Petition for Writ of Certiorari — Moore v. Pennsylvania Department of Environmental Resources

y Supreme Cour?, U.8.

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951916 MAY 28 19%

No. Q6¢.0¢ OF THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

CLARENCE MOORE and

PENNLYCO, LTD.,

Petitioners,

V.

COMMONWEALTH OF PENNSYLVANIA,

DEPARTMENT OF ENVIRONMENTAL RESOURCES,

Respondent.

On Petition for a Writ of Certiorari

to the Supreme Court of

the Commonwealth of Pennsylvania

PETITION FOR A WRIT OF CERTIORARI

Cheryl Flax-Davidson

(Counsel of Record)

5441 Chevy Chase Parkway

Washington, D.C. 20015

(202) 363-9723

Attorney for Petitioners

QUESTION * RESENTED

Whether the Commonwealth of Pennsylvania, through its

Department of Environmenta! Resources, took Petitioners’ oil

“ad gas property without compe«:sation in violation of Petitioners’

ruith and Fourteenth Amzndment rights where:

The Commonwealth’s mistaken claim of title and its exer-

cise of dominion and control over Petitioners’ oil and gas property

substantially deprived Petitioners’ of their ability to lease, develop,

or derive any income from the proverty for a period of years.

TABLE OF CONTENTS

I i os Sessa nth cbespiasinienrnibincbstidehchnstevensensices

MN ooo. 2s. i svelantceversetatiescevenyesanessneszusens I

oe relia dh sd Meena ces hd etlgsiovanrrsvbovarincestigngaveseneesiys 2

CONSTITUTIONAL AND STATUTORY PROVISIONS

ee I ils eceeieecthcichececetinvosectnessshohvartieiodoscenageeesexdueseeys 2

SEAT PRE CU UN GPR doce nisciccccasicccvescadssncdconvenicevosioess 3

REASON FOR GRANTING THE WRIT.......0.0.......0.:cccceeeeeeees 5

I. THE COURT BELOW DECIDED AN IMPORTANT

AND SUBSTANTIAL QUESTION OF FEDERAL

LAW IN AWAY THAT CONFLICTS WITH THE

GOVERNING PRINCIPLES OF PRIOR DECISIONS

Be IOS Bid tin: decctheethivcidebenisbiritolbecakcissiceccens 5

A. The Commonwealth of Pennsylvania Unconstitu-

tionally Permits the Subjective Intent of the Govern-

ment to Determine Whether There Has Been a

"Compensable Taking" of Private Property................ 5

aa shi cannes AMS MS Gb thks seneneso> 11

ia a iat cntdesimentaiveinigsebentaiieaent gions ys la

APPENDIX A

Order of the Supreme Court of Pennsylvania............... la

APPENDIX B

Opinion of the Commonwealth Court of Pennsylvania. 2a

APPENDIX C

Order of the Commonwealth Court of Pennslyvania

Denying Application for Reargument.......................... 14a

APPENDIX D

Opinion of the Court of Common Pleas,

oh Sarin ec niaphacssceasen teoyscires 1Sa

iv

TABLE OF AUTHORITIES

Cases

Berman v. Parker, 348 U.S. 26 (1954)...............c.csesecseseecoeses 7

Chicago, B. & Q. R. Co. v. Chicago, 166 U.S. 226 (1897)... 6

Hughes v. Washington, 389 U.S. 290 (1967)..................2.8. 8

Jacobs v. United States, 290 U.S. 13 (1933).........00000 ee. 1]

Kaiser Aetna v. United States, 444 U.S. 164 (1979............... 8

Kirby Forest Indust., Inc. v. United States, 467 U.S. 1

CUI ois Fa ET eA A hs 11

Loretto v. Teleprompter Manhattan CATV Corp.,

QED LIB FAD CID ceicinreisicctetiie Seticnity <a 7, 9, 10

Moore v. Department of Environmental Resources,

566 A.2d 905 (Pa. Commw. 1989).....0........00...ce 4

Northern Transportation Co. v. Chicago, 99 U.S. 635

hg. Rupee Det kjk Bilal pee loom hei Sot cea 9

Penn Central Transportation Co. v. City of New York,

438 U5. IGACIGT) cue a a... 5

Pennsylvania Coal Co. v. Mahon, 260 U.S.

I atk aacih ccd tN sacred leash hciapatieceegeeak lark vhaainsiie=s 8

Pumpelly v. Green Bay Co., 20 L.Ed. 557

f . ESR SITRARRRLEE OT: aE te am Seats tor 8

San Diego Gas & Electric v. City of San Diego, 450 U.S.

eel rete a a eens 11

Sanguinetti v. United States, 264 U.S. 146 (1924)............... 9

Seaboard Air Line R.R. v. United States, 261 U.S. 299

CRD Beviss Wadddcacicocoserstonscenleicciouelabicseenanabedaaod 11

United States v. Causby, 328 U.S. 256 (1946)................ 8, 11

United States v. Clarke, 445 U.S. 253 (1980)...............0020... 1]

United States v. Dickinson, 331 U.S. 745 (1947)................. 8

United States v. Kansas City Life Ins. Co., 339 U.S. 799

Bn ni 2 Lea den BAO Lo a! a a ae 9

United States v. Lynah, 188 U.S. 445 (1903).......000000000.. 9

Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449

AFM CO CR is ctescncessntcsicscreeacccseniiolcaaaieldandaasamiiacas: 6

ee

V

Western Union Telegraph Co. v. Pennsylvania R.R.,

NWF Bi We UE BO coos belles rections edo kchosdaccdec, 9

Yee v. City of Escondido, 112 S. Ct. 1522 (1992)... 7

YMCA v. United States, 395 U.S. 85 (1989)... 9

Constitutions, Statutes, and Rules

U.S. Const., amend V..0000.00000........ as capeicettein sastonteles passim

Fy UN PE TI ciicicos i ccscocices ds eoecodskicees ac, passim

We CN I ho es ees 2, 6

Pennsylvania Eminent Domain Code, Section 502(e)

(eee Cw ee 3

Other Authorities

Blackstone, William, Commentaries 139....................... 9

Lewis, John, Law of Eminent Domain in the United States

Pr ee ee ee 9

Michelman, Frank I., Property, Utility and Fairness:

Comments on the Ethical Foundations of ‘‘Just

Compensation Law’’,80 Harv. L. Rev. 1165 (1967).. 10

Nichols, Philip, Law of Eminent Domain 282 (2d ed. 1917)... 9

Nichols, Philip, Law of Eminent Domain § 6.01 (1983)........ 7

Sackman, Julius and Rohan, Patrick J., 6 Nichols’ Law of

Eminent Domain §25.41 (rev. 3d ed. 1980)........ asia 11

pe a aN PT ta

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

No. 96-

CLARENCE MOORE and

PENNLYCO, LTD.,

Petitioners,

v.

COMMONWEALTH OF PENNSYLVANIA,

DEPARTMENT OF ENVIRONMENTAL RESOURCES,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

Petitioners Clarence Moore and Pennlyco, Ltd. respect-

fully pray that a writ of certiorari issue to review the Order of the

Supreme Court of Pennsylvania entered on February 26, 1996.

OPINIONS BELOW

The Order of the Supreme Court of Pennsy!vania dated

February 26, 1996, denying Petitioners’ Petition for Allowance of

Appeal is reported at 673 A.2d 338 (Pa. 1996) and is reprinted in

the Appendix to this petition at la. The Order and Opinion of the

Commonwealth Court of Pennsylvania, dated June 6, 1995, is

reported at 660 A.2d 677 (Pa. Commw. Ct. 1995) and is reprinted

in the Appendix to this petition at 2a-13a. The Order denying

Appellees’ application for rehearing is reprinted in the Appendix to

this petition at 14a. The Opinion and Order of the Court of

Common Pleas of Lycoming County, dated January 11, 1994, is

unreported and is reprinted in the Appendix to this petition at 15a-

27a.

2

JURISDICTION

The Order of ie Supreme Court of Pennsylvania was

entered on February 26, 1996. Jurisdiction is conferred on this

Court by 28 U.S.C. Sec. 1257(a).

CONSTITUTIONAL AND STATUTORY PROVISIONS

INVOLVED

The Just Compensation Clause of the Fifth Amendment to

the United States Constitution provides:

...[NJor shall private property be taken for

public use, without just compensation.

The Fourteenth Amendment to the United States Consti-

tution provides:

Section 1. Citizens of the United States.

All personsborn or naturalized inthe United

States, and subject to the jurisdiction

thereof, are citizens of the United States

and of the State wherein they reside. No

State shall make or enforce any law which

shall abridge the privileges and immunities

of citizens of the United States; nor shall

any State deprive any person oflife, liberty,

or property, without due process of law;

nor deny to any person within its jurisdic-

tion the equal protection of the laws.

