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Wayne Land and Mineral Group, LLC v. Delaware River Basin Commission

United States District Court, M.D. Pennsylvania

March 23, 2017

WAYNE LAND AND MINERAL GROUP, LLC Plaintiff,
v.
DELAWARE RIVER BASIN COMMISSION Defendant, and DELAWARE RIVERKEEPER NETWORK MAYA K. VAN ROSSUM, THE DELAWARE RIVERKEEPER Intervenors-Defendants

          MEMORANDUM OPINION

          ROBERT D. MARIANI UNITED STATES DISTRICT JUDGE.

         Presently before the Court is a Motion to Dismiss filed by Defendant Delaware River Basin Commission (the "Commission" or "DRBC"). (Doc. 12). For the reasons that follow, Defendant's Motion will be granted. On the face of Plaintiffs Complaint, it is apparent that its proposed activities within the Delaware River Basin constitute a "project" within the meaning of that term as defined in Sections 1.2(g) and 1.2(i) of the Delaware River Basin Compact (the "Compact"). Accordingly, the Compact requires Plaintiff to submit an application to the Commission for a determination as to whether its proposed "project" has a "substantial effect on the water resources of the Basin" and, if so, whether the Commission shall approve or disapprove such project based on its determination that the project would or would not substantially impair or conflict with the Commission's comprehensive plan. Compact at § 3.8.

         I. INTRODUCTION AND PROCEDURAL HISTORY

         On May 17, 2016, Plaintiff Wayne Land & Mineral Group, LLC ("WLMG" or "Plaintiff) filed a Complaint against the Commission, (Doc. 1). In the Complaint, Plaintiff "asks this Court to declare that the Delaware River Basin Commission lacks authority under the Delaware River Basin Compact to review and approve a natural gas well pad, a gas well and related facilities and associated activities on WLMG's property in the Delaware River Basin ('Basin')." (Id. at 1). Intervenors-Defendants the Delaware Riverkeeper Network and Maya K. Van Rossum, the Delaware Riverkeeper (collectively referred to as the "DRN") filed a Motion to Intervene on July 5, 2016, (Doc. 10), which the Court granted on September 12, 2016.[1] (Doc. 26).

         On July 8, 2016, the Commission filed a Motion to Dismiss the Complaint. (Doc, 12). On September 19, 2016, WLMG filed a Motion for Oral Argument and Plenary Hearing on Defendant's Motion to Dismiss, (Doc. 29), which the Court granted on November 7, 2016. (Doc. 43). The Court held an evidentiary hearing and heard oral argument on January 24, 2017.

         II. STATEMENT OF FACTS

         A. The Complaint

         Plaintiff WLMG "owns approximately 180 acres of land, including the natural gas and minerals present on the land, in Wayne County, Pennsylvania. Approximately 75 acres of the land owned by WLMG is located in the Basin" (the "Property"). (Doc. 1, at ¶ 12). The Property "is located in a part of the Basin that overlays natural gas reserves in shale formations, " (Id. at¶ 13), and Plaintiff "acquired the Property with an intent to explore for, extract and sell the natural gas located in shale formations associated with the Property and other nearby land in order to recoups and earn a reasonable return on, its investment in the Property." (W.at¶21).

         The Defendant Commission is an agency created by the Compact, an agreement entered into by the United States, New York, Pennsylvania, New Jersey, and Delaware, and approved by Congress in 1961. (Id. at ¶ 14). Section 3.8 of the Compact provides that: "[n]o project having a substantial effect on the water resources of the basin shall hereafter be undertaken by any person, corporation or governmental authority unless it shall have been first submitted to and approved by the commission, subject to the Provisions of Section 3.3 and 3.5." (Id. at ¶ 15). Project is defined as "any work, service or activity which is separately planned, financed, or identified by the commission, or any separate facility undertaken or to be undertaken within a specified area, for the conservation, utilization, control, development or management of water resources which can be established and utilized independently or as an addition to an existing facility, and can be considered as a separate entity for purposes of evaluation." (Id. at ¶ 16).

