Ohio Supreme Court Rules That Municipal Drilling Regulations Conflict With State Law

In State ex rel. Morrison v. Beck Energy Corp., Slip Opinion No. 2015-Ohio-485, the Ohio Supreme Court ruled in a split decision that the Ohio Constitution’s Home Rule Amendment did not grant the city of Munroe Falls the power to enforce its own oil and gas permitting scheme atop the state regulatory system.

The dispute arose when Beck Energy Corporation (“Beck”) applied to the state for a permit to drill a well within the corporate limits of the city of Munroe Falls.  Shortly after drilling began, Munroe Falls issued a stop-work order and sought an injunction barring further work as Beck had not complied with multiple municipal ordinances.  Of the five city ordinances before the Ohio Supreme Court, one was a general zoning ordinance, and the other four specifically related to oil and gas drilling.  Id., at p. 4.

The issue before the Supreme Court was whether a municipality can control oil and gas operations using the Home Rule Amendment to the Ohio Constitution, or whether the Ohio Department of Natural Resources has sole responsibility to regulate oil and gas exploration and production activities pursuant to state law.

Ohio Revised Code § 1509.02 creates within the Ohio Department of Natural Resources (“ODNR”) the Division of Oil and Gas Resource Management and gives it the “sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations.”  Section 1509.02 also preserves certain regulatory powers statutorily granted to local governments so long as those powers are not exercised “in a manner that discriminates against, unfairly impedes, or obstructs oil and gas activities and operations regulated under [Chapter 1509].”

Beck argued that Munroe City’s ordinances conflicted with the statewide regulatory scheme, while the city argued that the Home Rule Amendment within the Ohio Constitution allowed it to impose its own permit requirements on oil and gas drilling operations.

The Home Rule Amendment to the Ohio Constitution provides: “’[m]unicipalities 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.’”  Id., at p. 5 (quoting Article XVIII, Section 3).  Therefore, 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.  Id., at p. 6 (citing Mendenhall v. Akron, 117 Ohio St.3d 33, 2008-Ohio-270, 881 N.E.2d 255, ¶17).  In applying this three-step analysis, the Ohio Supreme Court concluded that the city’s ordinances conflicted with Ohio Revised Code § 1509.02 in two ways and must yield to state law.

First, the ordinances prohibited what the statute expressly permits: state-licensed oil and gas production.  The Court has “consistently held that a municipal-licensing ordinance conflicts with a state-licensing scheme if the ‘local ordinance restricts an activity which a state license permits.’” Id., at p. 9, (quoting Ohio Assn. of Private Detective Agencies, Inc. v. N. Olmstead, 65 Ohio St.3d 242, 245, 602 N.E.2d 1147 (1992); Auxter v. Toledo, 173 Ohio St. 444, 447, 183 N.E.2d 920 (1962); Anderson v. Brown, 13 Ohio St.2d 53, 58, 23 N.E.2d 584 (1968)).

Second, the Court found that the ordinances conflicted with the preemption language of the statute.  Section 1509.02 explicitly reserves to the state the right to regulate drilling, and prohibits municipalities from exercising their powers in a way that discriminates against, unfairly impedes, or obstructs the activated and operations covered by the statute.  Id., at p. 10-11.  The Court concluded that the preemption language within Ohio Revised Code § 1509.02 was sufficient to supersede a conflicting municipal ordinance.  Id., at p. 12.

The decision was expressly limited to the five city ordinances at issue, with the Court “making no judgment as to whether other ordinances could coexist with the General Assembly’s comprehensive regulatory scheme.”  Id., at p. 13.

Concurring in the decision only, Justice O’Donnell wrote separately to emphasize the limited scope of the decision, and noted that the Court did not address whether the state’s exclusive right to regulate would conflict with local ordinances that address only the traditional concerns of zoning laws.  Id., at p. 14.  He points out that “[i]f the legislature had intended to override all local zoning ordinances that affect oil and gas drilling, it could have declared that intent,” as it had done in other statutes.  Id., at p. 18.

In her dissent, Justice Lanzinger disagreed that the Munroe Falls ordinances conflicted with state law, and argued that local zoning ordinances and the state’s regulatory powers can coexist.  She highlighted decisions in other states that harmonized state and local regulations:

Colorado

In rejecting an oil and gas developer’s request for judgment declaring that the Colorado Oil and Gas Conservation Act preempted a county’s land-use regulation pertaining to oil and gas activities, the Colorado Supreme Court concluded that the state interest (oil and gas development and the efficient production and utilization of natural resources) and the local interest (orderly development and control of the use of land in a manner consistent with local demographic and environmental concerns) were distinct and not in express conflict.  La Plata Cty. Bd. Of Commrs. V. Bowen/Edwards Assoc., Inc., 830 P.2d 1045 (Colo.1992).  The Colorado Supreme Court also pointed out that, if the Colorado Legislature had intended to prohibit a county from exercising land-use authority in areas where oil development or operations are taking place, it would have clearly and unequivocally stated so in the Oil and Gas Conservation Act.  Id., at 1057-1058.

In a companion case, the Colorado Supreme Court ruled that state law preempted a city’s home-rule authority to ban all oil and gas development and production, but stated that land-use restrictions applicable to various oil and gas development and operations should be given effect if they did not frustrate and could be harmonized with the stated goals of Colorado’s Oil and Gas Conservation Act.  Voss v. Lundvall Bros., Inc., 830 P.2d 1061 (Colo.1992).

Pennsylvania

In Huntley v. Huntley, Inc. v. Oakmont Borough Council, 600 Pa. 207, 225, 964 A.2d 855 (2009), the Pennsylvania Supreme Court found Colorado’s La Plata persuasive in ruling that the preemption language in its Oil and Gas Act was limited to certain subjects, and because the zoning ordinance at issue served different purposes from those of the Oil and Gas Act it could not be considered to be preempted without clearer guidance from the legislature that the restriction in the ordinance was among the subjects covered by the preemption.

New York

The New York Court of Appeals concluded that the statewide Oil, Gas and Solution Mining Law (“OGSML”) did not preempt the home-rule authority vested in municipalities to regulate land use, and thus towns may ban or limit oil and gas production within their boundaries by adopting local zoning laws.  Wallach v. Dryden, 23 N.Y.3d 728, 739, 16 N.E.3d 1188 (2014).  As in Ohio, New York’s municipal home-rule authority arises from that state’s Constitution and grants local government the power to adopt and amend local laws not inconsistent with general laws.  The OGSML contains the following preemption language:

“The provisions of this article 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.”

N.Y. Envtl. Conserv. Law 23-0303(2); see id., at 744.

In refusing to read the preemption clause broadly, the Court stated that the clause was most naturally read as preempting 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.  Id., at 746.  The Court also noted that other New York statutes clearly preempted home-rule zoning power, while the OGSML did not contain a clear expression of this intent.  Id. at 748.

State ex rel. Morrison, at pp. 25-28.

Believing that the interests of municipal zoning ordinances differ from the interests of statewide regulations governing drilling, Justice Lanzinger concluded her dissent by urging Ohio to make an effort to harmonize state and local laws to avoid preemption.  Id., at p. 29.

While it is clear from the decision in State ex re. Morrison v. Beck Energy Corp. that the Ohio Department of Natural Resources has the sole and exclusive authority to regulate drilling, the possibility remains open whether other local ordinances affecting oil and gas development, including traditional zoning restrictions, are enforceable.