214 A.3d 748
Pa. Commw. Ct.2019Background
- PEDF challenged legislative transfers from the Lease Fund (revenues from oil and gas leases on State forest lands), arguing bonuses and annual rentals are corpus of the Article I, §27 environmental public trust and thus may not be diverted to non‑trust purposes.
- The Pennsylvania Supreme Court in PEDF II held royalties (payments tied to production) are corpus and must be used consistent with §27, but remanded to Commonwealth Court to determine whether bonuses and rentals are corpus or income under Pennsylvania trust principles in effect when §27 was ratified.
- The Commonwealth in remand proceedings argued bonuses and rentals are consideration for lease/grant of inchoate exploration rights (income), not payment for severance, and relied on statutory apportionment rules treating such receipts as income under the Uniform Principal and Income framework.
- DCNR’s standard State forest leases (2008–2013) used competitive bonus bids (up‑front) and fixed annual rentals that are payable regardless of production; DCNR retains bonuses/rents even when no oil or gas is produced and some leases were later terminated without production.
- Applying the Principal and Income Act in effect in 1971 (the 1947 Act, former 20 P.S. §3470.9), the court treated rents and bonuses as "received as rent or payment on a lease," allocating one‑third to income and two‑thirds to principal (corpus).
- The court concluded transfers that removed only the income portion (one‑third) from the Lease Fund to the General Fund were not facially unconstitutional under Article I, §27, but required accounting to ensure only the income portion was used for non‑trust purposes.
Issues
| Issue | Plaintiff's Argument (PEDF) | Defendant's Argument (Commonwealth) | Held |
|---|---|---|---|
| Are bonus and rental payments from State forest oil & gas leases part of §27 trust corpus? | Bonuses and rentals are proceeds from sale of public natural resources and thus corpus/principal that must be devoted to conservation and maintenance. | Bonuses and rentals are payments for the lease/exploration (inchoate rights), payable even without production, and are properly allocated as income. | Rentals and bonuses are "rent or payment on a lease"; apply 1947 Act allocation: one‑third income, two‑thirds principal. |
| Do legislative transfers of Lease Fund money to the General Fund (2009–2015 acts) violate §27 on their face? | Transfers diverted corpus funds and are facially unconstitutional if they included proceeds that are corpus. | Transfers are permissible to the extent they removed only income (not corpus) and the legislature acted within fiduciary duties. | Transfers are not facially unconstitutional because one‑third (income) may be appropriated; statutes stand provided only income portion was transferred and corpus is preserved. |
| Which trust law governs allocation between income and principal for §27 trust? | Apply private trust principles prevailing when §27 was ratified. | Same; rely on statutory principal/income law in effect at ratification. | Apply Pennsylvania trust law in effect in 1971 (1947 Act): former §9 governs apportionment. |
| Is accounting or further remedy required? | (Implicit) Ensure corpus protected; full accounting required. | Commonwealth urged that transfers were lawful if limited to income. | Court required accounting to ensure only one‑third allocable to income was removed; principal must be preserved for conservation. |
Key Cases Cited
- Pennsylvania Environmental Defense Foundation v. Commonwealth, 161 A.3d 911 (Pa. 2017) (Supreme Court: royalties are corpus; remand to apply trust law to bonuses/rentals)
- In re McKeown’s Estate, 106 A. 189 (Pa. 1919) (proceeds from sale of trust assets presumptively principal)
- Bolton v. Stillwagon, 190 A.2d 105 (Pa. 1963) (proceeds from removal of trust asset return to corpus)
- Bruner’s Will, 70 A.2d 222 (Pa. 1950) (application of open‑well doctrine; where trustees lacked power to lease, lease proceeds treated as principal)
- Blakley v. Marshall, 334 A. 564 (Pa. 1896) (royalties and rents from mineral leases treated as corpus when oil in place regarded as part of realty)
- Brown v. Haight, 255 A.2d 508 (Pa. 1969) (characterizing the unique nature of oil and gas leases and lessee interests)
- Robinson Township v. Commonwealth, 83 A.3d 901 (Pa. 2013) (discussing trustee duties and environmental protections under §27)