         Plaintiff intends to construct a well pad, drill exploratory wells on its property, and commence hydraulic fracturing. Plaintiff "will proceed in phases, beginning with the construction of an access road and well pad on the Property, " (Id. at ¶ 22), and "has identified a location for the access road and well pad on the Property, taking into account siting requirements." (Id. at ¶ 23). Following construction of the well pad and access road, Plaintiff "will drill an exploratory well to locate productive zones of natural gas located in shale formations on the Property. The next phase of development will include the drilling of one or more lateral wells followed by hydraulic fracturing and, ultimately, the production of natural gas." (Id. at¶ 24). The well pads and facilities constructed on the Property, as well as all related activities, "will be designed, built, operated and carried out for the exploration, extraction and development of natural gas and not for the conservation, utilization, control, development or management of water resources." (Id. at ¶ 27). Plaintiff "does not propose to develop, construct or operate a water withdrawal, dam, impoundment or reservoir, or to construct or operate a wastewater treatment or discharge facility in connection with the development of the Property." (Id. at ¶ 28). "All water used in connection with the planned Well Pad on the Property will be obtained from properly licensed and approved sources owned and operated by persons or entities other than WLMG, which will be managed and delivered to the Well Pad in accordance with all applicable laws and regulations and any applicable fees will be paid." (Id. at ¶ 29). "All wastewater generated in connection with the Well Pad on the Property will be managed by properly licensed and/or permitted entities other than WLM6 in accordance with all applicable laws and regulations." (Id. at ¶ 30).

         According to the Complaint, the Commission "has declared that all natural gas well pads and related facilities targeting shale formations in the Basin are 'projects' that it will review under Section 3.8 of the Compact." (Id. at ¶ 4). Specifically, Plaintiff alleges that the Commission "has determined, and, by publicly announcing its position, has informed WLMG and other landowners in the Basin, that it has jurisdiction over natural gas and well pads, all appurtenant facilities, and related activities carried out in connection with gas wells targeting shale formations in the Basin."[2] (Id. at ¶ 17). Moreover, the Commission "has determined, and publicly announced, that Well Pads constitute 'projects' that cannot be constructed or undertaken in Wayne County, Pennsylvania and other areas of the Basin with[out] first applying for and obtaining Commission approval." (Id. at ¶ 18). "The Commission has also announced that it will not consider applications for approvals for Well Pads, which are referred to by the Commission as 'well pad dockets, ' until after it adopts regulations purporting to govern Well Pads." (Id. at ¶ 19). "The Commission's de facto moratorium on the otherwise lawful use of private property for natural gas development has been in force since 2010 and the Commission has yet to adopt regulations governing Well Pads." (Id. at ¶20).

         The State of Pennsylvania "has adopted comprehensive environmental regulations governing all phases of development of natural gas resources within Pennsylvania." (Id. at ¶ 25). According to those regulations, "persons and entities seeking to construct well pads and appurtenant facilities, and proposing to carry out related activities such as drilling, fracturing, completing and operating natural gas wells in Pennsylvania, must obtain permits and approvals from the Pennsylvania Department of Environmental Protection" ("PaDEP"). (Id.). According to the Complaint, the proposed development on Plaintiffs property, as well as all related activities, "will be designed, constructed and carried out in accordance with all applicable statutory and regulatory requirements including those implemented" by the PaDEP. (Id. at ¶ 26). However, according to the Plaintiff:

It would be futile and wasteful for WLMG to apply for permits and approvals from PaDEP before resolving the insurmountable obstacle created by the Commission's assertion of jurisdiction and imposition of a moratorium. Permits and approvals issued by PaDEP are valid for defined and limited periods of time and, moreover, PaDEP will not issue final permits and approvals for a Well Pad over which the Commission has asserted jurisdiction and project review authority until after the Commission reviews and approves the Well Pad.

(Id. at ¶ 32). Moreover, "[g]iven the Commission's decision not to consider well pad dockets until some indefinite point in the future, it would be futile for WLMG to apply for Commission approval for the Well Pad to be developed on the Property." (Id. at ¶ 33). Plaintiff further claims that it "should not be required to engage in an expensive, time consuming, and ultimately futile exercise of attempting to obtain review and approval by the Commission for its Well Pads where... no such review and approval is required under the Compact." (Id. at¶34).

         Plaintiffs Complaint alleges that "[t]he Commission's final determination that Well Pads constitute "projects" subject to the Commission review and approval under Section 3.8 of the Compact, " constitutes an "unlawful assertion of jurisdiction, " and poses "an absolute barrier to WLMG's ability to move forward with its plan to develop a Well Pad on the Property." (Id. at ¶ 35). "As a result of the Commission's unlawful assertion of jurisdiction, WLMG is unable to develop a Well Pad on the Property and to thereby recoup its upfront costs and earn a reasonable return on its investment." (Id. at ¶ 37). "Among other things, WLMG is unable to drill an exploratory well in order to precisely identify productive gas zones on the Property and, thereby, to immediately increase the value of the Property and WLMG's nearby land." (Id.).

