Smart Business
(by Jayne Gest with Christian A. Farmakis)
In 2013, San Francisco seed accelerator Y Combinator created a Simple Agreement for Future Equity (SAFE), which can be used in lieu of a convertible note. SAFEs spread throughout the California investment community. Now they’re entering regions like Pittsburgh. Investors, however, haven’t always embraced SAFEs as a reasonable vehicle for seed investment. They may be hesitant or uncomfortable with them.
Christian A. Farmakis, shareholder and chairman of the board at Babst Calland, first encountered SAFEs a few years ago when making a personal investment.
“I didn’t know much about it at the time. I initially thought, ‘How is this different than a convertible note?’” he says. “I read it and thought: ‘If the investment goes well, I’m largely in the same position. If the investment doesn’t go well, I will never be repaid, but I never expected to be.’ So, I signed it.”
Smart Business spoke with Farmakis about what entrepreneurs and investors need to understand about SAFEs.
What are the similarities and differences between SAFEs and convertible notes?
A SAFE is essentially a warrant (a contractual right to purchase equity upon the occurrence of a future triggering event, like a later priced investment round), but with the purchase price paid upfront.
SAFEs are like convertible notes in many ways. They can (a) include a discount on the per share price — a 20 percent discount would provide the investor 125 shares rather than 100; (b) include a valuation cap, capping the investor dilution when the triggering event occurs; and (c) give pricing protection for early investors. Because both are early-stage investment vehicles, the price per equity unit is not determined because the company has no company valuation.
A convertible note is a debt instrument. A SAFE is a contract. As such, a convertible note typically earns interest while it remains outstanding; a SAFE doesn’t. Convertible notes usually result in more shares being issued upon conversion — the aggregate value is higher than the original amount due to accrued interest. From this perspective, SAFEs are advantageous to founders.
Notes frequently trigger on a priced round but are intended to be repaid with interest when they mature, say, five years later, if a priced round doesn’t happen. SAFEs do not have this feature. They have no maturity date. At first blush, this convertible note characteristic favors investors. However, consider if this is materially favorable — in most instances, a failed startup usually doesn’t have the funds to repay note holders after its creditors are paid.
How can founders and investors benefit?
Because the baseline forms are available from Y Combinator’s website, SAFEs are fairly standardized, and the expenses associated with getting early-stage investors to sign a SAFE are lower. The startup doesn’t carry SAFEs as debt on its financial statements. Also, if structured properly, founders aren’t diluted as quickly as they might be with conventional debt.
If things go well, SAFEs give investors benefits like the percentage discount, valuation cap and most favored nation on the pricing. If they go badly, SAFEs benefit the founders, but the additional rights an early-stage investor loses aren’t significant. Again, sophisticated investors who put money in early-stage companies generally don’t expect to get paid back if they fail.
What should entrepreneurs be aware of?
Entrepreneurs should carefully consider the pro-rata investment rights usually contained in SAFEs to avoid unintended dilution. They should work with counsel to create a pro-forma cap table before issuing SAFEs to understand the impact upfront.
How have SAFEs changed?
Y Combinator has developed a new form of SAFE for early fundraising that involves larger amounts of money. It measures SAFE ownership after the round of SAFE money is accounted for but before the new money in a priced round (usually Series A) converts and dilutes the SAFE. This form separates the pro-rata investment rights and tailors them to apply to the next round of financing.
What’s your advice for Pittsburgh investors?
There are similarities and differences between convertible notes and SAFEs. Ask questions to see which one makes sense for you as an investment vehicle.
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PITTSBURGH, January 2, 2019 – Babst Calland recently named Meredith L. Calfe, Kate H. Cooper, Alana E. Fortna and Rachel E. James shareholders in the Firm.
Meredith Calfe, a member of the Firm’s Energy and Natural Resources Group, concentrates her practice on counseling oil and gas clients on mineral-related transaction matters, including title examination, due diligence and curative work.
Ms. Calfe is a 2009 graduate of the University of Pittsburgh School of Law.
Kate Cooper, a member of the Firm’s Corporate and Commercial Group, counsels for-profit and non-profit entities in connection with mergers, acquisitions and divestitures, and a broad range of general corporate matters, including business planning and structuring, commercial contracts, securities law matters and governance issues.
Ms. Cooper is a 2010 graduate, cum laude, of Boston College Law School.
Alana Fortna is a member of the Firm’s Litigation, Environmental, Employment and Labor, and Emerging Technologies groups. Ms. Fortna represents clients in complex commercial litigation with a focus primarily on environmental litigation, including large-scale cost recovery actions under CERCLA and state law statutes, actions seeking injunctive relief under RCRA, and citizens’ suits brought under various federal statutes and regulatory programs. She also leverages her litigation experience to help companies and other entities with emerging technologies strike a balance between innovation and risk management.
Ms. Fortna is a 2010 graduate, magna cum laude, of Duquesne University School of Law.
Rachel James, a member of the Firm’s Energy and Natural Resources Group, represents energy clients on oil, gas and mineral-related transaction matters, including title examination, due diligence activities, curative work and the acquisition and disposition of oil and gas fee and leasehold assets.
Ms. James is a 2009 graduate of the University of Pittsburgh School of Law.
The Legal Intelligencer
(by Blaine A. Lucas and Alyssa E. Golfieri)
Pennsylvania municipalities are “creatures of the state” and thus may only exercise those powers expressly and implicitly delegated to them by the General Assembly. One area in which municipalities have been delegated authority is the regulation of land uses. The Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101 et seq., establishes the framework for zoning and subdivision and land development regulation in Pennsylvania. However, a municipality’s powers are not without limitation. The General Assembly, by statute, has constrained the manner and degree to which municipalities can regulate certain types of land use. The Pennsylvania Right-to-Farm Act, 3 P.S. Section 951 et seq., (RTFA) and the Pennsylvania Agricultural, Communities and Rural Environment Act, 3 Pa.C.S. Section 311 et seq., (ACRE) are two such examples.
The RTFA was enacted in 1982 for the purpose of limiting the circumstances under which “normal agricultural operations” may be the subject matter of nuisance suits and zoning regulations. Specifically, the RTFA mandates that every municipality regulating a public nuisance exempt from its scope “normal agricultural operations” as long as the operations do not have a “direct adverse effect on the public health and safety.” It also requires municipalities to permit the direct sale of agricultural commodities on property owned and operated by a landowner who produces 50 percent or more of the commodities sold, regardless of applicable zoning regulations.
In 2005, the General Assembly recognized that owners and operators of normal agricultural operations needed a cost and time efficient way to challenge local regulatory actions running afoul of the RTFA and, in response, enacted ACRE. ACRE provides a means for those engaged in these activities to challenge and seek the invalidation of unauthorized ordinances or enforcement actions related to those ordinances. If an owner or operator believes a local municipality’s ordinance(s) or enforcement action(s) are inhibiting his operations in violation of state law, he may request that the attorney general initiate a review of the same. Upon receipt of such a request, the attorney general has 120 days to review the challenged ordinance or enforcement action and determine, in his or her sole discretion, whether to bring a legal action against the municipality in Commonwealth Court. Any person aggrieved by an unauthorized local ordinance also can bring an action in Commonwealth Court.
While the above-referenced restrictions on a municipality’s authority to regulate agricultural operations appear relatively elementary and straightforward, the devil is in the details. ACRE incorporates by reference the RTFA’s definition of “normal agricultural operation,” interpretation and application of which recently has become the cause of much debate. The Pennsylvania Commonwealth Court, Pennsylvania attorney general, and several municipalities across the commonwealth have interpreted the definition narrowly to include only those activities associated with the production and preparation of crops and livestock for market. Conversely, owners and operators of agricultural operations contend that the definition should be interpreted more broadly to include, among other things, agritainment, agribusiness, and agritourism—all terms used interchangeably to describe farm-themed entertainment, such as hayrides, cornfield maze contests, wine tastings, harvest festivals, farm-to-table dinners, weddings and farm stays (i.e., short-term rentals). Such activities are touted as boosting an operation’s income, but are geared solely toward consumer experiences and do not contribute to nor are they necessary for an operation’s preparation and production of crops and livestock for market.
The RTFA defines “normal agricultural operation” as: The activities, practices, equipment and procedures that farmers adopt, use or engage in the production and preparation for market of poultry, livestock and their products and in the production, harvesting and preparation for market or use of agricultural, agronomic, horticultural, silvicultural and aquacultural crops and commodities and is:
- Not less than 10 contiguous acres in area; or
- Less than 10 contiguous acres in area but has an anticipated yearly gross income of at least $10,000.
The term includes new activities, practices, equipment and procedures consistent with technological development within the agricultural industry. Use of equipment shall include machinery designed and used for agricultural operations, including, but not limited to, crop dryers, feed grinders, saw mills, hammer mills, refrigeration equipment, bins and related equipment used to store or prepare crops for marketing and those items of agricultural equipment and machinery defined by [the Farm Safety and Occupational Health Act].
The Commonwealth Court narrowly interpreted this definition in Tinicum Township v. Nowicki, 99 A.3d 586 (Pa. Commw. Ct. 2014). The court concluded that a mulching operation did not qualify as a normal agricultural operation and therefore was not afforded RTFA protection because the raw materials from the operation were not produced on the property and the resulting mulch was not used for the production of livestock, crops or agricultural commodities on the property. The court, emphasizing that the definition of normal agricultural operation under the RTFA “focuses on the use of farmland for the production of crops and livestock,” explained that:
“We believe that the definition of ‘normal agricultural operation’ necessarily requires some connection between the use at issue and the employment of the property in question for the production of an agricultural, agronomic, horticultural, silvicultural or aquacultural crop or commodity.”
In addition, in the attorney general’s 2012 through 2016 Annual ACRE Reports, the attorney general has declined to take legal action against municipalities that have attempted to apply zoning regulations to an operation’s on-site promotional, entertainment, and recreational events and agribusiness or agritainment activities. In doing so, the attorney general has determined, at least implicitly that such activities do not fall within the RTFA’s and ACRE’s definition of normal agricultural operation and therefore are subject in full to local zoning regulation.
Thus, under the current state of the law, agritainment, agritourism and agribusiness are not afforded RTFA’s and ACRE’s protections from municipal zoning regulation, and those wishing to engage in these activities must consult local ordinances to ascertain whether these uses are authorized in the applicable zoning district, and what the applicable approval criteria and standards are for these uses (e.g., hours of operation, minimum parking requirements, and maximum noise and light restrictions).
