Ohio Supreme Court Limits Municipal Regulation of Oil and Gas But Leaves the Door Open for Future Zoning Moratoriums
Last week, the Supreme Court of Ohio ruled that certain oil and gas-related ordinances of the city of Munroe Falls are preempted by the state's oil and gas law. State ex rel. Morrison v. Beck Energy Corp., Slip Opinion No. 2015-Ohio-485. The decision is the latest in an ongoing battle being waged over the authority of local governments to zone or regulate the operations of oil and gas companies. Often, the success or failure of a local government's ordinance depends on whether it aims to "regulate" oil and gas operations or simply control their location according to traditional zoning principles.
While a win for industry in this case, the Supreme Court's holding in State ex rel. Morrison v. Beck Energy Corp. was limited to the ordinances at issue in the case and does not go as far as recent rulings in Pennsylvania and New York that were focused on zoning authority. Previously, in July 2012, the Pennsylvania Supreme Court struck down as unconstitutional certain sections of the recently passed "Act 13" that would have removed a municipality's ability to zone out oil and gas drilling in Pennsylvania. Huntley & Huntley, Inc. v. Oakmont Borough Council, 600 Pa. 207, 964 A.2d 855 (2009). Then, in August 2014, the New York State Court of Appeals held that municipalities can effectively "zone out" oil and gas operations by passing zoning ordinances that ban oil and gas production activities. Wallach v. Dryden, 23 N.Y.3d 728, 992 N.Y.S.2d 710 (2014).
Ohio's Oil and Gas Law
Ohio's oil and gas law regulates oil and gas well production operations. R.C. 1509 gives the Ohio Department of Natural Resources the "sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations." In 2004, the General Assembly amended that chapter to provide "uniform statewide regulation" of oil and gas production within Ohio and to repeal "all provisions of law that granted or alluded to the authority of local governments to adopt concurrent requirements with the state."
In 2011, Beck Energy Corporation ("Beck") obtained a permit in accordance with R.C. 1509.02 to drill a well on property located in the city of Munroe Falls, Ohio. However, after Beck began drilling operations, the city of Munroe Falls issued a stop-work order and filed a complaint in Summit County Court alleging several violations of the Munroe Falls Codified Ordinances. The city of Munroe Falls alleged that Beck failed to (1) obtain a "zoning certificate"; (2) pay a fee of $800; (3) deposit $2,000 for a performance bond at the time of filing; and (4) schedule a public hearing three weeks prior to drilling and notify property owners within 1,000 feet of the well head.
Beck opposed the city's complaint, arguing that the cited ordinances conflicted with Ohio's statewide oil and gas regulatory regime found in R.C. 1509. While the Summit County Court sided with Munroe Falls, Beck appealed and the 9th District Court of Appeals reversed the decision of the trial court. The 9th District Court of Appeals rejected Munroe Fall's argument that it had authority to impose its own oil and gas permitting requirements.
Ohio Supreme Court Review
The question before the Ohio Supreme Court was whether Munroe Falls' ordinances were a valid exercise of its home-rule power. Under the Home Rule Amendment to the Ohio Constitution, "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." While municipalities can exercise their police powers rather broadly, they are prohibited from doing so if it "conflicts with general laws." In determining whether Munroe Falls' ordinances conflicted with R.C. 1509, the Ohio Supreme Court considered a three-step analysis, asking (1) whether the ordinance is an exercise of the police power; (2) whether the state statute is a general law; and (3) whether the ordinance conflicts with the statute. State ex rel. Morrison v. Beck Energy Corp. citing Mendenhall v. Akron, 117 Ohio St.3d 33, 2008-Ohio-270, 881 N.E.2d 255, ¶ 17.
The Ohio Supreme Court concluded rather briefly that the ordinances were an exercise of police power and that R.C. 1509.02 constitutes a general law. In evaluating the third factor, the Ohio Supreme Court reasoned that the relevant Munroe Falls' ordinances conflicts with R.C. 1509 in two ways, (1) the ordinances prohibit oil and gas production absent local approvals, which is something the state law allows; and (2) R.C. 1509.02 explicitly reserves for the state, to the exclusion of local governments, the right to regulate "all aspects" of oil and gas operations. In the end, the Ohio Supreme Court held that the Home Rule Amendment to the Ohio Constitution does not allow a municipality to "discriminate against, unfairly impede, or obstruct oil and gas activities and production operations that the state has permitted under R.C. Chapter 1509." Importantly, the Court limited its holding to the five municipal ordinances at issue in the case.
The Court Limits its Decision and a Nod to Other Courts of "Last Resort"
The Ohio Supreme Court's decision is not really new territory in the context of local regulation of oil and gas activities. Other state high courts have held similarly, that local "regulation" of oil and gas operations (as opposed to "zoning") is preempted by state oil and gas law. See Range Resources-Appalachia v. Salem Township, 964 A.2d 869 (Pa. 2009), and Envirogas, Inc. v. Town of Kiantone, Envirogas, Inc., 447 N.Y.S.2d 221 (1982).
While the Ohio Supreme Court has yet to address local zoning authority in the context of oil and gas operations, in a concurring opinion, Judge O'Donnell provided some insight into how the court might decide such as case. Citing both Wallach v. Dryden, Huntley & Huntley, Inc. v. Oakmont Borough Council, as well as La Plata Cty. Bd. of Commrs. v. Bowen/Edwards Assocs., Inc., 830 P.2d 1045, 1057(Colo.1992), Judge O'Donnell notes that "[c]ourts 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."
Judge O'Donnell than turns his attention to Ohio's R.C. Chapter 1509, opining that if Ohio's legislature had intended to override all local zoning ordinances that affect oil and gas drilling, "it could have declared that intent," as the legislature had done for hazardous waste facilities, public utilities, casinos, and licensed residential facilities. Even more directly addressing the issue, Judge O'Donnell states that "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."
Overall, the Ohio Supreme Court's decision is very much in line with recent decisions in other Marcellus Shale states that have concluded state law preempts a local government's authority to "regulate" oil and gas operations. However, this decision does not go as far as high court decisions in Pennsylvania and New York that have ruled in favor of a local government's traditional zoning authority.