Article i, Section 10 of the Constitution of Pennsylvania

provides in pertinent part:

...[N]or shall private property be taken or

applied to public use, without authority of

3

law and without just compensation being

first made or secured.

Section 502(e) of the Eminent Domain Code, 26 Pa. CS.

§1-502(e), provides:

If there has been a compensable injury

suffered and no declaration of taking there-

fore has been filed, a condemnee may file a

petition for appointment of viewers sub-

stantially in the form provided for in sub-

section (a) of this section, setting forth such

injury.

STATEMENT OF THE CASE

Petitioners present a simple, straight-forward case of a

‘‘taking’’ by a governmental entity. The Department of Environ-

mental Resources (hereinafter ‘‘DER’’) is an agency of the Com-

monwealth of Pennsylvania and the owner of the surface estate of

25,621 acres of land situated in Pennsylvania’ s Tiadaghton State

Forest. Petitioners are the owners of the subsurface oil and gas

estate of this property.

In 1979, DER asserted to Petitioners that it owned a

reversionary interest in Petitioners’ oil and gas estate and that,

pursuant to this ownership interest, in March 1983, it would take

control of that oil and gas estate. Beginning in 1979, DER made

public this declaration of future ownership in the form of maps,

which designated and plotted Petitioners’ property as being re-

served to the Commonwealth as part of the state park system after

March, 1983. Petitioners denied that DER held a reversionary

interest in this property.

In March, 1983, DER took physical control of Petitioners’

oil and gas estate. Exercising its governmental authority, DER

caused Petitioners’ names to be removed from the county tax rolls

as the owners of the property and Petitioners lost their right to sell,

lease, or otherwise develop these oil and gas rights. DER, holding

iam

4

itself out as the owner of the property, advertised a lease/auction

of the oil and gas estate and then entered into a five-year lease with

Pennzoil Company, in which Pennzoil agreed to develop the oil and

gas. During that five-year period, the Commonwealth of Pennsyl-

vania received $297,000 from the Pennzoil lease.

On October 30, 1984, DER conceded that Petitioners

owned a portion of the subject oil and gas estate totaling 6,841

acres. On November 17, 1989, pursuant to a Quiet Title action

initiated by Petitioners, the Commonwealth Court of Pennsylvania

held that Petitioners were the owners of the remaining parcel of

18,780 acres of the oil and gas estate. See Moore v. Department of

Environmental Resources, 129 Pa. Commw. 628, 566 A.2d 905

(Pa. Commw. Ct. 1989).

Petitioners filed a Petition for Appointment of Viewers on

October 27, 1992 pursuant to Pennsylvania law, alleging a

compensable taking of Petitioners’ oil and gas estate under both

Pennsylvania and federal law for the years in which DER had

deprived Petitioners of the use and enjoyment of their property.

The Court of Common Pleas issued an Opinion and Order

on January 11, 1994, in which it concluded that:

Based on these facts, the court finds that

Petitioners suffered damages as a direct

consequence of DER’s actions. Petitioners

were unable to realize any income from

their property interest during this time DER

claimed ownership, and during the time

DER took control of the property, Peti-

tioners were unable to use or enjoy their

property in any manner.

DER appealed, and the Commonwealth Court of Pennsy!-

vania reversed, finding that there was no taking because ‘‘Simply

put, DER was not acting as a condemnor; it was acting as an

owner.’’ Opin. at 13a. Petitioners’ Application for Reargument

was denied on July 19, 1995. The Supreme Court of Pennsylvania

5

denied Petitioners’ Petition for Allowance of Appeal on February

26, 1996

The federal constitutional question sought to be reviewed

by this Court was raised at every stage of the proceedings below,

both in the court of first instance (by Petition for Appointment of

Viewers on October 27, 1992) and inthe appellate courts. Petition-

ers specifically contr ided in their brief to the Supreme Court of

Pennsylvania on Petition for Allowance of Appeal that ‘‘DER’s

exercise of dominion and control over Petitioners’ property as part

of the state forest, advertising of Petitioners’ property to third

persons, the actual leasing of Petitioners’ mineral estate to third

persons, and the collection of almost $300,000 in rental without

compensation to Petitioners’ violated the Fifth and Fourteenth

Amendments to the U.S. Constitution."

The federal constitutional question sought to be reviewed

by this Court was timely and properly raised at every stage of the

proceeding so as to accord this Court jurisdiction to review the

judgment on Petitioners’ Wri: of Certiorari. The trial court did not

specifically address this federal constitutional issue but the Com-

monwealth Court of Pennsylvania made reference to this Court’s

decision in Penn Central Transportation Co. v. City of New York,

438 U.S. 104 (1978) in support of a ‘‘case by case approach to the

quesion of what constitutes a taking within the meaning of the Fifth

amendment to the United States Constitution. Opin. at Sa.

REASON FOR GRANTING THE WRIT

I. THE COURT BELOW DECIDED AN IMPORTANT AND

SUBSTANTIAL QUESTION OF FEDERAL LAW IN A

WAY THAT CONFLICTS WITH THE GOVERNING

PRINCIPLES OF PRIOR DECISIONS BY THIS COURT

A. TheCommonwealth of Pennsylvania Unconstitu tionally

Permits the Subjective Intent of the Government to

Determine Whether There Has Been a **Compensable

Taking’’ of Private Property.

ne

In the case before this Court, the Department of Environ-

mental Resources, an agency of the Commonwealth of Pennsylva-

nia, took physical possession and title to Petitioners’ oil and gas

estate without compensation or consent and, as owner of this

estate, leased development rights to a third party, Pennzoil. The

income derived from ‘his taking, in the amount of nearly $300,000,

enured to the public’s “enefit. Thus acting pursuant to its authority

as an agency of the Commonwealth of Pennsylvania, DER took

Petitioners’ property for public use. Under principles previously

enunciated by this Court, the Commonwealth of Pennsylvania may

not constitutionally refuse to compensate Petitioners where the

government took title, dominion, and control over Petitioners’

property, thereby depriving them of all ownership rights for a

period of years.

The Just Compensation Clause of the Fifth Amendment

made applicable to the States through the Fourteenth Amendment,

Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 160

(1980); see Chicago, B. & Q. R. Co. v. Chicago, 166 U.S. 226

(1897), states in clear and unequivocal terms: ‘‘[N]or shall private

property be taken for public use, without just compensation.’’ The

question presented in this case is whether a government entity must

pay just compensation when it mistakenly takes private property

for public use. Neither the language of the Just Compensation

Clause nor Supreme Court cases interpreting this constitutional

amendment make reference to a government’s subjective intent at

the time it takes private property. In fact, the Just Compensation

Clause makes no reference whatsoever to the ‘‘taker’’ of property

but is concerned only with compensating the victim of a govern-

mental taking. Despite this unambiguous directive, the Common-

wealth Court of Pennsylvania held that DER was not a “‘condem-

nor’’ of Petitioners’ property because Petitioners had failed to

show that DER exercised its power of eminent domain over the

property. According to the Commonwealth Court, ‘“To proceed

under §502(e) of the Code, a de facto taking must result from a |

governmental body’s actual exercise of eminent domain.’’ Opin. :

a

0 ems

J

at 7a. Pursuant to this reasoning, the Commonwealth Court

maintained that DER could not be considered a condemnor

because *“*DER claimed, albeit mistakenly, an ownership interest in

those rights which it believed had reverted to it as a surface owner

Hence, DER did not (and, indeed, could not) act as a condemnor

under these circumstances.’’ Opin. at 1 la.

Most of the United States Supreme Court cases interpret-

ing the Just Compensation Clause fall within two distinct classifi-

cations: physical occupation of private property and regulatory

takings. The first category of cases requires courts to apply a clear

rule. Where the government authorizes a physical occupation of

property (or actually takes title) the Just Compensation Clause

generally requires compensation. Yee v. City of Escondido, 112 S.

Ct. 1522, 1526 (1992), citing Loretto v. Teleprompter Manhattan

CATV Corp., 458 U.S. 419, 426 (1982). The facts of this case fall

squarely within this first classification of takings.

Although the typical ‘‘taking’’ occurs when a government

entity formally condemns a landowner’s property and obtains the

fee simple pursuant to its sovereign power of eminent domain, see

e.g., Berman v. Parker, 348 U.S. 26 (1954), a ‘‘taking’’ may also

occur without a formal condemnation proceeding or transfer of fee

simple. ‘‘There is nothing on the face of the constitutional provi-

sion which confines its application to a taking of property under

color of eminent domain, and, although it was undoubtedly aimed

at the power of eminent domain, it nevertheless applies to all the

sovereign powers of government which may be used to interfere

with the quiet enjoyment of private property.’’ P. Nichols, Law of

Eminent Domain, §601, at 6-5 (1983).

