Ohio Supreme Court Strikes Down Local Oil & Gas Regulations – How State Law Preemption Is Shielding the Oil and Gas Industry

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[co-author: Shannon Morrissey - Law Clerk]

In a closely watched, 4-3 decision issued yesterday, February 17, the Ohio Supreme Court ruled that the ‘Home Rule Amendment’ to the Ohio Constitution does not grant the city of Munroe Falls the power to enforce its own oil and gas permitting scheme simultaneously with a state-wide permitting regime. (State ex rel. Morrison v. Beck Energy Corp., Slip Op. No. 2015-Ohio-485.) The state government has the “sole and exclusive authority” to regulate permitting of oil and gas wells and production operations in Ohio, preempting regulation by local ordinances. (Ohio Rev. Code Chapter 1509.02.)

Background of the Case

Beck Energy Corporation (“Beck Energy”) obtained a permit to drill for oil and gas within the city of Munroe Falls from the Ohio Department of Natural Resources (“Department”) in 2011. Operators in Ohio are required to obtain a state-issued permit prior to drilling, subject to specified conditions. Beck Energy’s permit contained a total of 67 conditions, addressing issues such as site preparation, waste disposal, and noise mitigation. (Slip Op. at p. 3.) The case arose because Munroe Falls issued a stop-work order soon after Beck Energy began drilling. The order claimed that Beck Energy was violating several Munroe Falls city ordinances. One such ordinance requires operators to obtain a local zoning certificate prior to drilling. The city requires this local zoning certificate in addition to the state-issued permit.

Beck Energy argued that the city’s permitting ordinances were void because they conflict with Ohio’s statewide permitting scheme. In opposition, the city of Munroe Falls argued that its ordinances constituted a valid exercise of the “home-rule power.” (Slip Op. at p. 5.) The Ohio ‘Home Rule Amendment’ states that “[m]unicipalities shall have the authority to exercise all powers of local self-government to adopt and enforce within their limits such local police, sanitary and similar regulations, as are not in conflict with general laws.” (Ohio Const., Art. XVIII, Sect. 3.)

On appeal, the Ohio Supreme Court held that the ‘Home Rule Amendment’ does not apply here because the local ordinance conflicted with a general state law. 1509.02 is a general law because it “applies to all municipalities in the same fashion.” (Slip Op. at p. 8.) The Court found that the law “operates uniformly” regardless of whether oil and gas operations are occurring in each city in the state. (Id. at p. 7.) Additionally, the court stated: “we have 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.)

What this Means for the Oil & Gas Industry

This decision is viewed as a win for the oil and gas industry, including operators utilizing hydraulic fracturing (“fracking”), because it has the potential to make stricter, local regulations of hydraulic fracturing and oil and gas development – including outright bans or moratoria – unconstitutional under state constitutional preemption principles. Further, the rationale in this case is similar to a New Mexico case decided earlier this year. In January 2015, the United States District Court for the District of New Mexico held that a local ordinance banning fracking was preempted by state and federal law. (Read more about this case in our previous blog post.)

The Ohio decision is limited, though, as Justice O’Donnell emphasized is his concurring opinion. He stated that this holding only preempts “parallel municipal ordinances,” and does not necessarily preempt ordinances that “address only the traditional concerns of zoning laws, such as ensuring compatibility with local neighborhoods, preserving property values” and so forth. (Slip Op. at p. 14.) “[I]t remains to be decided whether the [Ohio] General Assembly intended to wholly supplant all local zoning ordinances limiting land uses to certain zoning districts without regulating the details of oil and gas drilling expressly addressed by R.C. [Ohio Revised Code] Chapter 1509.” (Id. at p. 15.)

 

 

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