West Virginia Executive
Despite the state legislature’s efforts, laws in West Virginia that allow pooling exclude shallow horizontal wells. Since wells drilled in the Marcellus Shale are considered shallow, creating a shallow pooling law may be the key to maximizing the state’s shale development.
PIttsburgh Business Times
As a result of a Pennsylvania Supreme Court decision, municipalities are adopting a greater number of ordinances that impact oil and gas operations, according to a new report by Pittsburgh law firm Babst Calland.
“Local governments are adopting, at an accelerated pace, ordinances that regulate the oil and gas industry’s operations, sometimes in a very aggressive and restrictive fashion,” the firm, which tracks local rule-making, said in the report.
The PIOGA Press
On February 11, the Occupational Safety and Health Administration (OSHA) issued a memorandum to all OSHA regional directors and state plan designees authorizing the addition of upstream oil and gas hazards to the list of high-emphasis hazards in the Severe Violator Enforcement Program (SVEP). This policy change is significant because
it permits OSHA to concentrate resources and enforcement efforts on oil and gas employers any time an incident meets the SVEP criteria.
Employment Bulletin
Individual, collective and class action lawsuits alleging misclassification of oil and gas industry employees under federal and state wage hour laws have flooded the Pennsylvania and Ohio dockets. This is occurring approximately two and a half years after the United States Department of Labor (DOL) prioritized an ongoing multi year enforcement initiative under the Fair Labor Standards Act (FLSA). By December 2014, this initiative resulted in more than 5,300 oil and gas industry employees recovering nearly $4.5 million in back wages for unpaid overtime and other wage violations.
The PIOGA Press
Recently, the United States Department of Labor (DOL) announced that it has helped more than 5,300 oil and gas workers recover nearly $4.5 million in back wages for unpaid overtime and other wage violations as a result of an “ongoing multiyear enforcement initiative” conducted by the DOL’s Wilkes-Barre and Pittsburgh Wage and Hour Division offices which found significant violations of the Fair Labor Standards Act (FLSA). The DOL found that the majority of the FLSA violations were due to improper payment of overtime. In many cases, employee’s production bonuses were not included in their “regular rate” of pay. In other cases, employers failed to pay overtime to employees that were paid day rates. The DOL attributed the wage violations in part to the structure of the oil and gas industry in Pennsylvania and West Virginia. According to the DOL, job sites “that used to be run by a single company can now have dozens of smaller contractors performing work, which can create downward economic pressure on lower level subcontractors,” which can lead to noncompliance with wage and hour laws and regulations.
Charleston Area Alliance
We would like to send out a warm welcome to our newest member of the Alliance, Babst Calland Clements & Zomnir, P.C.
Babst Calland is one of the most respected top-tier law firms in the mid-Atlantic United States. Their attorneys have the knowledge and experience needed to solve complex legal problems for corporations, private companies and organizations of all types. Babst Calland attorneys deliver a broad range of quality legal services, responding quickly and efficiently to answer questions and solve problems and litigate issues in federal state courts and before administrative tribunals. Babst Calland’s Charleston, WV office handles a wide range of legal issues that include a particular focus on natural gas and other energy related issues, as well as environmental, business services, title, litigation, land use, construction, and employment and labor law. Babst Calland just moved to their new office centrally located in the BB&T building in Downtown Charleston.
Employment Bulletin
On April 20, 2015, the United States Equal Employment Opportunity Commission (EEOC) issued its long-awaited Proposed Amendment to Regulations under the Americans with Disabilities Act (the “Proposed Rule”), which provides guidance on the EEOC’s application of the Americans with Disabilities Act (ADA) to employer wellness programs. Specifically, the Proposed Rule addresses: (1) whether a wellness program is considered “voluntary”; (2) what notice must be provided to employees concerning a wellness program; and (3) the limits to incentives or disincentives that may be provided by employers. While the Proposed Rule offers some much needed clarity to the EEOC’s position on wellness programs, it also raises several questions and concerns in an already muddied area of law. The publication of the Proposed Rule triggered a 60-day public notice and comment period. Employers sponsoring wellness programs are encouraged to submit comments by June 19, 2015.