Here, DER acted in its governmental capacity and under

authority of law when it took title to Petitioners’ property. Unlike

a private landowner, DER had at its disposal the State’s instrumen-

talities to effectuate its taking as well as the weight of the State’s

authority. Using this unassailable power, DER caused Petitioners’

names to be removed from the property tax rolls as owners of the

oil and gas estate and then added these oil and gas interests to the

8

Commonwealth’s inventory of natural resources. DER then leased

the oil and gas interests to Pennzoil for development and garnered

fees under this lease arrangement. These acts deprived Petitioners

of their property and constituted a taking under the Fifth Amend-

ment.

The Court has frequently found “takings” outside the

context of formal condemnation proceedings in cases where

government action benefiting the public resulted in the use and

enjoyment of private property. See Kaiser Aetna v. United States,

444 U.S. 164, 178-80 (1979) (navigational servitude allowing,

public right of access); United States v. Dickinson, 331 U.S. 745,

750-51 (1947) (property flooded because of government dam

project); United States v. Causby, 328 U.S. 256, 261-62 (1946)

(frequent low altitude flights of Army and Navy aircraft over

property); Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 414-

416 (1922). In none of these situations can it be said that the

government intended to take property through condemnation, yet

a compensatory taking resulted.

Decisions of this Court are clear that intent is not the

touchstone of a governmental taking, rather the pivotal consider-

ation is whether the impact of the government’s action on the

property owner was to deprive him or her of substantially all

beneficial use of the property or render the land useless for all

purposes. "The Constitution measures a taking of property, not by

what a State says, or what it intends, but by what it does. ... [T}he

Due Process Clause of the Fourteenth Amendment forbids such

confiscation by a State, no less through its courts than through its

legislature, and no less when a taking is unintended than when it is

deliberate ..." Hughes v. Washington, 389 U.S. 290, 298 (1967)

(Stewart, J., concurring) (emphasis in the original). If subjective

intent were key, it would be a simple matter for a government to

subvert the mandatory requirement of the Fifth Amendment.

When faced with a constitutional challenge to a permanent

physical occupation of real property, this Court has invariably

found a compensable taking. See Pumpelly v. Green Bay Co., 20

iincteiiiaiaal iii ie |

9

L.Ed. 557 (1872); Northern Transportation Co. v. Chicago, 99

U.S. 635 (1879); United States v. Lynah, 188 U.S. 445, 468-70

(1903); Western Union Telegraph Co. v. Pennsylvania R. R., 195

U.S. 540 (1904); Sanguinetti v. United States, 264 U.S. 146, 149

(1924); United States v. Kansas City Life Ins. Co., 339 U.S. 799,

809-810 (1950); YMCA v. United States, 395 U.S. 85, 92 (1989)

(‘‘... government occupation of private property deprives the

private owner of his use of the property, and it is this deprivation

for which the Constitution requires compensation.’’).

In Loretto v. Teleprompter Manhattan CATV Corp., 458

U.S. 419 (1982), this Court affirmed

... the traditional rule that a permanent

physical occupation of property is a taking.

In such a case, the property owner enter-

tains a historically rooted expectation of

compensation, and the character of the

invasion is qualitatively more intrusive than

perhaps any other category of property

regulation.

458 U.S. at 441.

Early commentators similarly viewed a physical occupa-

tion of real property as the quintessential deprivation of property.

See e.g., 1 W. Blackstone, Commentaries 139; J. Lewis, Law of

Eminent Domain in the United States 197 (1888) (“‘ Any invasion

of property, except in case of necessity..., either upon, above or

below the surface, and whether temporary or permanent, is a

taking (footnote omitted; emphasis in the original)); 1 P. Nichols,

Law of Eminent Domain 282 (2d ed. 1917).

In fact,

[a]t one time it was commonly held that, in

the absence of explicit expropriation, a

compensable ‘‘taking’’ could occur only

through physical encroachment and occu-

10

pation. The modern significance of phys-

cal occupation is that courts, while they

sometimes do hold nontrespassory injurits

compensable, never deny compensaticn

for a physical takeover. The one incontes-

able case for compensation (short of formil

expropriation) seems to occur when tle

government deliberately brings it about

that its agents, or the public at large, "regu-

larly" use, or ‘‘permanently’’ occupy, space

or a thing which theretofore was unde-

stood to be under private ownership.

Loretto v. Teleprompter Manhattan CTV Corp. 458 U.S. at 426

n.5, citing F. Michelman, Property, Utility ana Fairness: Com-

ments on the Ethical Foundations of "Just Conpensation" Law,

80 Harv. L. Rev. 1165, 1184 (1967) (emphass in the original;

footnotes omitted).

Based on substantial evidence submitte at trial, the trial

court in this case correctly concluded that a taking had occurred in

that the government had taken title to Petitions’ property and

deprived them of their ownership rights withou just compensa-

tion. The Commonwealth Court of Pennsylvmia reversed the

lower court’s decision and, in doing so, uncorstitutionally nar-

rowed the right of a property owner in Pennsyvania to receive

compensation for a governmental taking to situaions in which the

governmental agency is acting in the exercise of i's formal eminent

domain powers or incidental thereto. Opin. at 6a. This requirement

directly conflicts with this Court’s eminent domiin decisions and

is contrary to basic principles governing the Juit Compensation

Clause.

This Court has never required more thanin act of physical

taking by the government. "As soon as private property has been

taken, whether through formal condemnation prceedings, occu-

pancy, physical invasion, or regulation, the landovner has already

Sema RER DIDI See Crone ren rien nennnee om

11

suffered a constitutional violation, and ‘the self-executing charac-

ter of the constitutional provision with respect to compensation’ is

triggered." San Diego Gas & Electric v. City of San Diego, 450

U.S. 620, 654(1981) (Brennan, J., dissenting) citing United States

v. Clarke, 445 U.S. 253, 257 (1980), quoting 6 J. Sackman and P.

Rohan, Nichols’ Law of Eminent Domain §25.41 (rev. 3d ed.

1980).

This Court has consistently recognized that the just com-

pensation requirement is not precatory: once there has been a

‘‘taking’’, compensation must be awarded. See, e.g., Kirby Forest

Indust., Inc. v. United States, 467 U.S. 1, 5 (1984); United States

v. Causby, 328 U.S. 256, 267 (1946); Jacobs v. United States, 290

U.S. 13 (1933); Seaboard Air Line R. Co. v. United States, 261

U.S. 299, 304-306 (1923).

CONCLUSION

For the foregoing reason, the petition for certiorari should

be granted.

Respectfully submitted,

Cheryl Flax-Davidson

Counsel of Record

5441 Chevy Chase Parkway, N.W.

Washington, D.C. 20015

(202)363-9723

Attorney for Petitioners

May 27, 1996

la

APPENDIX A

IN THE SUPREME COURT OF PENNSYLVANIA

MIDDLE DISTRICT

CLARENCE MOORE and PENNLYCO, LTD., > NO. 429 M.C.

ALLOCATOR

PETITIONERS : DKT. 1995

Wa "

: Petition for Allowance of

COMMONWEALTH OF PENNSYLVANIA, : Appeal from the

DEPARTMENT OF ENVIRONMENTAL : Commonwealth Court

RESOURCES

ORDER

PER CURIAM:

AND NOW, this 26th day of February, 1996, the Petition for

Allowance of Appeal in the above matter is denied.

Madame Justice Newman did not participate in the consideration

of this matter.

2a

APPENDIX B

[IN THE COMMONWEALTH COURT OF PENNSYLVANIA

CLARENCE MOORE and PENNLYCO, LTD.

V. No. 348 C.D. 1994

COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT

OF ENVIRONMENTAL RESOURCES,

Appellant.

The Commonwealth of Pennsylvania, Department of En-

vironmental Resources (DER), appeals from the order of the Court

of Common Pleas of Lycoming County dismissing DER’s prelimi-

nary objections to the petition for appointment of viewers, filed by

Clarence Moore and Pennlyco, Ltd. (collectively Moore) pursuant

to section 502(e) of the Eminent Domain Code, Act of June 22,

1964, Special Sess., P. L. 84, as amended, 26 P.S. §1-502(e).

