The rise of oil and gas production in the Utica and Marcellus
shale plays, encouraged by state policies, has led many
municipalities to seek to exert some control over oil and gas
drilling within their borders. In the past two years, the highest
courts in Pennsylvania and New York have sided with municipalities
and have upheld municipal zoning ordinances against challenges that
such ordinances were preempted by state regulation.
The Ohio Supreme Court has weighed into this controversy, striking
down a municipality's zoning and oil and gas ordinances on
preemption grounds. The case produced five opinions, including a
lead opinion signed by only three justices and concurred in by
another. Because of the breadth of the ordinance at issue and the
limited holding by the majority of justices, the Ohio court's
decision leaves open the possibility that more traditional zoning
approaches limiting drilling could be upheld.
In State ex rel.Morrison v. Beck Energy Corp., Slip Op. No. 2015-Ohio-485 (Feb. 17, 2015)
On February 17, 2015, the Supreme Court of Ohio issued its opinion in In State ex rel. Morrison v. Beck Energy Corp,1 holding that several municipal ordinances were preempted by Ohio's oil and gas wells and production operations statute, Chapter 1509 of the Ohio Revised Code. The decision was split, with four of seven justices in favor of striking the ordinances. Three justices joined in the lead opinion. The concurring opinion agreed with the result because the ordinances at issue set up a parallel licensing and permitting scheme that conflicted with the licensing and permitting scheme set forth in Chapter 1509. Notably, however, the concurring justice, drawing on recent decisions in New York and Pennsylvania, appeared to favor allowing municipal ordinances reflecting traditional zoning concerns that would indirectly prohibit oil and gas drilling. Thus, the Beck decision leaves open the possibility that municipal zoning ordinances that have the effect of prohibiting oil and gas drilling could be upheld.
Relevant Facts and Procedural History
Beck Energy Corporation ("Beck Energy"), an Ohio oil
and gas driller, entered into a lease agreement with a landowner
who owned several acres of property within the corporate limits of
the City of Munroe Falls (the "City").2
Pursuant to that agreement, Beck Energy acquired the right to
produce any natural gas under the landowner's
property.3 In 2011, Beck Energy obtained a permit from
the Ohio Department of Natural Resources ("ODNR") to
begin drilling operations.4 The permit was issued
pursuant to Section 1509.02 of the Ohio Revised
Code.5
Amended in 2004 to provide "uniform statewide
regulation"6 of oil and gas well operations,
Section 1509.02 provides that the ODNR "has sole and exclusive
authority to regulate the permitting, location, and spacing of oil
and gas wells and production operations within the state...with
respect to all aspects of the locating, drilling, well stimulation,
completing, and operating of oil and gas wells within this
state..."7 Further, "Nothing in this section
affects the authority granted to...local authorities in section
723.01 or 4513.34 of the Revised Code, provided that the authority
granted under those sections shall not be exercised in a manner
that discriminates against, unfairly impedes, or obstructs oil and
gas activities and operations regulated under this
chapter."8
After Beck Energy began surface activities related to drilling,
the City served Beck Energy with a stop-work order and filed a
complaint for injunctive relief.9 The complaint alleged
that Beck Energy violated several municipal ordinances related to
oil and gas drilling and zoning. The oil and gas ordinances
established a local permitting process, including a public hearing
requirement, with fines and penalties attached for failure to
comply.10 The zoning ordinances required the issuance of
general and conditional use zoning certificates prior to the
commencement of drilling and incorporated the permitting process
set forth in the oil and gas ordinances.11 On May 3,
2011, the trial court granted the City's request for injunctive
relief until Beck Energy complied with the City's ordinances.12
On appeal, the appellate court reversed and held that the
ordinances at issue could not be enforced because they were
"in direct conflict" with Section
1509.02.13
Lead Opinion
In its lead opinion written by Justice Judith French and joined
by two other justices, the Court held that the Home Rule Amendment
to the Ohio Constitution did not grant the City the power to
enforce the ordinances under review. The Home Rule Amendment
provides that "Municipalities shall have authority to exercise
all powers of local self-government and to adopt and enforce within
their limits such local police, sanitary and other similar
regulations, as are not in conflict with general
laws."14 Ordinances in conflict with a state law,
however, are preempted. Specifically, a "municipal ordinance
must yield to a state statute if (1) the ordinance is an exercise
