Snyder Brothers, Inc. v. PA PUC ( 2020 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Snyder Brothers, Inc., :
Petitioner :
: No. 1043 C.D. 2015
v. :
: Argued: October 4, 2019
Pennsylvania Public Utility :
Commission, :
Respondent :
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE McCULLOUGH FILED: February 6, 2020
This matter comes to us on remand from the Supreme Court in Snyder
Brothers, Inc. v. Pennsylvania Public Utility Commission, 198 A.3d 1056 (Pa. 2018),
order amended on reconsideration, 203 A.3d 964 (Pa. 2019) (Snyder II), which
reversed the decision of this Court in Snyder Brothers, Inc. v. Pennsylvania Public
Utility Commission, 157 A.3d 1018 (Pa. Cmwlth. 2017) (en banc) (Snyder I).
By way of background, on January 17, 2014, the Bureau of Investigation
and Enforcement (I&E)1 filed a complaint, alleging that Snyder Brothers, Inc. (SBI)
1
Our Supreme Court has explained: “As the [Public Utility Commission (PUC)] is
statutorily structured, its investigative and enforcement bureau and its adjudicative division perform
separate functions: I&E is tasked with conducting investigations into alleged violations of laws
within its jurisdictional purview, and whenever it determines that a violation has occurred, it files a
(Footnote continued on next page…)
did not properly identify and pay impact fees on 24 wells in 2011 and 21 wells in
2012. After reviewing SBI’s annual well production reports for calendar years 2011
and 2012, I&E determined that SBI failed to report these 45 wells as “vertical wells,”
which are subject to an impact fee under the Pennsylvania Oil and Gas Act, a statute
commonly known as Act 13.2 In its complaint, I&E sought $507,586.00 in past due
impact and administrative fees, plus penalties and interest, and also requested that
SBI be ordered to pay an additional penalty of $50,000.00. SBI filed an answer and
new matter, asserting that the wells at issue were “stripper wells,” not “vertical
wells,” and were thus exempt from the impact fee.3 In his decision, the ALJ
(continued…)
formal complaint which is heard by an [Administrative Law Judge (ALJ)] from the PUC’s
adjudicative division. If the ALJ finds that a violation has occurred, he or she then determines an
appropriate penalty. A party aggrieved by the ALJ’s decision may appeal it to the PUC
Commissioners [the Commission], who then collectively sit as an administrative tribunal to decide
such challenges.” Snyder II, 198 A.3d at 1062 n.8.
2
Act of February 14, 2012, P.L. 87, 58 Pa.C.S. §§2301-3504.
3
As an aside that bears some relevance to this appeal, Section 2301 of Act 13, titled
“Definitions,” defines these two types of wells as follows:
“Stripper well” – An unconventional gas well incapable of producing
more than 90,000 cubic feet [cf] of gas per day during any calendar
month, including production from all zones and multilateral well
bores at a single well, without regard to whether the production is
separately metered.
* * *
“Vertical gas well” – An unconventional gas well which utilizes
hydraulic fracture treatment through a single vertical well bore and
produces natural gas in quantities greater than that of a stripper well.
(Footnote continued on next page…)
2
determined that the definition of “stripper well” was ambiguous but, applying the
statutory construction factors for ascertaining legislative intent, concluded that SBI
was operating “vertical wells” and therefore violated Act 13. Besides ordering SBI
to pay past due impact fees, the ALJ also awarded: (1) interest under section 2308(a)
of Act 13, 58 Pa.C.S. §2308(a),4 and accepted I&E’s proposed 3% interest rate as
reasonable; (2) a seemingly mandatory penalty under section 2308(b) of Act 13, 58
(continued…)
58 Pa.C.S. §2301 (emphasis added). The decisive legal issue presented in Snyder I and Snyder II
focused on the interpretative meaning of the word “any.” As observed by a Justice in our Supreme
Court, this “short yet elusive term” often creates “maddening complexities.” Snyder II, 198 A.3d at
1080 (Wecht, J., concurring, joined by Baer, J.).
In Snyder I, a majority of this Court concluded
that the word ‘any’ in the term ‘stripper well’ unambiguously means
‘any’ or ‘one’ and not ‘all’ or ‘every.’ Because the uncontroverted
evidence establishes that the wells at issue have produced less than
90,000 cf of gas in at least one month, they are ‘stripper wells’ and
SBI does not have to pay impact fees for these wells. Alternatively,
assuming, arguendo, that ‘any’ is an ambiguous term, this Court
concludes that an analysis of the statutory construction factors do not
resolve the ambiguity and that the ambiguity must be construed in
favor of SBI.
157 A.3d at 1030-31 (emphasis added). In contrast, in Snyder II, our Supreme Court concluded
that, while “any” was an ambiguous term, “under Act 13, an unconventional vertical well is a
‘vertical gas well’ subject to assessment of an impact fee for a calendar year whenever that well’s
natural gas production exceeds 90,000 cubic feet per day in at least one calendar month of that
year.” Snyder II, 198 A.3d at 1079 (emphasis added).
4
“The [C]ommission shall assess interest on any delinquent fee at the rate determined under
section 2307(a) (relating to commission).” 58 Pa.C.S. §2308(a). Pursuant to section 2307(a) of Act
13, the “[C]ommission shall have the authority to make all inquiries and determinations necessary
to calculate and collect the fee, administrative charges or assessments imposed under this chapter,
including, if applicable, interest and penalties.” 58 Pa.C.S. §2307(a).
3
Pa.C.S. §2308(b),5 at the 25% maximum rate; and (3) a discretionary civil penalty in
the amount of $50,000.00 under section 2310(a) of Act 13, 58 Pa.C.S. §2310(a). 6
In a decision dated June 11, 2015, the Commission upheld the ALJ’s
determination that SBI operated 45 “vertical wells.” The Commission concluded that
the ALJ did not err in finding that SBI violated Act 13 by not paying impact fees on
these wells and that the imposition of interest and penalties was mandatory pursuant
to section 2308(a) and (b) of Act 13. However, the Commission agreed with SBI that
a discretionary civil penalty was not warranted under the facts and circumstances of
this case and granted its exceptions related to that issue. (Commission’s decision at
43-67.) Ultimately, the Commission “ordered SBI to pay [$390,250.00] in impact
and administrative fees for 2011 and 2012, as well as $11,707.50 in interest and
$97,562.50 in penalties for those years—a cumulative total of $499,520[.00]” Snyder
II, 198 A.3d at 1063. The Commission further ordered that, within 20 days of its
decision, SBI “shall remit $499,520[.00] payable by certified check or money order
to ‘Commonwealth of Pennsylvania’ and sent to [the PUC].” (Commission’s
decision at 69-70.)
SBI then appealed to this Court, arguing that a plain language analysis
and/or proper application of statutory construction factors leads to the conclusion that
5
“In addition to the assessed interest under subsection (a), if a producer fails to make timely
payment of the fee, there shall be added to the amount of the fee due a penalty of 5% of the amount
of the fee if failure to file a timely payment is for not more than one month, with an additional 5%
penalty for each additional month, or fraction of a month, during which the failure continues, not to
exceed 25% in the aggregate.” 58 Pa.C.S. §2308(b).
6
“In addition to any other proceeding authorized by law, the [C]ommission may assess a
civil penalty not to exceed $2,500 per violation upon a producer for the violation of this chapter. In
determining the amount of the penalty, the [C]ommission shall consider the willfulness of the
violation and other relevant factors.” 58 Pa.C.S. §2310(a).
4
it was operating “stripper wells.” In Snyder I, a majority of this Court agreed with
SBI and reversed “the Commission’s conclusion that SBI violated Act 13 and owed
impact fees for improperly listed stripper wells. With there being no violation of Act
13, we also reversed the Commission’s imposition of interest and penalties on SBI.”
Snyder I, 157 A.3d at 1031. See supra note 2.
