Taking the Public Trust Seriously: The Pennsylvania Supreme Court’s Landmark Decision in PEDF v. Commonwealth

On December 19, 2013, in Robinson Township v. Commonwealth of Pennsylvania, the Pennsylvania Supreme Court held unconstitutional major parts of Pennsylvania’s Act 13—a 2012 oil and gas law designed to facilitate the development of natural gas from Marcellus Shale.

In so doing, the Court breathed new life into Article I, Section 27 of Pennsylvania’s constitution, the state’s Environmental Rights Amendment, which requires the state to “conserve and maintain” public natural resources “for the benefit of all the people.”  But it did so by a plurality; only three of the Court’s seven justices signed onto that opinion.  Since that time, judges, lawyers, and government agencies all said that, while the Robinson Township decision is interesting and important, it is not the law of Pennsylvania on Article I, Section 27.  Instead, they continued to apply a three-part balancing test that Commonwealth Court invented in 1973 as a substitute for the text of the amendment.

That all changed on June 20.  In Pennsylvania Environmental Defense Foundation v Commonwealth, the Supreme Court decided by a clear majority that the state has a constitutional obligation under Article I, Section 27, to manage state parks and forests, including the oil and gas they contain, as a trustee.  The Court also held that the “constitutional language controls how the Commonwealth may dispose of any proceeds generated from the sale of its public natural resources.” Justice Baer described the decision as “monumental.”

And he is right.  The Court set aside the three-part balancing test that had been used for more than four decades, and it did so by a majority decision.  It held that the text of Article I, Section 27 provides the rules to be applied in any case.  It also reaffirmed that the constitutional public trust is self-executing; it does not need further legislation in order to be applied.  The Court’s attentiveness to the text of Article I, Section 27 was underscored by its careful analysis of the legislative history, showing, among other things, how the Environmental Rights Amendment had been amended several times during the legislative process before it was approved by Pennsylvania voters in 1971 by a four-to-one vote.  It also held that the rules governing management of public trust resources also apply to the expenditure of of royalties and perhaps other funds received from oil and gas leases on those resources.

More broadly, the case signaled the Court’s willingness to enforce the public trust doctrine.  This case was decided on same day as another public trust case, In Re: Petition of the Borough of Downingtown, in which the Court used common law public trust principles to invalidate the transfer of significant parts of a public park to a real estate developer.

But as it did all of these things, the decision also challenges judges, lawyers, state agencies, local governments and others to develop a workable and meaningful way of applying the text of the Environmental Rights Amendment in a variety of contexts.

The remainder of this blog will describe the background of this landmark case and each of the Supreme Court’s opinions.  (Disclosure: I filed an amicus curiae (or “friend of the court”) brief on behalf of the Widener Environmental Law and Sustainability Center.  The brief was solely on the law of Article I, Section 27, and did not advocate for either side.)

Oil and Gas Leasing Program on State Forests

Since at least 1947, the Department of Conservation and Natural Resources (DCNR) and its predecessor agencies have leased state forests for oil and gas drilling.  The Oil and Gas Lease Fund Act sets out DCNR’s responsibilities for administering that program, and assigns all rents and royalties received from leasing to DCNR, to be used for “conservation, recreation, dams, or flood control.”  The wells under this program, mostly small in size and impact, generated several million dollars per year that DCNR used to offset the environmental impacts of the program and for other conservation purposes.

The Marcellus Shale revolution led to dramatic changes in this program.  To begin with, it led to significant increases in both the number of acres leased and the revenues received by the state.  Revenues from oil and gas leasing in 2009 alone brought in $167 million.

Because of the recession that began in 2007, moreover, the state government experienced serious revenue shortfalls.  In consequence, the legislature began to use oil and gas leasing on state forest and park lands to balance the budget by supplying money to the General Fund.

Of particular importance to this case, Section 1602-E of the Fiscal Code shifted all royalties from the Oil and Gas Lease Fund to the General Fund.  Section 1603-E of the Fiscal Code limited royalties available to DCNR to an amount up to $50 million.   These are two of the most prominent amendments to the Fiscal Code that redirected money that would have been used for conservation purposes under the Oil and Gas Lease Fund Act to the General Fund, where it was appropriated for a variety of state government purposes.

The state received $926 million in oil and gas lease revenues between Fiscal Years 2008-9 and 2014-15.  DCNR received about half of that.  The rest was spent as part of the General Fund.

Commonwealth Court

In 2012, Pennsylvania Environmental Defense Foundation (PEDF) sued the state in Commonwealth Court, seeking declaratory relief that a variety of legislative and administrative decisions to lease state land for oil and gas development, and divert funds from oil and gas leasing to the General Fund, are unlawful.  Although brought prior to Robinson Township, PEDF’s arguments evolved after that decision.

This case ultimately was argued and decided under the public trust clauses of the Environmental Rights Amendment, which are contained in its second and third sentences. They provide: “Pennsylvania’s public natural resources are the common property of all the people, including generations yet to come. As trustee of these resources, the Commonwealth shall conserve and maintain them for the benefit of all the people.”

