Court Addresses Surface Owner Appeal Rights

The State Journal
3 October 2012
By Christopher Power

Christopher "Kip" Power is a partner in Dinsmore's Shale Resources and Environmental Practice Group practicing out of the firm's Charleston office. His practice encompasses civil and administrative litigation related to the energy industry, with a particular emphasis on natural resources extraction and related operations.

On Sept. 25, the West Virginia Supreme Court of Appeals entertained oral arguments in the case of James Martin, Director v. Matthew L. Hamblet, Docket No. 11-1157. This appeal arises from a ruling issued by the Circuit Court of Doddridge County finding in favor of Mr. Hamblet, the owner of the surface of land on which EQT Production Co. proposes to drill a horizontal well targeting the Marcellus Shale formation. EQT was granted a permit by the West Virginia Department of Environmental Protection to drill the well on Mr. Hamblet's property, and the circuit court determined (over the objections of EQT and the WVDEP) that he has the right to appeal that permit in court.

Unlike other environmental/ regulatory programs that typically grant comment and appeal rights to any person who can claim to be "adversely affected" by the issuance of a permit, the statutes in West Virginia governing the issuance of drilling permits for shallow and deep gas wells provide objection and appeal rights only to coal owners and operators who may be affected by the drilling that would take place under such a permit. Further, the main focus of those types of appeal proceedings is on ensuring the safety of mining operations that may occur in proximity to well drilling or fracturing. Surface owners, on the other hand, are generally granted the right to comment on permit applications — and such comments must be considered by the WVDEP prior to making a decision on a permit application — but are not vested with the right to object or appeal the issuance of such a permit to any administrative appeals body or otherwise. Surface owners of land on which a gas well is drilled are, however, granted certain statutory rights to compensation for damages caused by drilling operations undertaken after a permit is issued, in addition to common law rights of action that are specifically preserved by West Virginia statute.

In the Hamblet case, the Circuit Court of Doddridge County based its determination that a surface owner has a right to appeal a drilling permit on the per curiam ("by the court," unpublished) decision of the West Virginia Supreme Court in State Ex. Rel. Lovejoy v. Callaghan, issued in 2002. In the Lovejoy case, the Supreme Court denied a petition for a writ of mandamus filed by a surface owner who sought to force the WVDEP to revoke a previously issued exploratory deep well permit. That denial was based on the court's finding that a specific provision in the West Virginia gas well statute provided the petitioner in that case with a right to administratively appeal that permit. Because that administrative appeal route had not been pursued, under well-established legal principles a writ of mandamus was deemed to be unavailable to the petitioner.

The Doddridge County Circuit Court's reliance on the Lovejoy case, however, is problematic for several reasons.

First, the West Virginia Constitution and applicable jurisprudence dictates that a per curiam decision of the West Virginia Supreme Court has no precedential value and may not be relied upon in establishing a new principle of law. Second, the opinion in the Lovejoy case cited an inapplicable provision within the West Virginia gas well permitting statute that, simply stated, does not stand for the proposition for which it was cited. Third, even if Lovejoy had been properly decided and could be given controlling weight, it addressed a deep well drilling permit. There is an entirely separate statutory procedure that applies to the issuance and appeals of permits for the drilling of wells into shallow gas formations, and (by definition) the Marcellus Shale formation is considered to be a shallow gas formation.

In allowing four different lawyers (two on each side of the dispute), to make presentations and answer questions, the West Virginia Supreme Court touched on all of these arguments (and others) during oral arguments that were held in the Hamblet appeal on the afternoon of Sept. 25. Further, the court explored with the parties the notion that an owner of surface lands like Mr. Hamblet, who purchased his property rights after the mineral estate had been severed from the surface, should be recognized as having a constitutional due process right to appeal the issuance of a well drilling permit. In this regard, some members of the court expressed varying degrees of sympathy for surface owners such as Mr. Hamblet, who are given the right to comment on a proposed permit but may not thereafter appeal its issuance and who may not be entitled to any royalties from gas production occurring beneath his property.

In the final analysis, however, it appeared that a majority of the Court recognized that this dispute centers on Mr. Hamblet's real property rights rather than the WVDEP permitting system, and in granting Mr. Hamblet permit appeal rights the circuit court was actually simply enhancing his property rights. Indeed, if the activities undertaken on the surface of his land pursuant to the WVDEP permit exceed those that EQT is entitled to undertake under the relevant property right conveyances, then regardless of the existence and terms of the permit Mr. Hamblet would have the right to seek injunctive and/other relief in circuit court on that basis.

In addition, the Supreme Court justices seemed to recognize that in order to sustain Mr. Hamblet's constitutional challenge, the Court would have to strike down much of West Virginia's oil and gas statutes on the same ground. Again, though it is always difficult to predict the outcome of an appeal based upon the nature and tenor of oral arguments, it would be quite a surprise if the West Virginia Supreme Court was to affirm the Doddridge County Circuit Court's opinion on this basis.

A written decision in the Hamblet case (presumably, one that will be published and therefore carry precedential weight) can be expected within the next few months. Obviously, the outcome of this closely watched case may have a significant effect on current Marcellus well permitting in West Virginia. Beyond that, the briefing and arguments raised with the court could conceivably affect future legislative reform efforts, and the court's opinion will be worth reading from that perspective as well.