Michael P. Joy — Esq., Ph.D (geology)
Biltekoff & Joy, LLP

I have read your blog post regarding the alarming practice of towns and villages across the Southern Tier of New York wading into the complex regulatory oversight of oil and natural gas development through attempts to ban some or all activity through local laws, rules, regulations ordinances. The special-interest groups promoting these laws are leading municipalities into inevitable legal challenges that will be costly to manage and impossible to win.  These municipalities should be working on ways to develop cooperative relationships with landowners who have leased their land in hopes of  benefitting from natural gas development, to assure that development is compatible with local community character and special needs.

As it stands, all these interest groups are doing is forcing local landowners and the companies that have leased that land into litigation to protect basic property rights. The law related to state-level oversight of natural gas development is pretty clear (and explained in more detail after the jump).

I have researched the potential force and effect of a law, rule or regulation or municipal ordinance passed by an instrumentality of the State of New York, such as a City, Town or Village relating to any portion of the process of oil or natural gas development. To state the law as succinctly as possible: the New York State Legislature has, by statute, vested jurisdiction over oil and natural gas regulation in the New York State Department of Environmental Conservation (DEC); this rule is explicitly stated in the New York Environmental Conservation Law (ECL).

The exceptions to this general rule are that local municipalities may still control impacts on roadways within their jurisdiction, and taxation. However, the laws affecting the use of roads must not single out oil and natural gas operations. Rather, regulation of local roadways must apply equally to all vehicular traffic within the jurisdiction of the municipality. Municipalities may be able to post roads against weight, for instance, but not against specific activities — even if they happen to be related to energy development.

A look at the source of local law is important. There is a limited scope of authority granted to counties, cities, towns and villages in New York. Local municipalities derive all power to legislate from the State. If the municipality is not specifically granted power to regulate an activity, or if the power to regulate a particular activity is reserved or delegated to Legislation to the State, the municipality has no authority to enact a law, rule, regulation or ordinance affecting that activity. Article IX (§ 2,subd. [c], par. [ii] ) of the New York State Constitution specifies that any local law be “not inconsistent with…any general law.” The State Constitution further provides that the legislative power of local government is limited “to the extent that the legislature shall restrict the adoption of such a local law.”

To restate the above in plain English: the Constitution of New York State limits municipal authority to only those specific aspects of law that have been granted by the State — and municipalities cannot go beyond those limits. The State Legislature has vested the NYS DEC with the exclusive authority to regulate all facets of oil and natural gas exploration, drilling, completion and production. The Legislature codified the laws pertaining to natural gas drilling as part of the Oil, Gas and Solution Mining Law as set forth in Article 23 of the ECL.

Section 23-0303(2) of the ECL specifically provides that: “[t]he 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.”  (Emphasis Added).

Based on 23-0303(2), local municipalities cannot regulate, limit, or ban oil and natural gas production activities; to do so would be to violate the Constitutional authority granted to local municipalities and the pre-emption doctine that exists in New York law.The Legislature initially left 2 areas open to local regulation: road use and taxation. However, taxation was later delegated to the New York State Department of Taxation and Fianince through the Office of Real Property Tax Services. Section 594 of the New York State Real Property Tax Law specifically supersedes local laws relating to the taxation of oil and gas within the State.

Consequntly, the only remaing aspect of local law relating to oil and natural gas activities that can be subject to local regulation is where it impacts roadways. There is case law specifically addressing the preemption doctrine and circumstances where a local municipality enacted a local law relating to the regulation of oil or natural gas development.

Consistent with the preemption doctrine discussed above, the local law was struck down in favor of the jurisdiction of the State, regulating through the NYS DEC pursuant to the ECL. See, In the Matter of EnviroGas, Inc., 112 Misc.2d 432, (Sup. Ct. Erie County, 1982), upheld on appeal by the Appalate Division, Fourth Department (89 A.D.2d 1056), cert. denied by Ct. of Appeals (58 N.Y.2d 602).

EnviroGas Inc. was a company engaged in the business of exploring, drilling for and producing oil and gas. The Town of Kiantone issued an appearance ticket and a warrant of arrest against EnviroGas for violation of a local law requiring persons to obtain a bond in favor of the Town before commencing drilling operations within its jurisdictional limits. EnviroGas was issued a citation appear before the Town Justice to answer a charge of violating Section 4(q) of the Town Law.Rather than appearing before the Town Justice, EnviroGas initiated an interlocutory appeal pursuant to Article 78 of the Civil Practice Law and Rules by an Order to Show Cause, seeking to enjoin enforcement of the Town Law on the ground that the law was preempted and therefore nullified by ECL § 23-0303(2).  