Moore, an oil and gas developer, and Pennlyco, Ltd., a

Maryland corporation, are the owners as tenants-in-common of a

fee simple absolute interest in the oil and gas estate of certain real

property comprised of two contiguous parcels representing 6,84 |

and 18,780 acres located in Tiadaghton State Forest, Lycoming

County. In 1933, the Central Pennsylvania Lumber Company

conveyed the surface estate of this property to the Commonwealth,

but reserved the oil and gas estate with a fifty-year access for

development. In April 1975, Moore acquired from a successor to

the lumber company 50% of the oil and gas estate of the parcels,

and acquired the remaining 50% of the oil and gas estate in 1983

3a

from Mobil Oil Company. Mobil later conveyed a 50% interest in

the oil and gas estate to Kenneth Yates, who thereafter conveyed

that interest to Pennlyco.

In October 1979, DER asserted to Moore that it would

claim title to the oil and gas estate on March 28, 1983 because it

believed that the lumber company’s reservation of the estate was

an estate for years, terminating fifty years from the date of the 1933

conveyance and resulting in title reverting to the Commonwealth.

DER thereafter prepared maps outlining the subject rights as

reserved for the Commonwealth in 1983, and these maps were

made available to the public. In November 1983, DER publicly

advertised a lease auction of the interest, notice for which stated

that the Commonwealth considered itselfto be owner of the oil and

gas estate.

Pursuant to the auction, DER leased the oil and gas estate

to C.E. Beck/Pennzoil, which lease generated income for DER

from December 1984 through 1989 in the approximate amount of

$297,000. In May 1984, Moore instituted a quiet title action to

protect his ownership of oil and gas rights on the properties. In

October 1984, DER conceded that Moore was owner of the oil and

gas rights on the 6,841-acre parcel, but continued its claim of

ownership regarding the remaining larger parcel. However, this

Court in November 1989 held that Moore was the owner in fee

simple absolute of the oil and gas estate of the larger parcel. Moore

v. Department of Environmental Resources (Moore I), 129 Pa.

Commonwealth Ct. 628, 566 A.2d 905 (1989).

In October, 1992, Moore filed a petition for the appoint-

ment of viewers alleging that as a direct result of DER’s claim of

ownership, Moore was unable to lease, develop, or in any way

derive income from the property between 1979 and 1989. DER

filed preliminary objections to the petition averring that Moore

failed to state a cause of action and challenging the allegation of a

de facto taking. The trial court held hearings in May 1993 at which

several experts testified on behalf of Moore as to the desirable

nature of the property due to the proximity of large wells drilled by

4a

other major oil companies which produce large amounts of natural

gas, the value of the tract was due to the large area of land where

there were various unique geological structures indicative of the

entrapment of oil and gas, and the tracts of land had high potential

for oriskany, a formation known to be productive of oil and gas.

The trial court found that Moore actively undertook to

develop the oil and gas rights beginning in 1979 and always

disclosed to potential investors or lessees DER’s adverse claim to

ownership; Yates, a business associate of Moore, attempted to

market the property to potential investors starting in 1980, always

advising the investors of DER’s adverse claim; Moore, Yates, or

parties acting on their behalf contacted approximately fifty-one

companies involved in oil and gas development who were inter-

ested in the oil and gas interests but would not invest until title

problems were cleared up. Eventually, once DER’s adverse claim

was removed from the parcels and Moore regained clear title, he

was able to lease the oil and gas interests.

Based upon these findings, the trial court concluded that

DER’s assertion of an ownership interest in the gas and oil rights

directly caused potential investors to decline offers by Moore to

develop or lease the oil and gas, thus putting a cloud on Moore’s

title and effectively negating any business propositions to develop

the rights. The trial court found that DER is clothed with the power

of eminent domain, rejected the assertion that Moore failed to

prove DER ever acted under its power to condemn, and noted that

Pennsylvania courts have allowed landowners to recover for

intrusions and loss of use and enjoyment of property resulting from

government activity not done in the formal exercise of eminent

domain.

As a result, the court found that Moore sustained his

burden of proof through sufficient evidence to prove a taking of his

oil and gas interests in the smaller parcel from October 3, 1979 to

October 30, 1984, when DER conceded Moore’s ownership; and

in the larger parcel from October 3, 1979 until November 17, 1989,

when this Court adjudicated title in favor of Moore. Accordingly,

Sa

the trial court dismissed DER’s preliminary objections and DER

appealed to this Court.

On appeal, DER challenges the trial court’s determination

that Moore stated a cause of action for ade facto taking. DER also

contends that the trial court erroneously relied on inadmissible

hearsay in making those findings, leading to its conclusion that a de

facto taking had occurred. For the reasons which follow, we

conclude that Moore has not stated a cause of action based on ade

facto taking. We will therefore reverse.

In order to find a de facto taking, a court must consider

whether a governmental entity, clothed with the power of eminent

domain, has by its conduct substantially deprived the property

owner of the use and enjoyment of the property. Conroy-Prugh

Glass Co. v. Department of Transportation, 456 Pa. 384,321 A.2d

598 (1974); Elser v. Department of Transportation, ___

Pa.Commonwealth Ct. _, 651 A.2d 567 (1994).

DER contends that no de facto taking has occurred because

(1) Moore has not suffered substantial deprivation of the beneficial

use ofhis property, since no oil or gas has been removed; (2) Moore

did not establish exceptional circumstances that deprived him of

that beneficial use; and (3) DER was not acting while clothed with

the power of eminent domain when, purporting to be the owner of

the oil and gas estate, it granted a lease.

As this Court in Berk v. Department of Transportation,

168 Pa.Commonwealth Ct. 560, 566, 651 A.2d 195, 198 (1995)

has recently said:

There is no litmus formula to determine when

government action will be deemed to have the

effect of such taking. It has remained for the courts

to provide, with case by case development, the

needed doctrinal elaboration. Filbert Limited Part-

nership Appeal, 64 Pa. Commonwealth Ct. 605,

441 A.2d 1345 (1982). The United States Supreme

court has taken a similar case by case approach to

the question of what constitutes a taking within the

6a

meaning of the Fifth Amendment to the United

States Constitution, Penn Central Transportation

Co. v. City of New York, 438 U.S. 104, 98 S.Ct.

2646, 57 L.Ed.2d 631 (1978).

An analysis of the case law establishes that, in Pennsylva-

nia, government action has been found to effect a de facto taking

in limited and discretely defined circumstances. In defining those

circumstances, our courts have fixed their ‘‘focus . . upon the

nature of the complained of acts.’’ Enon Valley Telephone Co. v.

Market, 90 Pa. Commonwealth Ct. 53, 493 A.2d 800, 802 (1985)

(citing Condemnation of the Land and Property of Jacobs, 55 Pa.

Commonwealth Ct. 142, 423 A.2d 442 (1980)). In Enon Valley

and Jacobs weupheld preliminary objections to complaints brought

under the Eminent Domain Code. In Jacobs, the ‘‘[t]ownship

unlawfully issued the building permits, improperly approved the

subdivision, and wrongfully contributed to the design of the

drainage plans’’ which caused serious drainage damage to the

complaining property owners. We held these acts were not ‘‘ ur-

poseful and deliberate’ and were ‘‘in no manner related or

incidental to the Township’s condemnation powers.”’ /d. at 146,

423 A.2d at 443. As in Enon Valley, we quoted Lutzko v. Mikris,

48 Pa. Commonwealth Ct. 75, 79, 410 A.2d 370, 372 (1979) for

the ‘‘well established”’ principle that ‘‘acts not done in the exercise

of the right of eminent domain’’ and which ‘‘are not the immediate

and necessary consequence of exercising that right cannot’’ be the

basis of an action in eminent domain. !

| Thus, we have refused to allow recovery through eminent domain for injuries

resulting from negligent acts and trespass committed by municipal bodies ‘‘clothed’’

with eminent domain powers. See also Steckley v. Department of Transportation, 46

Pa. Commonwealth Ct. 367, 407 A.2d 79 (1979), aff'd 494 Pa. 104, 429 A.2d 1112

(1981), Culver v. Commonwealth, 346 Pa. 262, 29 A.2d 531 (1943). Negligent acts,

even those done by agents of the body condemning the complainants’ property, are not

actionable in eminent domain proceedings. Culv-r. To this extent, the boundaries of

the Eminent Domain Code have been strictly circumscribed by our case law.

Ta

Other than where there has been physical intrusion into

property or government activities in anticipation of condemnation,

taxings have been found ‘‘[w]hen deprivation of property occurs

as a result of the enactment of laws,’’ Gardner v. Department of

Environmental Resources, 145 Pa.Commonwealth Ct. 345, 603

A.2d 279 (1992); that is, when ‘‘regulation goes too far, it will be

recognized as a taking.’” Pennsylvania Coal v. Mahon, 260 U.S.

393, 415, 43 S. Ct. 158, 160, 67 L.Ed. 322 (1922). Of course,

Moore does not complain that DER’s regulatory actions have

deprived him of property. He brings his petition to appoint viewers

pursuant to section 502(e) of the Code on the allegations that DER

held itself out to be the owner of the oil and gas estate.