On further appeal in Snyder II, our Supreme Court, in an opinion and
order dated December 28, 2018, reversed this Court and reinstated the Commission’s
order. In so deciding, the Supreme Court concluded that, although the term “stripper
well” was facially ambiguous, its resort to the statutory construction factors supported
the conclusion that SBI was, in fact, operating “vertical wells” and was mandated
under Act 13 to pay impact fees for those wells. See supra note 2. Therefore, the
Supreme Court reversed this Court’s order “set[ting] aside the [Commission’s]
assessment to SBI of impact fees for the 2011 and 2012 reporting years” and
relinquished jurisdiction. Snyder II, 198 A.3d at 1079.
Thereafter, SBI filed a motion for reconsideration, which our Supreme
Court granted on March 7, 2019. In so doing, the Supreme Court amended its
opinion and order in Snyder II “such that this matter is REMANDED to the
Commonwealth Court to address [SBI’s] outstanding appellate issues before that
court.” Snyder Brothers, Inc. v. Pennsylvania Public Utility Commission, 203 A.3d
964, 964 (Pa. 2019) (emphasis in original).
Discussion
On remand to this Court, the outstanding issues advanced by SBI
concern the propriety of the Commission’s imposition of interest and a penalty under
section 2308 of Act 13, 58 Pa.C.S. §2308. In general, SBI contends that (1) the
5
statutory procedure and provisions authorizing the imposition of interest and a
penalty violate procedural due process; and (2) the representations and conduct of the
Commission, as well as the directives as stated in Commission’s October 17, 2013
Proposed Rulemaking Order, deprived it of fair notice that interest and a penalty
would be assessed. Finding merit in these two arguments, we reverse the
Commission on separate and independent grounds.7
With respect to the present issues that SBI raises before this Court, the
Commission set forth the following pertinent findings of fact in its June 11, 2015
decision:
On August 15, 2012, SBI submitted to the Commission an
Annual Report for the year 2011 as required by Act 13.
The 2011 Annual Report listed each well operated by SBI
that was potentially subject to the administrative and impact
fees imposed by Act 13. SBI’s annual report accurately
set forth the total gas produced by each well in each
month of the 2011 reporting period.
On August 29, 2012, SBI received a 2011 Impact Fee
Statement from the Commission stating that SBI owed
impact fees in the amount of $170,000[.00] for the period
January 1, 2011, through December 31, 2011, based upon
production from seventeen vertical gas wells. Additionally,
on August 29, 2012, SBI received a 2011 Spud Fee
Statement from the Commission stating that it owed
administrative fees in the amount of $850[.00] for [17]
wells. On August 30, 2012, SBI paid the Commission
the amounts stated on the 2011 Impact Fee and Spud
Fee Statements.
7
In addition to forwarding procedural due process claims, SBI also asserts that the
procedure in Act 13 to impose and collect interest and a penalty violates the doctrine of
unconstitutional conditions and that the Commission is barred by the doctrine of accord and
satisfaction from collecting interest and a penalty. Relying on due process grounds to support our
disposition, we decline to address these issues and any other issue that SBI raises (or could arguably
be deemed to have raised) in its appellate brief.
6
On March 27, 2013, SBI submitted to the Commission an
annual report for the year 2012. The 2012 annual report
listed each well operated by SBI that was potentially subject
to the spud and impact fees imposed by Act 13 for the 2012
reporting period. In its 2012 annual report, which
accurately set forth the production for each well for the
2012 reporting period, SBI stated that it operated [28]
vertical gas wells for which spud and impact fees were due.
In an e-mail dated April 12, 2013, an employee of the
Commission’s Bureau of Administration stated that a
vertical well is not a stripper well, as defined in Section
2301 of Act 13, if it has reported production in excess of
90,000 cf in any one month of a reporting period. In
response, SBI advised the Commission that it disagreed
with the Commission’s interpretation and stated that
each well listed as a stripper well in the 2011 and 2012
annual reports qualified as stripper wells by virtue of
the reported monthly production histories for each year.
On April 8, 2013, SBI received the 2012 Impact Fee
Statement from the Commission stating that SBI owed
impact fees in the amount of $236,000[.00] for 2012. In
addition, SBI received a Spud Fee Statement for 2012 in the
amount of $1,400[.00].
(Commission’s decision at 6-8) (internal citations and footnotes omitted).
The Commission continued to explain that
[t]he 2012 Impact Fee Statement provided that the impact
fee for forty-nine vertical gas wells was $409,000.[00].
However, the Commission subtracted the impact fees for
[21] disputed vertical gas wells in the amount of
$173,000.[00]. Thus, the 2012 Impact Fee Statement listed
the amount owed as $236,000 based on [28] vertical wells .
...
Id. at 8 n.8.
After confirming that “SBI paid the impact and spud fees identified in
the 2012 statements,” id. at 8, the Commission then stated:
7
On October 17, 2013, the Commission issued its Proposed
Rulemaking Order.[8] In pertinent part, the order states that
“[i]f a producer is disputing whether a particular well is
subject to the impact fee, the producer should not pay
the corresponding impact fee for the disputed well
unless and until the dispute has been resolved.”
[Proposed Rulemaking Order] at 16-17. The order further
states that, in the event that there is a dispute, and
“[f]ollowing the adjudicatory proceeding before the
[ALJ], the Commission will issue a [f]inal [o]rder
regarding the matter” and “may assess interest and
penalties on untimely or delinquent impact fee payments
. . . if . . . the Commission sustains the amount due by
[the] final order.” [Proposed Rulemaking Order] at 17-18.
During the hearing [before the ALJ], I&E presented the
testimony of a Commission witness who explained that
after receiving SBI’s 2012 annual report on March 27,
2013, the witness realized that SBI and the Commission
interpreted the term “vertical well” differently. The witness
later calculated that SBI owed a total of $241,200[.00] in
impact and spud fees for 2011 based upon production from
an additional [24] wells. For 2012, the witness calculated
that SBI owed a total of $149,050[.00] in impact and spud
fees for 2012 based upon production from an additional
[21] wells and the information was conveyed to SBI.
(Commission’s decision at 8-9) (internal footnotes omitted).
Notably, in its decision, the Commission observed:
There is no mechanism in Act 13 whereby SBI could
have paid under protest the amount of any impact or
spud fees that it disputed. Similarly, Act 13 contains no
mechanism by which the Commission could refund any
8
This order is available at:
http://www.puc.state.pa.us/about_puc/consolidated_case_view.aspx?Docket=M-2012-
2288561 (last visited January 13, 2020).
8
impact or spud fees that were paid and disbursed to a
municipality, but thereafter determined not to be due
and owing or otherwise to have been erroneously paid.
(Commission’s decision at 9) (emphasis added).9
Having reviewed the background, procedural history, and facts of this
case, we now address the issues that SBI raises on remand from the Supreme Court in
Snyder II.
Procedural Due Process—Act 13 Lacks a Meaningful Post-Deprivation Remedy
and Authorizes the Assessment of an Unconstitutional Penalty
SBI argues that the statutory procedure used to calculate, impose, and
collect impact fees violates procedural due process. SBI contends that because
impact fees assessed under Act 13 “cannot be refunded if paid in error or if a
subsequent determination is made that the fees were not due or owing for some other
reason,” (SBI’s br. at 13 n.6), the statute lacks a meaningful hearing and/or
opportunity to adequately protect its property interests against unreasonable
deprivation. In a similar vein, SBI asserts that because Act 13 lacks a refunding
mechanism, it is placed in an untenable position. Specifically, SBI posits that it must
either pay the impact fees and, if it is successful in challenging the payment in an
appeal, be deprived of a refund; or, on the other hand, SBI must withhold the impact
fee payment and, if its challenge is unsuccessful, be subjected to a mandatory
imposition of interest and a penalty. According to SBI, this procedure is
9
In section 2314(a) of Act 13, our General Assembly “established a fund in the State
Treasury to be known as the Unconventional Gas Well Fund to be administered by the
[C]ommission.” 58 Pa.C.S. §2314(a). Under section 2314(b), “[a]ll fees imposed and collected
under this chapter shall be deposited into the fund and are hereby appropriated for the purpose set
forth in this section.” 58 Pa.C.S. §2314(b). In addition to state governmental agencies, “counties
and municipalities” are recipients of monies deposited into the fund. Section 2314(d) of Act 13, 58
Pa.C.S. §2314(d).
