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Wayne Land and Mineral Group LLC v. Van Rossum

United States Court of Appeals, Third Circuit

July 3, 2018

WAYNE LAND AND MINERAL GROUP LLC, Appellant
v.
DELAWARE RIVER BASIN COMMISSION MAYA VAN ROSSUM; DELAWARE RIVERKEEPER NETWORK

          Argued November 7, 2017 and November 20, 2017

          On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. No. 3-16-cv-00897) District Judge: Hon. Robert D. Mariani

          Jeffrey Belardi Belardi, Christopher R. Nestor, David R. Overstreet [ARGUED], Joseph R. Rydzewski Counsel for Appellant

          Mark L. Greenfogel, Kenneth J. Warren [ARGUED] Counsel for Appellee Delaware River Basin Commission

          Mark L. Freed, Jordan B. Yeager [ARGUED] Counsel for Intervenor-Defendant Appellees Maya Van Rossum and Delaware Riverkeeper Network

          Matthew H. Haverstick [ARGUED], Eric J. Schreiner, Joshua J. Voss Counsel for Not Party Amicus Appellants

Before: JORDAN, HARDIMAN and SCIRICA, Circuit Judges.

          OPINION OF THE COURT

          JORDAN, Circuit Judge.

         Wayne Land and Mineral Group, LLC, a company that wants to obtain natural gas by fracking reserves in Pennsylvania, [1] appeals from the dismissal of its complaint for failure to state a claim. Wayne sought a ruling in the District Court under the Declaratory Judgment Act that an interstate compact does not give the Delaware River Basin Commission authority to review Wayne's proposed fracking activities. The Commission argued in response that Wayne's claim was properly dismissed as unripe, that Wayne lacks standing, that there has been no final agency action, and that Wayne has not exhausted available administrative remedies. The District Court rejected those arguments but nevertheless denied Wayne's request for relief and dismissed the case under Federal Rule of Civil Procedure 12(b)(6), after determining that Wayne's proposed activities constituted a "project" subject to the Commission's oversight, according to the unambiguous terms of the interstate compact. Because we conclude that the meaning of the word "project" as used in the compact is ambiguous, we will vacate the order of dismissal and remand the case for fact-finding on the intent of the compact's drafters.

         I. Background Facts[2]

         A. The Delaware River Basin, the Interstate Compact, and the Delaware River Basin Commission

         The Delaware River Basin (the "Basin") is an area of land surrounding and draining into the Delaware River that extends through parts of Delaware, New Jersey, New York, and Pennsylvania (the "Basin States"). In 1961, the Basin States and the United States entered into the Delaware River Basin Compact (the "Compact"), which is an interstate agreement aimed at ensuring a unified approach to the conservation, utilization, development, management, and control of the water and related resources of the Basin.

         The Compact created the Delaware River Basin Commission, comprising the Governors of the Basin States, as well as a commissioner appointed by the President of the United States. By its terms, it gives the Commission a broad range of powers to protect water quantity and quality within the Basin. Most relevant to this case are the Commission's general powers and duties, which are detailed in Article 3 of the Compact. Article 3 charges the Commission with creating "[a] comprehensive plan … for the immediate and long range development and uses of the water resources of the [B]asin[.]" (Joint App. at 366, § 3.2(a).) That plan must "include all public and private projects and facilities which are required, in the judgment of the [C]ommission, for the optimum planning, development, conservation, utilization, management and control of the water resources of the [B]asin to meet present and future needs[.]" (Joint App. at 386, § 13.1.)

         Consistent with that planning responsibility, Article 3 gives the Commission the authority to review "projects" undertaken in the Basin if they will have "a substantial effect on the water resources of the [B]asin[.]" (Joint App. at 370, § 3.8.) The Commission has the power to promulgate rules "for the procedure of submission, review and consideration of projects[.]" (Joint App. at 370, § 3.8.) More fully, the Compact states the criteria for that review process as follows:

No project having a substantial effect on the water resources of the [B]asin shall hereafter be undertaken by any person, corporation or governmental authority unless it shall have been first submitted to and approved by the [C]ommission, subject to the provisions of Sections 3.3 and 3.5. The [C]ommission shall approve a project whenever it finds and determines that such project would not substantially impair or conflict with the comprehensive plan and may modify and approve as modified, or may disapprove any such project whenever it finds and determines that the project would substantially impair or conflict with such plan.

(Joint App. at 370, § 3.8.)

         The Compact defines many of its key terms, including the word "project," which is said to be

any work, service or activity which is separately planned, financed, or identified by the [C]ommission, 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[.]

(Joint App. at 363, § 1.2(g).) The Compact then defines "water resources" to include:

water and related natural resources in, on, under, or above the ground, including related uses of land, which are subject to beneficial use, ownership or control.