We hold that these allegations do not state a cause of action

for ade facto taking because they do not make out a claim that DER

exercised its power of eminent domain over that property. As we

said in Darlington v. County of Chester, 147 Pa. Commonwealth

Ct. 177, 180, 607 A.2d 315, 320, appeal denied, 531 Pa. 657, 613

A.2d 562 (1992), ‘‘[t]o proceed under section 502(e) of the Code,

a de facto taking must result from a governmental body’s actual

exercise of the power of eminent domain ...”’

This proposition is not idly stated, because not all

compensable injuries suffered by property owners as the result of

government action are takings, and not all lawful exercises of

government power will suffice to state a de facto taking.2 While

it is true that the actual exercise of eminent domain is not a requisite

‘to ade facto taking, where de facto takings have been found, either

physical intrusion or the imminence or inevitability of the condem-

nation, as that term is statutorily defined, 3 has been an essential

element.

2 See Condemnation of 2719, 2721, and 2711 E. Berkshire Street, 20 Pa. Common-

wealth Ct. 601,605, 343 A.2d67,69 (1975)(*‘the landowners’ difficulties ... are more

basic. They have failed to allege that the Department’s actions are the result of the

lawful exercise of its eminent domain power. It is well settled that acts not done in the

exercise of eminent domain ... cannot be the basis of any claim in that proceeding.”’)

3«*Condemn’’ means to take, injure or destroy private property by authority of law for

a public purpose. 26 P.S. $1-201.

8a

In Conroy-Prugh, the Department of Transportation held

hearings and caused widespread publicity about its intended

condemnation of certain property. These activities caused the

landowners’ commercial property to become unprofitable due to

loss of tenants. Our Supreme Court found ade facto taking of these

properties, which were in the path in a highway construction

project. The Supreme Court termed it ‘‘a significant fact’’ that

‘the property owner alleges that the publicity about the inevitable

condemnation caused a loss of tenants. 456 Pa. at 389, 321 A.2d

at 600 (emphasis added).

Following Conroy-Prugh, in Department of Transporta-

tion v. Pastuszek, 55 Pa. Commonwealth Ct. 138, 141, 422 A.2d

1223, 1225 (1980), we quoted with approval the common pleas

court’s assessment of a de facto taking:

The actions of the Commonwealth in preparing

plans for the acquisition of properties in the bed of

ramp C, announcing its intentions over a period of

ten years, conducting meetings with affected prop-

erty owners, public officials and community lead-

ers, acquiring properties on either side of the

Petitioner’s property, making offers to other prop-

erty owners in the immediate area, physically in-

truding upon the property of the Petitioner, lead

this court to find that a de facto taking of the

Petitioner’s property had been damaged and a

cloud placed upon it so as to adversely affect the

Petitioner’s beneficial use and enjoyment of that

property.

In McCracken v. City of Philadelphia, 69 Pa. Common-

wealth Ct. 492, 498, 451 A.2d 1046, 1049 (1982), we turned to the

Filbert Limited Partnership case for guidance in deciding when a

de facto taking will be found:

[t]he theory of de facto taking has been developed

in response to the reality that activities carried on

9a

incident to massive, complex and time-consuming

programs launched by government may so substan-

tially interfere with one’s use and enjoyment of his

property, as to inflict a compensable injury in a

constitutional sense or as being within applicable

statutory law, even though the power of eminent

domain has not been formally exercised against the

property in question and there has been no physical

intrusion of it.

We held in McCracken that construction activities con-

nected to building an elevated train, denying access and impeding

access to properties, amounted to exceptional circumstances

depriving the owners of the beneficial use of those properties, and

a de facto taking had therefore occurred.

InMcGaffic v. Redevelopment Authority of the Cityof New

Castle, 120 Pa. Commonwealth Ct. 199, 548 A.2d 653 (1988),

appeal denied 523 Pa. 644, 565 A.2d 1168 (1989), the trial court

noted in its decision that this Court has found ‘‘activities incident

to government programs may so pervasively interfere with use and

enjoyment of property even where there has been no actual exercise

of the power of eminent domain nor [sic] physical intrusion.’’ /d.

at 206; 548 A.2d at 656.4 There, we concluded that thetrial court’s

finding of a de facto taking was proper based on the facts that the

authority publicized redevelopment of an area in which the com-

mercial rental property stood; the authority announced a clear

intention to acquire through eminent domain all the properties

listed in a public notice; and it conducted an appraisal of the

——property and entered into a contract for its sale five years before the

property was subsequently removed from the acquisition list.

4 City of Hazleton v. Hudock, 2 Pa. Commonwealth Ct. 670, 281 A.2d 914 (1971) was

cited for this proposition. We held in that case that the approval and funding of an urban

renewal project followed by notices to and negotiations with property owners, and

acquisition by agreement of some parcels were not sufficient in themselves to establish

a de facto taking.

10a

By contrast, in //lorek v. Department of Transportation, 89

Pa. Commonwealth Ct. 483, 493 A.2d 133 (1985), we held that no

de facto taking occurred when the Department of Transportation

exercised its rights as an easement holder by re-installing a drain

pipe to a different depth within its easement over the property

owners’ land. We noted that if a taking occurred at all, it occurred

when the drainage pipe was originally placed on the property then

owned by a predecessor. In Capece v. City of Philadelphia, 123 Pa.

Commonwealth Ct. 86, 552 A.2d 1147 (1989), we held that a

residential property owner did not state a cause of action for a de

facto taking because mere unmarketability is not a substantial

deprivation ‘‘unless that unmarketability is aresult of the property's

inevitable condemnation such that would place a cloud on the

property’s title.’’ Jd. at 90, 552 A.2d at 1149 (Emphasis added).

It can be seen, then, that in those cases where de facto

takings have been found absent physical invasion or appropriation

of property, the government body either exercised legislative or

regulatory powers or engaged in activities that anticipated the

acquisition or destruction of property for a public purpose;® that

is, for ‘‘activities . . . incident to massive complex and time

consuming programs launched by government to solve ... the

problems that beset our society....’” Hudock, 2 Pa. Commonwealth

Ct. at 675, 281 A.2d at 917. These anticipatory activities-- for

5 In Borough of Boyertown Appeal, 77 Pa. Commonwealth Ct. 357, 466 A. 2d 239

(1983) we affirmed a trial court decision in which the court found an actual taking

where the municipality made an unauthorized connection to privately owned water

mains and supplied water to borough customers through those mains. We held that

there was no showing of a de facto taking, although we agreed with the trial court’s

determination that the private water main owner suffered an ‘‘actual’’ taking, which

we defined as that which occurs ‘‘when an entity having the power of eminent domain

physically appropriates the possession or use of private property.”” Id. at 369, 466 A.2d

at 245.

6 Black’s Law Dictionary defines public purpose as a term of classification to

distinguish the objects for which the government is to provide from those which are left

to private interest. A public purpose has as its objective the promotion of the public

health, safety, morals, general welfare, security, prosperity and contentment of all the

inhibitors or residents [of a] political subdivision. Black’s Law Dictionary 1107 (5th

ed. 1979).

lla

example, notice and publicity ofintent to condemn, actual condem-

nation of surrounding properties or prolonged restriction of access

to property-- amounted to exceptional circumstances depriving an

owner of some of the value of his property.”

In the conduct which gives rise to the instant dispute, DER

did not have as its object a government service or public improve-

ment promoting the health, safety and welfare of Commonwealth

residents. DER did not acquire or destroy Moore’s subsurface

rights for the purpose of leasing those rights, since the commercial

development of oil and gas fields is not a government function.

Rather, DER claimed albeit mistakenly an ownership interest in

those rights which it believed had reverted to it as the surface

owner. Hence, DER did not (and, indeed, could not) act as a

condemner under these circumstances. With regard to its mandate

to protect Commonwealth forests as a natural resource, DER is

chartered with certain powers, Section 1902-A of The Adminis-

trative Code of 1929, Act of April 9, 1929, P.L. 177, added by Act

of December 3, 1970, P.L. 834, as amended, 71 P.S. § 510-2(1).

§ 510-2. Forest powers and duties

The Department of Environmental Resources shall have

the power, and its duty shall be:

(1) To acquire, in the name of the Commonwealth

7 That non-regulatory de facto takings have not been contemplated outside the context

of formal Condemnation or public improvements is illustrated by the following

statement from Filbert Limited Partmership:

An ascertainable legal pattern emerges.... That pattern,

translated into a working principle, may be stated thus: Where a

property is designated for formal condemnation pursuant to a

planned prospective public improvement, adverse interim conse-

quences caused to the property by the prospect of condemnation

will not constitute a de facto taking unless those interim conse-

quences are that the owner is deprived of the use and enjoyment

of the property or is subjected to the loss of property before formal

condemnation can provide compensation. If there has been such

an interim deprivation of use or exposure to loss then the principle

of de facto taking becomes applicable to accelerate the time when

the governmental authority must make compensation.