In early 2015, the Commonwealth Court decided that DCNR’s oil and gas leasing decisions are subject to Article I, Section 27, but nonetheless denied most of the declaratory relief that PEDF requested.  The Court began its analysis by explaining that the plurality opinion in Robinson Township is not binding precedent.  The Commonwealth Court nonetheless applied the public trust provisions of the Environmental Rights Amendment to PEDF’s three primary arguments.

First, PEDF argued that the legislature violated section 27 by preventing DCNR from spending any Oil and Gas Lease Fund Act royalties without prior legislative authorization.    The court was not persuaded that the legislation is “clearly, palpably, and plainly unconstitutional.”  This legislation does not change DCNR’s authority to decide whether to lease, the court explained.

Second, PEDF challenged Section 1603-E of the Fiscal Code because, PEDF argued, it limits DCNR to $50 million “without any fiduciary analysis of the financial needs of DCNR to meet its statutory and constitutional responsibilities,” including its responsibilities under Article I, Section 27.  The court restated this argument in different terms, explaining that “[i]n essence” PEDF argued that the legislature was failing to adequately fund DCNR.  The court then rejected this argument as restated: “PEDF has presented no evidence that the current funding appropriated to DCNR from all sources is inadequate—i.e., that the funding is so deficient that DCNR cannot conserve and maintain our State natural resources.”

Third, PEDF sought a judicial declaration that money received from oil and gas leasing on state lands can only be used for public trust purposes under Article I, Section 27.  The court rejected that argument.  While the Environmental Rights Amendment requires the state to conserve and maintain public natural resources, the court explained it “does not also expressly command that all revenues derived from the sale or leasing of the Commonwealth’s natural resources must be funneled to those purposes and those purposes only.”  Other provisions of the constitution, by contrast, require that moneys be expended for a particular purpose.

Supreme Court 

On appeal, the Supreme Court took jurisdiction on two issues.

  1. The proper standards for judicial review of government actions and legislation challenged under the Environmental Rights Amendment, Article I, Section 27 of the Pennsylvania Constitution, in light of Robinson Township v. Commonwealth….;
  2. Constitutionality under Article I, [Section] 27 of Section 1602–E and 1603–E of the Fiscal Code and the General Assembly’s transfers/appropriations from the Lease Fund.

The Supreme Court reversed and remanded the Commonwealth Court’s decision.  Justice Christine Donohue wrote the majority opinion for the Court, and was joined by Justices Todd, Dougherty, and Wecht.  Justice Baer wrote an opinion that concurred with the majority opinion on the meaning of Article I, Section 27 but dissented from the majority’s application of Article I, Section 27 to the proceeds of the oil and gas leasing program.  Justice Saylor issued a dissenting statement based on Justice Baer’s opinion but nonetheless recognized “that the Environmental Rights Amendment is an embodiment of the public trust doctrine.”  The seventh justice, Justice Eakin, did not participate in the decision.

Majority Opinion

On the proper standard of judicial review, the court began by addressing the three-part balancing test that Commonwealth Court first used in Payne v. Kassab in 1973.  Stating that the test “is unrelated to the text of Section 27 and the trust principles animating it,” and that it “strips the constitutional provision of its meaning,” the court rejected the test as the proper standard to apply. (A former student, Marc Prokopchak, researched all of the reported cases under the Payne test. In an article we coauthored, he found that the government won nearly every time under that test.)

Instead, the court said, “the proper standard of judicial review lies in the text of Article I, Section 27 itself as well as the underlying principles of Pennsylvania trust law in effect at the time of its enactment.”   The Court explained that the amendment grants two sets of rights to the people.  It noted that the amendment is located in Article I, which is the constitutional declaration of rights, and quoted at length a passage from Robinson Township explaining how unique it is to have an environmental rights amendment in a state constitution.

The first sentence reads: “The people have a right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment.”  Citing Robinson Township, the court said:  “This clause places a limitation on the state’s power to act contrary to this right, and while the subject of this right may be amenable to regulation, any laws that unreasonably impair the right are unconstitutional.”

The second and third sentences, as already noted, create a constitutional public trust.  Under these provisions, the court said, the Commonwealth is the trustee.  The corpus, or body, of the trust, is public natural resources, which the court said includes state parks and forests, as well as the oil and gas they contain.  The people, including present and future generations, are “the named beneficiaries” of this trust.  In footnote 23, the court said “all agencies and entities of the Commonwealth government, both statewide and local,” have a constitutional trust responsibility.

Citing Robinson Township once again, the court said: “Pennsylvania’s environmental trust thus imposes two basic duties on the Commonwealth as the trustee.  First, the Commonwealth has a duty to prohibit the degradation, diminution, and depletion of our public natural resources, whether these harms might result from direct state action or from the actions of private parties. Second, the Commonwealth must act affirmatively via legislative action to protect the environment.”

The use of trust language in the public trust sentences, the court said, indicates the value of drawing on pre-existing private trust law to determine their meaning.  Thus, in exercising its public trust duties, the Commonwealth is bound by the private trust duties of loyalty (administering the trust for the benefit of the people), impartiality (managing the interests of all beneficiaries, including the interests of current and future generations), and prudence (exercising “reasonable care, skill, and caution”).

