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Third Circuit Affirms Injunctive Relief to Resource Producers in Marcellus Shale Region of Pennsylvania, Blocking Harmful NEPA Settlement That Imposed U.S. Forest Service Drilling Ban in 500,000-acre Allegheny National Forest

Sep.26.2011

On September 20, the Third Circuit affirmed a preliminary injunction against U.S. Forest Service interference with private mineral rights on split-estate lands in the 500,000-acre Allegheny National Forest ("ANF").  The published opinion in Minard Run Oil Co. and PIOGA v. U.S. Forest Service is available as 2011 WL 4389220 and at http://www.ca3.uscourts.gov/opinarch/101265p.pdf.  The opinion has significance for development of oil and gas (including Marcellus shale gas) in split-estate situations created under the federal Weeks Act and, more generally, for businesses seeking to preliminarily enjoin overreaching by federal agencies.  Crowell & Moring is lead counsel for the victorious Plaintiffs, including the Pennsylvania Independent Oil and Gas Association.

History and Context

The ANF is located in western Pennsylvania, near Col. Drake's first ever oil well drilled in 1859.  The 1911 Weeks Act authorized land acquisition for eastern National Forests.  Mineral owners and the ANF had a history of working cooperatively to reach accommodations that allowed prompt oil and gas development in a manner giving due regard to surface estate uses.  Things went well until about 2007, when Forest Service began asserting increasingly broad regulatory authority.  Two 2009 actions led to the Minard Run suit.  First, under a sweetheart settlement with environmental groups, including the Sierra Club, the Forest Service committed in an April 9, 2009, Settlement Agreement, to conducting National Environmental Policy Act ("NEPA") analyses on private mineral development in the ANF.  Second, an April 10, 2009 statement from ANF Supervisor Marten announced a multi-year moratorium on "approving" private mineral development through a Notice to Proceed ("NTP") until a forest-wide Environmental Impact Statement ("EIS") had been prepared and approved.  Mineral owners were later threatened with criminal prosecution if they did not obey the drilling ban and engaged in oil and gas operations without an NTP.

District Court Proceedings

ANF oil and gas interests (joined by Warren County, Pa.) brought suit in June 2009, and sought a preliminary injunction against the multi-year shutdown in new oil and gas development.  At a three-day hearing, Plaintiffs provided considerable factual evidence on the Forest Service's historic practices, the recent changes, and the severe economic hardship those changes were causing.  Federal Judge Sean J. McLaughlin of the Western District of Pennsylvania issued the requested preliminary injunction in Minard Run Oil Co. v. U.S. Forest Service, No. 09-125. 2009 WL 4937785 (W.D. Pa. Dec. 15, 2009), finding that: (1) mineral rights are dominant; (2) the Forest Service was exceeding its limited authority under the Weeks Act and Pennsylvania property law; (3) since the Forest Service had no permitting or approval power, NEPA did not apply; and (4) the Forest Service's change in legal policy was an arbitrary, unexplained departure from past practice. 

The Third Circuit Rulings And Their Significance

A unanimous Third Circuit panel affirmed the preliminary injunction, praising the "District Court's thorough, well-reasoned opinion," and affirming it "in all respects."  The appellate opinion rejected federal claims that judicial review is not available on the Settlement Agreement and Marten Statement, which together had imposed the drilling ban.  The Third Circuit held:  "In sum, the Service does not have the broad authority it claims over private mineral rights owners' access to surface lands."  Because no federal permit is required to exercise dominant private mineral rights, "the District Court properly concluded that issuance of an NTP is not a 'major federal action' under NEPA and an EIS need not be completed prior to issuing an NTP."  The Court also held that, because the Settlement Agreement and Marten Statement "create new duties for mineral rights owners," they are substantive rules that could only be adopted "pursuant to the notice-and-comment procedures" of the Administrative Procedure Act, which had not been followed.

These rulings should be quite helpful as Marcellus and Utica Shale gas is developed in the eastern United States.  The significance of the Third Circuit's decision extends beyond Weeks Act and mineral development situations.  For example, the decision enhances industry's ability to challenge sweetheart litigation settlements, and to challenge NEPA delays.  Importantly, the Third Circuit's opinion assists business interests who seek to preliminarily enjoin federal overreaching.  The Court found that substantial economic injuries (e.g., potential bankruptcies) and interference with real property rights do constitute the irreparable injury needed for an injunction.  Further, the Third Circuit found, under the public-interest factor for an injunction, that "granting the injunction would vindicate the public's interests in aiding the local economy," protect "the property rights of mineral rights owners," and ensure "public participation in agency rulemaking as required by the APA." 

For further information on private mineral rights issues involving federal agencies, please contact those listed.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

R. Timothy McCrum
Partner – Washington, D.C.
Phone: +1 202.624.2752
Email: rmccrum@crowell.com

Daniel W. Wolff
Partner – Washington, D.C.
Phone: +1 202.624.2621
Email: dwolff@crowell.com

Thomas R. Lundquist
Counsel – Washington, D.C.
Phone: +1 202.624.2667
Email: tlundquist@crowell.com