         The Commission "is authorized to seek civil penalties from a person who undertakes a 'project' without Commission approval pursuant to Section 3.8 of the Compact." (Id. at ¶ 38). "Specifically, Section 14.17 of the Compact provides that a person, association or corporation who violates or attempts to conspire to violate a provision of the Compact or a rule, regulation or order of the Commission may be liable for a penalty of as much as $1, 000 for each offense and $1, 000 per day for a continuing violation, attempt or conspiracy to be fixed by a court of competent jurisdiction." (Id.). According to the Plaintiff, the Commission's "final determination regarding its jurisdiction and authority under the Compact puts the public on notice that persons that construct well pads and appurtenant facilities, or that engage in related activities, in connection with wells targeting shales located in Wayne County and other areas of the Basin without prior authorization from the Commission that they are at risk of incurring substantial civil penalties and other potential enforcement actions." (Id. at ¶ 39). Thus, Plaintiff "must choose between proceeding in the face of substantial civil penalties and other sanctions or waiting for the Commission to lift the moratorium at some indefinite point in the future and then incurring substantial expense of seeking Commission approval for an undertaking over which the Commission does not have jurisdiction." (Id. at ¶ 40).

         Therefore, Plaintiff, through the Complaint, "seeks relief from the Commission's ultra vires assertion of jurisdiction and related dictate that WLMG is prohibited from constructing a well pad and drilling a natural gas well without Commission approval." (Id. at ¶ 6). The Plaintiff "requests that the Court declare that the Commission does not have authority to require WLMG to apply for and obtain Commission 'project' approval for a natural gas well pad and related facilities targeting natural gas in shale formations on WLMG's property." (Id. at ¶ 7). Absent the relief requested, Plaintiff maintains that it "will be deprived of its constitutionally protected right to use its Property in a lawful and productive manner" and "will incur economic injury in that it will be prevented from confirming the full scope of, and then extracting and selling natural gas associated with, the Property and also from benefiting from an increase in the market value of the Property which will follow the drilling of an exploratory well." (Id. at ¶ 44).

         B. The Commission's Actions Regarding Well Pad Construction, Natural Gas Drilling, and Related Activities in the Basin

         The Commission has raised a factual challenge to many of the allegations in the Complaint. Specifically, the DRBC disputes Plaintiffs allegations that it has taken final action in connection with well pad construction and natural gas drilling activities in the Basin and therefore moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Upon Plaintiffs request, the Court held a plenary hearing to address and resolve certain material factual disputes with respect to subject matter jurisdiction. See McCann v. Newman Irrevocable Trust, 458 F.3d 281, 290 (3d Cir. 2006) ("If a defendant contests any of the jurisdictional allegations as pled by the plaintiff, the court must permit the plaintiff to respond with rebuttal evidence in support of jurisdiction, and the court then decides the jurisdictional issue by weighing the evidence. If there is a dispute of material fact, the court must conduct a plenary hearing on the contested issues prior to determining jurisdiction.").

         At the plenary hearing conducted on January 24, 2017, the Court heard argument and received testimony with respect to the DRBC's challenge to this Court's jurisdiction in support of its Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1). DRBC Executive Director Steven Tambini, the Executive Director of the DRBC since August of 2014, testified. Mr. Tambini testified that although the DRBC has yet to adopt final rules regarding the conduct of natural gas activities within the Basin, that the Commission would entertain a jurisdiction determination with respect to natural gas activity if such a determination were sought:

Q. So if someone sought a jurisdiction determination from the commission today with respect to a natural gas activity, would the commission entertain it?
A. Yes.
Q. Anyone sought a jurisdictional determination from the commission?
A. No.
Q. Regarding natural gas activities?
A. That's correct, yes, there have been other jurisdictional determination questions, yes.
Q. Not with regard to natural gas?
A. That's correct, yes.
Q. Have the commissioners made a final decision regarding whether the commission has jurisdiction over plaintiffs proposed activities?
A. No, the commission has not made a final decision.
Q. Have the commissioners made a final decision regarding whether or not plaintiffs activities constitute a project?
A. No, they have not.
Q. Has the commission made a final decision regarding whether plaintiffs activities may have a substantial effect on the water resources of the basin?
A. No.
Q. In other words, has the commission made any determination as to whether they have section 3.8 authority over natural gas exploration and activity - exploration and production activities at a well pad site?
A. They have not made a final determination, no.