For the full article, click here.
The PIOGA Press
(by Meredith Odato Graham and Gary E. Steinbauer)
In 2016, the U.S. Environmental Protection Agency finalized a rule that established first-time federal standards for methane emissions from new, modified, and reconstructed sources in the oil and gas industry. The so-called new source performance standards (NSPS) at 40 C.F.R. 60, Subpart OOOOa (Subpart OOOOa), have since become the subject of considerable debate and litigation. Consistent with the Trump administration’s other deregulatory efforts, EPA published a proposal in the Federal Register in October that aims to reduce the Subpart OOOOa regulatory burden for industry.
EPA estimates that the proposed improvements to the rule could save industry tens of millions of dollars in compliance costs each year. EPA held a public hearing in November and is accepting stakeholder comments through December 17.
Significant changes to applicable requirements
The 52-page rulemaking notice describes several proposed amendments to Subpart OOOOa. EPA is addressing certain issues that were presented to the agency in formal petitions for reconsideration, as well as “other implementation issues and technical corrections” brought to the agency’s attention after Subpart OOOOa was promulgated. For example, it is proposing significant changes to the requirements for fugitive emissions components, including revised leak monitoring frequencies. Whereas the current regulation subjects well sites to semiannual leak monitoring, the revised Subpart OOOOa would require monitoring every other year for low production well sites and annually for all other well sites. The required frequency of compressor station monitoring would be reduced from quarterly to either semiannual or annual. (The proposal includes distinct monitoring requirements for well sites and compressor stations on the Alaska North Slope.) EPA also is proposing to reduce the schedule for repairing leaks from 30 to 60 days. Finally, EPA proposes to no longer require monitoring surveys at well sites once all major production and processing equipment is removed.
These are just a few of the many technical issues for which the agency is seeking public input. Operators should review the rulemaking notice and evaluate how the proposed changes could impact day-to-day operations.
Proposed rule attempts to address potentially overlapping federal and state requirements
While EPA may be inclined to relax regulatory obligations at the federal level, states could continue to impose more stringent requirements. For example, Pennsylvania’s Department of Environmental Protection finalized an air permitting package earlier this year that requires quarterly leak detection and repair (LDAR) monitoring for well sites subject to the new general permit known as GP-5A. As proposed, the revised Subpart OOOOa would require only annual or in some cases biennial monitoring at well sites. In general, where federal and state standards are in conflict, operators will need to comply with the most stringent requirement that applies.
EPA’s rulemaking proposal includes provisions that attempt to address potential overlap in federal and state requirements. The proposed rule would allow operators to meet certain existing state requirements as an alternative means of complying with Subpart OOOOa. Pennsylvania is one of six states where the proposed rule would allow operators to elect to comply with the state requirements in lieu of certain federal requirements.
Public comment period and hearing
EPA will accept public comments on the proposed revisions to Subpart OOOOa until December 17. The rulemaking notice indicates that the agency is seeking comment only on the specific issues identified in the notice. The agency is “not opening for reconsideration any other provisions of the NSPS at this time.” EPA’s related fact sheet indicates that it is still evaluating broad policy issues—such as the regulation of greenhouse gases—associated with Subpart OOOOa. According to the agency, such issues will be addressed separately at a later date.
On November 14, EPA held a public hearing at its Region 8 office in Denver, Colorado. The online docket for EPA’s proposed rule states that more than 48,000 comments have been received, although many of these comments appear to be form letters opposing the proposed rule. In addition, a group of shareholders for large publicly traded oil and gas companies reportedly sent a letter to these companies on December 5, urging the companies to oppose EPA’s proposed rule and supporting the regulation of methane emissions by EPA. As the public comment period ends, other parties will share their views on this important rulemaking.
Editor’s note: PIOGA’s Environmental Committee is actively engaged in the Subpart OOOOa issue and the association is part of an oil and gas industry coalition working to ensure commonsense methane regulations.
Babst Calland actively monitors federal and state air program developments affecting the oil and gas industry. If you have any questions about the proposed changes to Subpart OOOOa or air quality issues in general, contact Michael H. Winek at 412- 394-6538 or mwinek@babstcalland.com; Meredith Odato Graham; 412-773-8712 or mgraham@babstcalland.com; or Gary E. Steinbauer, 412- 394-6590 or gsteinbauer@babstcalland.com.
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The American Oil & Gas Reporter
(by Jean M. Mosites, Keith J. Coyle and Krista-Ann M. Staley)
PITTSBURGH–The Marcellus and Utica shale plays account for some 30 percent of total U.S. natural gas output, compared with only 3 percent a decade ago. The Appalachian Basin’s rapid growth in natural gas and natural gas liquids production has occurred despite relatively low natural gas prices, driven by greater well productivity from improved drilling and completion techniques, including longer laterals and optimized well spacing.
Additionally, infrastructure build-out in the region, including the development of significant interstate pipeline projects featuring large-scale transmission of natural gas and NGLs (such as the Rover, Nexus and Mariner East 1 projects), has allowed access to Northeast population centers to increase demand for Appalachian-derived natural gas resources. Continued innovations in the industry, such as improvements to water logistics, likely will be important to reduce operational costs and further improve efficiency to maintain growth.
While the industry continues forging ahead in the Marcellus, Utica and conventional Appalachian plays, the legal landscape continues to evolve with everchanging federal and state environmental and safety regulations, along with a variety of local government requirements across the basin. The federal and state courts, legislatures and regulatory agencies continue to address a variety of issues that affect all facets of oil and gas development in the multistate region.
These decisions and developments not only affect drilling and production, but also the midstream and transportation infrastructure that is so critical to Appalachian producers’ ability to market their production. This article summarizes developments in the legal and regulatory landscape facing oil and gas producers and midstream operators in the Appalachian Basin.
In October 2016, the Marcellus Shale Coalition filed a petition in the Pennsylvania Commonwealth Court challenging seven new provisions in 25 Pa. Code Chapter 78a, a set of regulations applicable only to the unconventional oil and gas industry. The challenged provisions include those relating to impoundments, area of review obligations, public resource considerations in the well permit process,site restoration, spill remediation, and waste handling and reporting. The Commonwealth Court preliminarily enjoined four of seven counts on Nov. 8, 2016, a decision that the Pennsylvania Department of Environmental Protection appealed to the Pennsylvania Supreme Court on June 1, 2018.
The Supreme Court upheld the injunction as to the three most important counts to the industry–public resources, area of review obligations, and re-permitting existing centralized impoundments and reversed it regarding two counts (registration of existing freshwater impoundments and post-construction stormwater controls). On Aug. 23, the Commonwealth Court decided Count I on the merits, invalidating provisions related to new “public resources” and new “public resource agencies,” which would have included private marinas, McDonalds, and homeowners’ associations. The remaining six counts were scheduled to be argued in the Commonwealth Court on Oct. 17.
Clean Streams Law
In a case of first impression, the Pennsylvania Supreme Court rejected the DEP’s enforcement theory that penalty liability under the Clean Streams Law continues as long as any constituents of a release remain in waters of the commonwealth, even years after the release ended. In its March 28 ruling in EQT Production Company v. DEP, the Supreme Court held “[t]he mere presence of a contaminant in a water of the commonwealth” does not violate the Clean Streams Law since “movement of a contaminant into water is a predicate to violations.”
In other words, a violation of these sections of the Clean Streams Law is based on the entry of pollutants into waters of the commonwealth, not the presence or movement of constituents within such waters. The Supreme Court’s opinion provides necessary clarification concerning the scope of liability for penalties under the Clean Streams Law for all persons, entities, businesses and industries that are responsible for remediation, those who would redevelop brownfield properties for reuse under Act 2, as well as any property owner with a historic contamination in groundwater that it did not cause.
The decision affirms that penalty liability is distinct from cleanup liability and recognizes that penalties are neither appropriate nor effective in altering the time that may be necessary for full remediation. The Delaware River Basin Commission– which includes Pennsylvania, Delaware, New Jersey and New York– has published a proposed rule that would ban high-volume hydraulic fracturing in the basin and impose new standards for exporting water from the basin for hydraulic fracturing and importing wastewater from oil and gas operations into the basin for treatment or discharge. The public comment period closed on March 30, with more than 8,600 public comments. There is no schedule for a final rule.
On July 3, a panel of the Third Circuit Court of Appeals vacated the dismissal of a complaint that challenged the jurisdiction of the DRBC to regulate oil and gas operations. The District Court had denied the request for declaratory relief, finding that the activities were subject to oversight by the DRBC. The Third Circuit remanded the matter for fact-finding to determine the intent of the drafters of the 1961 compact regarding the scope of DRBC’s authority to review “projects,” a term that the Third Circuit found to be ambiguous (Wayne Land and Mineral Group LLC versus DRBC, No. 17-1800).
Pipeline Safety Regulations
The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration continues to make progress toward finalizing a rule making that could reshape the nation’s federal safety standards for natural gas pipelines. In April 2016, PHMSA issued a notice of proposed rule making (NPRM) proposing extensive changes to the safety standards and reporting requirements for gas transmission and gathering lines. To address certain mandates in the 2011 reauthorization of the Pipeline Safety Act and related National Transportation Safety Board safety recommendations, PHMSA proposed new requirements, including:
• Verifying the maximum allowable operating pressure and documenting the materials in onshore steel gas transmission lines;
• Conducting integrity assessments of certain transmission lines in moderate consequence areas; and
• Corrosion control, pipeline repair and record keeping requirements, as well as changes to the integrity management requirements for gas transmission lines.
In addition to the proposals for gas transmission lines, PHMSA proposed significant changes to the regulations for onshore gas gathering lines, primarily to address the growth of new pipeline infrastructure in the nation’s shale plays. The proposed changes included new definitions for determining what qualifies as an onshore gas gathering line, new safety standards for regulated onshore gas gathering lines (which would apply to certain historically exempt onshore gas gathering lines in rural locations), and new reporting requirements for all gas gathering lines, whether regulated or not.
