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Pennsylvania Litigation Update
October 30, 2011
Over the past several months, we have provided updates on a variety of Pennsylvania litigation matters that have been percolating in Pennsylvania's trial courts, appellate courts and before various administrative bodies. This month we want to examine the current posture of several of the cases we have featured previously - the debate over whether a ban on fracking will be on the November 8 ballot in Peters Township, and the status of the appeal in Butler v. Charles Power Estate.

Peters Township

Since our initial update on the lawsuit brought by Peters Township to keep an activist group from having a referendum on amending the Township's Home Rule Charter aimed at preventing drilling in the Township put on the November 8 ballot, Washington County Court of Common Pleas Judge Paul Pozonsky ruled against the Township, allowing the question to go to the voters. The Township had sought an injunction against placing the question on the ballot, saying it would subject the Township to lawsuits from individuals and gas companies. The Township also argued that, if the referendum were approved, the Township would be in violation of the Pennsylvania Oil and Gas Act, and that the recent ordinance passed by the Township addressing drilling would be nullified. Judge Pozonsky ruled that the court lacked jurisdiction to rule on pre-election challenges "without an immediate harm caused by the presence of the measure on the ballot."

Rather than appeal Judge Pozonsky's decision prior to the election, Peters Township is attempting to drum up grass roots support among the electorate to defeat the referendum. The Township sent a letter to every Peters Township resident on October 24 urging that they vote against the anti-drilling referendum. The letter states:
"A Home Rule Charter Referendum on the ballot Nov. 8 will have numerous serious effects on the future of our community if approved. On the surface, it leads voters to believe that it's solely a ban on Marcellus Shale drilling in our community; however, if you read the `fine print,' it's much more than that. It changes landowner rights, opens the Township to numerous lawsuits, and puts the future of our community in financial jeopardy. And, what's even more detrimental is that this referendum violates residents' federally protected constitutional rights. It also proposes that the Township is not subject to both the Pennsylvania and United States Constitutions. If passed, this amendment raises serious concerns over the validity of our Home Rule Charter and the financial future of our community. We have an outstanding community and want to maintain its natural environment for future generations. And, because of that, Peters Township Council has enacted zoning ordinances to protect residents while strictly regulating Gas Drilling."

It is believed that this is the first such referendum of its kind in the nation. The actual language of the referendum that will appear on the November 8 ballot is almost absurd in its scope, proposing to invalidate permits and licenses issued by the state and federal government and proposing to deny corporations engaged in the extraction of natural gas rights guaranteed under the state and federal constitutions. The full text of the referendum is as follows:
Attention: All Registered Electors of Peters Township

A referendum question amending the Home Rule Charter appears on the Township ballot as follows:

Should the Peters Township Home Rule Charter be amended: to add a community bill of rights enumerating rights to water, natural communities, a sustainable energy future, and local self-government, and to secure those rights by:

1. Prohibiting individuals and corporations from extracting natural gas in Peters Township, from installing pipelines and compressor stations and from depositing, storing or transporting waste water or other by-products of natural gas development within Peters Township; and,

2. Invalidating permits, licenses, privileges or charters issued by the state or federal agencies inconsistent with this amendment; and

3. Denying corporations engaged in the extraction of natural gas rights guaranteed under state and federal constitutions. Effect of the vote:

A “Yes” vote indicates approval by the voter and a majority of “Yes” votes will cause the proposed amendment to be included as part of the Peters Township Home Rule Charter.

A “No” vote indicates disapproval (sic) by the voter and a majority of “No” votes will cause the proposed amendment to be rejected and the Peters Township Home Rule Charter would remain unchanged.

It will be interesting to see if the approach by Peters Township to aggressively ask the electorate to reject the referendum pays off on election day. If the ordinance does pass, expect additional litigation involving not only the Township, but also involving landowners who have signed leases, and exploration and production companies who have invested large sums anticipating the ability to drill wells in the Township. As we pointed out in prior updates, the extent of regulation a township or municipality may extend over drilling operations has already been decided by the Pennsylvania Supreme Court. Nevertheless, townships and municipalities continue to pass ordinances (and if this referendum passes, at least one referendum passed by the voters) that are in clear violation of the Pennsylvania Oil and Gas Act. This will likely necessitate further lawsuits confirming that such ordinances are preempted by the Oil and Gas Act.

Butler v. Charles Power Estate

In last month's newsletter, we featured a discussion of the potential implications of the decision by the Pennsylvania Superior Court in Butler v. Charles Power Estate, 2011 Pa. Super. 198 (Sept. 7, 2011). Our article noted the conflicting views on the current impact of the decision and we took a much less alarmist position than some commentators. Since that time, several large operators in the Marcellus play have come out and stated that the Butler decision, especially given its procedural posture, was not in any way a deterrent to their ongoing operations in Pennsylvania.

In Butler, the Superior Court reversed the decision of the Court of Common Pleas of Susquehanna County, which had sustained/granted Preliminary Objections brought by the Butlers to the Defendants' action for declaratory judgment that "natural gas" was included in the reservation clause of a deed. The Superior Court concluded that, based on the record before it, it could not say for certain that the Defendants had no cognizable claim and, therefore, "the parties should have the opportunity to obtain appropriate experts on whether Marcellus Shale constitutes a type of mineral such that the gas in it falls within the deed's reservation." Id. at 15. The Superior Court remanded the case back to the Court of Common Pleas of Susquehanna County for further proceedings and relinquished jurisdiction.

On October 7, 2011, the Butlers filed a Petition for Allowance of Appeal before the Pennsylvania Supreme Court. The "question presented for review" as stated by the Butlers in their Petition is:

"In interpreting a reservation, contained in a deed, of one-half of the 'minerals,' did the Superior Court err in remanding the case for the introduction of scientific and historic evidence about the Marcellus shale and the natural gas contained therein, despite the fact that the Supreme Court of Pennsylvania has held that (1) a rebuttable presumption exists that the parties intended the term 'minerals' to include only metallic substances, and (2) the presumption cannot be rebutted by scientific evidence that a non-metallic substance is a mineral or was otherwise considered to have independent value at the time of the conveyance?" The Butlers' Petition for Allowance of Appeal argues that the Superior Court erroneously relied on U.S. Steel Corp. v. Hoge, 468 A.2d 1380 (Pa. 1983), to conclude that scientific evidence is necessary to determine whether Marcellus shale is a mineral and that, by doing so, the Superior Court "eviscerated longstanding property law in Pennsylvania."
On October 21, 2011, the Defendants filed their Answer to the Butlers' Petition for Allowance of Appeal, asking that the Pennsylvania Supreme Court not hear the appeal. The Defendants ask that the Supreme Court "not deprive the parties of the opportunity to develop the record as envisioned by the panel of the Superior Court" and that "[u]ltimate resolution of this case on the basis of all information helpful to providing such equal justice to the parties can be best obtained through the development of the information and expert testimony as recognized by the Superior Court of Pennsylvania as being essential thereto."

The Pennsylvania Supreme Court has discretion as to whether it hears this, or any other, appeal. If the Pennsylvania Supreme Court declines to hear the appeal, then the case will be remanded to the Court of Common Pleas of Susquehanna County for further proceedings. There is no set timetable for a determination by the Pennsylvania Supreme Court whether it will hear the appeal, but it is unlikely that it will decide before the end of the calendar year.
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