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Local Bans on Hydraulic Fracturing Upheld in New York State, Struck Down in West Virginia

April 10, 2012

Attempts by local governments to ban hydraulic fracturing (commonly called “fracking”) have been met with mixed results in the courts. Recently, local bans have been upheld by two state trial courts in upstate New York; but struck down by a state court in Morgantown, West Virginia. The cases turn on issues of preemption – specifically, whether statewide oil and gas laws preempt the ability of towns and cities to regulate the types of businesses that can operate within their jurisdiction.

Background

Dozens of cities and towns across the country have banned natural gas development via hydraulic fracturing. Food & Water Watch maintains a map (available at this link) of local bans and moratoriums that have been passed, mostly in the Marcellus Shale region in the mid-Atlantic.

The New York Decisions

In New York, a municipality is permitted to enact laws governing activities within its borders under the New York State Constitution and the New York Municipal Home Rule Law. The state’s oil and gas industries are regulated under the Oil, Gas and Solution Mining Law (OGSML), New York Environmental Conservation Law (ECL) Art. 23. Relevant to the local bans discussed in this article, the OGSML provides that its provisions “shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries, but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law.” NY ECL § 23-0303(2).

The Dryden Decision

On August 2, 2010, the Town Board of the Town of Dryden (near Ithaca, in upstate New York) enacted an amendment to its local zoning ordinance that effectively banned natural gas exploration and development, including via hydraulic fracturing, within the town’s boundaries. In relevant part, the amendment prohibited the use of any land in the town for exploration or development of natural gas or petroleum, storage, processing, treatment, or disposal of petroleum, natural gas, or associated wastes or materials, or “natural gas and/or petroleum support activities.” The ordinance also specifically invalided any “permit issued by any local, state or federal agency, commission or board for a use which would violate” these prohibitions.

These ordinances were challenged in Anschutz Exploration Corp. v. Town of Dryden, Index No. 902-2011 (N.Y.Sup.Ct. Tompkins Cty.). Anschutz Exploration, a natural gas developer based in Denver and operating in the northeast and mountain states, argued that the OGSML supersession clause preempted the town’s ban, and that the ordinance impermissibly conflicted with the OGSML. On February 21, 2012, Judge Phillip Rumsey ruled (decision available at this link) that the OGSML did not preempt municipal bans on natural gas development, although he did strike down the provision purporting to invalidate state and federal permits.

The trial court’s decision was based primarily on an earlier decision from the New York Court of Appeals (the state’s highest court)[1] entitled Matter of Frew Run Gravel Prods. v. Town of Carroll.[2] In that decision, the Court of Appeals had reviewed a similar supersession clause in New York’s Mined Land Reclamation Law (MLRL) (N.Y. ECL Art. 23, Title 27), preempting all local laws “relating to the extractive mining industry.”[3] The Court had drawn a distinction between “ordinances that regulate property uses and ordinances that regulate mining activities,” finding that local land use laws may have “an incidental effect … upon the extractive mining industry,” but “are not the type of regulatory provision the Legislature foresaw as preempted ….”[4] Rather, the Legislature’s intent was to limit the law’s preemptive effect only to “conflicting regulations dealing with mining operations and reclamation of mined lands.”[5] New York towns, therefore, were able to completely ban mining within their borders.

In Judge Rumsey’s view, this precedent directly governed the question before him.[6] He noted that the supersession clauses in the MLRL and OGSML are “nearly identical” and that neither “expressly preempt local regulation of land use, but only regulations dealing with operations. Neither … contains a clear expression of legislative intent to preempt local control over land use and zoning.” The Judge rejected Anschutz’s efforts to distinguish the two laws. Although the MLRL supersedes only “local laws,” while the OGSML supersedes “local laws and ordinances,” the Judge felt that finding a difference in meaning would “exalt[] form over substance,” where the difference between laws and ordinances is only the procedure used to pass them.

Anschutz also had pointed out that the OGSML (unlike the MLRL) contains an exception for municipal regulation of local roads. In Aschutz’s view, this exemption evidenced the legislature’s intent to preempt not only regulations regarding “how” natural gas exploration was to be conducted, but also “where.” Otherwise, the roads exception would not be necessary. The Court disagreed, however, because in its view regulation of roads was a regulation of operations, rather than location. Hydraulic fracturing, the court said, and perhaps oil and gas exploration more generally, “depends upon transport of equipment, supplies and large volumes of hydrofracking [sic] fluid and waste by truck,” and municipalities would have an interest in regulating the effects of this increased traffic. Thus, “regulation of local roads affects operations,” meaning again that the OGSML’s supersession clause was focused entirely on “how” drilling was to be conducted, and did not apply more broadly to “where” the drilling could take place.[7]

