Environmental and Energy: Hydraulic Fracturing: Courts and Localities Act Where New York State Fears To Tread (7/14)

New York Court of Appeals Upholds Right of Localities to Ban Hydraulic Fracturing

In an opinion issued on June 24, 2014, the New York Court of Appeals upheld the zoning laws adopted by the Towns of Dryden and Middlefield to ban oil and gas production activities, including hydraulic fracturing, within their boundaries. The Court concluded that the clause in the Oil, Gas and Solution Mining Law (OGSML) granting the State the exclusive right to regulate mining operations does not preempt the home rule authority vested in municipalities to regulate land use. In other words, local authorities cannot regulate "how" mining is performed, but they can regulate "where" it occurs.

This Court of Appeals decision may prompt more localities to adopt similar legislation to prohibit hydraulic fracturing, commonly referred to as hydrofracking. This decision, coupled with the State’s significant delays in finalizing a permitting program for hydrofracking, will likely be perceived by the oil and gas industry as the functional equivalent of a state-wide prohibition on hydrofracking. An open question is whether the industry will focus its efforts on the State Legislature for an amendment to the OGSML that will clearly preempt home rule zoning powers.

At issue in the matters before the Court was an amendment to the zoning law adopted by Dryden in August 2011 to specify that all oil and gas exploration, extraction and storage activities were prohibited in the Town. The amendment also invalidated any oil and gas permit issued by a state or federal agency. The New York Supreme Court declared the amendment valid with one exception – it struck down the provision invalidating state and federal permits. The Appellate Division affirmed.

The Town of Middlefield amended its master plan to adopt a zoning provision classifying a range of heavy industrial uses, including oil, gas and solution mining and drilling, as prohibited uses.

The actions to set aside these zoning laws contended that they were preempted by the supersession provision in the OGSML. At the heart of the controversy is the following section of the OGSML:

"The provisions of this article [i.e., 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" (ECL 23-0303 [2] [emphasis added]).

The appellants, Norse Energy and Cooperstown Holstein, argued that this provision should be interpreted broadly to reach zoning laws that prohibit oil and gas activities, including hydrofracking, within municipal boundaries.

The Court of Appeals analyzed the supersession clause in light of its 1987 opinion in matter of Frew Run Gravel Prods. v. Town of Carroll, which identified the analytical framework to determine whether a supersession clause expressly preempts a local zoning law. The Court considered three factors (1) the plain language of the supersession clause; (2) the statutory scheme as a whole; and (3) the relevant legislative history. Frew Run was an opinion regarding the validity of the Town of Carroll’s zoning ordinance establishing a zoning district where sand and gravel operations were not permitted. A company seeking to open a mine challenged the zoning law, arguing that it was preempted by the supersession clause in the state-wide Mined Land Reclamation Law (MLRL) which provided:

"For the purposes stated herein, this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from enacting local zoning ordinances or other local laws which impose stricter mined land reclamation standards or requirements than those found herein" (ECL 23-2703 [former (2)] [emphasis added]).

In its June 24, 2014 decision, the Court of Appeals found that the plain language of the OGSML’s supersession clause is very close to that in the MLRL and based on the similarities declined to apply a broader meaning to it. The Court found that only local laws that would regulate the actual operations of oil and gas activities are preempted, not zoning ordinances that prohibit certain land uses. The Court further stated that the provision in the OGSML preserving the Towns’ jurisdiction over local roads and rights under the real property tax law was needed because these both touch on the operations of the oil and gas industries and they would have been preempted without this savings clause. In addition, other state statutes that clearly preempt home rule zoning powers often explicitly include zoning in the preemptive language. The OGSML supersession clause does not contain such language.

With respect to the second factor, the Court held that the supersession clause at issue fits comfortably within the statutory scheme of the OGSML since it invalidates local laws that would intrude on the State’s regulatory oversight of the industry’s activities. Lastly, regarding the third factor, the Court held that there is nothing in the legislative history of the OGSML showing an intent of the Legislature to take away local land use powers, but rather this history makes clear that the Legislature’s concern was to ensure that the State had the means to regulate the technical operations of the industry.

At the end of its opinion, the Court clarified that the Dryden and Middlefield appeals were not about whether hydrofracking is beneficial or detrimental to the economy, environment or energy needs of New York and stated that these major policy questions are for the branches of government to resolve.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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