12a

by purchase, gift, lease, or condemnation, and hold

as State forests, subject to the conditions of any

such lease, and subject to such reservations, if

encumbrances, as the department deems to be

consistent with such holding, any lands ... which,

in the judgment of the department, the Common-

wealth should hold, manage, control, protect,

maintain, utilize and regulate, as State forests or for

reforestation, and adding to and extending the

existing State forests. (emphasis added.)

DER is also given the power to purchase vacant or unappropriated

lands to hold as state forests, 71 P.S. § 510 2(2); to hold, manage,

develop and regulate state forest land for reforestation, soil

conservation, and for water flow and fire control purposes. 71 P.S.

§ 510-2(3); to dispose of state forest land:

and the said department is hereby empowered, to

make and execute contracts or leases, in the name

of the Commonwealth, for the mining or removal

of any valuable minerals that may be found in said

State forests ... whenever it shall appear to the

satisfaction of the department that it would be for

the best interests of the State to make such dispo-

sition of said minerals...

71 P.S. §510-2(6). DER’s eminent domain powers as to state

forests are limited to those circumstances found in section 510-

2(1). While DER has the power under that subsection to acquire

land by condemnation to hold as a state forest, it is not given the

power to acquire land in order to develop oil and gas leases. Thus,

DER did not “‘take’’ anything in the exercise of eminent domain

power, it attempted to lease subsurface mineral mining rights. Such

an attempt cannot constitute a de facto taking. See Golding v.

Township of New Britain, 33 Pa. Commonwealth Ct. 635, 382

A.2d 509 (1978) (an entity without express or necessarily implied

condemnation powers cannot effect a de facto taking).

iim i i

13a

Hence, we disagree with the trial court’s staement that

‘‘DER does not act as any private landowner when it mikes a claim

to oil and gas interests under state forest land’’ because that

statement is grounded on the incorrect premise that “‘DER was the

specific agency granted by law the responsibility for acyyisition of

oil and gas land [and is] authorized to assert its power of eminent '

domain to acquire such interests’. Jn Re: Inverse Cotdemnation

of 25,621 Acres of Oil and Gas Rights (No. 92-0222, filed

January 11, 1994), slip op. at 11. Simply put, DER wa; not acting

as a condemner; it was acting as an owner.

The only issue before us, which we decide atversely to

Moore, is whether DER, for a closed period of time, tyok the oil

and gas estate of Moore. We neither decide nor express any

opinion herein as to whether Moore has an action, Orthe nature

thereof, against DER and/or its lessee for its asserted OWnership of

the subject property.

Accordingly, we will reverse the trial court’s order dismiss-

ing DER’s preliminary objections, sustain the prelimitary objec-

tions of the DER and dismiss the petition of MoGe for the

appointment of viewers.

ORDER

AND NOW, this 6th day of June, 1995, the order of the_ ycoming

County Common Pleas Court at No. 92-02222, dated January 11,

1994, is reversed, the preliminary objections of the Department of

Environmental Resources are sustained and the petitinn for the i

appointment of viewers by Clarence Moore and Pennl},9 Ltd. is

dismissed. | .

ee

l4a

APPENDIX C

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

CLARENCE MOORE and PENNLYCO, LTD.

v. No. 348 C.D. 1994

COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT

OF ENVIRONMENTAL RESOURCES,

Appellant.

ORDER .

NOW, July 19, 1995, having considered appellees' application for

reargument and appellant’s answer in opposition, the application

is denied.

BY THE COURT:

JAMES GARDNER COLINS, President Judge

15a

APPENDIX D

IN THE COURT OF COMMON PLEAS OF LYCOMING

COUNTY, PENNSYLVANIA

IN RE: Inverse Condemnation : No. 92-02222

of 25,621 Acres of Oil and

Gas Rights, Clarence W. Moore

and Pennlyco, Ltd.,

Petitioners/Plaintiffs :

VS. : CIVIL ACTION - LAW

Department of Environmental

Resources of the Commonwealth

of Pennsylvania,

Respondent/Defendant : Preliminary Objections

OPINION AND ORDER

This matter is before the court for decision after an

evidentiary hearing to determine whether a de facto taking by

Respondent Department of Environmental Resources has oc-

curred. The procedural background is as follows. Petitioners filed

a Petition to Appoint a Board of Viewers on October 27, 1992,

averring that as a direct result of DER’s claim of ownership of

Petitioners’ oil and gas interest, they were unable to lease, develop

or in any way derive income from that interest. DER filed prelimi-

l6a

On March 31, 1992, this court ordered a hearing to

establish whether Petitioners’ averments, if true, established a de

facto taking under the Eminent Domain Code, 26 P.S. Section 1-

101 et seq. A hearing was held before this court on May 20 and 21,

1993, to allow Petitioners to prove the allegations of their petition.

FINDINGS OF FACT

1. Petitioner Clarence W. Moore is an adult individual,

residing at 5055 Northwest Seventh Street, Miami, Florida. Peti-

tioner Pennlyco, Ltd., is a corporation organized and existing

under the laws of Maryland, with offices at 117 West Patrick

Street, Suite 300, Frederick, Maryland.

2. The Respondent is the Pennsylvania Department of

Environmental Resources, hereinafter DER.

3. Petitioners are the one hundred (100%) percent owners,

as tenants-in-common, of a fee simple absolute interest in 25,62!

acres of the oil and gas estate of certain real property located in

Tiadaghton State Forest, Lycoming County. The property is

comprised of two contiguous parcels representing 6,841 acres and

18,780 acres.

4. Petitioners’ ownership interest is evidenced by deeds

recorded among the land records of Lycoming County at Book No.

755 Page 3, Book No. 1063 and Book No. 1953 Page 155.

5. DER is the owner of the surface estate of the same real

property referred to in paragraphs three and four.

6. DER, acting in the name of the Commonwealth of

Pennsylvania, is responsible for acquisition, management and

regulation of lands and the oil and gas rights under those lands, as

part of the state forest system for the public benefit. 71 P.S.

Sections 510-2, 510-2(1).

7. DER is vested with power of eminent domain under

Pennsylvania law. 71 P.S. Sections 510-2, 510-2(1).

8. In. 1975, Clarence Moore acquired ownership in fee

simple absolute of fifty (50%) of the mineral estate of the oil and

17a

gas for the subject tracts by deed from Mobil Oil Company.

9. In 1983, Mr. More acquired ownership in fee simple

absolute to the remaining fifty (50%) percent of the mineral estate

of the oil and gas for the subject tracts by deed from Mobil Oil

Company.

10. Mr. Moore conveyed a fifty (50%) percent interest in

the mineral estate of the oil and gas to Kenneth Yates, deed

recorded among Lycoming County Land Records at Book No.

1550, Page 283.

11. Kenneth Yates conveyed a fifty (50%) percent interest

in the mineral estate of the oil and gas to Petitioner Pennlyco, Ltd.,

deed recorded among Lycoming County Land Records at Book

No. 1959, Page 167.

12. At a meeting at DER’s offices on October 3, 1979,

DER, through its representative John Walker, first asserted to Mr.

Moore that pursuant to its lawful authority, on March 28, 1983, it

would be the owner of Petitioners’ oil and gas rights as part of its

state forest system. On that date, all of Petitioners’ ownership

interest in the subject rights would be extinguished and DER would

have the sole right to develop these nights as the exclusive owner

thereof.

13. Mr. Walker told Mr. Moore that DER’s records

showed that the Commonwealth would become owner of the oil,

gas and coal on March 28, 1983, and it would be a fee ownership.

14. In 1979, DER prepared maps that outlined the subject

rights as reserved for the Commonwealth in 1983. These maps

were available to the public.

15. After March 28, 1983, DER took control of the

property and conducted itselfas exclusive owner of Petitioners’ oil

and gas rights as part of the state forest system.

16. Petitioners’ names were removed as owners of the

property rights on the tax rolls of Lycoming County as of Decem-

ber 20, 1983.

17. In November 1983, DER publicly advertised a lease/

auction of the interest.

18a

18. DER’s Notice to Bidders for the auction states that the

Commonwealth considered itself to be the owner of the oil and gas

rights.

19. DER leased the oil and gas interest to C.E. Beck/

Pennzoil.

20. Income was generated from December 1984 until 1989

in the amount of approximately $297,000.00.