The Court also found no conflict between a municipal drilling ban and the OGSML’s purpose, which among other things is to “promote the development of … NYS’s resources of oil and natural gas,” and to regulate development in a manner that prevents waste, permits greater ultimate recovery, and protects other rights. In the Court’s view, this did not mean that the Legislature intended “to encourage the maximum ultimate recovery of oil and gas regardless of other considerations, or to preempt local zoning authority.”[8] The Court also found no conflict with the law’s “regulatory scheme,” which is limited to technical and operational details such as well spacing. The OGSML does not “address traditional land use concerns, such as traffic, noise or industry suitability for a particular community or neighborhood,” and consequently local land use regulations fit into that structure without conflict.[9]

Finally, Judge Rumsey noted that while the question had never been litigated in New York, courts in Pennsylvania had also interpreted that state’s oil and gas law, which includes a similar but not identical supersession provision, to allow zoning bans on oil and gas operations, using the same “where” versus “how” distinction followed by the court.[10] The court did admit that Colorado had found that gas drilling bans “would conflict with the state’s interest in fostering efficient development and production of oil and gas reserves,” but concluded that since New York had already ruled that mining bans were acceptable, this reasoning was not persuasive in New York. [11]

The only preemption problem the court identified was the Town’s attempt to invalidate state and federal permits, which the Court ruled was beyond the Town’s lawful authority.[12] The Court commented that the Town would still be able to enforce a violation of its zoning laws through civil fines and criminal prosecution as provided in state law. Since the permit provision was severable from the remainder of the Town’s ordinance, only that provision was struck, and Dryden’s ban was left to stand.

The Middlefield Decision

On June 14, 2011, the Town of Middlefield (west of Albany near Cooperstown) adopted a zoning law which defined as “prohibited uses” all “[h]eavy industry and all oil, gas or solution mining and drilling.” These terms were defined to include all oil and gas exploration and development-related activities, including specifically activities necessary to conduct hydraulic fracturing.

The law was challenged in Cooperstown Holstein Corp. v. Town of Middlefield, Index. No. 930-2011 (N.Y.Sup.Ct. Otsego Cty.). Cooperstown Holstein was a land owner in the Town of Middlefield, and had previously entered into a pair of oil and gas leases with an exploration support company. On February 24, 2012, Judge Donald F. Cerio, Jr. ruled once again (decision available at this link) that such a ban survived the OGSML’s supersession clause.

Judge Cerio’s ruling was markedly different from Judge Rumsey’s in Tomkins County. Although Judge Cerio agreed that the Frew Run decision provided support for the ultimate conclusion, his primary analysis was focused on the legislative history of the OGSML, to determine the extent to which the Legislature intended to preempt local laws. In a lengthy analysis of the legislative history of the Act, he concluded that “[t]he state maintains control over the ‘how’ of [natural gas development] procedures while municipalities maintain control over the ‘where’ of such exploration.”

Of interest, Judge Cerio’s review of legislative history found that the original purpose of the OGSML was to eliminate “waste” in oil and natural gas development, meaning inefficient development and unnecessary dissipation of reservoir energy.[13] He also noted that while the purpose of the OGSML was originally to “foster, encourage and promote” oil and gas development, the Legislature later replaced that phrase with the word “regulate,” and transferred responsibilities for development promotion to the state’s Energy Office.[14] Yet nothing in the legislative history of this separation of authorities pertained to the rights of municipalities to continue to management land use within their borders.[15] Ultimately, then, when the supersession clause was added to the law in the 1980s, the purpose of the law – to regulate the manner in which oil and gas development was conducted, in such technical specifics as well spacing – did not support its application to land use. In the Court’s words, the supersession clause “was to insure state-wide standards … as it related to the manner and method to be employed with respect to … drilling … and to insure proper state-wide oversight of uniformity with a view towards maximizing utilization of this particular resource while minimizing waste. Clearly, the state’s interests may be harmonized with the home rule of local municipalities in their determination of where oil, gas and solution drilling or mining may occur.”[16]

The West Virginia Morgantown Decision

In Northeast Natural Energy, LLC v. Morgantown, WV, No. 11-c-411 (decision available at this link), Judge Susan B. Tucker of the Monongalia County Circuit Court reached a very different conclusion under West Virginia law, demonstrating that these types of cases will turn heavily on the details of state oil and gas law, and state preemption jurisprudence.

At issue was the City of Morgantown’s ordinance, adopted June 21, 2011, prohibiting “drilling a well for the purpose extracting or storing oil or gas using horizontal drilling with fracturing or fracking methods within the limits of the City of Morgantown or within one mile of the [City’s] corporate limits.” Morgantown – whose ban had been prompted by the West Virginia Department of Environmental Protection’s (WVDEP) approval of two gas development permits upstream of Morgantown on the Monongahela River – argued that its authority to enact the ban arose from its right to regulate nuisances. The holder of the well permits argued that the state had fully occupied oil and gas regulation in West Virginia, preempting any ban.

