Ohio Supreme Court Rules That Individual Municipalities Cannot Regulate Fracking

Even before Governor Cuomo's recent decisive action to ban hydraulic fracturing ("fracking") in New York, the practice faced significant hurdles. The decision of the New York Court of Appeals in Wallach v. Town of Dryden[1] had made clear that individual municipalities could place their own restrictions on fracking, through zoning and other exercises of local government power. The Wallash case was an industry challenge to this practice, based on the likelihood that the economic viability of fracking would be threatened by the cost of compliance with a patchwork of local regulation schemes. Ultimately, the New York Court of Appeals (the highest court in the state) held that it was permissible for a local zoning ordinance to ban exploration, extraction, and storage of natural gas, including fracking.

The Ohio Supreme Court, in a decision reached in February 2015, has reached the opposite conclusion. In State ex rel. Morrision v. Beck Energy Corp.,[2] the Ohio Supreme Court held that several local zoning ordinances which placed procedural and licensing requirements on the placement of new oil and gas wells were not enforceable as written, thereby clearing the way for new drilling.

Both the New York and Ohio decisions rest on the interpretation and application of a doctrine known as "home rule," which is protected in the Constitutions of both states. "Home rule" is a concept which recognizes a right to local self-governance by individual municipalities with respect to certain activities. One important aspect of home rule is that it is subject to preemption by state law, which means that where a local law conflicts with a law of statewide applicability, the statewide law prevails.

Where the Ohio and New York cases differ is the extent to which the local ordinances governing oil and gas extraction were preempted by state laws regulating the oil and gas industry. In Wallach, the New York Court of Appeals held that it was not certain that the regulatory scheme provided for in the Environmental Conservation Law was intended to prevent a municipality from regulating the oil and gas industry through use of the zoning law. Because the statute did not clearly and explicitly prohibit municipalities from regulating the industry through the use of their zoning power, that regulation was not preempted by state law.

By contrast, in the Beck Energy case, the Ohio Supreme Court held that the local ordinances necessarily conflicted with a law of statewide applicability, in that they prohibited an activity which was expressly permitted by the Ohio law governing licensure of oil and gas extraction companies. Because that state law was clear in stating that local governments were expressly prohibited from discriminating against, impeding, or obstructing the activities regulated by the statewide regulatory scheme, the local law was held to be preempted.

Obviously, the decisions by those two courts were directly in conflict. Because that conflict is rooted in the interpretation of state laws and Constitutions, of which the state’s courts are the highest authority, there will be no resolution of that conflict by the US Supreme Court. As a result, based on those rulings, Ohio would likely be the more attractive candidate for an oil and gas extraction company with the luxury of choosing between the two states for new operations, all other things being equal. Investment in Ohio operations would present significantly less risk of costly capital projects being jeopardized by local decree. Regardless, the statewide ban on fracking in New York announced in December 2014 has simplified the calculus.

 

Article written by Alexander Racketa, associate attorney at Hinman, Howard & Kattell, LLP.  To contact Mr. Racketa directly please email him at aracketa@hhk.com or call (607) 723-5341.



[1] Wallach v. Town of Dryden, 23 N.Y.3d 728 (2014).

[2] State ex rel. Morrision v. Beck Energy Corp., Slip Op. No. 2015-Ohio-485 (Ohio Supreme Court 2015).

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