The pipeline industry responded by expressing significant concerns with many of the proposals. For example, the American Petroleum Institute submitted an economic analysis showing that PHMSA made numerous errors in developing the preliminary regulatory impact analysis for the NPRM. API’s economic analysis also showed that PHMSA overestimated the benefits of the proposed rules by $2.9 billion-$3.1 billion and underestimated the costs by $32.8 billion.
The Gas Pipeline Advisory Committee, the federal advisory committee that reviews PHMSA’s gas pipeline rulemaking proposals, has met on five occasions to consider the NPRM. At the most recent meeting held in March, PHMSA announced that it was dividing the NPRM into three separate proceedings for purposes of developing the final rules. Two proceedings would focus on the new requirements for gas transmission lines, and a third proceeding would be dedicated solely to gas gathering lines.
According to the DOT’s latest significant rule making report, PHMSA expects to publish the first final rule for gas transmission lines in March 2019, the second final rule for gas transmission lines in June 2019, and the third final rule for gas gathering lines in December 2019.
ERA Reinterpreted
On June 20, 2017, the Pennsylvania Supreme Court reinterpreted Article I, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment in Pennsylvania Environmental Defense Foundation v. Commonwealth. PEDF challenged the statutory diversion of royalties generated from leasing oil and gas under state land to the general fund.
The Supreme Court rejected the longstanding three-part balancing test developed in 1973 by the Commonwealth Court in Payne v. Kassab. The Supreme Court replaced the test with a standard based on the “text of Article I, section 27 and principles of Pennsylvania trust law.” The Court held that the commonwealth’s oil and gas rights are public natural resources under the ERA and royalties generated by the development of those resources must be held in trust to conserve and maintain public natural resources. Because the decision dealt with government-owned assets, the application of PEDF to state and local permitting and regulation of privately owned natural resources was left open to interpretation by the courts.
The Pennsylvania Environmental Hearing Board has issued a few opinions concerning the ERA in appeals of DEP permitting decisions. Analyzing the ERA in the permitting context, EHB evaluated:
• Whether DEP had considered the environmental effects of its permitting action, and whether that action is likely to cause, or in fact did cause, the unreasonable degradation or deterioration of the environment, and
• Whether DEP had properly carried out its trustee duties of prudence, loyalty and impartiality to conserve and maintain the environment by prohibiting degradation, diminution and depletion.
Significantly, HEB recently stated, “Our understanding of the trustee responsibility does not require (DEP) to deny permits to any and all activity that will negatively impact the public natural resources and/or the people who use those resources,” and that “[t]o hold otherwise would essentially prevent any permitting activity since it is nigh impossible to have development without some environmental impact.”
EHB has upheld various types of permits under this standard, in some cases, collapsing the analysis under the second part of the test based on the facts and record reviewed under the first part of the test.
Land Use Decisions
The parameters of local government regulation of the oil and gas industry continue to be refined and left uncertain by the ongoing judicial fallout from the Pennsylvania Supreme Court’s 2013 decision in Robinson Township v. Commonwealth. The Robinson Township Court invalidated two sections of Pennsylvania’s updated Oil and Gas Act (Act 13) that limited the authority of local governments to regulate oil and gas operations. A precursor to the Court’s consideration of PEDF v. Commonwealth, the three justice plurality in Robinson Township based its decision on a reinvigorated interpretation and application of ERA.
The Supreme Court again considered the implications of Robinson Township in Gorsline v. Board of Supervisors of Fairfield Township. The Commonwealth Court had upheld a township’s conditional- use approval of an oil and gas well in a residential agriculture (RA) district pursuant to a zoning ordinance “savings” or “catch-all” provision. The Commonwealth Court found that the proposed well was similar to and compatible with other uses permitted in that district and rejected Robinson Township/ERA-based arguments to the contrary. Although there was no appeal by right, the Supreme Court agreed to take the case.
On June 1, the Supreme Court published its 4-3 decision. The majority reversed the Commonwealth Court’s decision but it did so in a narrow holding, finding that Inflection Energy LLC did not present enough evidence establishing that its proposed unconventional natural gas well pad was “similar to” other uses allowed in the township’s RA district.
The majority declined to address the constitutional question, i.e. objectors’ claimed violations of substantive due process rights and the ERA based on their interpretation of Robinson Township. The majority opinion did, however, conclude with strong language recognizing that zoning decisions are inherently local matters, and a local municipality is empowered to “permit oil and gas development in any or all of its zoning districts.”
In addition, the majority cautioned that its narrow holding “should not be misconstrued as an indication that oil and gas development is never permitted in RA districts, or that it is fundamentally incompatible with residential or agricultural uses.” The three dissenting justices would have addressed the Robinson Township constitutional question and faulted the objectors for reading Robinson Township too broadly when they claimed that natural gas development is inherently incompatible with residential uses, and its impacts never can be mitigated through imposition of conditions.
Thus, language in both the Gorsline majority and dissenting opinions largely rejected the post-Robinson Township assertion that natural gas wells must be relegated to industrial zoning districts and are fundamentally incompatible with residential or agricultural zoning districts.
Local Ordinances Challenged
In Pennsylvania, Pennsylvania General Energy LLC and Seneca Resources Corporation challenged underground injection well bans adopted in Grant Township in Indiana County and Highland Township in Elk County, respectively.
Both municipalities worked with the Community Environmental Legal Defense Fund, an anti-industry, anti-corporation, community rights organization, to enact self-styled “Community Bill of Rights” ordinances. These ordinances specifically banned underground injection wells, and by implication, other oil and gas development, and purported to supersede any state or federal injection well permit.
PGE had applied for and obtained a PADEP permit to operate an underground injection well in Grant Township, and filed a complaint in the U.S. District Court for the Western District of Pennsylvania challenging the applicable Community Bill of Rights ordinance. The case challenged the constitutionality, validity and enforceability of these local laws.
In 2015, the court invalidated six provisions of the ordinance on state law grounds. In March 2017, the court granted PGE’s motion for summary judgment on three counts of PGE’s complaint on the remaining federal constitutional claims. PGE continued to pursue its request for damages. In a significant procedural development, PGE filed a motion for sanctions against Grant Township, CELDF and two CELDF attorneys, asserting that they abused the court system by filing frivolous, unfounded and harassing pleadings in pursuit of political objectives and other illegitimate ends.
In January 2018, the court entered a decision granting in part PGE’s motion, ordering the two CELDF attorneys to pay PGE $52,000 and directing the clerk to transmit the decision to the Pennsylvania Supreme Court Disciplinary Board with a request to determine appropriate disciplinary measures to be imposed on one of the CELDF attorneys.
After the sanctions ruling, the parties reached an agreement to resolve the remaining claims and damages issues without a trial. PGE agreed to dismiss its remaining constitutional claims and its claims for compensatory and consequential damages. Grant Township agreed to entry of nominal damages in favor of PGE regarding its constitutional claims, on which the court granted summary judgment. PGE was permitted to seek attorneys’ fees and costs pursuant to 42 U.S.C. § 1988, and the parties agreed that the order imposing sanctions on the CELDF attorneys would be stayed until 30 days after the court enters final judgment on PGE’s petition for attorneys’ fees and costs.
In April, PGE filed a petition seeking reimbursement of its attorneys’ fees and costs. The township filed an opposition, and the matter is fully briefed and awaiting a final decision from the court.
West Virginia, Ohio Rulings
In November 2017, Mountain Valley Pipeline LLC (MVP) filed an action in the federal District Court in Charleston against the county commission of Fayette County, W.V. The lawsuit sought entry of an order declaring that the Fayette County zoning ordinance, insofar as it would apply to MVP’s proposed Stallworth compressor station, is preempted by FERC’s issuance to MVP of a certificate of public convenience and necessity pursuant to the federal Natural Gas Act, 15 U.S.C. 717 et seq.
Before the FERC certificate for the MVP project was issued, MVP had submitted an application for rezoning of the compressor station property to allow for industrial use and had appeared before the county commission and its planning commission on numerous occasions in support of that request. Despite those efforts, the county commission ultimately denied MVP’s rezoning application on the basis of its determination that the facility would be incompatible with the county’s comprehensive plan. On Aug. 29, 2018, the District Court granted summary judgment to MVP, barring the county zoning ordinance from interfering with construction of a FERC-certified compressor station. According to the court, both field and conflict preemption barred enforcement of the ordinance.
In Ohio, the court again has found that state regulations preempt local governments from regulating oil and gas development. Following the Ohio Supreme Court’s 2015 decision in State ex rel. Morrison, et al., v. Beck Energy Corporation, which held that Ohio Department of Natural Resources regulations preempted the city of Munroe Falls from applying certain zoning requirements to oil and gas development, the city filed a suit to define the boundaries of the holding.
In the 2016 case, the city of Munroe Falls asserted that the preemption recognized in the Morrison case did not preclude the application of traditional zoning laws to the use (i.e., while the city could not impose a separate regulatory regime for oil and gas development, it argued that it could require oil and gas development to comply with regulations that address traditional zoning concerns, such as neighborhood compatibility). In July 2016, the Summit County Court of Common Pleas issued a decision rejecting the city’s position.
The court relied on Morrison to hold that the state’s exclusive authority to enforce regulations in regard to oil and gas development prohibited the city from applying its general zoning regulations to oil and gas development. Beck Energy later dismissed its counterclaims and filed a motion for sanctions, which the court granted in the amount of $45,000. The city has appealed that decision.
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The PIOGA Press
(by Blaine A. Lucas and Robert Max Junker)
On October 26, the Pennsylvania Commonwealth Court published an en banc opinion in Frederick v. Allegheny Township Zoning Hearing Board, et al., No. 2295 C.D. 2015, 2018 WL 5303462 (Pa. Cmwlth. Oct. 26, 2018) rejecting a challenge to the validity of the Allegheny Township, Westmoreland County, zoning ordinance. The court addressed the contention of oil and gas industry opponents that an unconventional natural gas well pad can be permitted only in an industrial zoning district. After reviewing the detailed record developed in the substantive validity challenge decided by the township Zoning Hearing Board and addressing recent Pennsylvania Supreme Court decisions on shale gas drilling, the court in a 5-2 decision rejected this “one size fits all” proposition. It found that state law empowers municipalities to determine where well sites are appropriate and compatible with other land uses within their boundaries.