The PIOGA Press
In a somewhat ironic twist, anti-industry residents and environmental groups have been relying on their victory in Robinson Township v. Commonwealth, 83 A.3d 901 (2013), which invalidated the statewide standardized land use control set forth in Act 13 and restored local land use control over oil and gas operations, to challenge local zoning ordinances that regulate oil and gas development. The challengers in these validity actions generally argue that, per the plurality’s expansion of the Pennsylvania Constitution’s Environmental Rights Amendment (ERA) in Robinson Township, each municipality must engage in substantial environmental and safety analysis prior to enacting oil and gas regulations or issuing permits thereunder. According to the challengers, an ordinance enactment process or permit review process that does not satisfy these requirements is invalid.
The Legal Intelligencer
The Pennsylvania Supreme Court recently rendered a decision in Reading Area Water Authority v. Schuylkill River Greenway Association, 100 A.3d 572 (Pa. 2014), further narrowing the definition of what constitutes a “public purpose” for a taking by eminent domain in Pennsylvania. The Reading opinion is significant, as it constitutes yet another Pennsylvania decision favoring the protection of private property rights from seizure by the government. The decision is particularly noteworthy in the context of the U.S. Supreme Court’s controversial expansive view of the eminent domain power in Kelo v. City of New London, 454 U.S. 469, from 2005.
*Reprinted with permission from the 4/28/15 issue of The Legal Intelligencer. © 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
The Public Record
On April 8, 2015, the Pennsylvania Supreme Court agreed to hear an appeal from the Pennsylvania Commonwealth Court’s decision in Fish v. Township of Lower Merion. In Fish, the Commonwealth Court determined that the Local Tax Enabling Act (LTEA), the state law that authorizes and regulates local taxes, prohibits a political subdivision from imposing a business privilege tax on lease revenue. The Supreme Court’s decision in Fish will constitute an important development in the law as many municipalities currently collect business privilege tax on lease income.
In Fish, several individuals who own and rent property in Lower Merion Township (Township) challenged the Township’s collection of a 1.5 mill business privilege tax on their lease revenue. The property owners based their challenge on an exclusion set forth under Section 301.1(f)(1) of the LTEA, which expressly prohibits a political subdivision from taxing leases or lease transactions if the tax was not imposed prior to July 1, 2008. According to the property owners, a tax on gross receipts from lease revenue is the same as a tax on individual leases or lease transactions, as prohibited under Section 301.1(f)(1). The Township took the position that Section 301.1(f)(1) prohibits the imposition of a “direct tax,” e.g. a per-lease tax, but not the imposition of a tax on lease revenue. The Township argued that it was taxing the privilege of doing business in the Township, as authorized under the LTEA, not leases or lease transactions.
Rejecting the lessors’ argument, the Montgomery County Court of Common Pleas ruled in favor of the Township. On appeal, however, the Commonwealth Court, strictly construing Section 301.1(f)(1) of the LTEA against the Township, disagreed and reversed. In doing so, the Pennsylvania Commonwealth Court concluded that Section 301.1(f (1) of the LTEA “bars ‘any tax’ – i.e., privilege, transactional, or otherwise – on leases or lease transactions”, noting that it is thus immaterial that the challenged tax was characterized by the Township as a tax on the privilege of engaging in business, and not on a particular lease or lease transaction.
The property owners also argued that the Township could not require them to comply with the annual registration and fee requirements set forth in the Township’s Code, which applied to persons engaging in a business, trade, occupation or profession within the Township. The Commonwealth Court clarified that although the property owners’ rental income was not subject to the Township’s business privilege tax, or any other type of tax authorized pursuant to the LTEA, their rental activities constituted a “business activity” under the Township’s Code and were, therefore, subject to the annual registration requirement and related fees.
Despite the Commonwealth Court’s seemingly straightforward decision in Fish (i.e., that the LTEA prohibits a political subdivision from imposing a business privilege tax on lease revenue), it is critical to note that in reaching this decision the Commonwealth Court did not address, or even acknowledge the existence of, the express exception to the prohibition. More specifically, the Commonwealth Court did not acknowledge or address the fact that Section 301.1(f)(1) of the LTEA “does not apply to municipalities imposing a tax on leases or lease transactions prior to July 1, 2008.” The Commonwealth Court’s silence on the exception is significant because it creates confusion over whether a municipality that imposed a tax implicating a lease or lease transaction prior to July 1, 2008 is permitted to continue collecting the tax.