(Joint App. at 363, § 1.2(i).) Finally, in sweeping language, the Compact defines "facility" as:

any real or personal property, within or without the [B]asin, and improvements thereof or thereon, and any and all rights of way, water, water rights, plants, structures, machinery and equipment, acquired, constructed, operated or maintained for the beneficial use of water resources or related land uses including, without limiting the generality of the foregoing, any and all things and appurtenances necessary, useful or convenient for the control, collection, storage, withdrawal, diversion, release, treatment, transmission, sale or exchange of water; or for navigation thereon, or the development and use of hydroelectric energy and power, and public recreational facilities; or the propagation of fish and wildlife; or to conserve and protect the water resources of the [B]asin or any existing or future water supply source, or to facilitate any other uses of any of them[.]

(Joint App. at 363, § 1.2(e).)

         The Compact also gives the Commission power to address pollution within the Basin. Under Article 5 of the Compact, "[t]he [C]ommission may undertake investigations and surveys, and acquire, construct, operate and maintain projects and facilities to control potential pollution and abate or dilute existing pollution of the water resources of the [B]asin." (Joint App. at 372, § 5.1.) Article 5 provides the following:

The [C]ommission may assume jurisdiction to control future pollution and abate existing pollution in the waters of the [B]asin, whenever it determines after investigation and public hearing upon due notice that the effectuation of the comprehensive plan so requires. The standard of such control shall be that pollution by sewage or industrial or other waste originating within a signatory state shall not injuriously affect waters of the [B]asin as contemplated by the comprehensive plan. The [C]ommission, after such public hearing may classify the waters of the [B]asin and establish standards of treatment of sewage, industrial or other waste, according to such classes including allowance for the variable factors of surface and ground waters, such as size of the stream, flow, movement, location, character, self-purification, and usage of the waters affected. After such investigation, notice and hearing the [C]ommission may adopt and from time to time amend and repeal rules, regulations and standards to control such future pollution and abate existing pollution, and to require such treatment of sewage, industrial or other waste within a time reasonable for the construction of the necessary works, as may be required to protect the public health or to preserve the waters of the [B]asin for uses in accordance with the comprehensive plan.

(Joint App. at 372, § 5.2.)

         It is plain that the Commission has broad rulemaking and enforcement powers. Under Article 14 of the Compact, the Commission may "[m]ake and enforce reasonable rules and regulations for the effectuation, application and enforcement of this [C]ompact[.]" (Joint App. at 389, § 14.2(a).)

         B. Natural Gas Fracking and the Moratorium

         Natural gas reserves underlie at least some of the land within the Basin. To extract natural gas from shale rock formations, energy companies use a combination of horizontal drilling and hydraulic fracturing. From an area on the ground called a well pad, companies employ fracking technology to inject a fluid composed of water and various chemicals into the ground to force the release of trapped gas. It is estimated that the fracking process may require up to five million gallons of water per well. Some of the water in the fracking fluid is consumed and will remain underground, while the rest will flow back to the surface where it is recovered and either disposed of or recycled.

         The extraction and sale of natural gas may be profitable for those involved, and it certainly provides benefits to energy consumers, but fracking is not without controversy - in particular, concerns that it may adversely affect the quality and quantity of water resources. As a result, the Commission has asserted authority over fracking-related activities in the Basin.

         In 2009, the then-Executive Director of the Commission, Carol Collier, issued a moratorium banning most natural gas fracking projects located "within the drainage area of Special Protection Waters," unless there was prior Commission approval.[3] (Joint App. at 98.) Collier began by explaining that fracking had grown in the Basin due to technological advances, and that those natural gas projects involved a number of activities that, "if not properly performed[, ] may cause adverse environmental effects, including effects on water resources."[4] (Joint App. at 97.)

         The initial 2009 moratorium covered projects that included a "drilling pad upon which a well intended for eventual production is located, all appurtenant facilities and activities related thereto and all locations of water withdrawals used or to be used to supply water to the project." (Joint App. at 98.) But, at that time, "[w]ells intended solely for exploratory purposes" were not covered by the moratorium. (Joint App. at 98.)

         Collier expanded that moratorium in 2010 in a supplemental notice letter. She withdrew the exclusion for exploratory wells and stated that "all natural gas well project sponsors, including the sponsors of natural gas well projects intended solely for exploratory purposes, … may not commence any natural gas well project for the production from or exploration of shale formations within the drainage area of Special Protection Waters without first" obtaining the approval of the Commission. (Joint App. at 113 (emphasis omitted).) Collier said that the inclusion of exploratory wells in the moratorium would "support the Commission's goal that exploratory wells do not serve as a source of degradation of the Commission's Special Protection Waters," by "remov[ing] any regulatory incentive" to engage in purportedly "exploratory" drilling before the Commission could implement final natural gas regulations. (Joint App. at 113.)