Background
In 2010, the township Board of Supervisors enacted a zoning ordinance amendment that allowed oil and gas well operations in all zoning districts as a use permitted “as of right,” provided the applicant satisfied numerous specified standards to protect the public health, safety, and welfare. A use permitted “as of right” requires administrative approval; it does not require public notice or a hearing.
In 2014, CNX Gas Company, LLC applied to the township for a zoning permit to develop an unconventional well pad (Porter Pad) in the R-2 Agricultural/Residential Zoning District and submitted all the information required by the 2010 ordinance. Once CNX received the zoning permit, three nearby individuals (the objectors) appealed to the board. They challenged the granting of the permit and raised a substantive validity challenge to the 2010 ordinance. The objectors claimed that based on the Pennsylvania Supreme Court’s decision in Robinson Township v. Commonwealth, 83 A.3d 901 (Pa. 2013) (Robinson Township II), the ordinance violated substantive due process and Article 1, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA), because it allowed an allegedly industrial use in a residential/agricultural zoning district.
During three nights of hearings before the board, the objectors presented Dr. John Stoltz and Steven Victor as expert witnesses. The board found that neither expert was credible. CNX and landowners presented testimony and called Professor Ross Pifer as an expert on the interplay between the oil and gas industry and agricultural and rural communities in the Commonwealth of Pennsylvania. The board found Professor Pifer credible.
The board’s written decision contained numerous findings of fact related to the qualities and characteristics of the township, its long history of oil and natural gas development, and the specific operations that would take place as the Porter Pad is developed. The board rejected the objectors’ claims that the Porter Pad would have an adverse effect on public health, safety, welfare or the environment. The board likewise rejected the objectors’ reading of Robinson Township II, ultimately concluding that the 2010 ordinance is valid. On appeal to the Westmoreland County Court of Common Pleas, President Judge Richard McCormick affirmed the board’s decision.
The Commonwealth Court en banc opinion
President Judge Mary Hannah Leavitt authored the majority opinion, joined by Judge Renee Cohn Jubelirer, Judge P. Kevin Brobson, Judge Anne E. Covey and Judge Michael H. Wojcik. Judge Patricia A. McCullough and Judge Ellen Ceisler authored separate dissents.
The court majority first addressed the objectors’ substantive due process claim. Judge Leavitt acknowledged that the objectors did not challenge the board’s detailed findings of fact as being unsupported by substantial evidence, and that the board’s credibility determinations were binding on the court. The court pointed out that although the objectors advanced various concerns about natural gas development in their brief, they had not presented credible evidence to substantiate these claims before the board. Instead, the objectors merely expressed generalized and speculative concerns about the construction and operation of the Porter Pad. Reviewing its recent decisions in Gorsline v. Board of Supervisors of Fairfield Township, 123 A.3d 1142 (Pa. Cmwlth. 2015), reversed on other grounds, 186 A.3d 375 (Pa. 2018) and EQT Production Company v. Borough of Jefferson Hills, 162 A.3d 554 (Pa. Cmwlth. 2017), petition for allowance of appeal granted in part, 179 A.3d 454 (Pa. 2018), the court reiterated that objections to construction activities and mere speculation of possible harm are insufficient to sustain an objector’s burden.
In addressing the objectors’ repeated use of the term “industrial” to describe natural gas wells, the court observed that the objectors did not present any evidence to the board “on what they meant by ‘industrial’ or the significance of that term.” The court cited to its recent decision in another ordinance validity challenge for the proposition that oil and gas drilling, like farming, is not a heavy industrial use but instead is a use traditionally exercised in agricultural areas, containing temporary components of an industrial use. As a result, the court agreed with the board that the ordinance does not violate substantive due process.
Next, the court addressed the objectors’ contention that the ordinance violates the ERA, specifically its first sentence, which states that “[t]he people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment.” In this regard, the objectors reiterated the same argument they made under the due process clause―that oil and gas is an incompatible “industrial use” that degrades the local environment. The objectors also asserted that the Supreme Court’s interpretation of the ERA in Robinson Township II required the township to engage in an undefined pre-action environmental impact analysis before enacting the 2010 ordinance.
In analyzing these ERA claims, the Commonwealth Court acknowledged the Pennsylvania Supreme Court’s 2017 ruling in Pennsylvania Environmental Defense Foundation v. Commonwealth, 161 A.3d 911 (Pa. 2017) (PEDF). In PEDF, the Supreme Court rejected the three part test for measuring compliance with the ERA enunciated by the Commonwealth Court in Payne v. Kassab, 312 A.2d 86 (Pa. Cmwlth. 1973) and instead ruled that challenges raised under the ERA should be decided in accordance with its text. Acknowledging that the “precise duties imposed upon local governments by the first sentence of the [ERA] are by no means clear,” the Commonwealth Court ascertained the relevant standard, based on Robinson Township II and PEDF, to be whether the governmental action “unreasonably impairs” the environmental values implicated by the ERA. However, the Commonwealth Court found that Robinson Township II “did not give municipalities the power to act beyond the bounds of their enabling legislation” and that “[m]unicipalities lack the power to replicate the environmental oversight that the General Assembly has conferred upon [the Department of Environmental Protection] and other state agencies.”
The court also observed that Section 3302 of the Oil and Gas Act preempts municipalities from regulating “how” drilling takes place, and that a municipality may only use its zoning powers to regulate “where” mineral extraction occurs. The Commonwealth Court concluded the objectors failed to prove that the township’s legislative decision expressed in the ordinance allowing gas wells in all zoning districts “unreasonably impairs” their rights under the ERA, particularly when the record (and the board’s findings) showed how long natural gas development has safely coexisted within rural communities, how the land can be returned to its original state once the wells are completed and how energy extraction can support the agricultural use of land.
The court next addressed the objectors’ claim that the ordinance violated several provisions of the state’s zoning enabling legislation, i.e. the Pennsylvania Municipalities Planning Code (MPC). Once again, the court pointed out the conclusory nature of the objectors’ argument that oil and gas drilling is incompatible with rural uses. The MPC sets forth the detailed public process that a municipality must follow when it amends its zoning ordinance. However, the objectors claimed that Robinson Township II added a level of analysis requiring the township to undertake pre-enactment environmental, health and safety studies in order to satisfy the township’s obligations under the ERA. The Commonwealth Court rejected this claim and agreed with the board that such an argument is a novel construction without any foundation under Pennsylvania law.
In its conclusion, the majority opinion recognized that municipalities, if they do elect to utilize their discretion to enact land use regulation in the first place, must balance the interests of landowners in the use and enjoyment of their property with the public health, safety, and welfare. The objectors’ contention that the ordinance will result in oil and gas development anywhere and everywhere in the township is tempered by the significant setback requirements in Act 13 that remain in effect. In fact, the board found that these requirements eliminated shale gas development from more than 50 percent of the land in the township. The court returned to the “where” versus “how” distinction declared by the Supreme Court and noted that a zoning ordinance expressing legislative decisions regarding where a land use can occur must be affirmed unless clearly arbitrary and unreasonable.
The penultimate paragraph in the majority’s opinion is worth noting here: “objectors’ objectives in this litigation are confounding. Were they to succeed in invalidating [the ordinance], then they release oil and gas operators from the ordinance conditions that relate to noise, lighting, hours, security and dust. Absent [the ordinance], CNX’s permit could be invalidated. However, CNX would no longer need a ‘zoning compliance permit’ to operate the Porter Pad.”
Dissenting opinions
Judge McCullough dissented and would remand the case back to the board to receive additional evidence as to how the ordinance is compatible with the ERA. Reading Robinson Township II in concert with PEDF, Judge McCullough believed that if it was unconstitutional for the General Assembly to permit natural gas development in all zoning districts, so too must it be unconstitutional for the township to do so through its zoning ordinance. Significantly, she would switch the burden of proof in a substantive validity challenge and require the township to make an evidentiary showing to prove that the ordinance did not violate the ERA. She also opined that the ordinance “should be subjected to strict scrutiny and analysis in the same manner that courts provide to other fundamental rights.”
Judge Ceisler filed a separate dissent noting that although she agreed with much of the majority’s reasoning, she did not agree with the conclusion that the ordinance does not violate the ERA. She would find that the ordinance facially violates the ERA and does not comport with the township’s duties as the environmental trustee of all the public natural resources within its domain.
What’s next?
The objectors do not have an automatic right to appeal this decision to the Pennsylvania Supreme Court. However, within 30 days of the Commonwealth Court decision, they can petition the Supreme Court to consider the case. If the Supreme Court declines to take the case, the Commonwealth Court decision will remain as controlling law. If the Supreme Court accepts the appeal, the parties will brief and argue the case before the court.
On the same day it heard oral argument in Frederick (November 14, 2016), the same panel of the Commonwealth Court (Judges Leadbetter, McCullough, and Wojcik) heard argument in Delaware Riverkeeper Network v. Middlesex Township Zoning Hearing Board―another substantive validity challenge to a municipality’s decision to allow shale drilling in areas beyond industrial zoning districts. On June 7, 2017, the Commonwealth Court decided Delaware Riverkeeper in an unreported opinion, affirming the validity of the challenged ordinance. Delaware Riverkeeper Network v. Middlesex Twp. Zoning Hearing Bd., No. 1229 C.D. 2015, 2017 WL 2458278 (Pa. Cmwlth. June 7, 2017). As part of its analysis there, the Commonwealth Court applied the three-part Payne v. Kassab test for measuring compliance with the ERA. However, as discussed above, on June 20, 2017 the Supreme Court decided PEDF, which rejected Payne v. Kassab as the applicable test.
In addition, on June 1, 2018, the Supreme Court issued its opinion in Gorsline, referenced above. Although the Supreme Court, in a 4-3 decision, reversed Fairfield Township’s approval of a conditional use for an unconventional gas well pad, it did so on narrow grounds related to the “savings clause” language of the zoning ordinance there, specifically whether the well pad was “similar” to other uses in the applicable zoning district. However, the Gorsline majority concluded with language rejecting the objectors’ contention that oil and gas development was “incompatible” with uses in rural and agricultural districts, thus recognizing that zoning decisions are inherently local matters and local municipalities are empowered to “permit oil and gas development in any or all of its zoning districts.” In addition, the Gorsline majority cautioned that its narrow holding “should not be misconstrued as an indication that oil and gas development is never permitted in residential/agricultural districts, or that it is fundamentally incompatible with residential or agricultural uses.” Gorsline, 186 A.3d at 389.
