March 1, 2010
Author:
Heather L. Lamparter heather.lamparter@klgates.com
+1.412.355.8253
Contacts:
Walter A. Bunt, Jr. walter.bunt@klgates.com
+1.412.355.8906
Kenneth S. Komoroski kenneth.komoroski@klgates.com
+1.412.355.6556
Pierce Richardson pierce.richardson@klgates.com
+1.412.355.6786
Craig P. Wilson craig.wilson@klgates.com
+1.717.231.4509
K&L Gates includes lawyers practicing out of 35 offices located in North
America, Europe, Asia and the Middle
East, and represents numerous GLOBAL
500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities.
For more information, visit www.klgates.com.
1
Pennsylvania has more than 2,500 municipalities; each with their own government structure and many with their own set of land use ordinances and regulations. Some municipalities rely on county-wide zoning ordinances in lieu of township-specific requirements. The authority for both municipal and county land use ordinances is provided by the Municipalities Planning Code – a Pennsylvania statute that authorizes a broad degree of local land use regulatory powers, but is subject to restrictions in some important areas, including those relating to oil and gas activities.
Sometimes these ordinances can exceed the statutory authority of the township, borough or city, as was the case when Salem Township tried to enact its own oil and gas ordinance in contravention of the preemption provisions of the Oil and Gas Act.
On the other hand, when Oakmont Borough attempted to apply an existing ordinance to restrict natural gas drilling in certain zoning districts, the Pennsylvania Supreme
Court held that some restrictions may be within the “police power” of a municipality under the Municipalities Planning Code. Although the Court ruled in favor of the natural gas producers in that case, it also held that the ordinance at issue was not preempted on its face.
Meanwhile, the Marcellus Shale is continuing to live up to expectations. Natural gas producers are announcing plans to increase the number of rigs and wells drilled in
Pennsylvania and several more companies have taken lease positions and intend to drill the Marcellus Shale in 2010. As natural gas development expands, municipalities have begun the process of enacting new or amended ordinances aimed at oil and gas production activities and other municipalities are interpreting existing ordinances to limit or control operations. Although discussions and negotiations can often result in an amicable resolution of local concerns, litigation may become necessary if negotiation or ordinance amendment efforts fail.
In what forum does a producer challenge an ordinance that inappropriately restricts a producer’s ability to drill and develop its leasehold interest? In Pennsylvania, a producer has historically had two choices: (1) bring a substantive ordinance challenge before the municipality’s zoning hearing board; or (2) file a declaratory judgment action in a trial court. A recent Commonwealth Court decision, however, may make the second avenue less accessible in Pennsylvania than it has been previously.
1
This article is for informational purposes only and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.

In May of 2009 in Arbor Resources LLC, et al. v.
Nockamixon Township , the Pennsylvania
Commonwealth Court held that under the
Pennsylvania Municipalities Planning Code (the
“MPC”) a zoning ordinance must be challenged initially before the municipality’s zoning hearing board. 973 A.2d 1036 (2009). As a general rule, the
MPC vests exclusive jurisdiction in zoning hearing boards to hear challenges to the substantive validity of land use ordinances. 53 P.S. § 10909.1(a)(1).
However, a long line of Pennsylvania cases prior to
Nockamixon holds that, under certain circumstances, a court of common pleas has equity jurisdiction to hear declaratory judgment actions that challenge the validity of zoning ordinances and, therefore, the zoning hearing board’s jurisdiction is not exclusive.
These cases allow a court of common pleas to exercise its jurisdiction over a declaratory judgment action challenging ordinance validity when a plaintiff substantively challenges an ordinance that contains operational restrictions . The rationale expressed by the courts for this jurisdictional exception is that operational restrictions on land use go beyond traditional zoning controls. Therefore, an ordinance that contains operational restrictions does not fall within the category of land use controls accomplished by zoning. As a result, there is no need to exhaust zoning remedies under the MPC.
