Pennsylvania Supreme Court to Hear Important Environmental Rights Amendment Case in September

Almost 50 years ago, in 1971, Pennsylvania voters overwhelmingly approved an Environmental Rights Amendment (ERA) (Article I, Section 27) to the state constitution.  The ERA creates a public trust in “public natural resources, and requires the Commonwealth to “conserve and maintain” these natural resources for the benefit of present and future generations.  Because of two court decisions in the early 1970s, however, the ERA was more or less ignored for decades.

In 2017, the Pennsylvania Supreme Court decided that the state must spend royalties received from oil and gas leases on state forests to “conserve and maintain” public natural resources in accordance with the  ERA.  State forests and the oil and gas underlying them are public natural resources, the court held.  If the state sells oil and gas under state forests, it cannot use the proceeds to balance the budget.  This landmark decision,  Pennsylvania Environmental Defense Foundation v. Commonwealth, marked the first time since the ERA was adopted that a majority of the Supreme Court had ever used the ERA to hold a statute unconstitutional.

On September 17, the Pennsylvania Supreme Court will hear oral argument in another case called Pennsylvania Environmental Defense Foundation v. Commonwealth.  Like the earlier case, this also involves an ERA claim about oil and gas drilling on state lands.  This case, however, is about how the state can spend bonus and rental money from oil and gas drilling on state lands.  Its decision could significantly impact the effectiveness of the ERA.

Supreme Court: Consider Trust Law in Interpreting ERA

In its 2017 decision, the Supreme Court said that the standard of judicial review for ERA issues “lies in the text of Section 27 itself as well as the underlying principles of Pennsylvania trust law in effect at the time of its enactment.”  The court’s endorsement of the text of Section 27 was an enormous advance in the law, given that the text had been more or less ignored for decades.  And the inclusion of Pennsylvania trust law added an important dimension to the interpretation of the ERA.

A trust exists in law when someone (called a trustee) holds the property of another person (called the beneficiary) for that person’s benefit.  The trustee has a special relationship–a fiduciary duty–toward the beneficiary.  This duty includes three subsidiary duties–loyalty to the beneficiary; prudence in managing the property; and, when there is more than one beneficiary, impartiality among them.

The Supreme Court in 2017 said the Commonwealth has these same three duties to the public–loyalty, prudence, and impartiality–in conserving and maintaining public natural resources under the ERA’s public trust.  These are the same responsibilities that a bank has to you when you deposit money with that bank.  This is strong protection for public natural resources–including state forests and parks, lakes and rivers, fish and wildlife.

What Trust Law Includes

When the Supreme Court referred to the “underlying principles of Pennsylvania trust law,” it brought in other trust law as well.  These fiduciary trust duties apply generally to all trusts.  But there are two different express trusts, each governed by its own additional rules.  These are charitable trusts and private, or noncharitable, trusts.

Charitable trusts occur, for example, when someone sets up a trust in perpetuity to fund a school or pay for scholarships for needy students to attend a school.  In many ways, the ERA is like a perpetual charitable trust.  It is created and administered for public benefit, the benefit is not purely financial, and it has no termination date.

Private trust law applies to wealth transfers from one person to another.  Say Uncle Bill sets aside money in trust for Samantha, his niece, so she can receive annual payments based on earned interest during her lifetime, and directs that, when she dies, the money be divided among her children.  In so doing, he has created a private trust.  The beneficiaries are named individuals, it is purely financial, and it has a termination date.

Under all traditional trust law, the basic objective is to carry out the terms and purpose of the trust.  Thus, in any given case where trust law is needed to interpret the ERA, the question should be which trust law rules best effectuate its purpose of conserving and maintaining public natural resources for the benefit of present and future generations.

Commonwealth Court: Consider Only Private Trust Law

In July 2019, the Commonwealth Court decided that two thirds of the bonus and rental proceeds must be spent for trust purposes, but that the state could spent the other third any way it wants.  The opinion is complicated, and it reflects a great deal of thought and care on the Commonwealth Court’s part.   But it starts from the wrong premise—that the court could consider only private trust law in interpreting the ERA. (As I explain in greater detail in a forthcoming article in the University of Michigan Journal of Law Reform, it placed too much reliance on a footnote in the Supreme Court’s 2017 opinion.)

In the private trust example above, it is perfectly fine for Samantha’s children to receive the trust money free and clear from the trust, because the trust no longer exists when she dies.  But the ERA is not a private trust, it was not created to transfer wealth to specific individuals, and it has no termination date.  Instead, it is established in perpetuity, and is was created to provide the nonfinancial benefits of public natural resources to millions of unnamed members of present and future generations.  So there is no good legal reason to say that the state can spend any of the bonus and rental money from oil and gas leasing on state lands free and clear of the trust.  Like a perpetual charitable trust, all of the money should be used for trust purposes.

The Commonwealth Court also did not consider the general trust principles of loyalty, prudence, and impartiality.   These duties would ensure that the state has enough money to conserve and maintain state forests and parks.  Allowing one third of the bonus and rental payments to be used for other purposes does not seem consistent with these duties.  The sufficiency of funds for conservation and maintenance of state forests is no small thing after oil and gas drilling occurs.

Why It Matters

The importance of this issue extends beyond this case and beyond Pennsylvania.  As my article shows, courts in other states are also using traditional trust law to interpret public trusts for natural resources.  There is a lot at stake in what trust law they choose.

Trust law can weaken or strengthen the ability of public trusts to protect natural resources.  If courts treat public trusts for natural resources as income producing instruments or for wealth transfers, they will weaken, undermine, or frustrate the purpose of these trusts.  If courts instead guide the interpretation of public trusts for natural resources with general or charitable trust law principles, they can maintain and even enhance the ability of these trusts to carry out the purposes for which they were created.