On August 3, 2018, Supreme Court vacated and remanded Delaware Riverkeeper, directing the Commonwealth Court to reconsider its decision in light of PEDF and the above-quoted language in Gorsline. A decision from the Commonwealth Court is pending.
Babst Calland represented CNX in this matter. For more information regarding issues relating to land use and municipal implications of the Commonwealth Court’s decision, contact Blaine A. Lucas at 412-394-5657 or blucas@ babstcalland.com or Robert Max Junker at 412-773-8722 or rjunker@babstcalland.com.
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The PIOGA Press
(by Lisa M. Bruderly and Gary E. Steinbauer)
Recent developments regarding two facets of Clean Water Act (CWA) regulation could affect natural gas pipeline siting/permitting and exploration and production activities in Pennsylvania and elsewhere. The first issue is the ongoing challenge to define “waters of the United States,” with the definition recently changing in Pennsylvania. The second issue is the concept of Clean Water Act liability extending to releases to ground water that eventually make their way to surface water (known as the “conduit” theory of liability).
Definition of “water of the United States”
It is widely known that in 2015 the Obama administration promulgated a new definition of the term “water of the United States” (WOTUS) in a rule commonly referred to as the Clean Water Rule (CWR). Industry and states promptly filed lawsuits challenging the CWR as an unlawful expansion of the types of waters subject to regulation under the CWA. Among other issues, the expanded definition increased the types of waters that were subject to U.S. Army Corps of Engineers and Environmental Protection Agency (EPA) jurisdiction. With the increased scope of federal jurisdiction, a pipeline project or exploration and production activities could impact a larger quantity of waters that were now considered to be regulated and require more complicated, costly and time-consuming permitting under Section 404 of the CWA. In some instances, a project could not be permitted due to the extent of impacts.
Almost immediately after the CWR was issued, lawsuits challenged it. Until 2018, the CWR was stayed (i.e., suspended) throughout the United States based on a nationwide injunction issued by the Sixth Circuit Court of Appeals. The nationwide judicial stay was lifted following a decision by the U.S. Supreme Court on January 22, 2018, which invalidated the Sixth Circuit’s nationwide injunction, holding that the federal trial courts, rather than federal appellate courts, had original jurisdiction to hear the lawsuits challenging the CWR. Nat’l Ass’n of Mfrs. v. DOD, 138 S. Ct. 617 (2018). As a result of the Supreme Court’s decision, the CWR remained stayed in 13 states based upon a previous injunction issued by a federal district court judge, but was expected to come into effect in the remainder of the country when the Sixth Circuit vacated its preliminary injunction. To delay the implementation of the CWR, EPA and the Corps finalized a rule adding a CWR applicability date of February 6, 2020. This so-called “Suspension Rule” was intended to give the agencies time to reconsider the CWR and again re-define WOTUS, as they had been directed to do by Executive Order 13778 issued by President Donald Trump in February 2017.
The Suspension Rule remained in effect, and the CWR remained stayed nationwide, throughout much of 2018, until, on August 16 a South Carolina district court overturned it on procedural grounds and imposed a nationwide injunction on the Suspension Rule. See S.C. Coastal Conserv. League v. Pruitt, 318 F. Supp. 3d 959 (D.S.C. 2018).
Following the South Carolina district court’s decision, other federal district courts subsequently enjoined the CWR in various states. As of October 31, the CWR (and the 2015 definition of WOTUS, is in effect in 22 states, including Pennsylvania, Ohio, New York, Maryland, New Jersey and the New England states. In contrast, the Corps’ and EPA’s 1986 and 1988 regulations and related guidance will continue to define the scope of federal jurisdiction for now in the remaining 28 states.
For now, and unless the South Carolina district court’s decision is overturned or temporarily stayed, the state-dependent definition of WOTUS could have significant and immediate permitting, compliance, and enforcement implications for natural gas production, processing and pipeline projects.
Within states like Pennsylvania, where the CWR currently is in effect, developers may be faced with more complicated, lengthy and expensive CWA Section 404 permitting actions and mitigation obligations. In instances where delineations have been competed but permits have not been issued, the change in regulatory definition may result in additional site evaluations or application revisions or both. In addition, interstate projects will require state-specific consideration of the different definitions of WOTUS, realizing that certain streams and wetlands may be regulated as WOTUS in one state but not in a neighboring state.
Against this backdrop of an inconsistent regulatory patchwork where the scope of the CWA varies by state, the agencies are pressing forward with their plans to repeal the CWR and potentially redefine WOTUS. The anticipated timetable for the agencies to repeal the CWR and recodify the pre-2015 regulatory definition of WOTUS is late 2018. Concurrently, the agencies have been developing a separate rule which would redefine WOTUS and have indicated that this rule will be proposed in March 2019, a four-month delay from previously announced plans.
Groundwater conduit theory
Another recent development involves the potential expansion of CWA liability for pollutants entering groundwater. In 2018, three federal appellate courts issued conflicting decisions in five separate citizen suits alleging that CWA liability extends to discharges of pollutants that reach WOTUS via hydrologically connected groundwater. The basic yet fundamental question in each of these, and several other pending district court cases, is whether CWA liability can be asserted when a “point source” discharge travels through groundwater, serving as a “conduit,” before ultimately reaching a jurisdictional surface water.
Under the current legal landscape, the Fourth and Ninth Circuits have ruled that CWA liability extends to such discharges. The tests for liability in the two courts differ, with the Fourth Circuit adopting the “direct hydrological connection” test and the Ninth Circuit adopting the “fairly traceable” test. On the other hand, the Sixth Circuit has rejected the “direct hydrological connection” rationale and ruled that the groundwater “conduit” theory is inconsistent with the plain language of the CWA. The courts have also examined the meaning of “point source,” defined under the CWA as a “discernible, confined, and discrete conveyance” 33 U.S.C. § 1362(14). Pennsylvania is located in the Third Circuit, which has not, yet, issued any opinions directly addressing the “conduit” theory.
With varying results and areas of focus, the “conduit” theory of CWA liability recently has been raised in citizen suits by environmental groups in a variety of different contexts, including the following:
- The Ninth Circuit found that separately permitted wastewater injection wells with a dye-tracer confirmed hydrological connection (through lava tubes) to the Pacific Ocean are regulated under the CWA. Hawai’i Wildlife Fund v. County of Maui, 886 F.3d 737 (9th Cir. 2018).
- The Fourth Circuit found that allegedly ongoing contamination seeping through groundwater from a previously repaired gasoline pipeline rupture is regulated under the CWA. Upstate Forever v. Kinder Morgan Energy Partners, 887 F.3d 637 (4th Cir. 2018).
- The Fourth Circuit also found that coal ash settling ponds and landfills are not “point sources” or “discernible, confined, and discrete conveyances” and therefore are not regulated under the CWA. Sierra Club v. Virginia Electric Power Co., 903 F.3d 403 (4th Cir. 2018).
- The Sixth Circuit found that seepage of pollutants from coal ash ponds/impoundments that migrated through karst topography to nearby surface water is not regulated by the CWA. Kentucky Waterways Alliance v. Kentucky Utilities Co., 905 F.3d 925 (6th Cir. 2018); Tennessee Clean Water Network v. Tennessee Valley Auth., 905 F.3d 436 (6th Cir. 2018).
Similar to the existing legal landscape regarding the definition of WOTUS, the conflicting decisions of the Fourth, Sixth, and Ninth Circuits over the viability of the groundwater “conduit” theory result in an arguably broader scope for CWA liability in the 14 states and two territories within the Fourth and Ninth Circuits and a narrower scope of CWA liability in the four states within the Sixth Circuit. The clear split among these circuits on the scope of CWA liability increases the likelihood that the Supreme Court will weigh in on this important issue. In fact, the defendants in the Upstate Forever v. Kinder Morgan and Hawai’i Wildlife Fund v. County of Maui matters have already filed petitions for a writ of certiorari seeking Supreme Court review.
Natural gas, oil and other hazardous liquid pipeline operators could be specifically affected by the “conduit” theory decisions, as evident by the ruling in Upstate Forever v. Kinder Morgan. The Upstate Forever decision has the potential to significantly expand the scope of the CWA to cover a wide range of unplanned and unintentional discharges that reach surface waters through complex underground pathways. Furthermore, allowing CWA citizen suits to continue after the source of the discharge has been stopped increases exposure for entities that have taken actions to correct a leak or to address residual groundwater contamination through remediation.
Notwithstanding the differences in opinion among these federal appellate courts, as a result of the Sixth Circuit decisions regulated parties in CWA lawsuits now have recent persuasive precedent to rely upon when facing allegations of an unauthorized discharge under the CWA from ponds, impoundments, lagoons, landfills and other similar sources.
Conclusion
In the midst of the ongoing litigation over the CWR, the agencies’ recent efforts to roll back the CWR and redefine WOTUS, and the clear split among federal appellate courts on the legitimacy of the groundwater “conduit” theory, companies engaged in natural gas pipeline siting/ permitting and exploration and production activities face an evolving scope of CWA regulation, with state-by-state differences and likely changes due to future judicial decisions and executive actions.
Babst Calland will continue to monitor these significant legal developments under the CWA. If you have questions about the topics discussed in this article or how they may impact your operations and compliance obligations, contact Lisa M. Bruderly at 412-394-6495 or llbruderly@babstcalland.com, or Gary E. Steinbauer at 412-394-6590 or gsteinbauer@babstcalland.com.
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Insitute for Energy Law Oil & Gas E-Report
(by Jean M. Mosites)
On June 1, 2018, the Pennsylvania Supreme Court largely affirmed and partially vacated a November 8, 2016 temporary injunction granted to the Marcellus Shale Coalition (MSC) in its challenge to several new regulations that had been promulgated by the Pennsylvania Environmental Quality Board on October 8, 2016.
MSC had filed a Petition for Review of limited sections of the new Chapter 78a Regulations on October 13, 2016, seeking expedited relief in the form of a temporary injunction of the challenged regulations pending review and resolution on the merits.
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The PIOGA Press
(by Keith J. Coyle)
The Pipeline and Hazardous Materials Safety Administration (PHMSA) is expected to finalize new regulations for issuing emergency orders in the coming weeks. The new regulations represent the culmination of a rulemaking process that PHMSA began two years ago during the final months of the Obama administration.
The Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (PIPES Act) gave PHMSA the authority to issue emergency orders if “an unsafe condition or practice, or a combination of unsafe conditions and practices, constitutes or is causing an imminent hazard[.]” 49 U.S.C. § 60117(o)(1). The PIPES Act directed PHMSA to establish temporary regulations for exercising that authority by no later than August 21, 2016, and final regulations by no later than March 19, 2017.
On October 14, 2016, PHMSA adopted temporary regulations for issuing emergency orders in an interim final rule. Federal agencies can adopt regulations in an interim final rule without providing the public with prior notice or the opportunity to comment, provided that good cause is shown under the Administrative Procedure Act. Stating the statutory deadline in the PIPES Act met the good cause standard, PHMSA established the temporary emergency order regulations as an interim final rule and provided a 60-day, post-publication comment period.
The temporary regulations set out the procedural requirements for issuing emergency orders and obtaining administrative review. Like the good cause exception in the Administrative Procedure Act, the PIPES Act authorizes PHMSA to issue an emergency order without providing prior notice or the opportunity for a hearing if an imminent hazard exists. PHMSA must consider certain factors before issuing an emergency order, and the order itself must contain specific information about the nature of the imminent hazard, the entities affected, the restrictions, prohibitions, or safety measures imposed, and the procedures for obtaining relief.
The temporary regulations created an expedited, two-track process for obtaining administrative review of an emergency order. A petitioner either can seek a formal hearing before an administrative law judge or request a decision without a formal hearing from the Associate Administrator for Pipeline Safety. PHMSA must issue a final decision within 30 days of receiving the petition in either scenario. Consistent with the PIPES Act, the temporary regulations acknowledge that expedited judicial review of an emergency order can be sought in the federal district courts.
Six industry trade associations and two pipeline operators submitted comments expressing concerns with various aspects of the temporary regulations. Several of the commenters asked PHMSA to consider changing the substantive standards that apply to the issuance of emergency orders and the procedural requirements that apply in obtaining expedited judicial review, including by adding further due process protections. The Administrative Procedure Act requires PHMSA to consider these comments in developing the final regulations. According to the U.S. Department of Transportation’s latest Significant Rulemaking Report, PHMSA hopes to issue those regulations in October 2018.
PHMSA’s final emergency order regulations could have an important impact on the future of the pipeline industry. In describing the particular circumstances that might warrant the issuance of an emergency order, PHMSA has identified natural disasters affecting a specific geographic region, serious manufacturing flaws and incidents caused by unsafe industry practices. PHMSA has stated that in these cases an emergency order could be issued imposing restrictions, prohibitions, or safety measures on all affected pipeline operators. Because that order can be issued without prior notice and the opportunity for a hearing, the provisions included in PHMSA’s final regulations will play an important part in ensuring that the pipeline industry is afforded due process in obtaining expedited administrative and judicial review.
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Pratt’s Energy Law Report
(by James Curry, Keith J. Coyle, and Brianne K. Kurdock)
The Pipeline and Hazardous Materials Safety Administration recently published an advance notice of proposed rulemaking asking for public comment on whether the Agency should change its class location requirements for gas pipeline facilities. The authors of this article discuss the class location requirements, the notice of proposed rulemaking, and what’s next.
The Pipeline and Hazardous Materials Safety Administration (“PHMSA” or the “Agency”) has published an advance notice of proposed rulemaking (“ANPRM”) in the Federal Register asking for public comment on whether the Agency should change its class location requirements for gas pipeline facilities. Specifically, PHMSA sought comment on alternatives to pipe replacements driven by class location changes. Adopted nearly five decades ago, PHMSA’s class location requirements use population density and surrounding land uses to categorize the potential risk that gas pipeline facilities pose to public safety.
OVERVIEW
The Agency asked the public to comment on whether the class location requirements should be updated to account for recent developments in the pipeline industry, particularly the widespread use of integrity management (“IM”) principles and new technologies. The current regulations require operators to reduce pressure, replace pipe, or conduct hydrostatic pressure testing in response to class location changes, and PHMSA is considering whether other alternatives should be available. Comments were due to the Agency on or before October 1, 2018.
The ANPRM is PHMSA’s first new pipeline safety rulemaking proceeding in the Trump era. The Agency began examining the need to modernize the class location regulations several years ago in response to a mandate that Congress included in the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, and PHMSA is framing the ANPRM as an extension of that earlier effort. The Agency’s decision to issue the ANPRM sends a strong signal about its commitment to President Donald Trump’s regulatory reform agenda and willingness to address an issue of longstanding concern to the pipeline industry.
As the pipeline industry indicated in previous comments to PHMSA, the class location concept predates the extension of IM principles to the pipeline industry by several decades, and public safety could be improved if IM measures are implemented as an alternative to pressure reductions, pipe replacements, or hydrostatic pressure testing. PHMSA has identified several topics that should be considered in responding to the ANPRM, including whether pipelines with certain integrity or recordkeeping issues should be excluded from any potential changes to the class location regulations. In commenting on the ANPRM, the pipeline industry may have focused on these specific areas, in support of the broader goal of ensuring that PHMSA does not pursue regulatory changes that are unnecessarily restrictive, unduly burdensome, or overly complex.
WHERE DID CLASS LOCATIONS COME FROM?
The class location concept first appeared in the 1955 edition of Section 8 of American Standard Code for Pressure Piping (“B31.1.8-1955”). The B31.1.8- 1955 required operators to use one-mile and 10-mile population density indexes, as measured along a half-mile-wide zone laid out along the centerline, to determine the class location of a pipeline segment at the time of construction.
Four class location categories were originally recognized in the B31.1.8-1955:
• Class 1 locations, which included unpopulated areas such as “waste lands, deserts, rugged mountains, grazing land, and farm land.”
• Class 2 locations, which included “[f]ringe areas around cities and towns” and other “farm and industrial areas.”
• Class 3 locations, which included more developed residential or commercial areas with buildings that did not exceed three stories in height.
• Class 4 locations, which included areas with buildings of four or more stories in height, heavy traffic, and other underground utilities. The B31.1.8-1955 applied a design factor to the construction and testing of a pipeline within each class location. That design factor served to provide a higher margin of safety for pipelines in more densely populated areas and other at-risk locations, like road or highway crossings.
The 1968 edition of B31.8 (“B31.8-1968”) included new provisions to address class location changes that occurred after pipeline construction. The B31.8-1968 required operators to conduct periodic inspections of higher stress pipelines operating at pressures above 40 percent of specified minimum yield strength (“SMYS”) to detect potential changes in class location. If an increase in population density indicated that hoop stress of the pipeline was no longer commensurate with the current class location, an operator also had to conduct a study and take appropriate action to confirm or revise the pipeline’s maximum allowable operating pressure (“MAOP”).
PHMSA incorporated the B31.8-1968’s class location concept in the 1970 final rule that established the original minimum federal safety standards for gas pipeline facilities. In so doing, the Agency eliminated the 10-mile population density index; narrowed the zone that operators had to evaluate for human occupancy purposes to one-eighth mile on either side of the centerline; reduced the number of buildings that served as the limiting factor for Class 1 and Class 2 locations; modified the definitions of a Class 3 and Class 4 location; and introduced the “sliding mile” approach for conducting class location surveys. That sliding mile approach required operators to consider the number of buildings intended for human occupancy within a 1-mile-long “class location unit” that moves continuously along a pipeline’s centerline.
PHMSA also added a provision allowing operators to adjust the boundaries of a pipeline’s class location to accommodate clusters of buildings intended for human occupancy. Without that provision, the presence of a cluster of buildings in a defined area, such as a road crossing, would increase the class location for the entire sliding mile. To avoid that result, PHMSA allowed operators to end the class location designation 220 yards from the nearest building in the cluster.
HOW ARE CLASS LOCATIONS USED TODAY?
The original class location regulations have remained largely intact since PHMSA issued the 1970 final rule. Four class locations are recognized in the current regulations:
• Class 1, which includes an offshore location, or a class location unit with 10 or fewer buildings.
• Class 2, which includes a class location unit with more than 10, but fewer than 46 buildings.
• Class 3, which includes a class location unit with 46 or more buildings, or an area where the pipeline lies within 100 yards of either a building or a small, well-defined outside area (such as a playground, recreation area outdoor theater, or other such place of public assembly) that is occupied by 20 or more people on at least five days a week for 10 weeks in any 12-month period.
• Class 4, which includes a class location unit where buildings with four or more stories above the ground are prevalent.
Operators have the option of using “the cluster rule” to limit a pipeline’s class location to 220 yards in either direction from the nearest building in the cluster.
Class location affects the design and construction requirements and operation and maintenance activities that must be performed on a pipeline. Class location also plays an important role in establishing MAOP, the highest pressure that a pipeline may experience under PHMSA’s regulations. MAOP is typically based on the pipeline’s design pressure, a percentage of the post-construction test pressure, or the maximum safe operating pressure, whichever is lower. A
more conservative safety factor is applied in determining MAOP as the class
location increases.
An operator must take certain actions to review and confirm that the MAOP for a pipeline remains commensurate if a segment experiences a change in class location. These actions, which must be completed within two years of the class location change, include:
• reducing the MAOP of the affected pipeline segment;
• replacing the existing pipe;
• reconfirming the current MAOP based on existing records; or
• conducting a new pressure test to reestablish the MAOP.
While occurring with less frequency in recent years, some operators have asked PHMSA for special permits when class location changes occur. A special permit is an order waiving an operator’s obligation to comply with a requirement in the pipeline safety laws or regulations. PHMSA only issues a special permit if the operator demonstrates that granting the waiver would not be inconsistent with pipeline safety. Special permits also include additional terms, conditions, and limitations where necessary to maintain safety, protect the environment, or serve the public interest.
WHAT’S IN THE ANPRM?
The Agency asked for public comments on 10 different questions in the ANPRM, including whether an IM alternative should be available for multi-level class location changes, i.e., from Class 1 to Class 3 or Class 2 to Class 4, and class location changes due to additional structures built outside of clustered areas. PHMSA also asked whether there should be any situations or conditions that would make a pipeline segment ineligible for an IM alternative, e.g., if the pipe is grandfathered, operates above 72 percent SMYS, has been manufactured with material or seam welding processes known to have integrity issues, has failure or leak history, has significant corrosion, has been damaged or lost ground cover, or has a history of seam failures.