The Township appealed the Commonwealth Court’s decision in Fish to the Pennsylvania Supreme Court on October 20, 2014. Until the Supreme Court decides the case, all that appears certain at this time is that municipal entities desiring to impose a new tax authorized under the LTEA should proceed with caution to ensure that the tax, regardless of form, does not implicate a lease, a lease transaction or income derived from either. Those municipal entities that have imposed a tax that implicates either, directly or indirectly, a lease or lease transaction prior to July 1, 2008 should be aware that the tax may be subject to challenge under Fish.
Babst Calland’s Public Sector Services Group will continue to keep public agencies apprised of further developments related to this and other issues. If you have any questions or need assistance in addressing the above-mentioned area of concern, please contact Stephen L. Korbel at 412-394-5627 or skorbel@babstcalland.com, or Krista Ann M. Staley at 412-394-5406 or kstaley@babtscalland.com.
The PIOGA Press
Should an operator in a lawsuit challenging the validity of its oil and gas lease have to risk having its lease expire during that suit by not commencing operations? Nearly all states whose courts have addressed this issue say, “No.” Those states’ courts allow operators to extend or “equitably toll” their challenged leases if they prevail in the suit. But not in Pennsylvania, where the Supreme Court has rejected equitable tolling in most situations and forced the operator to bear the risk that its lease will expire during the suit challenging that lease.
The PIOGA Press
Pennsylvania’s evolving law regarding regulation of oil and gas development has undergone yet another change, this time in a footnote to the Commonwealth Court’s January 7, 2015 en banc opinion in Pennsylvania Environmental Defense Foundation v. Commonwealth 2015 Pa. Commw. LEXIS 9 (2015). The Pennsylvania Environmental Defense Foundation (PEDF) case, in which PIOGA filed an amicus brief, rejected constitutional challenges to the leasing of state land for natural gas development and to the use of funds generated by those leases. In doing so, the Commonwealth Court took the opportunity to clarify the legal weight to be given to the analysis of the plurality decision in Robinson Township v. Commonwealth, 83 A.2d 901 (2013) interpreting Article I, Section 27 of the Pennsylvania Constitution (the Environmental Rights Amendment).
The PIOGA Press
Oil and gas developers and their vendors may claim an exemption from Pennsylvania sales and use tax on qualified purchases of certain property and services. Until the past few years, there was little published guidance available to the oil and gas industry on the availability of the socalled “mining exemption” for purchases of property and services used in conventional and unconventional oil and gas extraction.
Employment Bulletin
Last month, the United States Department of Labor (DOL) announced in a press release that it has helped more than 5,300 oil and gas workers recover nearly $4.5 million in back wages for unpaid overtime and other wage violations as a result of an “ongoing multiyear enforcement initiative.” The DOL attributed the wage violations, in part, to the structure of the oil and gas industry in Pennsylvania and West Virginia. According to the DOL, job sites “that used to be run by a single company can now have dozens of smaller contractors performing work, which can create downward economic pressure on lower level subcontractors,” which can lead to noncompliance with wage and hour laws and regulations.
The Legal Intelligencer
With the rise of unconventional shale development in many portions of Pennsylvania, there has been a corresponding increase in litigation stemming from local government actions approving and disapproving of a wide variety of oil and gas facilities. In a case with origins predating both Act 13 of 2012 and the ensuing challenge to it in Robinson Township v. Commonwealth, 83 A.3d 901 (Pa 2013), on Sept. 26, the Commonwealth Court rendered a decision in MarkWest Liberty Midstream & Resources v. Cecil Township Zoning Hearing Board, 2014 Pa. Commw. LEXIS 470 (Pa. Commw. Ct. 2014), addressing the scope of a zoning hearing board’s authority when considering an applicant’s request for land use approval related to a natural gas compressor station.
In 2010, MarkWest Liberty Midstream & Resources applied to the Cecil Township Zoning Hearing Board for a special exception to construct and operate a natural gas compressor station in the township’s I-1 light industrial district, pursuant to a provision in its unified development ordinance (UDO), which authorized “comparable uses which are not specifically listed” in that district, provided any such use: would have an equal or lesser impact than, and is of the same general character as, any of the township’s permitted conditional uses or uses by right; meets the township’s area and bulk requirements; complies with the express standards and criteria specified for the most nearly comparable I-1 use; and is consistent with the intent set forth in the UDO for industrial districts. The board denied MarkWest’s application, finding that it failed to satisfy these criteria, a decision the Washington County Court of Common Pleas affirmed. However, the Commonwealth Court reversed and remanded the case with direction that the special exception be granted, subject to the board’s determination as to whether any conditions are needed to ensure compliance with the UDO.