Additionally, Pennsylvania courts recognize that when an action challenges the substantive validity of the regulation rather than the application of the regulation, the issues presented are no longer within areas of a zoning hearing board’s expertise.
In the Nockamixon case, the township’s ordinances attempted to impose restrictions on oil and gas development, including: storm water management controls; restrictions on hours of operations, number of well pads on a site, and noise; controls on reclamation and landscaping; and restrictions on geophysical explorations. Surprisingly, the
Commonwealth Court in the Nockamixon case held that the Nockamixon Township ordinances did not contain operational restrictions and, therefore, the court held that the Bucks County Court of Common
Pleas did not have jurisdiction to hear a declaratory judgment action challenging the validity of the two
2
ordinances.
Whether the Nockamixon case will be viewed in subsequent court decisions as a foreclosure of a producer’s ability to originally challenge a zoning ordinance with operational restrictions by a declaratory judgment action in the court of common pleas remains uncertain for several reasons. First, even after Nockamixon , at least one court has accepted jurisdiction of a declaratory judgment action that challenged ordinances regulating oil and gas drilling. In October 2009, Judge Ambrose in the United States District Court for the Western
District of Pennsylvania held that several zoning ordinances that imposed regulations on oil and gas drilling were unlawful on a number of grounds.
Range Resources – Appalachia, LLC v. Blaine
Township , 2009 U.S. Dist. LEXIS 100932 (W.D.
Pa. October 29, 2009). (The Blaine Township case is discussed further below). The District Court was reviewing the ordinances on a plaintiff/natural gas producer’s declaratory judgment action, which challenged the substantive validity of the ordinances. The District Court never questioned its jurisdiction to entertain the declaratory judgment action.
Second, because the issue of a court of common pleas’ jurisdiction to hear a substantive ordinance challenge turns on the question of whether the ordinance contains operational restrictions that are beyond traditional land use controls, the analysis is at least somewhat fact-specific and thus will likely be made on a case-by-case basis. Specifically, this jurisdictional inquiry is answered by analyzing whether the ordinance at issue imposes “operational restrictions” on oil and gas development. Thus, under the exception to the general MPC rule, if the ordinance contains operational restrictions, a court of common pleas will have equity jurisdiction. (Of course, as demonstrated by Nockamixon , the answer to the inquiry can be unpredictable.) Thus, it
2
On February 9, 2009, the Nockamixon Township Zoning
Hearing Board declared by a 2-1 vote that the Nockamixon
Township ordinances were invalid. In a decision dated
February 19, 2009, the Zoning Hearing Board stated the ordinances were invalid on a number of grounds, including that the ordinances were preempted under the Pennsylvania
Oil and Gas Act and unconstitutional because they were a regulatory taking of the applicants’ property.
March 1, 2010 2

remains to be seen whether Pennsylvania courts will view the holding in Nockamixon as substantially limited to the Nockamixon Township ordinances or as a guide for determining jurisdictional questions in all ordinance cases.
Until the uncertainty created by the Nockamixon decision is clarified, a producer may decide to take a two-track approach to challenge an ordinance viewed as inappropriate by: (1) initiating a challenge before the zoning hearing board; and (2) filing a declaratory judgment action before the court of common pleas. However, even if a producer chooses to only challenge an ordinance before a zoning hearing board, the producer should not be foreclosed from reaching the court of common pleas because if a zoning hearing board determines its own zoning ordinance is lawful, the MPC provides that an appeal of the board’s decision may be taken in the court of common pleas. Although the delay, additional cost, and potential local influence associated with the zoning hearing board course may make it the less preferred route, ultimately, it does allow for a zoning ordinance challenge to be heard by a court of common pleas judge through the appellate process. The concurrent filing with the court of common pleas or other steps may be helpful in ensuring that legal positions are not waived by proceeding first with the zoning hearing board, however.
When local regulation impairs a producer’s ability to drill and develop their leasehold interest, on what legal grounds can the regulation be challenged?
