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Fracking: A New Contact Sport

Hydraulic Fracturing Digest

January 2014
By: Gregory Lahr

One of the more interesting developments coming from the rise in hydraulic fracturing (fracking) is the efforts by municipalities to prohibit or limit fracking in their backyards, and the ensuing debates on the constitutionality of these efforts. Some municipalities have entirely banned drilling or fracking within their borders, while others have restricted fracking activities to certain locations within the town.  Disputes over zoning laws that endeavor to control fracking have erupted in several states, including New York, Pennsylvania, West Virginia, Ohio, Texas, and Colorado.  Naturally, these disputes have spilled into the courts, and have been or soon will be the subject of appellate review by the states’ highest courts.

 

New York

 

In 2011, the Towns of Dryden and Middlefield passed zoning ordinances that prohibited the exploration and production of natural gas and petroleum within the towns’ borders. Natural gas exploration companies challenged the laws, alleging that the ordinances were preempted by New York’s Oil, Gas and Solution Mining Law (OGSML) which, among other things, regulates the production and storage of oil and natural gas.

 

At the trial court level, the courts disagreed with the production companies’ preemption arguments, and granted cross-motions for summary judgment in favor of the towns because the zoning ordinances only limit the use of land, and do not seek to regulate the manner in which oil and gas is extracted, as regulated under the OGSML.

 

The production companies appealed the trial court decisions, which were affirmed by the appellate court in May 2013 for the same fundamental reasons. See Matter of Norse Energy Corp. USA v. Town of Dryden , 108 A.D.3d 25, 964 N.Y.S.2d 714 (3d Dep’t 2013), and Cooperstown Holstein Corp. v. Town of Middlefield , 106 A.D.3d 1170, 964 N.Y.S.2d 431 (3d Dep’t 2013). First, the OGSML does not expressly preempt the local zoning regulations because the preemption clause is limited to the gas, oil and solution mining industries generally, but not the use of land which is under the police power of local municipalities. This is supported by the OGSML’s legislative history, and New York courts’ interpretation of the "plain meaning" of the preemption clause. Second, implied or conflict preemption does not apply because the OGSML’s provisions regulating the location of drilling and extraction processes to maximize efficiency and avoid wasting natural resources does not include land use and zoning restrictions. As such, the local zoning ordinances were reasonable uses of the towns’ police powers.

 

As expected, appeals have been pursued in both matters to New York’s highest court, the Court of Appeals, which granted leave to appeal on August 29, 2013. As of January 2014, it appears that the appeals have been fully briefed in both matters, and the Court will hear oral argument in the near future.

 

In their appellate briefs, the production companies challenge the towns’ ability to ban all oil and gas development in light of the OGSML’s preemption clause, and the OGSML’s broader policy implications to promote development. In Norse Energy’s brief, it asserts that "this case seeks to protect the property rights of mineral owners and their lessees by challenging one town’s attempt to use its local zoning power to supplant a comprehensive, uniform statutory scheme created and enforced by the State of New York which regulates oil and gas development in a manner that prevents waste, provides for greater ultimate resource recovery, and protects the rights of all persons, including the correlative rights of all mineral owners." (App. Brief, at 4.) Similarly, Cooperstown Holstein Corp. explains that, "[i]f the Appellate Division’s ruling is permitted to stand, it would obliterate the rights of mineral owners throughout this State and in effect ban an entire industry from New York – all in conflict with the policy declarations of the OGSML and Energy Law." (App. Brief, at 2.) Not surprisingly, the towns view the issue as relating to their constitutionally guaranteed and legislatively delegated municipal home rule authority, which should permit them to prohibit heavy industrial uses, such as oil and gas mining and drilling.

 

Pennsylvania

 

In response to fracking activities, towns in Pennsylvania also have attempted to restrict or prohibit fracking through local ordinances. Significantly, the Pennsylvania Oil and Gas Act (OGA) contained an express preemption provision that superseded all local ordinances purporting to regulate oil and gas well operations that otherwise were regulated by the OGA.  However, in 2009 the Supreme Court of Pennsylvania decided Huntley & Huntley, Inc. v. Borough Council of the Borough of Oakmont, 600 Pa. 207, 964 A.2d 855 (2009), in conjunction with Range Resources—Appalachia, LLC v. Salem Township, 600 Pa . 231, 964 A.2d 869 (2009), and scaled back the OGA’s preemptive effect. The court determined that the preemptive scope is not complete, such that it does not prohibit municipalities from enacting traditional zoning regulations that identify which uses are permitted in different areas of the locality, even if such regulations preclude oil and gas drilling in certain zones.

 

However, the Pennsylvania legislature then enacted Act 13 of 2012 (Act 13), 58 Pa. C.S. §§ 2301 et seq. (signed into law on February 14, 2012). According to the General Assembly, Act 13 broadly reformed the laws that govern the development of oil and gas resources in Pennsylvania by establishing uniformity and promoting growth in the industry though the preemption of local ordinances that impose conditions or limitations on oil and gas operations. The General Assembly intended to allow oil and gas development as a permitted use in any zoning district, and mandated that restrictions placed on oil and gas development by municipalities be no greater than those placed on other industrial uses.

 

In Robinson Township v. Commonwealth of Pennsylvania, 52 A.3d 463 (Pa. Cmwlth. 2012), a number of municipalities sought a declaratory judgment that Act 13 is unconstitutional, and requested that the Act be permanently enjoined. After the Pennsylvania Attorney General filed preliminary objections based primarily on standing and justiciability grounds, the municipalities filed a motion for summary judgment. On July 26, 2012, the Commonwealth Court issued a decision that granted in part and denied in part the summary judgment motion, and in part sustained the Attorney General’s objections. Significantly, the court declared a section of Act 13, which provides for uniformity of local ordinances, to be unconstitutional. Cross-appeals were filed by the municipalities and the Attorney General.

 

On December 19, 2013, the Pennsylvania Supreme Court issued a 162-page decision that, in significant part, affirmed the lower court’s decision. Robinson Township v. Commonwealth of Pennsylvania , -- A.3d --, 2013 WL 6687290 (2013).  The opinion is complex due to the number of issues being decided, and only a plurality of three justices could agree on the rationale for finding that Pennsylvania’s accommodation of oil and gas development was unconstitutional.  The plurality looked to the Environmental Rights Amendment of the Pennsylvania Constitution, which provides a "right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment," to support its determination that a large portion of Act 13 is unconstitutional. For purposes of this article, the court struck down Act 13’s preemption of local regulation of oil and gas regulations, and its requirement of all local ordinances to allow for the reasonable development of oil and gas resources.

 

Conclusion

 

Although not binding outside of Pennsylvania and New York, the decisions from their highest courts could provide a road map for how other towns may attempt to challenge the oil and gas industry, and how the industry may respond to that challenge.  Litigation in other states with municipal zoning laws that have impacted fracking have not, as of yet, reached their states’ highest courts, but in Ohio, Texas, West Virginia, and Colorado towns have not sat idle, and perhaps have learned from New York and Pennsylvania.  Nevertheless, local regulation of fracking activities will continue to be a controversial issue, at least until a more cooperative effort is made between local and state governments.  For now, the on-going litigation involving municipal zoning laws and fracking will be like a spectator sport.

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Lahr, Gregory

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New York

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