In addition, PHMSA asked whether there should be maximum diameter, pressure, or potential impact radius limits on an operator’s ability to use integrity management measurements, and whether the IM alternative should only be available to operators that have traceable, verifiable, and complete records. The Agency raised other topics as well, including whether the conditions from class location change special permits should be incorporated into the regulations and whether operators consult growth and development plans to avoid costly pipeline change-outs. Finally, PHMSA asked for more detailed information about the amount of pipe currently being replaced due to class location change-outs and the total costs associated with class location compliance.
WHAT’S NEXT?
The ANPRM is the first step in what is likely to be a lengthy rulemaking process. After reviewing the initial round of public comments, PHMSA may issue a notice of proposed rulemaking (“NPRM”) proposing regulatory changes. PHMSA would need to provide an opportunity for public comment and present the proposal to the Gas Pipeline Advisory Committee (“GPAC”), the federal advisory committee that reviews the Agency’s proposed changes to the gas pipeline safety regulations. Once the GPAC process is complete, PHMSA may issue a final rule. While the exact course and timing cannot be predicted with certainty, it is likely that the Agency will need several years to complete this rulemaking process.
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PGHTECH FUSE
(by Justine Kasznica)
Mobility can be broadly defined as the movement of people, goods and information, and is consciously used here as a catchall term to describe a rapidly evolving ecosystem. Advancements in machine learning, artificial intelligence (AI), big data and connected systems (Internet of Things-IoT), applied against a backdrop of increased social and cultural acceptance of new technologies (such as autonomous systems, as well as enhanced capabilities of electric batteries and power/communications systems), as well as new economic models (such as the shared economy and Robot as a Services (RaaS) business models), have led to an unprecedented disruption of industries within the mobility ecosystem.
These industries range from automotive, rail, shipping, aviation industries to last-mile logistics and commercial space – essentially, any industry that builds or supports vehicles or systems that move on or through land, air, sea and space.
It is difficult to ignore the changing mobility landscape. For perspective, market forecasts predict that the IoT market alone will grow to $267 billion by 2020 and $640 Billion by 2022, and that as much as half of the IoT market will be attributable to spending on discrete manufacturing, transportation and logistics.
Despite these optimistic projections, full realization of the beneficial potential of this new era of mobility will be impossible unless industry participants give adequate priority and attention to critical policy issues related to system functionality/safety, data rights, security/rogue users, and product liability that, if left unaddressed, will become a barrier to widespread and sustainable adoption of these technologies. Specifically, industry participants should consider the following.
• System Functionality; Safety. “Is it safe?” This is the threshold question asked by those interacting with any autonomous or AI-enabled mobility technology. The question of safety is challenging, because the definition of safety is relative and tied to a particular community’s risk tolerance. A data-driven, design-centered and consensus-based narrative for system safety is critical in order for industry to demonstrate that a system is safe, and to gain the trust of the system’s end users, evaluators and critics.
• Data Rights. Autonomous mobility systems are powered by data. In the current climate of regulatory variability and legal uncertainty related to data rights and usage, industry stakeholders in the mobility space are encouraged to understand their legal obligations and collaborate with other stakeholders as appropriate to develop industry best practices related to the collection and use of data.
• Security/Rogue Users. With the growing sophistication and frequency of cybercrime, and the ability for criminal actors to weaponize robots, the widespread adoption of autonomous mobility systems creates new opportunities for unprecedented attacks with potentially disastrous outcomes. Industry stakeholders should develop best practices for designing secure systems, identifying and eliminating system vulnerabilities, mitigating damages in the event of security incidents, and enabling law enforcement to identify and prosecute rogue actors efficiently.
• Product Liability. The advent of autonomy raises significant questions related to product liability, particularly as systems move towards full autonomous decision-making. When an incident involving an autonomous system leads to injury or damages, however, who is to blame? This is largely an open question, and such questions will need to be addressed and resolved, likely with involvement from insurance companies, in order for industry stakeholders to understand their liability exposure.
Industry Confidence
One of the greatest killers of nascent technology is industry uncertainty, and such uncertainty is often caused by a lack of consensus over what rules should apply. While over-regulation in the early days of an emerging market can stifle technological progress and innovation and often draws ire from the technologists, the lack of a coherent regulatory and legal framework thoughtfully tailored to the unique needs of an industry can paralyze long-term progress.
Many of the above-described challenges facing the autonomous mobility ecosystem can be addressed by industry stakeholders working together with one another and alongside regulators and policymakers to architect sound standards and policies that promote safe and beneficial technology innovation designed for that industry. In order for humans to reap the full benefits of autonomous mobility technologies, a balance must be struck between encouraging technological innovation and minimizing its risks. In short, the flywheel of autonomous mobility is turning, but industries must act now to help build a policy environment that will help carry the flywheel into a positive era of mobility.
For more information regarding these issues, contact Justine M. Kasznica, shareholder in Babst Calland’s Mobility, Transport and Safety practice at (412) 394-6466 or jkasznica@babstcalland.com.
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Pittsburgh Post-Gazette
(by Keith J. Coyle)
A pipeline incident that occurred in Beaver County earlier this week is bringing increased attention to the issue of pipeline safety. Many residents are concerned about the pipelines that pass by their homes, schools, and places of business. Some are even going a step further and calling for a statewide moratorium on all pipeline construction.
I’ve spent the past decade working on pipeline safety issues as an attorney-advisor for the Pipeline and Hazardous Materials Safety Administration (PHMSA), a member of Governor Wolf’s Pipeline Infrastructure Task Force, and an attorney in private practice.
I understand the anxiety that people feel after a pipeline incident. They want to know that their families are safe, and that the folks in charge are doing what is necessary to protect public safety.
Every incident serves as a reminder of the additional work that needs to be done to make pipelines safer. But that does not mean that we should ignore the important role that pipelines play in improving our lives or disregard the efforts that are being made to build upon the industry’s strong safety record.
Pipelines are a critical part of the nation’s energy infrastructure. There are more than 2.7 million miles of pipelines in the United States, and Pennsylvania is home to approximately 91,000 miles of pipelines, according to the latest PHMSA data.
These lines carry the energy products that heat our homes, run power plants, provide fuel for transportation, and deliver the feedstock that is used to make countless consumer goods.
Pipelines are the safest and most reliable means of transporting energy products. The Frasier Institute, a Canadian-based research organization, found in a recent study that pipelines are 4.5 times safer than other comparable modes of energy transportation.
PHMSA’s data shows that the number of serious pipeline incidents involving fatalities or injuries has gone down significantly over the past two decades, from 70 in 1998 to 26 in 2017.
While pipelines are the safest means of transporting energy, the industry is committed to further improving safety. According to a 2015 report from the American Gas Foundation, the pipeline industry invests about $21 billion per year on safety.
These investments fund critical pipeline operations, maintenance, and integrity management activities; research and development initiatives for the next generation of pipeline safety technologies; public awareness, education, and community outreach programs; and the repair, replacement, and rehabilitation of high-risk infrastructure.
A statewide moratorium on pipeline construction will make Pennsylvania less safe. According to the latest data from the U.S. Energy Information Administration, natural gas is the primary heating fuel for 51 percent of Pennsylvania households. and the second largest fuel source for electricity generation..
Banning new infrastructure development would place Pennsylvania’s existing pipeline infrastructure under increasing strain in the meantime, and consumers would face energy supply shortages and increased prices. Power plants would be idled, schools and hospitals would be closed, homes would be left without heat, and stores would no longer be able to sell basic consumer products.
The industry’s first priority is pipeline safety. Better results can only be achieved if we recognize the ways that pipelines improve our lives, and how different the world would be if they did not exist. That world would not be a safer place, which is why I urge Pennsylvanians to oppose a ban on pipeline construction.
Mr. Coyle, a Pennsylvania native, is a member of Babst Calland’s Washington D.C. practice where he specializes in energy, environmental and transportation safety. Previously, he served as an attorney-advisor for the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration, the federal agency responsible for overseeing the safety of that infrastructure.
This Pittsburgh Post-Gazette Op-Ed can also be found here.
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The PIOGA Press
(by Jean M. Mosites)
On August 23, the Commonwealth Court issued a unanimous opinion in The Marcellus Shale Coalition v. Department of Environ mental Protection and Environmental Quality Board, 573 M.D. 2016 invalidating portions of the new prepermit process created in 25 Pa. Code §§ 78a.1 and 78a.15(f) and (g), pertaining to new “public resources.” The Marcellus Shale Coalition (MSC) challenged the provisions as unlawful and unreasonable, seeking declaratory and injunctive relief.
There is no statutory right to judicial review of new regulations in Pennsylvania. Such challenges must proceed in the form of a declaratory judgment action in the Commonwealth Court or “as applied” in an appeal before the Environmental Hearing Board on a case-bycase basis. The latter course can be duplicative, lengthy and costly, offering only piecemeal relief. MSC challenged portions of the new Chapter 78a regulatory package through a declaratory judgment action in October 2016, seeking relief for its members from regulations beyond the scope of the Environmental Quality Board’s authority, regulations with high cost and little discernible benefit.
Count I of MSC’s Petition for Review challenged Sections 78a.15(f) and (g) and the related definitions contained in Section 78a.[1] of the Chapter 78a regulations. The provisions created a new pre-permitting process for well permit applicants, requiring new notice and comment opportunities in addition to those expressly authorized by Act 13, as adopted in 2012.
Following MSC’s Petition for Review, the Commonwealth Court preliminarily enjoined application of portions of the regulations on November 8, 2016.1 MSC filed an application for partial summary relief on Count I on August 31, 2017. Pending review of that application, the Pennsylvania Supreme Court affirmed the grant of preliminary injunctive relief as to Count I on June 1, 2018. 185 A.3d 985 (Pa. 2018).[2]
In its decision on the merits of Count I, the Common – wealth Court invalidated new public resources and new public resource agencies that had been created by the Environmental Quality Board beyond its legal authority.[1]
The court held that by defining “other critical communities” to include “species of special concern,” Section 78a.1 unlawfully expanded the list of public resources identified in Section 3215(c) of Act 13. The court further held that the regulatory definition of “other critical communities” as including “species of special concern” included in the Pennsylvania Natural Diversity Inventory (PNDI) database violates the Commonwealth Documents Law, circumventing rulemaking requirements for notice and comment by the public.