Like all oil and natural gas producers operating within the State, EnviroGas operations must be conducted in a manner consistent with State statute (ECL Article 23) and DEC regulations (see, 6 N.Y.C.R.R. § 550 et seq.). The Oil, Gas and Soluition Mining Law (that is, Article 23) and DEC regulations are specifically designed to protect the public, prevent waste and ensure a greater ultimate recovery of indigenous oil and natural gas. All oil and natural gas operators are required to obtain a drilling permit from the DEC before commencing drilling operations and must otherwise comply with all statutory and regulatory requirements.

In response to EnviroGas’ Petition Article 78 Petition, the town submitted papers to the Court arguing that the provisions of Article 23 did not apply to local issues of concern because not all of those issues were specifically enumerated or addressed in Article 23 of the ECL. The town contended that the local permit bond requirements of Section 4(q) of the Town Law were justified by the exception in the ordinance for “local government jurisdiction over local roads.”

The Court held to the contrary. In doing so, the Court stated that “where a state law expressly states that its purpose is to supersede all local ordinances then the local government is precluded from legislating on the same subject matter unless it has received clear and explicit authority to the contrary.” (Emphasis added) Id.; see also, Robin v. Inc. Vil. of Hempstead, 30 N.Y.2d 347, 350-351).

The Court relied, in part, upon Robin where it noted that “the fount of the police power is the sovereign state, [and] such power can be exercised…only when and to the degree it has been delegated such lawmaking authority” (Id., internal citations omitted; but see also, De Jesus at 470). Article 23 was enacted in part to create state-wide uniformity in the regulation of oil and natural gas drilling activities. Prior to the amendments to Article 23 of the ECL establishing state wide regulation, local ordinances requiring commercial oil and gas drillers to post compliance bonds were used as a reasonable means of zoning enforcement. (Envirogas, Inc. v. Town of Westfield, 82 A.D.2d 117; see also Town Law, Section 268).

However, in EnviroGas, the Court observed that: “… the policy and purpose behind the recent amendment [Article 23 of the ELC] is not left to the imagination. Since the amendment specifically states that it is to ‘supersede all local laws or ordinances,’ it pre-empts not only inconsistent local legislation, but also any municipal law which purports to regulate gas and oil well drilling operations, unless the law relates to local roads or real property taxes which are specifically excluded by the amendment.”

In its responsive papers to the Court, Kiantone also argued that its local law was valid and enforceable because the bond and permit fees were somehow related to Town Law §4(l) which prohibited the deposit of hazardous materials on roadways within the Town and regulates the construction of roadside culverts and drains.

The Court found the Town’s arguments without merit, stating that: “This argument strains logic and reason for if it was tenable there would be no limit to the regulations which the Town could impose upon oil and gas development under the rubric of ‘jurisdiction over local roads.’ If the Town’s concern in enacting bond and permit requirements was the protection of town highways then why not apply it to contractors, farmers and other operators of heavy equipment who are equally capable of damaging town roads?” (Emphais Added).

The clear purpose of the “local roads” exception to ECL §23-0303(2) was to allow local officials to continue to assert weight and speed restrictions upon vehicles operated on their highways, regardless of their operation in the context of oil and gas drilling. EnviroGas at 434. The Court noted that Kiantone was attempting to single out oil and gas drillers for special treatment, which is precisely what ECL §23-0303(2) was designed to prevent.

Note that in EnviroGas the Court specifically discussed the potential impacts on contractors, farmers and heavy equipment. I cauitioned above that there may be unintended-consequnces to local efforts at banning oil and natural gas operations. The law cannot be arbitrary, capricious or discriminatory. Other activities taking place with these rural towns, like farming, face real risks of increased regulation, oversite, and cost, at the expense of special interest group efforts to force through il-conceived regulation of the oil and natural gas indsutries.

Finally, the Court in EnviroGas noted the validity of the Town’s concern, but, rather than capitulating to its arguments, also noted that the Legislature was equally aware of unique local concerns.  The ECL accommodated such concerns by permitting municipalities to request compensation for damages to property caused by oil and gas operations, by granting the DEC authority to impose financial security requirements (which it does), and by requiring drilling permit holders to notify local municipalities and affected landowners of proposed drilling operations before those operations commence.

Since the Legislature clearly intended Article 23 of the ECL to supersede and preclude the enforcement of all local ordinances in the area of oil and gas regulation, Kiantone’s actions were held to be arbitrary and capricious and contrary to law. The Town was permanently enjoined from enforcing Section 4(q) of the Kiantone Zoning Ordinance.I have heard arguements to the effect that Since EnviroGas only went up to the Fourth Department, and the Court of Appeals denied certiori to hear that case, that it may not be bidning upon other judicial districts witghin the State. Such arguments lack merit.