9
unconstitutional under the Due Process Clause10 and, also, punishes or burdens the
exercise of its legal right to contest and defend itself from adverse administrative
action in enforcement proceedings.
The Fourteenth Amendment to the United States Constitution provides,
in relevant part, that no “State [shall] deprive any person of life, liberty, or property,
without due process of law.” U.S. Const. amend. XIV, §1. To maintain a due
process challenge, a party must initially establish the deprivation of a protected
property or liberty interest. Miller v. Workers’ Compensation Appeal Board (Pavex,
Inc.), 918 A.2d 809, 812 (Pa. Cmwlth. 2007).
Here, when I&E filed a complaint seeking payment from SBI for past
due impact fees and, in addition, interest and a penalty for failing to pay those fees, it
pursued action that is tantamount to an administrative monetary assessment. By all
accounts, an assessment of this nature is considered by the courts to be a deprivation
of property for purposes of the Due Process Clause. See Gallo Cattle Co. v. United
States Department of Agriculture, 159 F.3d 1194, 1199 (9th Cir. 1998) (concluding
that where the National Dairy Promotion and Research Board, acting pursuant to the
Dairy and Tobacco Adjustment Act of 1983,11 issued a monetary assessment to a
milk producer based on the quantity of milk production, the assessment, in and of
itself, was “without question a deprivation of property”).12 The issue, then, is not
10
U.S. Const. amend. XIV, §1.
11
Pub. L. No. 98-180, 97 Stat. 1128, as amended, 7 U.S.C. §§4501-38.
12
See also McKesson Corp. v. Florida Division of Alcoholic Beverages and Tobacco, 496
U.S. 18, 36 (1990) (“Because exaction of a tax constitutes a deprivation of property, the State must
provide procedural safeguards against unlawful exactions in order to satisfy the commands of the
Due Process Clause.”); Z&R Cab, LLC v. Philadelphia Parking Authority, 187 A.3d 1025, 1037
(Pa. Cmwlth. 2018) (applying McKesson Corp. in a case where licensed taxicab companies sought
(Footnote continued on next page…)
10
whether SBI is entitled to due process but, as it is often put, “what process is due.”
Morrissey v. Brewer, 408 U.S. 471, 481 (1972).
At its core, procedural due process requires that the State provide a
person with a “meaningful opportunity to be heard” when depriving that person of a
constitutionally protected interest. LaChance v. Erickson, 522 U.S. 262, 266 (1998);
see also Fuentes v. Shevin, 407 U.S. 67, 80 (1972). An opportunity to be heard is
“meaningful,” even if it is not available until after the deprivation has occurred, so
long as the person is afforded with (1) “a fair opportunity to challenge the accuracy
and legal validity of the [deprivation]” and (2) a “clear and certain remedy.”
McKesson Corp. v. Florida Division of Alcoholic Beverages and Tobacco, 496 U.S.
18, 39 (1990). As such, in the post-deprivation stage of an administrative proceeding,
“the Due Process Clause requires that [SBI] have, in addition to a fair opportunity to
challenge the [impact fee] assessments, a clear and certain remedy for a successful
challenge.” Gallo, 159 F.3d at 1199.
Based upon these legal precepts, if Act 13’s statutory procedure fails to
provide SBI with the opportunity to obtain a “clear and certain remedy” in the event
of a successful challenge, specifically a refund for an amount paid pursuant to the
Impact Fee Statements, then the procedure does not comport with the dictates of
procedural due process. Cf. Gallo, 159 F.3d at 1199 (concluding that “the post-
(continued…)
refunds of all fees and assessments issued by the Philadelphia Parking Authority); O’Neill v. City of
Philadelphia, 817 F. Supp. 558, 566 (E.D. Pa. 1993), vacated on other grounds, 32 F.3d 785 (3d
Cir. 1994) (“The property right involved is the right to keep money unless the government takes it
through actions that comport with due process. If the state does not have a legitimate claim to a
person’s money and, nevertheless, under color of state law demands [] payment, its conduct
amounts to a constitutional deprivation.”).
11
deprivation remedy available to [the milk producer], namely a refund of assessments
found not to have been due, is constitutionally sufficient in that it provides a ‘clear
and certain remedy’”); see City of Houston v. Harris County Outdoor Advertising
Association, 879 S.W.2d 322, 333-34 (Tex. Civ. App. 1994) (concluding that a
violation of procedural due process occurred where the “appellees were required
under threat of penalty to timely pay [] a tax” and there was no “post-deprivation
procedure available for appellees . . . to obtain ‘clear and certain’ relief; in this case,
refund of the excess tax paid”).13
Here, an examination of the provisions of Act 13 reveal that the pre-
deprivation statutory procedure regarding impact fee payments begins and ends with
the date on which the producer submits an annual report. On the same date (April 1
of each year after 2013), the producer is obligated to tender payment for impact fees
for wells that the producer identifies in the annual report that meet the requisite level
of production, i.e., “vertical wells.” See section 2303(a)-(b) of Act 13, 58 Pa.C.S.
§2303(a)-(b); see also supra note 2. With respect to the next stage of the
administrative process, the Commission reviews the annual report and confirms
whether the producer has made the necessary payments. If the producer has not, the
Commission may send notice to the producer and assess interest and a penalty on a
13
See also McCall v. National Health Corporation, 100 S.W.3d 209, 213 (Tenn. 2003)
(noting that pursuant to the post-deprivation procedure in the state statute, “a trial court can order
the employee to reimburse any funds that were improperly paid to the employee” and concluding
that “any due process argument fails because an employer does, in fact, have recourse should the
court later determine that the claimant did not suffer a compensable injury”); Texas Boll Weevil
Eradication Found., Inc. v. Lewellen, 952 S.W.2d 454, 457-48 & 466-67 (Tex. 1997) (stating that
“due process [] requires states to provide a meaningful post[-]deprivation remedy . . . to a person
challenging the validity of a fee or assessment” and concluding that a statute that imposes
“regulatory fees” in the form of “assessments” and “imposes penalties for late payment of
assessments” raises “a serious question” as to its constitutionality because the statute “does not
adequately allow [the petitioners] to challenge the [regulatory] board’s assessments”).
12
delinquent or untimely payment and potentially suspend the producer’s permit until
payment is made. See sections 2305, 2307, 2308(a)-(c) of Act 13, 58 Pa.C.S. §§2305,
2307, 2308(a)-(c). Concerning the procedure to be followed post-deprivation, Act 13
states, in general terms, that the
[C]ommission may issue an order as necessary to enforce
this chapter. An order issued under this section shall take
effect upon notice, unless the order specifies otherwise. A
person aggrieved by an order under this section may appeal
to the Commonwealth Court under [section 763 of the
Judicial Code,] 42 Pa.C.S. §763 (relating to direct appeals
from government agencies).
Section 2309 of Act 13, 58 Pa.C.S. §2309.
Otherwise, the Commission has promulgated regulations that pertain to
and detail the procedure for a hearing to challenge any order that the Commission
issues in any case that falls within the jurisdiction and enforcement regime of the
PUC. See 52 Pa. Code §1.1. Namely, the regulations have basic provisions
governing pre-hearing pleadings and practice and discovery; rules regarding evidence
and witnesses at the hearing; the right to a hearing before a presiding officer, whether
it be an ALJ or a member of the Commission; the right to file exceptions, appeal to
the Commission, and obtain an adjudication from the Commission; and the process
and circumstances for filing a subsequent appeal to this Court. See 52 Pa. Code
Chapt. 5, §§5.1-5.631.