The court also held that the regulatory definitions of “common areas of a school’s property” and “playground” are not of the same general class or nature as their statutory counterparts. The court declared that the regulatory definition of “playground” is so broad as to defy quantification and compliance, the sheer diversity of which renders the regulation unreasonable. The court concluded that the addition of these new “public resources” was unlawful.
The court also concluded that the addition of “playground owners” as a public resource agency is void. Given the definition of “playground,” playground owners are not easily identifiable and they are neither government agencies nor “trustees” with any duties or obligations to protect the environmental trust under Article I, Section 27 of the Pennsylvania Constitution.
Finally, the court concluded that Section 78a.15(g)’s requirement that DEP will consider comments and recommendations submitted by municipalities fails absent statutory authority. In Robinson Township v. Commonwealth, the Supreme Court had invalidated Section 3215(d) which provided that DEP “may consider the comments submitted under section 3212.1 (relating to comments by municipalities and storage operators) in making a determination on a well permit.” 83 A.3d 901 (Pa. 2013).
On the other hand, the court concluded that the department may seek information from well applicants and comments from public resource agencies as part of its impact consideration required under Section 3215(c) of Act 13, limited in accordance with this decision. The court declined to invalidate Section 78a.15(g) of the regulation as unconstitutionally vague, leaving further evaluation of the legal limits of the regulation to be made on a case-by-case basis. The court also declined to invalidate the regulation for DEP’s failure to estimate the costs of mitigation of impacts to public resources, finding no evidence to suggest that the Independent Regulatory Review Commission’s review was thwarted by the lack of a cost estimate.
The court’s decision confirms that the obligations of oil and gas operators seeking well permits under Act 13 and Chapter 78a related to public resources are consistent with those obligations as they existed before Chapter 78a was adopted in October 2016. What is new is the addition of an express regulatory notification obligation that had been part of industry practice for the protection of threatened and endangered species and listed resources, such as scenic rivers, national landmarks and archaeological sites.
The court has tentatively scheduled oral arguments on the remaining counts in October.
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The Legal Intelligencer
(by Lizzy McLellan)
As more large firms restructure into multidisciplinary industry-focused groups, the niche practices emerging resemble some of the services midsize firms have been offering for years, or sometimes decades.
With increasing competition in the legal industry, and Big Law more often competing for the middle-market work midsize firms were built on, midsize firm leaders have been bullish about maintaining and expanding their specialized practices.
Babst, Calland, Clements and Zomnir, based in Pittsburgh, was built on a niche focus in environmental law from the start, and has expanded on that over the years, managing shareholder Donald Bluedorn said.
“Our philosophy is to pick specific areas and put together teams with as much sophistication as anyone in the country,” Bluedorn said, then deliver those services “at a lower price point.”
Since, the firm has added other niche practices that grow naturally from its environmental roots. ”We don’t just look for bolt-on practices,” Bluedorn said.
So when the Marcellus Shale play created business opportunities in Pennsylvania, the firm seized on the opportunity to grow an energy practice, which would co-mingle well with environmental law. And when it saw a chance to get involved with pipeline safety, it built on an already established regulatory practice in Washington, D.C., as well as the energy and environmental practices.
“We like to see multiple touchpoints with these areas we have,” Bluedorn said. “We really try to do a very conscious, well-thought-out approach.”
Most recently, the firm has built on that regulatory practice again, bringing together a mobility, transport and safety group to handle matters in the emerging area of unmanned aircraft, driverless cars and space technology. Timothy Goodman, a former U.S. Department of Transportation lawyer, leads that group, which recently added several other lawyers in Washington and Pittsburgh.
Bluedorn said the firm in most instances has added these practices as its lawyers observe shifts in the market, and “consciously identify the opportunity.” After hiring people in those areas, he said, the firm works quickly to educate its lawyers and clients on their practice, so the new niche is not “an island.”
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The Legal Intelligencer
(by Krista-Ann M. Staley and Amie L. Courtney)
While the setting may be significantly less formal—think a public works garage or community center gymnasium rather than a marble-columned historic landmark—standing requirements apply in the context of a zoning hearing as they do in a more formal courtroom setting. Therefore, whether representing a party seeking a zoning approval, a zoning hearing board or governing body considering a zoning application, or an objector, it is important to understand how to navigate the issue of standing during the initial proceeding.
The Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101, et seq., (MPC), the state’s zoning enabling legislation, clearly provides a “landowner” with standing to file a zoning application or pursue a zoning appeal. The statute broadly defines “landowner” as including the owner of the subject property, the holder of an option to purchase the property, an authorized lessee, or “other person having a proprietary interest in land”. However, Pennsylvania law does not provide a bright-line standard to determine whether a party has standing to object in a zoning proceeding. This is an important determination because a party with standing to object may cross-examine an applicant’s witnesses and present its own witnesses and evidence. A party with standing may also appeal the final determination. As a result, participation by an objector can significantly impact the path and outcome of a zoning case.
Pennsylvania case law provides a general framework to determine whether an objector has procedural and substantive standing, both of which are required to obtain “party” status in a zoning hearing. To have substantive standing, an objector must be “aggrieved” by having a direct interest in the subject of the proceeding that would be adversely affected by the action. This requires more than a general interest in the enforcement of zoning regulations; the objector must be able to demonstrate potential injuries or concerns that are greater than those of the general public. “Close proximity” to a proposed project may confer substantive standing, but what constitutes “close proximity” will depend upon the project; a resident a few blocks from a proposed sign may not be aggrieved by the project but a resident a half a mile from a power plant may.
In order to have procedural standing, an objector must participate in the zoning hearing. For a variance application, a special exception application, or an appeal from certain administrative decisions, this proceeding will be before the municipality’s zoning hearing board. For a conditional use application, this proceeding will be before the municipality’s elected governing body. The MPC requires a person affected by municipal action to make a “timely appearance of record.” Objectors must submit their concerns about the proposed action to the zoning hearing board or governing body considering the action. Given the common informality of these proceedings, Pennsylvania courts have had several opportunities to contend with what constitutes an “appearance” before the board. They have found, for example, that one cannot establish procedural standing without appearing before the board or submitting an objection, as in Leoni v. Whitpain Township Zoning Hearing Board, 709 A.2d 999 (Pa. Commw. Ct. 1998), but one can establish procedural standing by submitting to the deciding body a letter raising concerns, as in Orie v. Zoning Hearing Board of Borough of Beaver, 767 A.2d 623 (Commw. Ct. 2001).
An organization may also have standing to participate in a zoning proceeding if it can show it has either standing in its own right (i.e., it meets all of the procedural and substantive standing requirements) or derivate standing (i.e., at least one of its members is suffering an immediate or potential injury).
Whether challenging a party’s standing to file a zoning application or a party’s standing to participate as an objector, any claim that an individual or organization lacks standing must be asserted promptly. Failure to object to standing at the local level will waive the claim. There are no rules or regulations regarding the consideration of standing at the local level, so an objection to standing may result in a wide range of responses from the local body considering the zoning action. For example, some boards will simply note the objection and allow the proceedings to move forward with participation by all interested participants. Other boards may hold a mini-hearing on standing, including testimony and cross-examination, and make a ruling before proceeding to the merits of the case. An early decision on standing can have a significant impact on the path of the case, given the participation and appeal rights afforded to parties with standing.
The Commonwealth Court recently added Friends of Lackawanna v. Dunmore Zoning Hearing Board, 186 A.3d 525 (Pa. Commw. Ct. 2018), to its body of law on substantive standing. Friends of Lackawanna originated with an appeal from the borough zoning officer’s administrative decision that a proposed expansion of a landfill by Keystone Sanitary Landfill (Keystone) would comply with the borough’s zoning ordinance. The proposed expansion would add 165 feet to the height of the landfill and 46 years to its life. According to the zoning officer, the building height requirements applied to structures with a roof supported by walls or columns, and not to the landfill.
Various property owners (individual objectors) and a nonprofit organization, Friends of Lackawanna (FOL), (collectively, the objectors) appealed the opinion to the borough’s zoning hearing board (ZHB). Before proceeding to the merits of the case, the ZHB allowed testimony from the objectors regarding standing. Individual objectors testified that they lived between a quarter-mile and a half-mile from the landfill. They also testified to odors and dust coming from the existing landfill. One objector testified to seagull droppings on his property caused by the landfill. FOL presented testimony that an individual objector was a member of the organization and that it was involved in outreach and community involvement related to the proposed landfill.
The ZHB found that the objectors did not have standing to appeal the zoning officer’s opinion and the objectors appealed to the trial court. The trial court upheld the ZHB’s decision regarding standing. It determined that the individual objectors did not have a direct, immediate and substantial interest in the landfill expansion. It also determined that FOL did not have any interest other than a general interest shared by the public and lacked members who had standing.
On appeal to the Commonwealth Court, the objectors argued the individual objectors had standing because they lived in close proximity to the landfill and their properties were impacted by it. They argued that FOL had standing in its own right and as a representative of the individual objectors. The court reiterated the test for substantive standing, stating that a person must have a “substantial, direct and immediate interest” in the action being appealed that is different that an abstract interested held by all citizens. In Friends of Lackawanna, the court found that all the families lived in close proximity to the landfill. The court also found that the individual objectors complained of additional injuries that were different from concerns of the general public, including odors from the landfill, bird droppings and dust that affected their use and enjoyment of their properties. Finally, the court found that FOL had derivative standing on behalf of its members because individual objectors, who were FOL members, had standing.
Even though zoning proceedings can be untidy and informal, it is critical for anyone intending to participate, as either an applicant or objector, to be prepared to raise and defend a potential objection to standing. Failure to do so can result in significant delays and, in extreme circumstances, an avoidable adverse decision on the merits. Krista-Ann M. Staley is a shareholder and Amie L. Courtney an associate in the public sector services and energy and natural resources groups of the Pittsburgh law firm of Babst, Calland, Clements & Zomnir. Staley’s practice includes a variety of local regulatory matters, with a focus on land use. Courtney focuses her practice on zoning, subdivision, land development, and code enforcement matters.
*Reprinted with permission from the 8/23/18 issue of The Legal Intelligencer. © 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
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