New York's Highest Court Holds that Zoning Laws of New York Towns Banning Fracking Are Enforceable — A Brief Analysis of the Oral Arguments and the Court's Opinion

by King & Spalding
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A non-profit, Food & Water Watch, reports that 421 measures against fracking have been passed by state and local governments and that communities across the nation are lobbying their local and state elected officials because they believe fracking poses an unacceptable risk to their drinking water. Energy companies, however, maintain that the process is safe when done properly, brings economic development to communities, and is necessary to achieve national energy independence.

A key battleground for this controversy is the region overlying the Marcellus Shale, a rock formation rich with natural gas that extends from Ohio and West Virginia into Pennsylvania and New York. Seventy New York municipalities have zoning laws that prohibit oil and gas drilling operations, including fracking, and more than a hundred have enacted moratoriums on drilling activities.

New York's highest court agreed to hear appeals from an energy company and a gas lessee challenging two lower court decisions that upheld zoning laws that ban drilling and fracking in the towns of Middlefield and Dryden. Norse Energy Corp. USA, v. Town of Dryden. Numerous amicus briefs were filed, including a brief by the American Petroleum Institute.

The appeal was decided on June 30, 2014. The webcast and transcript of the oral arguments, which may be found on the New York Court of Appeals' website, contain many questions and comments by the justices that may provide insight into the issues that concern them.

Appellants' principal argument was that all zoning ordinances banning fracking or drilling activities are preempted by, and are unenforceable under, a 1981 amendment to a New York statute that was enacted long before fracking became controversial. The statute, ECL §23-0303(2), states:

The provisions of this article [of the Oil, Gas and Solution Mining Law ("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.

Appellants argued that the plain language of this provision: (1) vests exclusive control over oil and gas activities in the state, including the responsibility for proper well spacing and location; and (2) supersedes all municipal zoning laws prohibiting drilling or fracking operations because such laws constitute a regulation of the oil and gas mining industries. Appellants further argued that the fact that the statute provides for only two exceptions (local roads and real property tax) evidences a legislative intent that zoning ordinances are superseded along with all other regulations not stated in the two express exceptions.

One of the courts below, however, interpreted the statute differently, stating: "The zoning ordinance at issue, however, does not seek to regulate the details or procedure of the oil, gas and solution mining industries. Rather, it simply establishes permissible and prohibited uses of land within the town for the purpose of regulating land generally." The towns also argue that the OGSML preemption provision is indistinguishable from a preemption provision contained in another New York statute that has been interpreted by the New York courts to not preempt zoning laws. The towns further argue that: (1) the right of towns to regulate and zone land use is an important fundamental right; (2) that statutes that have been found to preempt or limit this right expressly reference zoning and land use laws; and (3) therefore, because the OGSML does not expressly reference zoning laws, it does not preempt them.

Both sides argued that important public policy interests were at stake and that the statute should be interpreted to support the policy interest favored by that side. For example, Appellants' brief asked: "What prudent operator would ever invest in oil and gas development in New York if, after the fact, municipalities could, based upon a 3-2 majority vote, enact broad based drilling bans that obliterate the operator's entire property interest?" The towns replied that this was a false concern because several other oil and gas producing states permit localities to prohibit drilling within their borders, including California, Illinois, and Texas, and oil and gas investment is flourishing in these states.

Another policy argument that drew interest from the justices was that to properly develop the state's energy resources, the state needs to be able to decide where drilling may take place and that doing so effectively would become unworkable if 932 towns in the state are allowed to override the state's drilling decisions.

The Court held that New York's current statutes fail to provide a "clear expression" of intent to preempt the municipal ordinances:

These appeals are not about whether hydrofracking is beneficial or detrimental to the economy, environment or energy needs of New York, and we pass no judgment on its merits. These are major policy questions for the coordinate branches of government to resolve. The discrete issue before us, and the only one we resolve today, is whether the State Legislature eliminated the home rule capacity of municipalities to pass zoning laws that exclude oil, gas and hydrofracking activities in order to preserve the existing character of their communities. There is no dispute that the State Legislature has this right if it chooses to exercise it. But in light of ECL 23-0303 (2)'s plain language, its place within the OGSML's framework and the legislative background, we cannot say that the supersession clause—added long before the current debate over high-volume hydrofracking and horizontal drilling ignited—evinces a clear expression of preemptive intent.

Justice Pigott issued a dissenting opinion that disagrees with the majority's interpretation of the supersession clause.

One lesson from the case is clear. If a state wishes to avoid litigation as to whether municipalities are precluded from passing zoning laws that prohibit all drilling and fracking operations, it should enact a law that expressly states that zoning laws are superseded or preempted.

The litigation and legislative battles over fracking continue to rage with both sides scoring wins. Although New York courts have upheld zoning laws prohibiting fracking, on June 4, 2014, North Carolina's governor signed a law that lifts a 2012 moratorium and that clears the way for permits to be issued for gas drilling by fracking by next spring.

H. Victor Thomas
Houston
+1 713 276 7363

vthomas@kslaw.com
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