Appeals Court Upholds Drilling Bans

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In twin decisions handed down today, the Supreme Court, Appellate Division, Third Department upheld two local zoning laws that prohibit activities related to oil and gas development (commonly referred to as “hydraulic fracturing”) (the “zoning laws”).  The two appeals, Matter of Norse Energy Corporation USA v. Town of Dryden and Cooperstown Holstein Corporation v. Town of Middlefield challenged the zoning laws as preempted by the Oil, Gas and Solution Mining Law (“OGSML”), codified at Environmental Conservation Law (“ECL”) 23-0301 et seq.

The Court’s unanimous decision in Dryden (authored by Presiding Justice Karen Peters), held that the OGSML’s supersession clause, ECL 23-0303(2), did not preempt the Town of Dryden’s zoning law that prohibited all activities related to the exploration for, and the production and storage of natural gas and petroleum.  The central legal issue in the case was the interpretation of ECL 23-0303(2), which provides that the OGSML “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].”  The Court concluded that this language merely prohibited local laws relating to the regulation of the details or procedure of oil, gas and solution mining activities, but not zoning laws that have an incidental effect on those industries.  Accordingly, the Court held that “zoning ordinances are not the type of regulatory provision that the Legislature intended to be preempted by the OGSML.”

The Court also sided with the Town of Dryden on the issue of implied preemption—that  that the zoning law conflicted with the provisions and policies of the OGSML.  First, the Court rejected the argument that the zoning law was preempted because the well spacing provisions of the OGSML cannot be complied with if municipalities are permitted to ban drilling.  (The well spacing provisions govern the acreage assigned to a specific well (the “spacing unit”) and the setbacks from the boundary of the spacing unit).  The Court ruled that the well spacing provisions concern “technical, operational aspects of drilling . . . separate and distinct from a municipality’s zoning authority,” and, therefore, they could “harmoniously coexist.”  The Court reasoned that “the zoning law will dictate in which, if any, districts drilling may occur, while the OGSML instructs operators as to the proper spacing of the units within those districts in order to prevent waste.”  Finally, the Court held that legislative policies to “maximize recovery” of oil and gas resources did not “equate to an intention to require oil and gas drilling operations to occur in each and every location where such resource is present, regardless of the land uses existing in that locale.”  The Middlefield decision, (also authored by Presiding Judge Karen Peters), relied entirely on the reasoning of Dryden to uphold a similar zoning law.

These decisions mark the first appellate-level rulings on the legality of zoning bans prohibiting hydraulic fracturing (as well as other activities under the OGSML) in New York.  The issue is widely expected to be resolved by the Court of Appeals.