A look at the Pre-emption doctrine decision that have been issued by the Court of Appeals, coupled with the fact that the Court of Apeals declined to even hear the Town of Kianatone case, gives strong insight into the faulty logic being espoused in support both these local laws seking to ban or limit oil and natural gas activities within their jurisdictional limits.

The New York State Court of Appeals, the highest court in the New York State Court System, has addressed the issue of local municipal regulation and the preemption doctrine on multiple occassions. The result is always the same: where the subject matter of regulation is addressed by the State, local governments are without the power to enact laws, rules, regulations or ordinances to the contrary.  The preemption doctrine is so strong, actually, that local governments may not even enact laws complimentary to State law.

For example, in the matter of Robin v. Incorporated Vil. Of Hempsted, 30 N.Y.2d 347, (1972), the Court of Appeals addressed the State’s statutory scheme for the regulation of medicine. Robins truck down a village law which did not deviate in the slightest from the State statute’s definition of the medical procedure under consideration. The local legislation simply added a precautionary step indicating that the procedure must “be performed only in a hospital duly licensed and accredited under the New York State Department of Health, and having equipment and facilities acceptable to the State Hospital Review and Planning Council.”  

The local regulation was seemingly innocuous. However, the law was challenged and worked its way through the New York State Court system to the Court of Appeals.  In its holding, the Court emphasized that a local government is precluded from legislating on the same subject matter as a state law, unless it has received “clear and explicit” authority to the contrary (Id., at pp. 350-351; Matter of Kress & Co. v. Department of Health of City of N. Y., 283 N.Y. 55, 60).The law at issue was struck down.

A bright line exists in New York law: when the subject matter is regulated by the State, local governments are precluded from legislating on the same subject matter.

In another preemption doctrine case, the People v. De Jesus, 54 N.Y.2d 465 (1981), the Court of Appeals addressed a local ordinance that prohibited any person from patronizing an establishment which was selling or offering for sale alcoholic beverages after a specified time. The Court of Appeals held that the Alcoholic Beverage Control Law (“ABCL”) was preemptive of a local regulation relating to the timing and sale of alcoholic beverages.

In reaching its conclusion the Court noted that the ABCL is a comprehensive and detailed regulatory system. The Court found it particularly relevant that the State Liquor Authority was vested with the power to grant licenses under defined circumstances and that it provides for criminal sanctions against unauthorized purveyors of alcoholic beverages (ABCL, §§ 17, 55-99, 100, 130). The ABCL specifies that such alcoholic beverages may be sold “at retail for on-premises consumption” daily until 4 a. m. and that the actual consumption thereof may be permitted for one-half hour thereafter (ABCL, § 106, subd. 5). Moreover, the State’s statutory structure imposes its own direct controls at the local level by creating local alcoholic beverage control boards and by, for example, granting these administrative instrumentalities the power to further restrict the hours during which alcoholic beverages may be sold at retail (ABCL, §§ 30-43, 43, subd. 3).

In the case of the ABCL, there was a clear delegation to localized administrative bodies to set hours of alcohol sale for consumption. The local authority did not act and the municipality has precluded from taking such action on its own. The policy of the ABCL was also specifically enumerated in the enabling legislation. Section 2 of the Alcoholic Beverage Control Law declares it the goal of the State “to regulate and control the manufacture, sale and distribution within the state of alcoholic beverages for the purpose of fostering and promoting temperance…and obedience to law.” The forgoing factors led the Court to strike the law, deeming the subject matter of the law to be preempted by the State.

Municipalities of the State of New York cannot enforce local laws, rules, regulations or ordinances relating to oil and natural gas development. If a municipality passes such a law, it will be preempted by Article 23 of the ECL, and as such, will be unenforceable. A municipality may enforce local laws relating to the use of its local roads, such as weight and speed restrictions, but such laws must be evenly applied to vehicles regardless of whether they are engaged in oil and natural gas development, or in any other activity.

I am aware of statements contained in a recent Press Release by the DEC in advance of the supplemental Generic Environmental Impact Statement, to the effect that the SGEIS incorporates changes requiring that an “[a]pplicant must certify that a proposed activity is consistent with local land use and zoning laws. Failure to certify or a challenge by a locality would trigger additional DEC review before a permit could be issued.”

I do not see any reason to suspect that the forgoing statement by the DEC is anything more than a statement addressing the existing status of New York law. As an Executive Branch Agency, DEC is without power to delegate authority vested in it by the Legislature to anyone else. There is substantial anti-delegation case law on that topic. Existing law requires operators to notify local governments of permit activities and operates do so. There are avenues of local regulatory control, such as road-use restrictions, and NYS DEC seems to be saying that operators must certify that they will be in compliance with those laws. Since operators must comply with all valid laws, rules and regulations I see no change to the forgoing analysis of local pre-emption doctrine at work.