As evident from the above recitation of the pertinent law, Act 13 and the
Commission’s promulgated regulations do not contain any statutory section, rule, or
procedure that could reasonably be construed to provide the Commission with the
authority, and a producer the right to receive, a refund for impact fees payments that
are later determined to be unwarranted. Further, I&E entered into a stipulation of
facts with SBI confirming that there is no substantive procedure through which SBI
13
could withhold payment or pay under protest during a challenge, or for the
Commission to provide SBI with a refund in the event a challenge is successful.
(Reproduced Record (R.R.) at 172a.) In its decision, the Commission analyzed Act
13 as a whole and reached the same conclusion. (Commission’s decision at 9.)
Under the current state of Pennsylvania law, the Commission’s interpretation is
entitled to at least some form of administrative deference. See Snyder II, 198 A.3d at
1079. In any event, the Commission’s interpretation is consistent with the regime of
Act 13 and correctly recognizes that the statute fails to provide a producer with a
meaningful post-deprivation remedy in the form of a refund for impact fee payments
that the Commission, or an appellate court in a subsequent appeal, determines were
paid erroneously and/or in contravention to the law.
Under the federal constitution, and necessarily the charter of this
Commonwealth, the ability of a producer to obtain an actual and complete remedy is
indispensable to meet due process concerns. By employing a procedure that deprives
SBI of its property without affording SBI the opportunity to meaningfully challenge
that deprivation and attain full relief, Act 13 effectuates a violation of SBI’s due
process rights under the Fourteenth Amendment to the United States Constitution.
For these reasons, we conclude that Act 13 lacks adequate, post-deprivation
procedural safeguards and that the statute, on its face, amounts to and sanctions an
unconstitutional deprivation of property without due process of law.
In apparent recognition that Act 13 is deficient in that it does not contain
a clear and certain post-deprivation remedy, the Commission ostensibly attempted to
cure the defect when it issued the October 17, 2013 Proposed Rulemaking Order.
Among other things, the Proposed Rulemaking Order stated that when “a producer is
disputing whether a particular well is subject to the impact fee, the producer should
14
not pay the corresponding impact fee for the disputed well unless and until the
dispute has been resolved.” Id. at 16-17. However, as the Commission
acknowledged in its decision and brief to this Court, the Proposed Rulemaking Order
has not been officially finalized into a promulgated regulation, also known as a
“substantive rule,” and it is instead a “general statement of policy.” See
Commission’s Br. at 11. Consequently, the Proposed Rulemaking Order is not
binding on the Commission, does not carry the force of law, and is legally insufficient
to rectify the procedural inadequacy of Act 13. See Cary v. Bureau of Professional
and Occupational Affairs (State Board of Medicine), 153 A.3d 1205, 1213-15 (Pa.
Cmwlth. 2017) (en banc) (“A properly adopted substantive rule establishes a standard
of conduct which has the force of law . . . . A general statement of policy, on the other
hand, does not establish a ‘binding norm.’ . . . . The agency cannot apply or rely upon
a general statement of policy as law because a general statement of policy only
announces what the agency seeks to establish as policy.”); see also Northwestern
Youth Services, Inc. v. Department of Public Welfare, 66 A.3d 301, 310-11 (Pa.
2013). In a somewhat like manner, this Court lacks the authority to issue a legal
pronouncement that has the effect of judicially inserting an adequate post-deprivation
remedy into Act 13 in order to alleviate the constitutional infirmity. See Penjuke v.
Pennsylvania Board of Probation and Parole, 203 A.3d 401, 420 (Pa. Cmwlth. 2019)
(en banc) (“Under Pennsylvania law, this Court ‘may not usurp the province of the
legislature by rewriting the [statute] to add hearing [] requirements . . . as that is not
our proper role under our constitutionally established tripartite form of governance.’”
(quoting In Re Fortieth Statewide Investigating Grand Jury, 197 A.3d 712, 721 (Pa.
2018))).
15
Moreover, based on the peculiar facts of this case, SBI submitted
accurate annual reports to the Commission, paid in full the amounts requested in the
Commission’s Impact Fee Statements, and then, and only then, was it subjected to
enforcement proceedings. Aside from the fact that SBI pursued its challenge through
a statutory structure that violates the commands of due process because Act 13 lacks
a clear and certain remedy, I&E filed a complaint seeking the imposition of interest
and a penalty for the 2011 and 2012 reporting years as an apparent result of SBI’s
decision to contest the position advanced by the Bureau of Administration.
Curiously, I&E filed the complaint after the Commission issued SBI the Impact Fee
Statements for these years, and the Statements did not assert that SBI owed fees for
any of the wells that I&E identified in the complaint. Nonetheless, SBI possessed a
legal right to challenge the allegations in the complaint under the Commission’s
promulgated regulations and, also, as a matter of constitutional due process. Once
SBI was placed in a defensive posture in the enforcement proceedings, and exercised
its right by filing an answer, it was then faced with the threat of having to pay interest
and a penalty for wells that were not previously identified by the Commission in the
Impact Fee Statements as wells for which SBI owed impact fees.
The decisions of the United States Supreme Court clearly establish that a
person has a due process right to challenge the validity of an administrative order
affecting his affairs without being forced to pay excessive penalties for simply
lodging a challenge or for lodging a challenge that is unsuccessful. See Oklahoma
Operating Co. v. Love, 252 U.S. 331, 336-37 (1920); Ex parte Young, 209 U.S. 123,
147 (1908). In Ex parte Young, the issue before the Court was the validity of certain
penalty provisions for violating a Minnesota statute that set maximum railroad freight
charges. Under the Minnesota statute, a railroad violating the maximum freight
16
provisions was subjected to heavy penalties and its officers and directors faced the
possibility of imprisonment. There was no opportunity for the railroad to seek pre-
enforcement review of the validity of the statute and the only way the railroad could
contest the statute was to flout its provisions and be subjected to its penalties. The
penalty provisions were also mandatory in nature and would be imposed even if the
railroad asserted a good faith challenge to the validity of the statute.
In holding the statute unconstitutional, the Supreme Court in Ex parte
Young concluded that the Due Process Clause was contravened because the penalties
for disobeying the statute were so severe that they effectively intimidated a party into
not seeking judicial review.14
14
In Love, the United States Supreme Court reaffirmed and reiterated this principle of Ex
parte Young, stating as follows:
If the complaint results in a citation to show cause why [the
petitioner] should not be punished for contempt, he may justify before
the Commission by showing that the order violated was invalid,
unjust or unreasonable. If [the petitioner] fails to satisfy the
Commission that it erred in this respect, a judicial review is opened to
him by way of appeal on the whole record to the Supreme Court. But
the penalties, which may possibly be imposed, if he pursues this
course without success, are such as might well deter even the boldest
and most confident . . . . Obviously a judicial review beset by such
deterrents does not satisfy the constitutional requirements[.]
252 U.S. at 336-37. See Fidelity-Philadelphia Trust Co. v. Hines, 10 A.2d 553, 558 (Pa. 1940)
(applying Ex parte Young) (“While, of course, it is permissible for the State to prescribe such an
interest charge in case of default after the proper interpretation of the act has been judicially
established, harsh penalties or unusual interest rates cannot be imposed, pending litigation intended
to test the construction or validity of an act, so as to deter or intimidate parties affected thereby from
resorting to the courts for that purpose[.]”); Getty Oil Co. v. Ruckelshaus, 342 F. Supp. 1006, 1022
(D. Del. 1972) (noting the “several Supreme Court cases holding that an order triggering penalties
so encumbering the judicial process as to render resort thereto infeasible is unconstitutional absent
prior judicial review” and affirming the proposition that “penalties can, in certain circumstances,
make pursuit of judicial remedies so burdensome as to deny due process”).
