Marcellus Shale

Two New York Municipal Bans Upheld – Why They Might Be Overturned

Eric Waeckerlin
Associate, Kelley Drye & Warren, LLP

Last week, two lower courts in New York upheld municipal bans (one enacted by the Town of Middlefield, the other by the Town of Dryden) on oil and gas exploration and production within town limits. The bans were prompted by concerns over hydraulic fracturing, which is a process used to stimulate oil and gas production. As with much of the events surrounding this issue, these municipal bans have evoked emotional responses and are being closely watched across the country for their precedent setting effect. It is almost certain both decisions will be appealed.

The drilling bans highlight the tension inherent in a home rule system of government—i.e., balancing the scope of a municipality’s legislatively-granted authority in the face of central governing state law. On the one hand, municipalities have certain police power and zoning authority to pass laws and ordinances for the well-being of their citizens. These powers, however, are not unbounded. The state has a substantial interest, not only in the regulation of certain industries, but in ensuring consistency and efficiency in the regulation of those industries. Often, the state legislature will see fit to “preempt” local or municipal regulation over certain activities. With regard to oil and gas activity in New York, the State legislature drafted the preemption language as follows (ECL 23-0303[2]):

“The provisions of [the Oil, Gas and Solution Mining Law] 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.”

Both courts held that this language did not prevent either town from enacting total prohibitions on drilling within town limits. The Dryden court framed it this way—

“[the statute] does not expressly preempt local regulation of land use, but only regulations dealing with operations.”

In both courts’ view, the bans are proper because they regulate land use, not the mechanics of oil and gas operations (i.e., the “where” not the “how”).” By prohibiting the entirety of an activity (industrial or otherwise), it is difficult to see how the towns are not regulating both the “where” and the “how.” Indeed, Blacks Law defines “regulation” as “the act or process of controlling by rule or restriction.”

For several reasons, the courts may have overstepped here. First, both courts failed to recognize critical distinctions in prior New York case law interpreting a similar (but different) preemption clause concerning mining law. These earlier cases—Matter of Frew Run Gravel Prods. v. Town of Carroll and Matter of Gernatt Ashpalt Prods. v. Town of Sardinia are materially distinguishable in one critical respect from the oil and gas bans at issue in Dryden and Middlefield—they did not involve total bans. In Frew Run, the court upheld a zoning law prohibiting extractive mining in only one primarily residential district. In Gernatt the zoning law prohibited new mining activity within the town, but did not prohibit existing mining operations, thereby allowing at least some industrial activity in limited areas. Remarkably, neither the Dryden or Middlefield opinions mentioned these outcome-altering factual distinctions.

Second, the Dryden court’s reliance on analogous case law in Pennsylvania and Colorado is puzzling. One of the Pennsylvania cases cited, Huntley & Huntley, involved the denial of a conditional use permit to one company for one gas well on two single-family residential parcels. The second Pennsylvania case cited—Pennaco Oil Co.—concluded that limited zoning regulations prohibiting gas drilling within the flight path of an airport runway, and imposing setback and screening requirements was the proper use of zoning authority (i.e., the “where”). And the final Pennsylvania case cited—Range Resources—held that a town-wide ordinance imposing substantive restrictions on oil and gas development was preempted by state law. Perhaps most remarkably, the Dryden court cited as support the Colorado case Voss v. Lundvall Brothers, where an en banc panel of the Colorado Supreme Court held:

“[T]he state’s interest in efficient development and production of oil and gas in a manner preventative of waste and protective of the correlative rights of common-source owners and producers to a fair share of production profits preempts a home-rule city from totally excluding all drilling operations within the city limits.”

None of these cases support the court’s position.

In the end, the courts must balance municipal police power (including limited authority to protect the environment) with the state’s duties to ensure the well-being of its citizens, the environment, and  continued economic viability.  The latter depends greatly on consistent, certain, and efficient regulation. The Dryden and Middlefield decisions appear to have gone too far. Ironically, the best exposition of how courts typically strike this balance may be found in the Range Resources Pennsylvania Supreme Court opinion cited by the Dryden court:

“Although the township expresses laudable goals in its concern for the health, safety and property of its citizens, the hazardous nature of oil and gas well drilling operations, and the potential for an adverse impact on environmental resources, those purposes have been addressed by the legislature in the passage of the act. While the township may have traditionally been able to pursue such purposes, once the state has acted pursuant to those purposes, the township is foreclosed from exercising that police power. [T]he comprehensive nature of the statutory scheme regulating oil and gas well operations reflects a need for uniformity so that the purposes of the legislature can be accomplished.”

This is the majority position, widely adopted throughout the country. To hold otherwise renders the structure of home rule meaningless, and in this case would nullify the New York Assembly’s decision to preempt the field of oil and gas regulation.  The New York State Court of Appeals would be on solid ground in overturning the drilling bans in Dryden and Middlefield.

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Eric Waeckerlin is an associate in the Washington, D.C., office of Kelley Drye & Warren. Kelley Drye’s Fracking Insider blog provides analysis of key regulatory, legislative, legal and economic developments related to the use of hydraulic fracturing (fracking) in the natural gas industry.

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