21. InMay of 1984, Petitionersinstituted litigation to Quiet

Title to protect and vindicate their ownership of oil and gas rights.

22. DER’s claim of ownership to the 6,841 acres of oil and

gas rights continued until October 30, 1984, when DER conceded

that petitioners were the owners in fee simple absolute of the 6,841

acres.

23. DER’s claim of ownership to the 18,780 acres contin-

ued until November 17, 1989, when, as a result of the litigation to .

quiet title, the Commonwealth Court of Pennsylvania declared and

upheld that petitioners were owners in fee simple absolute of

18,780 acres of oil and gas.

24. Various experts testified, at the hearing and by depo-

sition, as to the valuable nature of the subject tract of land.

25. Clarence Moore has been actively engaged in the oil and

gas business since 1950, and is experienced in oil and gas develop-

ment.

26. C. David Rainey is the president of IDC Drilling

Company, an independent oil and gas production and exploration

company that is active in Pennsylvania. He testified to the desirable

nature of the property due to the proximity of two big wells drilled

by other major oil companies which produce large amounts of

natural gas.

27. Jack Crichton is an expert in oil and gas development,

leasing and production. He testified that the large area of land was

important to the value of the tract, since there was the possibility

of several geological structures indicative of the entrapment of oil

and gas.

28. Mark Cable, an oil and gas geologist, testified to the

unique geologic structure of the Lycoming County land.

19a

29. George Kubisty is the vice-president of Berea Oil and

Gas Company, an independent oil and gas production company

active in Pennsylvania. He testified that the Lycoming County

tracts of land had high potential for oriskany, a formation known

to be productive of oil and gas.

30. Mr. Moore actively undertook to develop the oil and

gas rights starting in 1979.

31. Mr. Moore always disclosed to potential developers or

lessees DER’s adverse claim to ownership beginning in 1983.

32. Kenneth Yates is an attorney with a focus on represen-

tation of real estate and oil and gas ventures. He is also a business

associate of Mr. Moore. Mr. Yates attempted to market the

property to potential investors starting in 1980, always advising the

investors of DER’s adverse claim.

33. Mr. Moore and Mr. Yates, or parties acting on their

behalf, contacted some fifty-one(5 1) companies involved in oil and

gas development who were ready and willing to invest in oil and gas

development. See Plaintiff Exhibit 29, 86, 87, and 90 for a

comprehensive list of companies contacted.

34. Mr. Yates testified that almost all the companies were

interested in the subject oil and gas interests.

35. Potential investors declined to go forward on any

development of leasing deals upon hearing of DER’s claim.

36. William Thomas is an independent consultant active in

oil and gas leasing for numerous companies. He testified that he

tried to market the rights to Equitable, Texaco, Fairway Produc-

tion, Douglas Energy, Exxon, Miller Drilling Company, and Ray

Petroleum, however, the title problem concerned these companies,

so they lost interest.

37. IDC Drilling Company was interested in drilling a well .

subject to an agreement that a sufficient amount of time would be

available to explore and develop potential oil reserves beyond

March 28, 1983.

38. The offer from IDC never resulted in the leasing or

development due to DER’s adverse claim.

TN nn mT NTR TT Ne ee

20a

39. Mark Cable testified that the oil and gas business is a

long-term proposition and 2, 3, or 4 years is too short a time to get

any drilling done.

40. Mr. Cable stated that whenever there was anything less

than clear title, no company will invest until title is cleared.

41. Jack Crichton testified that clear title to ownerships of

oil and gas is very important, and given the adverse claim of DER,

he would not lease tracts from Petitioners.

42. Mr. Yates testified that every company he contacted

that initially showed interest declined to go forward after advise-

ment of the adverse claim. The companies invited him to resubmit

the tracts for review after the title problem was cleared.

43. Once DER’s adverse claim was removed from the

6,841 acre parcel and Petitioners regained clear title, Petitioners

were able to lease that oil and gas interest to Pennzoil.

DIS I

To find a de facto taking in Pennsylvania, the court must

consider whether the governmental entity, by its conduct, has

substantially deprived the property owner of the use and enjoyment

of his or her property. Conroy-Prugh Glass Company v. Common-

wealth, 321 A.2d 598 (Pa. 1974). The deprivation must be the

direct and necessary consequence of the actions of the entity having

the power of eminent domain. McCracken v. City of Philadelphia,

451 A.2d 1046 (Pa. Comwith. 1982). Substantial interference with

property rights by the government is sufficient to constitute a de

facto taking without an actual exercise of eminent domain, physical

intrusion, or any precondemnation activity. McGaffic v. Redevel-

opment Authority, 548 A.2d 653 (Pa. Comwith. 1988). When the

actions of the government result in the property owner’s inability

to dispose of commercial property or realize any income from it,

there has been a de facto taking. Jn re Department of Transporta-

tion of Right-of-Way, 455 A.2d 229 (Pa. Comwith. 1983). See

Conroy-Prugh Glass Company, 321 A.2d at 598.

The burden of proof is on the Petitioners. Each case turns

| a i

2la

on its unique factual matrix. Specifically, Petitioners must show

that there are exceptional circumstances which substantially de-

prive them, as owners, of the beneficial use and enjoyment of their

property, that the substantial deprivation was occasioned by

actions of an entity clothed in the power of eminent domain, that

the substantial deprivation was the result of the exercise of that

power, and damages occurred which are the immediate, necessary

and unavoidable consequence of the exercise of that power.

Darlington v. County of Chester, 607 A.2d 315 (Pa. Cmwith.

1992).

Upon review of all testimony and other evidence submit-

ted during the hearing, the court concludes that there is sufficient

evidence to support a finding of a de facto taking by Respondent

DER. The facts support the finding that in October of 1979, DER

informed Petitioner Clarence Moore that it owned a reversionary

interest in Petitioners’ oil and gas interest. Pursuant to that

reversionary interest, DER claimed it would own, and take full

control of, this interest in fee simple absolute on March 28, 1983.

Petitioners disputed DER’ s interpretation of its reversionary claim.

DER thus asserted an ownership interest in the gas and oil rights,

directly causing potential investors to decline offers by Petitioners

to develop or lease the oil and gas. Due to DER’s actions, a cloud

was put on Petitioners’ title, effectively negating any business

propositions to develop the rights and provide Petitioners with any

income from their interest.

The bases for this court’s conclusions are set forth below.

I. Power of Eminent Domain

First, the court finds DER to be clothed with the power

of eminent domain. Pursuant to public law, DER is vested with

authority to acquire lands by condemnation and manage and

develop the oil and gas under those lands, all as part of its duties

to hold state forests in the name of the Commonwealth. 71 P.S.

Section 510-2, 510-2(1), 510-6(1). DER states that it was not

acting in the exercise of eminent domain, but rather, as an owner

22a

by way of sale. The language of the Eminent Domain Code defines

eminent domain simply as that which occurs when an entity clothed

with power of eminent domain takes, injures or destroys private

property for publicuse. 71 P.S. Sections 1-207(3), 1-201(5). Inthe

instant case, DER was not merely any governmental agency

claiming title to Petitioners’ oil and gas rights, but the specific

agency granted by law the responsibility for acquisition of oil and

gas, and of state forest lands, authorized to assert its power of

eminent domain to acquire such interests. DER certainly may act

as any other proprietary owner when seeking to buy a building for

its offices, for instance, however DER does not act as any private

landowner when it makes a claim to oil and gas interests under state

forest lands.

DER argues Petitioners failed to prove the Department

ever acted under its power to condemn or ever planned or

announced plans to exercise its power to condemn. Case law does

not require a formal condemnation. Pennsylvania courts have

allowed landowners to recover for intrusions, interferences, and

loss of use and enjoyment of property resulting from government

activity not done in the formal exercise of eminent domain.

McCracken, 451 A.2d at 1046, McGaffic, 548 A.2d at 653.

“! ived of neé

Petitioners, as owners, have demonstrated that DER’s

conduct, in asserting an ownership interest in their oil and gas

rights, destroyed the potential for income and investment. For the

6,841 acre parcel, the time frame is 1979-1984, when DER

conceded Petitioners’ ownership. For the 18,780 acre parcel, the

time frame is 1979-1989, when the Commonwealth Court adjudi-

cated title in favor of Petitioners.

Petitioners have produced credible evidence to the effect

that the subject oil and gas interests are a valuable commercial

property right, for the reasons that they are below the surface of a

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large contiguous tract of land located in Pennsylvania that contains

potentially substantial reserves of oil and gas. Experts in oil and gas

development and potential investors testified to the desirability of

the acreage for commercial uses.