Any producer that has had an encounter with local ordinances in Pennsylvania is likely familiar with the position under Pennsylvania law that municipal ordinances which regulate oil and gas drilling operations are preempted by state law. Specifically,
Section 601.202 of the Pennsylvania Oil and Gas
Act (the “Act”) expressly preempts all ordinances that regulate oil and gas well operations. An exception is provided for ordinances enacted pursuant to the MPC or Flood Plain Management
Act. However, even under the exception, ordinances enacted under these statutes will be preempted if the ordinance places “conditions, requirements or limitations on the same features of oil and gas well operations regulated by [the Act] or that accomplish the same purposes” of the Act.
In the landmark Salem Township case, the
Pennsylvania Supreme Court held in a unanimous decision that because the Salem Township ordinance overlapped the provisions of the Act and, in some instances, actually imposed requirements more stringent than the regulations included in the
Act, the ordinance acted as an “obstacle to the legislative purposes underlying the Act.” 964 A.2d at 877. The provisions of the Salem Township ordinance imposed well permitting requirements, slope limitations on access roads, siting limitations and site restoration deadlines. It also regulated the impact of wells on water quality and quantity and prescribed certain activities after well drilling and abandonment. Because the Act and the regulations promulgated thereunder regulated each of these features, the Pennsylvania Supreme Court affirmed the trial court’s decision that the Salem Township ordinance was preempted under the Act.
In Huntley & Huntley, Inc. v. Oakmont Borough , a related case decided by the Court on the same day as Salem Township , the Pennsylvania Supreme
Court also considered the narrower question of whether a municipality can designate zones for where an oil or natural gas well may be located.
964 A.2d 855 (Pa. 2009). Although the Court found that a municipality may address well location in certain situations, the Court held that a municipality can not restrict well drilling “subject to conditions addressed to features of well operations regulated by the Act.”
Since the Pennsylvania Supreme Court’s rulings in
February 2009, some municipalities have attempted to capitalize on what they view as language in the
Huntley decision that would narrow the application of preemption and permit a municipality to regulate oil and gas development if an ordinance is purportedly a traditional zoning regulation. Such a position contradicts the Pennsylvania Supreme
Court’s holding in Huntley when the Court stated that the Act’s preemptive scope is “quite broad.”
However, even assuming for sake of argument that an ordinance which regulates oil and gas development is not preempted under the Act, there are a number of other significant legal grounds that can be used to object to an ordinance that restricts oil and gas development.
March 1, 2010 3

First, an ordinance that restricts oil and gas development under certain circumstances may be challenged as a regulatory taking. A regulatory taking violates property protections afforded by the
Fifth Amendment of the United States Constitution
(“nor shall private property be taken for public use, without just compensation”) and Article I, §10 of the
Pennsylvania Constitution (“nor shall private property be taken or applied to public use, without authority of law and without just compensation being first made or secured”) by imposing property restrictions through an ordinance that, if enforced, leave the property owner with no beneficial use for its property interest. Because a producer only has one use of its property interest—to develop and produce oil and gas pursuant to a lease—if a producer is substantially restricted or barred from pursuing that development there is a strong argument that there is no other beneficial use available to the producer. As a result, the producer is completely deprived of its property interest and an improper taking has occurred.
Additionally, under a theory of “temporary taking” a producer may recover for the delay associated with the ordinance even if the municipality does ultimately allow the development. The legal principle of a temporary taking can be especially useful when a producer finds its development delayed by the ordinance until after the expiration of the lease’s primary term.
Second, when an ordinance requires the payment of a fee and the fee is not reasonably related to the service the municipality is providing under that ordinance, the ordinance may be challenged on the basis that the municipality is attempting to levy an improper tax. In order for an ordinance fee to be valid under Pennsylvania law, the fee must be in proportion to the cost the municipality incurs to administer and enforce the ordinance. If the fee is in excess of the municipality’s costs, a Pennsylvania court should consider the imposition of the fee as an attempt by the municipality to levy an improper tax to generate revenue. This legal basis for challenging an ordinance may be particularly successful when a municipality is imposing the same fee multiple times for the same site. For example, in Martin Media v.