17
Traditionally, the doctrine of Ex parte Young is implicated where, as
here, a regulated entity is faced with the decision between (a) not complying with an
order, challenging the statute, and paying huge penalties if it loses the challenge or
(b) complying with the order and thereby foregoing the chance to challenge the order.
The key proposition of law to be derived from Ex parte Young and its progeny is that
a party has a due process right to contest the validity of a regulatory statute and an
administrative enforcement order “without necessarily having to face ruinous
penalties if the suit is lost.” Brown & Williamson Tobacco Corp. v. Engman, 527
F.2d 1115, 1119 (2d Cir. 1975). This is because the “effect and result of such
legislation [would] preclude resort to the courts . . . for the purpose of testing its
validity.” Ex parte Young, 209 U.S. at 146.
Here, as explained more fully below, SBI was not placed on fair notice
that it could be subjected to an assessment of interest and a penalty based upon the
conduct and correspondence of the Commission, the statutory sections of Act 13, or
the Proposed Rulemaking Order. Indeed, SBI did not face the threat of being
assessed interest and a penalty (in the significant amount of over $100,000.00), and
apparently did not discover that I&E would deem it to be in violation of Act 13, until
SBI received the complaint filed by I&E on January 17, 2014. At that point in time,
SBI had already received the 2011 and 2012 Impact Fee Statements from the
Commission and submitted complete payment for those years. In any case, SBI had
to await the commencement of an enforcement action by I&E to challenge or dispute
the impact fees that I&E asserted were owed. In its decision, the Commission
concluded that the imposition of interest and a penalty under section 2308(a) and (b)
of Act 13 were mandatory—as opposed to discretionary—and that there is no good
faith exception or defense. (Commission’s decision at 54-55.) Cf. Wagner Seed Co.
18
v. Daggett, 800 F.2d 310, 316 (2d Cir. 1986) (“[I]t is plain that there is no
constitutional violation if the imposition of penalties is subject to [] discretion, and
the enforcement provisions contain a good faith exception.” (internal citations
omitted)). The Commission further determined that SBI had a legitimate basis to
challenge the impact fee assessments, fully cooperated with the Commission, and did
not engage in any willful misconduct. (Commission’s decision at 61-67.)15, 16 Cf.
15
Particularly, in the part of its decision dealing with the discretionary civil penalty that the
ALJ found was warranted, the Commission analyzed various factors, overruled the ALJ in this
regard, and ultimately determined that SBI did not engage in conduct sufficient to inflict a penalty
that was designed by statute to have a deterrent effect. In so determining, the Commission made the
following findings, conclusions, and/or observations:
* “We agree with SBI that there was no evidence of willful
misconduct. Rather, SBI’s actions evidence an attempt to resolve its
conflicting interpretation of Act 13 coupled with a willingness to pay
the undisputed impact and administrative fees. Furthermore, we
acknowledge the direction in our Rulemaking Order suggesting that
producers withhold payments until a dispute is resolved in order to
avoid overpayment issues from arising.” (Commission’s decision at
61.)
* “SBI argues that the record evidence supported a finding that
it fully cooperated with the Commission. As such, SBI asserts that
this factor should be deemed as being non-applicable or mitigating
against any penalty . . . . The evidence that SBI cooperated with the
Commission supports a finding that this factor weighs against the
imposition of a civil penalty.” (Commission’s decision at 65.)
* “Because this is a case of first impression and in light of
[SBI’s] good faith effort to cooperate with the Commission and pay
undisputed amounts owed, we find that these factors support a finding
that no civil penalty be imposed.” (Commission’s decision at 67.)
(Commission’s decision at 61-67.)
16
On this note, it is worthy to mention that, in reversing this Court, the Supreme Court in
Snyder II concluded that the definition of “vertical well” was facially ambiguous and had at least
(Footnote continued on next page…)
19
General Electric Co. v. Jackson, 610 F.3d 110, 118-19 (D.C. Cir. 2010) (stating that
statutes imposing penalties and fines may satisfy due process if such penalties or
fines are subject to a “reasonable grounds” defense where the plaintiff had “sufficient
cause” to challenge the statute (internal citation omitted)).
Moreover, when the Commission issued its June 11, 2015 decision, SBI
had 20 days to pay the impact fees, interest, and a penalty. On July 30, 2015, the
Commission denied SBI’s “request that the Commission issue an order staying the
requirement that SBI make the disputed Act 13 payments pending completion of
appellate review,” (Commission’s Opinion and Order, 7/30/15, at 2), thereby
rendering payment due and owing immediately. Assuming that this Court did not
grant SBI’s motion for an emergency stay, and our decision in Snyder I reversing the
Commission was affirmed by the Supreme Court, SBI, for all intents and purposes,
would still have been imperiled with the imposition of interest and a penalty. Even at
this hypothetical point in time, SBI would have lacked any recourse under Act 13
through which it could recoup the money that it would have had to pay, including
interest and a penalty, because Act 13 does not contain a refunding mechanism. See
Aminoil, Inc. v. United States Environmental Protection Agency, 599 F. Supp. 69, 75
(C.D. Cal. 1984) (granting a preliminary injunction enjoining the imposition of
(continued…)
two reasonable interpretations. As such, the Court was required to consider the various (or at least
some of the) factors of statutory construction, including the debatable concept of administrative
deference and the propriety of giving weight to statements made by members of the General
Assembly during floor debate. See Snyder II, 198 A.3d at 1081-84 (Wecht, J., concurring, joined by
Baer, J.); cf. Commission’s decision at 62-63. See also General Motors, LLC v. Bureau of
Professional and Occupational Affairs (State Board of Vehicle Manufacturers, Dealers and
Salesperson), 212 A.3d 40, 47-48 (Pa. 2019); Harmon v. Unemployment Compensation Board of
Review, 207 A.3d 292, 308 (Pa. 2019) (Saylor, C.J., concurring); id. at 308-14 (Donohue, J.,
concurring and Wecht, J., concurring).
20
penalties, in notable part, because “no clear right exists for these alleged responsible
parties to comply with the administrative order and then challenge its validity and
seek reimbursement from the government”). The net result is that this scheme is
constitutionally problematic in the sense that it effectively forecloses meaningful
access to the courts, see Ex parte Young, 209 U.S. at 146, and with there being no
practical incentive to file an appeal, Act 13 has a real and bona fide tendency to
“chill[] an affected party’s right to seek judicial review.” Louisiana Pacific Corp. v.
Beazer Materials & Services, Inc., 842 F. Supp. 1243, 1252 (E.D. Cal. 1994).
In the unique context of this case, the provisions of Act 13, as applied by
the administrative bodies and subdivisions of the PUC, had the practical effect of
unlawfully threatening and assessing SBI with interest and a penalty for exercising its
right to contest the amount of impact fees it owed. Therefore, in order to remedy this
due process violation, as well as Act 13’s lack of a sufficient post-deprivation
remedy, we conclude that the Commission’s imposition of interest and a penalty must
be set aside as void.
Procedural Due Process—Act 13 and the Conduct of the Commission Failed to
Provide SBI with Adequate Notice
SBI also argues that the Commission erred in assessing interest and a
penalty because the Commission failed to recognize that it complied with the
Commission’s formal and informal orders and directives for submitting annual
reports. SBI maintains that it followed the procedures for reporting wells, did not
violate Act 13, and tendered payments to the Commission in timely fashion and in the
amounts that the Commission requested. SBI further asserts it was “sanctioned for
actually following the precise appeal procedures recommended” in the Commission’s
October 17, 2013 Proposed Rulemaking Order. (SBI’s Br. at 12.) Essentially, SBI
21
contends that the Commission provided it with confusing and inadequate notice by
misleading SBI into believing that it could withhold impact fee payments for disputed
wells without risking an assessment of interest and a penalty.