of the police power, rather than of local self-government, (2) the
statute is a general law, and (3) the ordinance is in conflict with
the statute."15
The lead opinion observed that the ordinances constituted an
"exercise of police power," stating that the
"[ordinances] prohibit—even criminalize—the act of
drilling for oil and gas without a municipal
permit."16 The lead opinion also stated that
Section 1509.02 was a general law that operated uniformly
throughout the State because it "imposes the same obligations
and grants the same privileges to anyone seeking to engage in oil
and gas drilling" anywhere in Ohio.17
Justice French reasoned that the ordinances conflicted with
Section 1509.02 in two ways. First, the ordinances prohibited what
the statute permitted: "state-licensed oil and gas production
within Munroe Falls."18 She said: "This is a
classic licensing conflict under our home-rule precedent. We have
consistently held that a municipal-licensing ordinance conflicts
with a state licensing ordinance if the 'local ordinance
restricts an activity which a state license
permits'."19
Second, the lead opinion observed that the ordinances conflicted
with Section 1509.02 because the language of the statute
demonstrated that "the General Assembly intended to preempt
local regulation on the subject."20 The lead
opinion noted that by designating ODNR as the "sole and
exclusive authority to regulate the permitting, location and
spacing of oil and gas wells" and by reserving to the State
"all aspects" including "permitting" relating
to the location, drilling and operation of oil and gas wells, the
General Assembly intended to preempt any local regulation of the
same.21 In concluding that such a "double
licensing" scheme was impermissible, the lead opinion
cautioned, however, that its review was "limited to the five
municipal ordinances at issue in this
case."22
The City had argued that no conflict existed "because the
statute and the ordinances regulate two different things,"
i.e., the ordinances supposedly addressed "traditional
concerns of zoning" while the statute related to
"technical safety and correlative rights
topics."23 This argument drew on recent decisions
in New York and Pennsylvania for support. In Wallach v.
Dryden,24 the Court of Appeals of New York held
that local zoning ordinances that in effect prohibited "all
oil and gas exploration, extraction and storage activities"
within a municipality's corporate limits were not preempted by
New York's oil and gas statute.25 As that Court
further held, New York's oil and gas statute preempted
"only local laws that purport to regulate the actual
operations of oil and gas activities, not zoning ordinances that
restrict or prohibit certain land uses within town
boundaries."26 The zoning ordinances at issue did
not run afoul of this distinction because they were "directed
at regulating land use generally and do not attempt to govern the
details, procedures or operations of the oil and gas
industries."27
Similarly, in Huntley & Huntley v. Borough of
Oakmont28, the Supreme Court of
Pennsylvania held that a local zoning ordinance which had the
effect of restricting the site selection of oil and gas wells was
not preempted by Pennsylvania's Oil and Gas Act.29
The Huntley court noted that the intent behind the
ordinance was to promote "the safety and welfare of [the
Borough's] citizens, encouraging the most appropriate use of
land throughout the borough [and] conserving the value of
property."30 The Huntley court also
reasoned that while government interests regarding oil and gas
development and land-use control may on occasion overlap, those
interests are at base distinct.31 The state's
interest in oil and gas development seeks to further the efficient
use of natural resources while a municipality's interest in
"land-use control ... is one of orderly development and use of
land in a manner consistent with local demographic and
environmental concerns."32
Justice French derided the City's argument and the notion that
zoning ordinances could survive a preemption challenge because they
dealt with an area that was different than the subject addressed by
oil and gas statutes and regulations. Specifically, she called this
alleged distinction "fanciful":33 "The
ordinances and R.C. 1509.02 unambiguously regulate the same subject
matter—oil and gas drilling—and they conflict in doing
so."34
Concurring Opinion
In a separate opinion concurring in the judgment only, Justice Terrence O'Donnell agreed that the City had created a "parallel municipal permitting process for oil and gas wells" that conflicted with Section 1509.02, a general law, whereby the City's oil and gas and zoning ordinances were preempted.35 The concurring opinion, however, emphasized "the limited scope of our decision,"36 i.e., to wit:
The concurring opinion noted that under Ohio law
"municipalities have...authority to regulate land uses within
zoning districts to promote the public health, safety convenience,
comfort, prosperity and general welfare"39 and the
zoning ordinances enjoy a "strong presumption ... of ...