         Since then, the Commission has not issued any final regulations with respect to the procedures and rules governing the review of fracking projects.[5]

         C. Wayne

         Wayne Land and Mineral Group, LLC is a Pennsylvania company that alleges it has been particularly harmed by the Commission's moratorium on fracking. It owns about 180 acres of land in Wayne County, Pennsylvania, and roughly 75 acres of that land are located within the Basin. That is the portion of Wayne's property that contains shale formations with natural gas reserves. Wayne wants to build a natural gas well pad and related infrastructure on its property, drill an exploratory well targeting the recoverable natural gas in the shale, and if viable, drill a horizontal well and use fracking to extract gas for sale. Wayne contends that the Commission's moratorium is wrongly impeding its investment-backed expectations.

         II. Procedural History

         A. The Complaint, the Motion to Dismiss, and the Motions for Intervention

         Wayne filed suit against the Commission in the United States District Court for the Middle District of Pennsylvania. In its complaint, it said that the Commission lacks the authority under the Compact "to review and approve a natural gas well pad, a gas well and related facilities and associated activities on [Wayne's] property" within the Basin. (Joint App. at 62.) More particularly, Wayne alleged that the Commission overstepped its bounds by interpreting its power to review "projects" to include essentially "any activity, development or other human undertaking in the Basin that uses water[.]" (Joint App. at 63-64.) Wayne sought a declaratory judgment from the District Court that the Commission's jurisdiction extends only to matters fitting the Compact's definition of "project" and that the activities proposed by Wayne do "not constitute a 'project' under Section 3.8 of the Compact." (Joint App. at 77-78.) By Wayne's reckoning, then, whether its activities "may have a substantial effect on water resources in the Basin" is irrelevant because those activities are not a "project" subject to the Commission's authority. (Joint App. at 77.)

         The Commission responded by filing a motion to dismiss Wayne's complaint. It asserted that the District Court lacked subject matter jurisdiction under Rule 12(b)(1) because Wayne's claim was not ripe and Wayne lacked standing. It also said, in the alternative, that the District Court should dismiss the complaint under Rule 12(b)(6) for failure to state a claim upon which relief may be granted because there was no final agency action and Wayne did not exhaust available administrative remedies. The Commission did not, however, make arguments countering Wayne's reading of the Compact's text, including Wayne's assertion about the scope of the term "project."

         The Delaware Riverkeeper Network and an individual named Maya K. van Rossum, who identifies herself as "the Delaware Riverkeeper," were granted permission by the District Court to intervene as defendants. The Court denied motions to intervene from Pennsylvania State Senators Joseph B. Scarnati, Lisa Baker, and Gene Yaw, as well as from Damascus Citizens for Sustainability, Inc. The Delaware Riverkeeper Network and Ms. van Rossum submitted a brief in support of the Commission's motion to dismiss Wayne's complaint, focusing largely on the terms of the Compact and the Commission's authority to review fracking activities as "projects" under that Compact.

         B. The District Court's Hearing

         At Wayne's request, the District Court held an evidentiary hearing and heard oral argument on the Commission's motion to dismiss. The new Executive Director of the Commission, Steven Tambini, appeared and testified that the Commission had not yet adopted final rules regarding fracking activities in the Basin but that the Commission would be willing to make "a jurisdictional determination … with respect to natural gas activity" if one were sought. (Joint App. at 180.) Tambini confirmed that, because the Commission had not made a jurisdictional statement, there was no "final decision" as to whether Wayne's "activities may have a substantial effect on the water resources of the [B]asin[.]" (Joint App. at 181.) Until it made such a statement, Tambini claimed, the Commission could not be said to have made any "final determination" about whether it has "authority over natural gas exploration and … production activities at a well pad site" under § 3.8 of the Compact. (Joint App. at 180-81.) According to Tambini, such a jurisdictional determination would typically include an assessment of whether the applicant's activities are a project and, if so, whether that project will have a substantial effect on the water resources in the Basin. He further testified that Wayne had not filed a request for a jurisdictional determination, and that Wayne had "not asked to come in to visit with us, did not ask professionals to visit with us, [and] did not ask the commissioners" whether it had to submit its proposed fracking plans to the Commission for project review. (Joint App. at 155.) But Tambini also admitted that no one has ever sought a jurisdictional determination from the Commission regarding natural gas extraction.

         Tambini's testimony made plain the legal risks the Commission can impose on energy companies. He said that a company could be fined "not less than $90, 000" if it failed to submit an application to the Commission before drilling a natural gas fracking well. (Joint App. at 212, 215-16.) And he agreed that, "if you were going to drill a well, construct a well pad, you had to file with the [C]ommission." (Joint App. at 216.) That was his understanding of the intent behind the 2009 and 2010 moratoriums.

         His testimony also showed that the process for obtaining a jurisdictional determination, or even discovering the existence ...


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