It is beyond cavil that the Due Process Clause requires that parties
receive fair notice before being deprived of property. See Mullane v. Central
Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950). Generally, fair notice exists
“if, by reviewing the regulations and other public statements issued by the agency, a
regulated party acting in good faith would be able to identify, with ‘ascertainable
certainty,’ the standards with which the agency expects parties to conform.”
ExxonMobil Pipeline Co. v. United States Department of Transportation, 867 F.3d
564, 578-79 (5th Cir. 2017). Further, based on concerns rooted in notions of
fundamental fairness, the courts are also weary of cases where a party was
affirmatively misled by an administrative agency into believing that a law or rule
would apply or would not apply in a particular situation. This is so regardless of
whether the misleading conduct was transmitted through an agency’s interpretive
rule, policy statement, or by representations made by an agency official. See South
Salt Lake City v. Terkelson, 61 P.3d 282, 286 (Utah Ct. App. 2002) (collecting cases);
see also United States v. Pennsylvania Industrial Chemical Corp., 411 U.S. 655, 674
(1973); State v. Guzman, 968 P.2d 194, 207 (Haw. Ct. App. 1998) (collecting and
synthesizing cases).
Broadly speaking, the requirement of clear and adequate notice is not
satisfied where the administrative agency offers “baffling and inconsistent” advice,
Satellite Broadcasting Co., Inc. v. Federal Communications Commission, 824 F.2d 1,
2 (D.C. Cir. 1987), and due process prohibits a person from being “penalized for
acting in conformance with prior agency guidance.” William Funk, Administrative
22
Law Discussion Forum: Legislating For Nonlegislative Rules, 56 ADMIN. L. REV.
1023, 1038 n.34 (2004); cf. Reich v. Collins, 513 U.S. 106, 108 (1994) (holding that
due process was violated where Florida law provided a taxpayer with a “clear and
certain” post-deprivation remedy, and then declared, only after the disputed taxes had
been paid, that no such remedy exists). As one leading commentator in the field of
administrative law has explained:
The fact that neither interpretive rules nor general
statements of policy can be binding on persons outside the
agency does not mean that persons outside the agency
cannot rely on such nonlegislative rules to a certain extent.
For example, if a person complies with an agency's
interpretation of the law or complies with the terms of a
general statement of policy, the agency could not thereafter
penalize the person for such compliance. Due process, if
nothing else, would preclude the agency from penalizing
someone for reliance on the agency’s official position.
Funk, supra pp. 22-23, at 1038.17
As referenced above, but reproduced in more detail here, pursuant to
section 2303(b) of Act 13, a well producer must submit to the Commission an annual
report identifying the number of unconventional gas wells along with payment of
17
See also Upton v. Securities Exchange Commission, 75 F.3d 92, 97-98 (2d Cir. 1996)
(“[W]e cannot defer to the Commission’s interpretation of its rules if doing so would penalize an
individual who has not received fair notice . . . . Because there was substantial uncertainty in the
Commission’s interpretation of [its administrative regulation] Upton was not on reasonable notice . .
. . The Commission may not sanction Upton pursuant to a substantial change in its enforcement
policy that was not reasonably communicated to the public.”); General Electric Co. v. United States
Environmental Protection Agency, 53 F.3d 1324, 1333-34 (D.C. Cir. 1995) (“Where, as here, the
regulations and other policy statements are unclear, where the petitioner’s interpretation is
reasonable, and where the agency itself struggles to provide a definitive reading of the regulatory
requirements, a regulated party is not ‘on notice’ of the agency’s ultimate interpretation of the
regulations, and may not be punished.”).
23
impact fees. 58 Pa.C.S. §2303(b).18 Section 2303(a) states that “the fee imposed
under this chapter shall be due by April 1, 2013, and each April 1 thereafter” and
“[t]he fee shall become delinquent if not remitted to the [C]ommission on the
reporting date.” 58 Pa.C.S. §2303(a) (emphasis added); see also Section 2307(e) of
Act 13, 58 Pa.C.S. §2307(e) (“If no report is filed or a producer files a false or
fraudulent report with the intent to evade the fee, an assessment of the amount owed
may be made at any time.”). Moreover, section 2307(b) of Act 13 provides that when
a producer files an annual report, and “the [C]ommission determines that the [impact]
fee has not been paid in full, it may issue a notice of the amount due [, i.e., the
Notice of Amount Due mentioned in the factual recitation of this case] and demand
for payment and shall set forth the basis for the determination.” 58 Pa.C.S. §2307(b)
(emphasis added); see also section 2307(c) of Act 13, 58 Pa.C.S. §2307(c) (“Notice
of failure to pay the correct fee shall be sent to the producer via certified mail.”).
Adding to the mix, section 2308(a) of Act 13 declares that the Commission “shall”
impose “interest on any delinquent fee,” while section 2308(b) provides that “if a
producer fails to make timely payment of the fee,” the Commission “shall” impose
“a penalty of 5% of the amount of the fee,” for each month in which the fee is not
paid, up to and including a maximum penalty of “25% in the aggregate.” 58 Pa.C.S.
§2308(a), (b) (emphasis added). Finally, section 2308(c) provides, in relevant part,
that “[i]f the [C]ommission determines that a producer has not made a timely
payment of the fee, the [C]ommission shall send written notice of the amount of
18
“By September 1, 2012, and April 1 of each year thereafter, each producer shall submit
payment of the fee to the [C]ommission and a report on a form prescribed by the [C]ommission for
the previous calendar year. The report shall include the following: (1) The number of spud
unconventional gas wells of a producer in each municipality within each county that has imposed a
fee under this chapter[;] [and] (2) The date that each unconventional gas well identified under
paragraph (1) was spud or ceased the production of natural gas.” 58 Pa.C.S. §2303(b).
24
the deficiency to the producer within 30 days from the date of determining the
deficiency.” 58 Pa.C.S. §2308(c) (emphasis added).19
Based on a plain reading of these statutory provisions, we conclude that
they are ambiguous and vague in many fundamental respects. Initially, it is entirely
unclear as to whether the time for calculating the occurrence of the “delinquency”
referenced in section 2303(a) pertains to (1) the number of wells a producer reports,
should have been reported, or a monetary figure erroneously calculated by the
19
Section 2308(a) through (c) read as follows:
(a) Assessment.—
The [C]ommission shall assess interest on any delinquent fee . . . .
(b) Penalty.—
In addition to the assessed interest under subsection (a), if a producer
fails to make timely payment of the fee, there shall be added to the
amount of the fee due a penalty of 5% of the amount of the fee if
failure to file a timely payment is for not more than one month, with
an additional 5% penalty for each additional month, or fraction of a
month, during which the failure continues, not to exceed 25% in the
aggregate.
(c) Timely payment.—
If the [C]ommission determines that a producer has not made a timely
payment of the fee, the [C]ommission shall send written notice of the
amount of the deficiency to the producer within 30 days from the date
of determining the deficiency. The [C]ommission shall notify the
department of a producer that has failed to pay the fee for any
unconventional gas well under section 2302 (relating to
unconventional gas well fee). If the producer does not have a pending
appeal related to payment of the fee in process, the department shall
suspend the permit for that well until the fee has been paid.
58 Pa.C.S. §2308(a)-(c).
25
producer when submitting the annual report; (2) an amount listed as due and owing
by the Commission in a subsequent “Notice of Amount Due”; or (3) an amount that
the Commission later determines, through an official adjudication, and following a
producer’s bona fide dispute, that the producer owes under Act 13.20 Compounding
matters, and contributing to this overall yet prevalent sense of uncertainty regarding
the statutory scheme and its implementation by the Commission, is the fact that a
financial “delinquency” typically involves a “debt that is overdue in payment.”