Hempfield Twp. Zoning Hearing Bd., the
Commonwealth Court held a municipality’s $100 annual billboard fee invalid when the ordinance did not reduce the fee in proportion to the municipality’s time-savings when there were multiple billboards on one site. 671 A.2d 1211
(1996). It should be noted, however, that this type of challenge often requires a factual analysis of the municipality’s costs to administer the ordinance.
Therefore, litigation involving a challenge of an ordinance as an improper tax is not likely to be decided at an early point in the proceeding.
Third, when a municipality attempts to enforce an ordinance of general applicability in a manner that would restrict oil and gas development and the ordinance contains broad, undefined terms that allow the municipality vast discretion in its application, the ordinance may be challenged as unconstitutionally vague. The concept of due process in both the United States and Pennsylvania
Constitutions requires that an ordinance be clearly and plainly drafted so that citizens are given fair warning of their legal obligations. As a result, when a municipality stretches the application of its ordinance as a means of restricting oil and gas development and it is not clear from the wording of the ordinance that the producer’s activity is regulated by the ordinance, the ordinance may be unlawfully vague. For example, in Blaine
Township , the Township enacted a municipal resolution that required permits for “temporary structures” on a construction site. The words
“temporary” and “structure” were not defined in the resolution. The Township issued 22 citations and
$6,600.00 in fees to a producer for one three-acre drilling site. Eighteen of the alleged “structures” that the Township contended needed permits were water tanks. Judge Ambrose held that the resolution was unconstitutionally vague because its failure to define key terms caused “individuals of common intelligence” to guess at the resolution’s requirements and permitted “arbitrary and inconsistent application [of the resolution] by
Township officials.” Blaine Township , 2009 U.S.
Dist. LEXIS 100932 at *24-25.
In summary, with the large numbers of municipalities in Pennsylvania and the expanding scope of oil and gas development, attempted municipal regulation of production activities can be expected to continue. If these restrictions are overly burdensome and inappropriate, and a municipality refuses to rescind or modify the inappropriate
March 1, 2010 4

ordinance, litigation may be the only alternative. If litigation becomes necessary, Pennsylvania law provides potentially two forums and multiple legal grounds that can be used to have an unlawful ordinance invalidated.
Anchorage Austin Beijing Berlin Boston Charlotte Chicago Dallas Dubai Fort Worth Frankfurt Harrisburg Hong Kong London
Los Angeles Miami Moscow Newark New York Orange County Palo Alto Paris Pittsburgh Portland Raleigh Research Triangle Park
San Diego San Francisco Seattle Shanghai Singapore Spokane/Coeur d’Alene Taipei Tokyo Washington, D.C.
K&L Gates includes lawyers practicing out of 35 offices located in North America, Europe, Asia and the Middle East, and represents numerous
GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market participants and public sector entities. For more information, visit www.klgates.com.
K&L Gates is comprised of multiple affiliated entities: a limited liability partnership with the full name K&L Gates LLP qualified in Delaware and maintaining offices throughout the United States, in Berlin and Frankfurt, Germany, in Beijing (K&L Gates LLP Beijing Representative Office), in
Dubai, U.A.E., in Shanghai (K&L Gates LLP Shanghai Representative Office), in Tokyo, and in Singapore; a limited liability partnership (also named
K&L Gates LLP) incorporated in England and maintaining offices in London and Paris; a Taiwan general partnership (K&L Gates) maintaining an office in Taipei; a Hong Kong general partnership (K&L Gates, Solicitors) maintaining an office in Hong Kong; and a Delaware limited liability company (K&L Gates Holdings, LLC) maintaining an office in Moscow. K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners or members in each entity is available for inspection at any K&L Gates office.
This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
©2010 K&L Gates LLP. All Rights Reserved.
March 1, 2010 5