Pennsylvania Supreme Court rejects de facto taking of coal

The following article by Josh Gallo and Brian Pulito of Steptoe & Johnson PLLC appears in the November 2021 issue of The PIOGA Press.

In the March 2020 issue of The PIOGA Press, Glenn Thompson of Steptoe & Johnson PLLC, reported on PBS Coals, Inc. v. Department of Transportation, 206 A.3d 1201 (Pa. Cmwlth. 2019), wherein the Pennsylvania Commonwealth Court resurrected coal companies’ de facto taking claim by reversing the trial court’s dismissal of the Pennsylvania Department of Transportation’s preliminary objections. Earlier this year, on January 20, in PBS Coals, Inc. and Penn Pocahontas Coal Co. v. Commonwealth of Pennsylvania, Department of Transportation, 244 A.3d 386 (Pa. 2021), the Pennsylvania Supreme Court reversed the Commonwealth Court’s decision, reinstated the trial court’s determination that no de facto taking occurred and remanded to the Commonwealth Court with direction to remand to the trial court for consideration of the coal companies’ claim for consequential damages.

Factual background

In 2006, Penn Pocahontas Coal Company (Penn Coal) leased its unmined coal rights to a 73-acre tract known as Parcel 55 to PBS Coals, Inc. The surface of that tract is owned by private citizens. Parcel 55 is accessed exclusively over a series of private rights-of-way across adjoining parcels. In 2010, PennDOT acquired, through a deed in lieu of condemnation, a strip of land on neighboring Parcel 54. That acquisition cut off the possibility of west-to-east access to Parcel 55.

Procedural background and issues

Penn Coal and PBS Coals filed a petition under 26 Pa. C.S. § 502(c) of the Pennsylvania Eminent Domain Code alleging a de facto taking. A de facto taking occurs when an “entity clothed with the power of eminent domain substantially deprives an owner of the use and enjoyment of his property”[1] without the filing of a declaration of taking. The coal companies asserted that the coal under Parcel 55 was now isolated and not capable of being mined. PennDOT filed preliminary objections that asserted a de facto taking did not occur, because the coal companies were not deprived of the beneficial use and enjoyment of their property. In support, PennDOT argued that because the companies did not apply for mining permits for Parcel 55 their damages were speculative. The coal companies responded that the loss of access because of the neighboring parcel condemnation was itself a taking, which directly caused the loss of the coal.

The trial court concluded that no taking had occurred because there was alternative access to highways for the coal companies and the ability to obtain a surface mining permit was speculative and uncertain and thus incapable of supporting a claim of taking. The trial court considered the likelihood that the coal companies would obtain a mining permit for Parcel 55; experts testified that there was no evidence that the coal companies conducted any stream-and-wetland impact studies or whether there was sufficient neutralization of acid mine drainage from the property. Additionally, the experts identified two prior negative experiences with PBS Coals on a neighboring property in the 1970s that would cause serious impediments to the issuance of a surface mining permit for Parcel 55.

The Commonwealth Court, in PBS Coals, Inc. v. Department of Transportation, 206 A.3d 1201 (Cmwlth. 2019), reversed and remanded, agreeing with the coal companies’ arguments that the land was now landlocked and alternative access to highways did not exist. The Commonwealth Court also held that any questions concerning the likelihood of securing a mining permit was a matter of damages and thus irrelevant as to whether a taking had occurred. PennDOT petitioned the Pennsylvania Supreme Court for review of the case, which was granted.

Pennsylvania Supreme Court analysis

The Pennsylvania Supreme Court noted that “[a] landowner alleging a de facto taking is under a heavy burden to establish that such a taking has occurred.”[2] It further stated that “[d]etermining whether a taking has occurred almost always turns on the facts, and as a result takings jurisprudence generally rejects per se rules.”[3] The court held that the ability of the coal companies to secure a mining permit was properly addressed by the trial court as a component of the taking analysis and “the coal companies must establish that the coal is legally mineable. Otherwise, the coal companies would receive a windfall.”[4]

The court further explained that PennDOT’s highway condemnation of a neighboring parcel “would be the immediate and necessary consequence of the coal companies’ inability to use and enjoy their coal estate if a mining operation existed, or could be commenced with a permit, on the property.”[5] But since the coal estate presently sat idle and thus may not be mined, the highway had not resulted in any deprivation to the coal companies. The high court agreed with the trial court’s legal conclusion that the coal companies had failed to establish that a permit was reasonably likely to issue and, as such, held that any taking was “purely speculative and conjectural.”[6]

The court also stated, however, that consequential damages are available even if a taking has not occurred and remanded the case to the Commonwealth Court with direction to remand to the trial court for consideration of the coal companies’ claim for consequential damages.

Implications of decision

The fact pattern and issues involved in the PBS Coals, Inc. case could arise in oil and gas drilling operations if property adjoining a pad site is condemned and is the only means to access the pad site. PBS Coals, Inc. suggests that a de facto taking suit by an operator could be unsuccessful if oil and gas operations on the landlocked parcel are speculative and conjectural. After PBS Coals, Inc., a court could potentially find the lack of a drilling permit as evidence that oil or gas development is speculative. However, it is more likely that a Pennsylvania court would find a de facto taking was imposed upon a landlocked oil and gas operator if significant steps are made to drill the well, including issuance of a drilling permit.

[1] PBS Coals, Inc. and Penn Pocahontas Coal Co. v. Commonwealth of Pennsylvania, Department of Transportation, 244 A.3d 386, 390 (Pa. 2021), (citing Conroy-Prugh Glass Co. v. PennDOT, 321 A.2d 598, 599 (Pa. 1974); accord McElwee v. SEPTA, 948 A.2d 762, 764 (Pa. 2008)).

[2] PBS Coals, Inc. and Penn Pocahontas Coal, Co. v. Commonwealth of Pennsylvania, Department of Transportation, 244 A.3d 386, 397 (Pa. 2021), (citing Miller & Son Paving. v. Plumstead Township, 717 A.2d 483, 485 (Pa. 1998)).

[3] Id. at 398.

[4] Id. at 403.

[5] Id. at 406.

[6] Id. at 408.