Black’s Law Dictionary 493 (9th ed. 2009). By its very nature, a “delinquency”
and/or an “untimely payment” presupposes that the amount of the payment due must
first be established and demanded prior to it being deemed “delinquent.” Reading
section 2307(e) in pari materia with section 2303(a), it is conceivable (perhaps, more
than likely) that Act 13 envisions that sometime after a producer files an annual
report, the Commission will provide some sort of notice to a producer of the amount
that it has determined is further owed before finding that the producer is delinquent or
failed to tender a timely payment.
20
For instance, given the language of section 2307(e) of Act 13, it is quite possible that this
provision could be construed to mean that a producer has to pay, on the applicable reporting date,
only that which is due according to what the producer listed in its annual report. See 58 Pa.C.S.
§2303(a). This interpretation is plausible especially in the situation where the producer submits an
accurate and complete annual report identifying the wells and their production level, see 58 Pa.C.S.
§2303(b), because if the “producer files a false or fraudulent [annual report] with the intent to evade
the fee,” the Commission can, at any time, render an “assessment of the amount owed.” 58 Pa.C.S.
§2307(e). Additionally, it is not evident, by any measure, whether a producer’s payments are
deemed to be “delinquent” or “untimely,” where, as here, the Commission issues “Impact Fees
Statements”—which apparently are an informal attempt by the Commission to resolve the matter
prior to issuing a Notice of Amount Due under section 2307(b) and thereafter instituting formal
proceedings if a producer does not pay that amount. It is also a matter of speculation as to whether
the Commission considers a delinquency to have transpired the moment the Impact Fee Statement is
received by the producer, if the producer does pay the amount listed in the Impact Fee Statement
within a certain timeframe, or during some later instance or event.
26
All of the opacity within and surrounding the above procedure for
determining when a delinquency or untimely payment has occurred for purposes of
assessing interest and a penalty is further complicated by the Commission’s conduct
and subsequent reiterations in its Proposed Rulemaking Order.21 Here, as found by
21
For the sake of completeness, we reproduce the relevant portion of the Proposed
Rulemaking Order, which states as follows:
Collection of Impact Fee.
Act 13 requires all producers to file annual producer reports with the
Commission detailing the number of its spud unconventional gas
wells subject to the impact fee for the previous calendar year. 58
Pa.C.S. §2303(b). As such, producers self-report their impact fee
liability under Act 13. Id. These annual producer reports were due by
September 1, 2012 (for the 2011 reporting year), and are due by April
1 for each year thereafter. Id. Along with this report, a producer is
required to submit payment of the impact fee to the Commission. Id.
The impact fee due from a producer is calculated based on the number
of qualifying wells that the producer lists on its annual producer
reports. Id.
Any disputes regarding a producer’s unconventional gas wells that are
subject to the impact fee should be identified on the annual producer
reports. If a producer is disputing whether a particular well is
subject to the impact fee, the producer should not pay the
corresponding impact fee for the disputed well unless and until
the dispute has been resolved. To the extent that there is a dispute
regarding the accuracy of a producer’s report, the Commission will
address that dispute via the mechanisms established at Sections 2307-
2313 of the Act. See 58 Pa.C.S. §§2307-2313. These provisions will
be enforced consistent with the Commission’s general rules of
practice and procedure . . . .
We note that we will utilize formal proceedings only after informal
efforts reveal that a dispute cannot be resolved. The Commission will
always seek informal resolution for impact fee disputes prior to
initiating formal enforcement proceedings pursuant to Sections 2307-
2313 of the Act.
(Footnote continued on next page…)
27
(continued…)
If the Commission is required to initiate formal enforcement
proceedings pursuant to Sections 2307-2313 of [] Act [13] against a
producer for untimely or delinquent impact fee payments, the
Commission will refer the matter to its Bureau of Administration’s
Fiscal Office (Fiscal Office) and [I&E]. The Fiscal Office may
initiate an enforcement proceeding by issuing a Notice of Amount
Due pursuant to Section 2307(b) of the Act. 58 Pa. C.S. §2307(b).
This Notice of Amount Due will include a demand for payment of a
particular producer’s untimely or delinquent impact fee, notice of the
amount of impact fee due and the basis for the determination. Id.
If a producer does not pay the untimely or delinquent impact fee
as required by the Notice of Amount Due, the producer shall file a
written response with the Commission regarding the matter
within twenty (20) days of the date of service of the Notice of
Amount Due. If, however, the producer fails to pay the untimely or
delinquent impact fee as required by the Notice of Amount Due and
does not file a written response with the Commission, the producer
may be deemed to be in default. On the other hand, if the producer
fails to pay the untimely or delinquent impact fee in full as
required by the Notice of Amount Due, but files a written
response with the Commission in compliance with the procedures
discussed above, the Fiscal Office will refer the matter to [an
ALJ] for hearing and issuance of a Recommended Decision pursuant
to the Commission’s rules of practice and procedure found at 52 Pa.
Code Chapters 1, 3 and 5. Following the adjudicatory proceeding
before the [ALJ], the Commission will issue a Final Order
regarding the matter.
Based on the foregoing, the Commission may assess interest and
penalties on untimely or delinquent impact fee payments as permitted
by Sections 2307-2313 of the Act if (1) the producer fails to pay the
delinquent impact fee in full in compliance with the Notice of
Amount Due, (2) the producer fails to file a timely response with the
Commission if no payment is made, or (3) after hearing, the
Commission sustains the amount due by a final order. 58 Pa.C.S.
§§2307-2313.
(Footnote continued on next page…)
28
the Commission, SBI submitted accurate annual reports for the 2011 and 2012
reporting periods, and paid in full the amount that the Commission determined was
owed when it sent SBI the 2011 and 2012 Impact Fee Statements. (Commission’s
decision at 6-8.) Importantly, after the Bureau of Administration informed SBI in an
email sent in April 2013 that there was an issue regarding whether the wells in the
2011 and 2012 annual reports were vertical or stripper wells, SBI “advised the
Commission that it disagreed with the Commission’s interpretation” regarding the
wells’ monthly production and their corresponding classifications. (Commission’s
decision at 7.) Thereafter, apparently accepting the position of SBI as possessing
arguable merit and presenting a legitimate “dispute,” the Commission, in the 2012
Impact Statement, “subtracted the impact fees for [21] disputed vertical gas wells,”
(Commission’s decision at 8 n.8), for which the Bureau of Administration had
informed SBI should be included as wells subjected to impact fees.
Subsequently, and most significantly, on October 17, 2013, the
Commission issued its Proposed Rulemaking Order, which, among other things,
stated: “If a producer is disputing whether a particular well is subject to the impact
fee, the producer should not pay the corresponding impact fee for the disputed
well unless and until the dispute has been resolved.” Id. at 16 (emphasis added).
With respect to impact fees, the Commission represented in the Proposed Rulemaking
Order that “[t]he impact fee due from a producer is calculated based on the number
of qualifying wells that the producer lists on its annual [] reports” and informed
producers that “[a]ny disputes regarding a producer’s unconventional gas wells that
(continued…)
Proposed Rulemaking Order, at 16-18 (footnotes and some internal citations omitted).
29
are subject to the impact fee should be identified on the annual [] reports.” Id. at 16.
Although it does not appear that SBI made notations marking its dispute on the
annual reports, the Commission issued the Proposed Rulemaking Order after SBI
submitted its annual reports for the 2011 and 2012 years. Nonetheless, as mentioned
above, the Commission accepted SBI’s response to I&E’s email as apparently
lodging a valid “dispute” for purposes of the Proposed Rulemaking Order by
subtracting the disputed wells from the 2012 Impact Statement. Undoubtedly, this
conduct by the Commission, which, in substance, was reaffirmed in the Proposed
Rulemaking Order, sent a clear signal to SBI that it did not have to pay impact fees
for any of the wells that SBI considered to be “stripper wells,” or at least until a
dispute arises and the Commission later determines that the wells are “vertical wells”
subject to impact fees.