validity."40 Justice O'Donnell stated that
while the statute vests ODNR with "sole and exclusive
authority" regarding the location and spacing of oil and gas
wells, the lead opinion purportedly ignores the fact that
"'location' and 'spacing' have specialized,
technical meanings in oil and gas law."41
"Scientific expertise" is thus required for the proper
placement of oil and gas wells, thereby requiring special
regulations directed to their location and spacing.42
"In contrast, that same scientific and regulatory expertise is
not required to determine whether an oil and gas well is compatible
with the character and aesthetics of a particular zoning district,
such as a residential neighborhood, and we generally presume that
zoning authorities are far more familiar with local conditions and
therefore are better able to make land use
decisions."43
In contrast to the lead opinion, the concurring opinion relied on
Dryden and Huntley to support the proposition
that "Courts of last resort in other jurisdictions have
declined to view preemptive language in oil and gas statutes that
preclude all local regulation of oil and gas drilling as
irreconcilable with local zoning laws."44 The
concurring opinion further observed that the Ohio legislature
enacted Chapter 1509 to "preempt the inconsistent patchwork of
local health and safety regulations governing the technical aspects
of drilling...."45 Unlike other Ohio statues which
expressly preempt local zoning ordinances, such as laws dealing
with hazardous waste facilities, casinos, or public utilities,
Chapter 1509 does not do so. "Nothing in R.C. Chapter 1509
expressly addresses zoning or requires ODNR to regulate the
location of oil and gas wells to ensure compatibility with local
land use, preserve property values, effectuate a municipality's
long-term plan for development, or uphold any of the other
traditional goals of zoning."46
Conclusion
Municipal ordinances that directly attempt to regulate the means or manner of oil and gas drilling are now not permitted in Ohio. Given the limited nature of the majority holding, however, Beck expressly leaves open the question of whether a zoning ordinance that bans or limits oil and gas drilling using more traditional zoning concepts would be permitted.
Footnotes
1 Slip Op. No. 2015-Ohio-485 (Feb. 17, 2015).
2 Appellees' Merit Br. at 2 (Oct. 23, 2013).
3 Id.
4 Beck Energy at 2, ¶3.
5 Id.
6 Id. citing Legislative Service Commission Bill Analysis, Sub H.B. No. 278 (2004).
7 R.C. 1509.02.
8 .Id. Section 723.01 grants municipalities "special power" to regulate public rights of way and Section 4513.34 vests municipalities with the authority to grant permits regarding the operation of heavy vehicles on local highways.
9 Beck Energy at 4, ¶7.
10 Id. at ¶9.
11 Id. at¶¶8; 37.
12 The State of Ohio ex. rel. Jack Morrison, Jr., Law Director of Munroe Falls, Ohio v. Beck Energy Corp., Case No. 2011-04-1897 at 3-4 (Summit Cty. C.P. May 3, 2011).
13 The State of Ohio ex. rel. Jack Morrison, Jr., Law Director of Munroe Falls, Ohio v. Beck Energy Corp., Case No. 25953 at 2 (Summit Cty. Ct. App. Feb. 6, 2013).
14 Ohio Const., Article XVIII, Section 3.
15 Beck Energy at 6, ¶15, citing Mendenhall v. Akron, 117 Ohio St.3d 33, 2008-Ohio-270, ¶17.
16 Id. at ¶18.
17 Id. at 8, ¶23.
18 Id. at 9, ¶25.
19 ¶26 citing Ohio Assn. of Private Detective Agencies, Inc. v. N. Olmsted, 65 Ohio St.3d 242, 245 (1992); Anderson v. Brown, 13 Ohio St.2d 53, 58 (1968).
20 Id. at 11, ¶29 citing Westlake v. Mascot Petroleum Co., 61 Ohio St.3d 161, 164 (1991).
21 Id. at ¶¶29-30.
22 Id. at 12-13, ¶33.
23 Id. at 10, ¶28.
24 23 N.Y. 3d 728 (2014).
25 Id. at 739.
26 Id. at 746.
27 Id.
28 600 Pa. 207 (2009).
29 Id. at 217; 224.
30 Id. at 224.
31 Id.
32 Id. at 225. The Huntley court, however, affirmed the appellate court's holding that the Borough had improperly denied the driller a conditional use certificate. See id. at 226-230.
33 Id.
34 Id.
35 Id. at 13-14, ¶36.
36 Id. at 14, ¶38.
37 Id.
38 Id. at 15, ¶39.
39 Id. at ¶41.
40 Id. at 16, ¶42.
41 Id. at ¶43.
42 Id. at 17, ¶44.
43 Id.
44 Beck Energy at 17-18, ¶45.
45 Id. at 18, ¶46.
46 Id. at 19, ¶47.
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