The Court’s opinion reveals important differences in the way states can approach municipal home rule and preemption. In addition to the usual doctrines that a state may fully occupy a field and that inconsistent municipal law must yield to state mandates, according to Judge Tucker, West Virginian municipalities’ powers “are so narrowly proscribed that the West Virginia Supreme Court has held that ‘if any reasonable doubt exists as to whether a municipal corporation has a power, the power must be denied.’”

The Court found reason to doubt Morgantown’s authority in the West Virginia Oil and Gas Act, W. Va. Code § 22-6 et seq. Unlike New York’s OGSML, the law does not contain a supersession clause but, in the Court’s analysis, it evidences a much broader intention to consolidate regulatory authority at the state level. The Act provides that the state “has the primary responsibility for protecting the environment,” and that other state entities “have the primary responsibility of supporting the state in its role as protector of the environment.” The WVDEP was formed to “consolidate environmental regulatory programs in a single state agency,” and is “charged with the duty of administering” the Oil and Gas Act. This, ruled the Court, was “a comprehensive framework for the application for oil well permits,” including “the type of well, the location, the depth, [and] the purpose of the well,”” and leaves WVDEP with “the sole discretion to authorize or deny the issuance of said permit.” The law then “clearly indicate[s] that this area of law is exclusively in the hands of WVDEP.” The Court rejected the City’s argument that it could regulate gas development as a nuisance, because while such rights had been found where the West Virginia legislature had specifically granted them, no such exception had been written into WVDEP’s authority to regulate oil and gas.

Morgantown missed its appeal deadline and so could not appeal the ruling.[17] However, perhaps emboldened by the news from New York, the city has now indicated that it is considering adopting a new, perhaps more limited ban through its zoning authority.[18] The Morgantown decision, however – which acknowledges that “the City has an interest in the control of its land within its municipal borders,” but nonetheless found the ban to violate “the all inclusive authority given to the WVDEP to regulate these operations” – leaves the strong impression that even a zoning action could face an uphill climb in West Virginia’s courts.

Conclusion

The New York decisions are likely to be appealed, but have already cast some uncertainty over the future of natural gas development in New York state. While drilling companies might fight, town by town, for the right to develop, that battle could be not only costly but lead to inconclusive results. A statewide, or federal regulatory program is more likely the solution to bringing some clarity and consistency to when and how hydraulic fracturing can move forward.

It should also be noted that the West Virginia and New York decisions do not address whether municipal bans constitute takings of property requiring compensation – either for mineral rights holders in the town or those who have already secured leases prior to a ban. If such bans required just compensation, municipalities likely would be unable to afford it, which would render such bans impractical, even if they are legal.

For more information on hydraulic fracturing or these decisions, please contact any member of Marten Law’s Energy or Water Quality practices.

[1] In New York, the trial courts are called the “Supreme Court,” while the intermediate appellate courts are called the Appellate Divisions of the Supreme Court, and the court of last resort is called the Court of Appeals. As an aside: when explaining this arrangement to attorneys from other states, it is generally obligatory to explain that because New York Court of Appeals judges are called “Judges” rather than “Justices” (an honorific often reserved for the arbiters of the highest court in the land), attorneys in New York may quip that there “is no Justice at the New York Court of Appeals.” Given the high quality of the Court’s work, this is of course meant only as the play on words that it is.

[2] 71 N.Y.2d 126 (1987).

[3] N.Y. ECL § 23-2703(2)

[4] Matter of Gernatt Asphalt Prods v. Town of Sardinia, 87 N.Y.2d 668, 681-82 (1996) (summarizing Frew Run).

[5] Id. (emphasis added).

[6] Anschutz opinion at 12-14.

[7] Id. at 15.

[8] Id. at 16.

[9] Id. at 18-19.

[10] Id. at 22, citing Huntley & Huntley, Inc. v. Borough Council of the Borough of Oakmont, 600 Pa. 207, 212 (2009).

[11] Citing Bowen/Edwards Assoc., Inc. v. Board of County Commissioners of La Plata County, 830 P.2d 1045 (Colo. 1992); Voss v. Lundvall Brothers, 830 P.2d 1061 (Colo. 1992).

[12] Id. at 24-25.

[13] Opinion at 4.

[14] Id. at 6.

[15] Id.

[16] Id. at 8.

[17] P. Kasey, Too Late for Morgantown’s Fracking Ban, WBOY-12 (Sept. 28, 2011).

[18] P. Kasey, Fracking ban overturned, Morgantown considers zoning instead, The State Journal (Feb. 22, 2012).

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