Moreover, although the General Assembly couched the issuance of a
Notice of Amount Due in permissive statutory language (“may issue”), 58 Pa.C.S.
§2307(b), the Proposed Rulemaking Order gives a producer reason to believe that the
Commission will construe that statute in a mandatory fashion, follow the procedure
recommended therein, and provide a producer with a Notice of Amount Due. See
Proposed Rulemaking Order, at 17-18. For instance, the Proposed Rulemaking
Order states that “if the producer fails to pay the untimely or delinquent impact fee in
full as required by the Notice of Amount Due, but files a written response with the
Commission” contesting the amount, the matter will be referred to an ALJ “for
hearing and issuance of a [r]ecommended [d]ecision” and “the Commission will issue
a [f]inal [o]rder regarding the matter.” Id. at 18. It is in this specific circumstance
that the Proposed Rulemaking Order goes on to advise producers that “the
Commission may assess interest and penalties on untimely or delinquent impact fee
30
payments,” among other situations, when “after hearing, the Commission sustains the
amount due by a final order.” Id. at 18.22
Following the Commission’s issuance of the Proposed Rulemaking
Order, on January 17, 2014, I&E proceeded through the formal adjudicatory process.
The apparent “dispute” between SBI and the Commission was not resolved at the
administrative level until the Commission issued its June 11, 2015 decision and
ordered SBI to tender full payment within 20 days. See Snyder II, 198 A.3d at 1063;
Commission’s decision at 69-70. Wrapped in this procedural quandary, the question
is whether, as a matter of law, SBI was delinquent or failed to submit timely payment
sometime prior to the formal proceedings before the ALJ and/or Commission, at the
precise moment in which the Commission filed its decision upholding the ALJ, or,
given the ostensible “dispute” over the impact fees, if, and only if, SBI failed to pay
the amount owed within 20 days of the Commission’s final decision. According to
our reading of the decision, it seems, to a degree of reasonable certainty, the
Commission concluded that the date on which SBI was “delinquent” was the date
SBI filed its annual reports. See Commission’s decision at 18-19, 21, 57; see also 58
Pa.C.S. §2303(a)-(b). With respect to SBI’s argument that it followed the procedure
in the Proposed Rulemaking Order and should not have been ordered to pay interest
and a penalty until its dispute had been resolved in the Commission’s decision, the
Commission chose not to directly address this issue in the portion of its decision
22
Once again, these nuances highlight the perplexing issues of “untimeliness” and
“delinquency” and, further, give rise to questions surrounding what type of notice, if any, should be
provided to a producer before the Commission makes such determinations. When viewed through a
broader lens, these issues are further confounded by the Commission’s repeated admonishment in
the Proposed Rulemaking Order that “[i]f a producer is disputing whether a particular well is
subject to the impact fee, the producer should not pay the corresponding impact fee for the disputed
well unless and until the dispute has been resolved.” Id. at 16 & 18 n.27.
31
disposing of SBI’s exceptions regarding the mandatory imposition of interest and a
penalty. See Commission’s decision at 56-57. Instead, in the part of its decision
overruling the ALJ’s imposition of a discretionary civil penalty, and finding that SBI
acted in good faith and cooperated fully with its directives, the Commission simply
“acknowledge[d] the direction in [its] Rulemaking Order suggesting that producers
withhold payments until a dispute is resolved in order to avoid overpayment issues
from arising.” (Commission’s decision at 61.)
Given the ambiguous statutory framework of Act 13 regarding the exact
moment in which a delinquency or untimely payment occurs, SBI was not placed on
reasonable notice that it would be assessed interest and a penalty for mounting a
challenge to the impact fees. Although the Proposed Rulemaking Order does not
carry the force of law, and is instead a policy statement, it was nonetheless
disseminated to the public and available to regulated entities such as SBI. As
explained previously, SBI was justified in relying upon the Proposed Rulemaking
Order to resolve the lack of clarity in Act 13 and to try to ascertain what the
Commission would expect of it. See Funk, supra at 1038. Here, the Commission
engaged in conduct and representations that led SBI to believe that it could dispute
the impact fees, most particularly by subtracting the contested wells from the 2012
Impact Fee Statements, and later by issuing advice and information in the Proposed
Rulemaking Order. However, the Commission rendered a decision that was patently
at odds with, and directly contradicted its conduct and representations, when it
determined that the date of delinquency or untimely payment occurred on the date
that SBI submitted its annual reports. Cf. Upton v. Securities Exchange Commission,
75 F.3d 92, 97-98 (2d Cir. 1996) (“Because there was substantial uncertainty in the
Commission’s interpretation of [its administrative regulation] Upton was not on
32
reasonable notice . . . . The Commission may not sanction Upton pursuant to a
substantial change in its enforcement policy that was not reasonably communicated to
the public.”); General Electric Co. v. United States Environmental Protection
Agency, 53 F.3d 1324, 1333-34 (D.C. Cir. 1995) (“Where, as here, the regulations
and other policy statements are unclear . . . and where the agency itself struggles to
provide a definitive reading of the regulatory requirements, a regulated party is not
‘on notice’ of the agency’s ultimate interpretation of the regulations, and may not be
punished.”). On this basis, the Commission apparently deemed it necessary to
impose interest and a penalty on SBI, concluding that such interest and penalty were
mandatory under Act 13.
Put simply, the Commission provided SBI with “baffling and
inconsistent” advice, Satellite Broadcasting, 824 F.2d at 2, and made affirmative
representations. In essence, the Commission punished SBI when it acted in
conformity—or at least substantially complied—with the advice and guidance that it
provided to the public and entities regulated under Act 13. If anything, the principles
of due process prohibit the Commission from assessing SBI with interest and a
penalty for relying on the Commission’s conduct, representations, and the Proposed
Rulemaking Order. See Funk, supra pp. 22-23, at 1038. Moreover, based on the
ambiguities in Act 13, SBI, under a reasonable person standard, could not identify
with ascertainable certainty, whether or not, or in what circumstances, it could
challenge the impact fee statements without facing the threat of interest and a penalty.
By all means, it was absolutely vital that SBI be afforded with clear
notice as to when the Commission’s consider it to be “delinquent,” “untimely,” or
otherwise in violation of Act 13, because this event marks the starting point for
aggregating penalties on a monthly basis and for compounding interest. No such
33
notice was provided to SBI in this case, either through the provisions of Act 13 or the
Proposed Rulemaking Order.
For these reasons, we conclude, in the alternative, that SBI did not
receive fair and adequate notice of the process and procedure through which the
Commission could find it in violation of Act 13 and impose interest and a penalty for
that violation in contravention to the principles of due process.
Accordingly, we reverse the Commission’s assessment of interest and a
penalty on this basis as well.
Conclusion
For the above-stated reasons, and following our Supreme Court’s
remand in Snyder II, we reverse the remaining portion of the Commission’s decision
and order imposing interest and a penalty upon SBI.
________________________________
PATRICIA A. McCULLOUGH, Judge
Judge Crompton did not participate in the decision of this opinion.
34
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Snyder Brothers, Inc., :
Petitioner :
: No. 1043 C.D. 2015
v. :
:
Pennsylvania Public Utility :
Commission, :
Respondent :
ORDER
AND NOW, this 6th day of February, 2020, the June 11, 2015 order of
the Pennsylvania Public Utility Commission (Commission), on remand to this
Court from our Supreme Court in Snyder Brothers, Inc. v. Pennsylvania Public
Utility Commission, 198 A.3d 1056 (Pa. 2018), is hereby REVERSED to the extent
that the Commission assessed interest and a penalty on Snyder Brothers, Inc.
________________________________
PATRICIA A. McCULLOUGH, Judge