Jan. 24, 2017, Unofficial Hr'g Tr. at 53:8-25; 54:1-10.

         However, on cross-examination, Executive Director Tambini confirmed that his predecessor, Carol R. Collier, issued a document on May 19, 2009 entitled "Determination of the Executive Director Concerning National Gas Extraction Activities in Shale Formations Within the Drainage Area of Special Protection Waters" (the "2009 EDD"). (Def s Exhibit 2). The 2009 EDD provides that sponsors of natural gas extraction projects in shale formations within the drainage area of Special Protection Waters (such as Plaintiff) must apply for and obtain Commission approval.[3] Neither the Plaintiff nor any individual or entity filed an administrative appeal pursuant to the DRBC's Rules of Practice and Procedure, or an application requesting the DRBC Commissioners to review the 2009 EDD, and the Commissioners have not done so. At a May 5, 2010, meeting of the Commissioners, the Commission postponed any consideration of applications of well pad approvals until certain regulations could be drafted which would govern any such review.[4]

         Tambini confirmed that the 2009 EDD issued by then-Executive Director Collier provided notice to natural gas extraction project sponsors that "they may not commence any natural gas extraction projects located in shale formations within the draining area of special protection waters without first applying for and obtaining Commission approval." Jan. 24, 2017, Unofficial Hr'g Tr. at 63:10-16. Tambini agreed that his predecessor issued the 2009 EDD pursuant to the authority given to her by the Commission to act on its behalf.[5] Yet, on cross-examination, Tambini repeated his testimony that "the Commission has not made a decision that the jurisdictional determination on what is a project and what is not in this case." Id. at 71:20-22.

         Tambini further testified that WLMG was not required to wait for rule-making by the Commission in order to obtain a jurisdictional determination, stating: "p]f you'd like a jurisdictional determination, you don't have to wait for rule-making, come and do it." Id. at 81:3-5. Tambini was also questioned with respect to Plaintiffs Exhibit 8, the August 8, 2008, letter from William J. Muszynski, Manager, Water Resources Management Branch of the DRBC to Stone Energy Corporation wherein the Commission found that Stone Energy's drilling project in Clinton, Wayne County, Pennsylvania, was undertaken "without prior review and approval by the Commission." (PL's Ex. 8). The letter indicated that the penalty for Stone Energy Corporation's violation was a fine of not less than $90, 000.

         When asked whether it was clear from the 2009 EDD and the DRBC's fine imposed on Stone Energy Corporation that drilling activity and construction of a well pad require that an application had to be filed with the DRBC, Tambini testified:

Q. Okay. So it was clear from the executive director's determination that if you were going to drill a well, construct a well pad, you had to file with the Commission.
A. Yes.

Jan. 24, 2017, Unofficial Hr'g Tr. at 89:22-26.

         Tambini, when asked by Plaintiffs counsel whether the Commission would process its application for its proposed well pads, answered:

A. We are speaking past each other. I answered the question. So you keep saying I want to understand the jurisdictional determination path, and then you move on to the project review path. So I suggest we following one path at a time. If you want me to answer the question what would it take to do a jurisdictional determination, we can do that. If you want to get me to say that we're not accepting applications for jurisdictional determination, you're not going to get the answer. I think the Commission has indicated in its documents that it would accept whatever. If you went to the website, I will be the first to admit that there is no application for jurisdictional determination.
But if you'd like to have a meeting, have a conference, write a letter, write me an e-mail, whatever you want to do to get this started on jurisdictional determination, the commission has indicated that we will make a jurisdictional determination.

Id. at 100:5-21.[6]

         When asked what WLMG would have to do to get a jurisdictional determination, Tambini answered: "[a] lot more information on the activities associated with the project" and when pressed further, stated:

A. We need to know where the water is coming from, how much water is being used, how many wells, how many wells by when. Gain [sic], your oil and gas expert is indicating how much will stay in the formation, how much will be returned, when it does return, what is the water quality, how is it being stored, potentially how it is being treated, where it is discharged. That's a start. You know, that's a start. So again, how would it happen, I've already indicated that open avenue for any way you like it to happen, send me a letter, send the commissioners a letter, I'm - I'm not going to say there is an application that you have to fill out. Then you will say there's no application, Then you're going to say the commission won't act on ...

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