The threshold issue in MarkWest was whether a natural gas compressor station was comparable to other uses authorized in the I-1 district. MarkWest asserted that it was of the same general character as an “essential service,” a permitted use by right in the I-1 district. The UDO defined the term, in part, as “the erection, construction, alteration or maintenance of gas, electrical and communication facilities.” However, the definition excluded “private commercial enterprises such as cellular communication facilities.”
The board determined that MarkWest is a commercial enterprise and is neither a public utility nor does it provide a service essential to the public. The board found that the proposed use is more comparable to a cellular communications facility, which was expressly excluded from the definition of essential service. It also concluded that the compressor station was not an essential service because the gas was not transmitted to the end user.
The Commonwealth Court rejected all of these conclusions, finding that: the ordinance definition does not require that an essential service be a public utility; it was unreasonable to extend the exclusion of telecommunications facilities to compressor stations in light of the fact that “natural gas compressor station” was a defined term under the UDO and was not excluded; the UDO’s definition of essential services does not require that the applicant transmit natural gas directly to an end user; and the proposed use was not required to be of “the same character” as an essential service, but only of the “same general character.”
The board articulated a number of other bases for its denial of MarkWest’s special exception application, all of which were rejected by the Commonwealth Court.
The board stated that the proposed compressor station “would have a greater impact in an adverse way upon the environment than an essential service,” and “would cause certain carcinogenic materials and other hazards to be expelled into the air.” However, the Commonwealth Court pointed out that the board made no factual findings supporting these conclusions, made no comparison of the proposed facility to manufacturing uses permitted in the I-1 district, and specifically noted that MarkWest would obtain minor air permits from the Department of Environmental Protection.
The board also concluded that the special exception application failed “as a matter of law” because MarkWest did not present “documentation or expert reports demonstrating compliance with the requirement that its proposed use is of the same general character as uses permitted by right in the I-1 light industrial district.” The Commonwealth Court reversed, finding that such an obligation was not supported by the UDO, and that while MarkWest had the initial burden of demonstrating compliance with the specific objective requirements of the UDO, there was no authority mandating it to produce expert reports.
The board also rejected the special exception application on the basis that MarkWest did not produce “noise or sound studies” establishing that it met the ordinance requirement that “excessive noise shall be required to be muffled so as not to be objectionable to surrounding property owners due to intermittence, beat frequency, shrillness or volume.” Reversing this determination, the Commonwealth Court again noted that there was no such study requirement under the UDO, and that MarkWest presented testimony that with sound mitigation measures it would meet a decibel limit of 60 dBA at the property line. The Commonwealth Court reversed a board finding with regard to odor thresholds and the “emission of smoke or particulate matter” on similar grounds.
The board’s final conclusion was that MarkWest failed to meet its burden to establish that the proposed use “would impact neighboring properties in a manner that was equal to or less than the impact of permitted uses” in the I-1 district. Specifically, the board found that MarkWest failed to provide rebuttal testimony on neighbors’ testimony regarding real estate values, failed to show similarities in noise, odor and air emissions between the proposed facility and other uses by right in the I-1 district, and failed to produce studies that demonstrate that the facility would have no greater impact on neighboring properties than other I-1 uses.
The Commonwealth Court again reversed, noting the substantial testimony presented by the applicant on these issues. As a result, the court reiterated the established law that the burden shifted to objectors to “show a high degree of probability that [the proposed use] will substantially affect the health and safety of the community.”
Operators, municipalities and property owners are faced with a multitude of challenges in connection with unconventional shale gas development, particularly as to the interpretation and application of zoning ordinances regulating these uses. When applying zoning ordinance provisions, the law gives deference to a local agency’s interpretation. However, as evidenced by the Commonwealth Court’s decision in MarkWest, that discretion is not unfettered. A local agency must be cognizant that it is sitting in its quasijudicial capacity, as opposed to a legislative capacity. As a result, it may not arbitrarily modify or alter a zoning ordinance, impose additional requirements or prescribe a higher burden on applicants than that which is mandated under established Pennsylvania land use law principles.
*Reprinted with permission from the 12/16/14 issue of The Legal Intelligencer. © 2014 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.