being passed, I do not suspect any supervisors worried about that. They may even have made statements in the newspaper such as, “We just don’t want any of that here.” It may make sense for some of them to go back and read their own clippings. Those statements could be costly if the ordinances are not amended or revoked.

The law does say that if the municipality wins, it can collect attorneys’ fees from the oil and gas operator who brought the action to invalidate the ordinance if the court determines the action was “frivolous or brought without substantial justification.” But in order to receive reimbursement of its attorneys’ fees, the municipality would have to take the case all the way to a judgment and then get a determination from the court that the action was frivolous. That could be expensive, and it is unclear if municipalities with limited budgets will be willing to hang in there that long defending these ordinances.

Here is the final hammer: If the PUC, the Commonwealth Court, or for good measure, the Supreme Court, issues an order that a local ordinance is preempted, the law states that “the municipality enacting or enforcing the local ordinance shall be immediately ineligible to receive” Marcellus impact fee money “until the local government amends or repeals its ordinance or the determination that the local ordinance is unlawful is reversed on appeal.” Ouch. So, if you are the only municipality that passed an ordinance prohibiting the development of Marcellus wells, you run the risk that all your neighboring communities can receive the impact fee money while you are left out.

There is a lot in the new legislation that has not been addressed yet in most reporting. These hammers are just one example.

For more information, please contact M. Joel Bolstein.