The court added that, while the trustee has some discretion with respect to the corpus, or subject, of the trust, it “may use the assets of the trust ‘only for purposes authorized by the trust or necessary for the preservation of the trust….’”  Under private trust law in effect at the time of the enactment of Article I, Section 27, the court said, “proceeds from the sale of trust assets are part of the corpus of the trust.” The court addressed and rejected the Commonwealth’s argument that proceeds from oil and gas leasing are not subject to the trust, saying it would “substantially diminish” the Commonwealth’s public trust responsibilities. A recurring point in the majority opinion, in fact, is that the Commonwealth must use public natural resources as a trustee, and not as a proprietor.

PEDF argued that all proceeds from oil and gas leasing are subject to the public trust.  The Court said it could not decide that question because it had not been sufficiently argued and briefed by the parties.  Because proceeds from the sale of the trust corpus are subject to public trust restrictions, the court held, royalties based on gross production from oil and gas wells are subject to the public trust.  But under trust law, conventional rental income for a property can be paid directly to the beneficiaries without any restrictions.  The Court said it did not know how to categorize other income to the state from leasing, particularly annual rental fees.  It thus remanded this question to the Commonwealth Court.

The court concluded its analysis of the first issue by addressing a question raised by an amicus brief from the Republican Caucus.  The Caucus argued that the Environmental Rights Amendment is not self executing.  The Court, citing its own prior decisions, rejected that argument, and reaffirmed that the amendment is self executing against the government.  (Whether it is self executing against private parties, of course, is a different matter.)

The court then addressed the second issue, the constitutionality of Sections 1602–E and 1603–E of the Fiscal Code and the General Assembly’s transfers/appropriations from the Lease Fund.

Sections 1602-E and 1603-E, the court said, specifically relate to royalties.  The court held both provisions to be unconstitutional on their face, based on the prior analysis.  The court said: “Without any question, these legislative enactments permit the trustee to use trust assets for non-trust purposes, a clear violation of the most basic of a trustee’s fiduciary obligations.”  The court then said: “To the extent the remainder of the Fiscal Code amendments transfer proceeds from the sale of trust assets to the General Fund, they are likewise constitutionally infirm.”  The court suggested that an accounting—a kind of financial audit—may be needed to ensure that funds moved to the General Fund “are ultimately used in accordance with the trustee’s obligation to conserve and maintain our natural resources.”

Concurring and Dissenting Opinion

Justice Baer began by describing the court’s decision as “monumental,” and saying that he was in “full agreement” 1) with the “dismantling” of the Payne test, 2) that the public trust provisions of Article I, Section 27 are self executing, and 3) with the recognition in footnote 23 that all “all branches of the Commonwealth are trustees of Pennsylvania’s natural resources.”   These holdings solidify what he called “the jurisprudential sea-change begun by Chief Justice Castille’s plurality in Robinson Township.”  He also agreed that, in managing public natural resources, the Commonwealth trustees must adhere to the private trustee’s duties of loyalty, impartiality, and prudence.

He nonetheless dissented from “the primary holding of the case declaring various fiscal enactments unconstitutional or potentially unconstitutional based upon the Majority’s conclusion that the proceeds from the sale of natural resources are part of the ‘trust corpus’ protected by Section 27.” Among other things, he argued 1) that there is no language in Article I, Section 27 relating to how money obtained from public trust resources is to be expended, 2) that the common law public trust doctrine imposes no such limits, 3) that the legislative history indicates that the Commonwealth can continue to dispose of public natural resources.

Dissenting Opinion

Justice Saylor filed a dissenting opinion that reads in full: “I join the central analysis of the dissenting opinion authored by Justice Baer, based on the recognition that the Environmental Rights Amendment is an embodiment of the public trust doctrine.”

Next Steps

There is, of course, a remand to Commonwealth Court on the proceeds from oil and gas leasing.  As previously indicated, the remand will involve the constitutionality of expenditures involving roughly half of the $926 million received from oil and gas leasing between 2008 and 2015.  The Commonwealth Court will almost certainly also address subsequent and future proceeds from leasing.

The Long Wait is Over

Immediately after the decision, I spoke with Franklin Kury, who as a young lawyer and Pennsylvania House of Representatives member authored and championed Article I, Section 27 between 1969 and 1971.  For more than four decades, he never gave up hope that the Environmental Rights Amendment would have a bigger impact.  “There is always the potential,” he wrote in 2011, “for a future court to apply the amendment in ways that we cannot now imagine….”  Now 80, he said, “I’m glad I lived long enough to see this.”

He added: “Both the PEDF and Robinson Township cases underscore the critical importance of building a solid legislative record in the official records of the House (or Senate) before the proposal is enacted.  I was well aware of this while the environmental amendment proposal was going through the House and Senate.  I made two floor speeches explaining the intent of the proposal and inserted into the House Journal Professor Robert Broughton’s legal analysis.”  (The legislative history is available here.)

“It took over four decades, but when the Supreme Court researched the legislative record, they found it all and used great portions of it.  I feel really good about this.  It was well worth the wait.”