C. David Rainey, president of IDC Drilling Company

testified that this acreage was a very desirable piece of property,

since nearby there were two wells drilled by other major oil

companies, both of which produce enormous quantities of natural

gas. N.T. 5/20/93 p. 57, 99-100. Jack Crichton, oil and gas

development expert, testified that the geology of the land showed

a number of anticlines, which entrap oil and gas. N.T. 5/21/93 p.

5. Mark Cable, an oil and gas geologist, testified this area was a ripe

piece of property. The Lycoming County land is a unique geologic

structure with prolific production immediately to the north. Depo-

sition of Cable, p. 22, 10. Mr. Cable expressed his opinion that

there were high hopes for the subject acreage, as it had potential

for oil and gas production. Deposition of Cable at p. 10, 11.

George Kubisty, vice-president of Berea Oil and Gas

Company, testified that the area of Lycoming County had high

potential for oriskany, a formation of rocks underground known to

be productive of oil and gas development. Deposition of Kubisty,

p. 10. Clarence Moore testified that he focused on the acreage in

Lycoming County due to the fact it was a huge tract structured

along certain anticlines, and was of interest to persons involved in

the oil and gas business. N.T. 5/20/93, p. 18.

These witnesses are found by the court to be credible as to

the valuable nature of the subject acreage.

Petitioners have demonstrated by substantial evidence they

were not able to cultivate interest in investors to make a deal to

develop the oil and gas, due to DER’s asserted ownership claim.

Clarence Moore testified that after October 1979, when he

was informed of DER’ s claim of ownership, he was obligated to tell

any contacts he made about the shadow on the title. N.T. 5/20/93

p. 26. Mr. Moore stated that no one was interested in working on

a property if they were going to lose it in two or three years. N.T.

~~

2Aa

5/20/93 p. 26. He said he found that people he dealt with simply said

in the face of the claimed reservation from DER, they had no

interest. N.T. 5/20/93 p. 33. Mr. Moore personally contacted

approximately fifteen (15) companies and made efforts to develop

the property before 1983. N.T. 5/20/93 p. 33.

Kenneth Yates testified he contacted thirty-six (36) differ-

ent companies regarding development or leasing of the oil and gas.

N.T. 5/21/93 p.32. In November 1984, after DER withdrew its

adverse claim of title to the 6,841 acre parcel, Mr. Yates success-

fully leased property to Pennzoil Company. N.T. p. 39, 40. He was

never able to accomplish a lease or development of any of the

parcels contained in the 18,780 acre tract. N.T. p. 39.

Jack Crichton testified that title to ownership of oil and gas

is vital, because if clear title does not exist substantial investment

of money could be lost upon discovery of less than sole ownership.

N.T. 5/21 p. 6. Mr. Crichton stated he would absolutely not lease

tracts from Petitioners given the adverse claim of DER. N.T. p. 7.

In addition, Mr. Crichton testified that no company would be able

to do all the work necessary to produce anything in the time period

that was left before DER would take control in March 1983. N.T.

p. 6.

David Rainey testified that his partners were very substan-

tial European investors, interested in oil and gas rights in the United

States, N.T. 5/20/93 p. 65, however, no deal came to fruition due

to DER’s adverse claim. N.T. p. 84. In October of 1981, Mr.

Rainey’s company, IDC Drilling, offered to Mr. Moore to move a

rig on the property and drill at least one well, subject to an

agreement that a sufficient period of time would be available to

develop the property, beyond the period that remained until March

1983. Plaintiff Exhibit No. 40. Mr. Moore testified it was clear that

IDC required more time than the limited time that remained and so

the offer from IDC never resulted in any leasing or development

due to DER’s position that Mr. Moore did not own the property.

N.T. 5/20/93, p. 34, 36-37.

John Page, vice-president of IDC, testified that one of the

25a

conditions for a project to move forward was clear title to interest.

n.T. 5/20/93 p. 105. If DER had not placed a claim against Mr.

Moore’s interest, the project would have gone forward if Mr. Page

had anything to do with it, due tothe fact it wasa good project. N.T.

p. 107.

Mark Cable testified that whenever there is anything less

than clear title nobody is going to invest a dime until title is cleared.

Deposition of Cable, p. 11. Mr. Cable touched base with several oil

and gas development parties, but they did not pursue any further |

because of the cloud. Cable, p. 33. Mr. Cable’s interest in the

property moved to the bottom of his list as to any interest in

approaching investors. Cable, p. 11. The short time period left

before DER’s adverse claim took effect was not good for the oil

and gas business. In the oil and gas business, it is very difficult to

gain back the large investment of capital necessary to develop oil

and gas in that three (3) year space of time. Cable, p. 11. N.T. 5/

21/93 p. 4-6.

George Kubisty, who leases oil and gas interests, testified

that a title problem would have deterred further investigation into

the project and further review. Deposition of Kubisty, p. 23. Other

deals were coming together elsewhere, and he did not liketo pursue

title problems, as a rule. Kubisty, p. 29.

William Thomas, active in leasing oil and gas rights for

independent oil and gas companies, testified he had some compa-

nies interested, but when he advised them of the adverse claim, they

were no longer interested. The fact that the title problem could not

be solved killed Mr. Thomas’ ability to lease the property to the

companies. Deposition of Thomas, p. 15, 16.

Accepting the testimony of the witnesses as credible, it is

the court’s conclusion that Petitioners were substantially deprived

of the use and enjoyment of the property. After October 3, 1979,

Petitioners tried to market and develop their oil and gas interest, but

were unable to do so. Approximately fifty (50) companies refused

to participate in any lease or development of the oil and gas, after

being informed of DER’s adverse claim and prospective taking of

i ateiaeeiitaaiitiiiatiiiiliiiiidhiiditiilaal

26a

Petitioners’ property, on March 28, 1993. Clear title to these rights

appears to be an important factor for consideration for the various

oil and gas companies, who go through much time and expense

when embarking on a venture such as that proposed by Petitioners.

DER argues that Petitioners cannot meet their burden of

proving substantial deprivation, since Petitioners could have found

a lessee before March 28, 1983. However, the testimony is clear

that the time frame October 1979 to March 1983 was not long

enough for potential investors to perform all the studies that were

necessary before coming to a decision whether to go forward with

a project. In addition, these companies would be unable to realize

a return of the investment in that limited time period. Companies

were not interested in any title entanglements. Due to DER’s

adverse claim, Petitioners lost their potential investors. The court

finds sufficient evidence of substantial deprivation.

III. Substantial Deprivation Resulted in D es Which

are the Immediate, Necessary and Unavoidable Conse-

quence of DER’s Eminent Domain Power.

After March 28, 1983, DER divested Petitioners of title to

their oil and gas interest, and thereafter exercised control over it as

the exclusive owner. Petitioners were removed as owners from the

tax rolls of Lycoming County as of December 20, 1983. The

Commonwealth held itself out to be the owner of the oil and gas

interest, publicly advertising a lease auction of the rights. Testi-

mony of John Walker, N.T. 5/21/93, p. 109-110. DER sent out a

bid notice requesting interested bidders to submit bids on the tracts.

n.T. 5/21/93, p. 109-110. DER leased the oil and gas interest of

C.E. Peck/Pennzoil. N.T. 5/21/93, p. 112-113, 155-156. DER

generated income by receiving payments from December 1984

until 1989 from leasing the subject oil and gas interest in an amount

of approximately $297,000. N.T. 5/21/93, p. 165.

In May of 1984, Petitioners instituted a quiet title action to

ascertain the rightful ownership of the interest. Petitioners sug-

27a

gested the proceeds from the leasing of the interest of Pennzoil be

placed in escrow pending outcome of the action, however DER did

not acquiesce to this suggestion. N.T. 5/21/93, p. 59-61, Deposi-

tion of Beck, p. 30-31. Ultimately, the Commonwealth Court

found title in favor of Petitioners. Moore v. Commonwealth,

Department of Environmental Resources, 566 A.2d 905 (Pa.

Comwith. 1989).

Based on these facts, the court finds that Petitioners

suffered damages as a direct consequence of DER’s actions.

Petitioners were unable to realize any income from their property

interest during this time DER claimed ownership, and during the

time DER took control of the property, Petitioners were unable to

use or enjoy their property in any manner.

In summation, based on the whole of the testimony and

evidence presented at the hearing, the court finds Petitioners have

sustained their burden of proof through sufficient evidence to

prove a taking of Petitioners’ oil and gas interest from October 3,

1979 to October 30, 1984, for the 6,841 parcel, and from October

3, 1979 until November 17, 1989, for the 18,780 acre parcel. For

these reasons, the preliminary objections of Respondent DER are

dismissed.

ORDER

AND NOW, this 11th day of January, 1994, the Prelimi-

nary Objections of Respondent DER are DISMISSED.

By The Court,

Kenneth D. Brown, J.