Shale Gas Perspectives - Livingston County Decision in Town of Avon Case: A Loss for the Drilling Company - But Not All Bad News (Vol. I, No. 5)

A Periodic Blog on the Status of Marcellus Shale Development in the Southern Tier of New York--and Other Interesting and Exciting Developments in the Law, Science, and Politics of Natural Gas Development (Or Not) in the Empire State

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(March 21, 2013)

A drilling company, Lenape Resources, Inc., brought this action seeking to overturn a Town of Avon moratorium local law which prohibits all new natural gas drilling activities in the Town for one year.  The moratorium was enacted pursuant to the Town’s zoning and land use authority. 

Lenape alleged in its complaint that the Town of Avon moratorium adversely impacts it because of oil and gas wells (more than 150 of them) and extensive oil and gas leases in Livingston County that are affected by Avon’s local law.  It also asserted that “Avon took property rights from Lenape [in Livingston County] resulting in damages in an amount not less than $50 million dollars.”

This case, Lenape Resources, Inc. v. Town of Avon, Index No. 1060-2012 (Sup.Ct., Livingston Co., Mar. 15, 2013), was the first challenge to a gas drilling ban or moratorium to seek to join the NYS Department of Environmental Conservation (DEC) as a defendant for failing to enforce the preemption provision of the Oil, Gas & Solution Mining Law (OGSML). 

The OGSML’s preemption provision reads as follows:

“The 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.”  (ECL §23-0303 [2], emphasis added).

The Court dismissed the action against DEC “for lack of personal jurisdiction based on Lenape’s failure to properly serve the Attorney General (see CPLR 307, 7804 [c]).”  But this effort by counsel for Lenape opens up the intriguing prospect of forcing DEC to take a position on the pre-emption issue in future challenges to local gas drilling bans.

Lenape pleaded 10 separate causes of action.  Acting Supreme Court Justice Robert B. Wiggins rejected all 10—but not without some analysis reassuring to gas drilling supporters.

The Court referred to the preemption issue as “the closest one presented” and stated that, were the OGSML’s preemption provision “considered in a vacuum, the Court would tend towards the view that it does indeed preempt the Local Law at issue here.”  However, the Court considered itself “compel[led]” by “caselaw” to “reach a contrary conclusion.”

The case viewed as controlling by Acting Justice Wiggins is a 1987 Court of Appeals case, Matter of Frew Run Gravel Prods. v. Town of Carroll, 71 NY2d 126.  Frew Run dealt with the preemption clause in the Mined Land Reclamation Law (MLRL), which read (at the time) as follows:

“For the purposes stated herein, this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from enacting local zoning ordinances or other local laws which impose stricter mined land reclamation standards or requirements than those found herein.”  (ECL 23-2703[2], emphasis added).

Frew Run involved a zoning ordinance that prohibited all sand and gravel mining except by special permit in certain areas.  The petitioner mining company had obtained a DEC permit to mine sand and gravel within a prohibited use area in the Town of Carroll.  It sued, arguing that the zoning ordinance was preempted by the preemption provision of the MLRL.  The Court of Appeals rejected this claim, holding that the MLRL’s preemption provision only preempted local legislation that directly regulated the mode and methods of extractive mining, whereas zoning ordinances are concerned only with general land use planning.  “In this general regulation of land use, the zoning ordinance inevitably exerts an incidental control over any of the particular uses or businesses which, like sand and gravel operations, may be allowed in some districts but not in others….”  But, “this incidental control resulting from the municipality’s exercise of its right to regulate land use through zoning is not the type of regulatory enactment relating to the ‘extractive mining industry’ which the Legislature could have envisioned as being within the prohibition of the statute.”

The Court of Appeals did not base its decision in Frew Run on “the zoning law clause of the MLRL preemption provision, which applied only to reclamation activities, not to mining activities in general, which was what the Petitioner in Frew Run wished to conduct.”  Rather, it “rested its decision on the first clause of the MLRL provision, holding that ‘supersession is expressly limited to laws “relating to the extractive mining industry” ‘and that laws of general applicability’ “which determine permissible uses in zoning districts” ‘do not sufficiently “relat[e] to” mining so as to be preempted (Troy Sand & Gravel Co., Inc. v. Town of Nassau, 101 AD3d 1505, 957 NYS2d 444, 448 [3d Dept 2012]).”

The Lenape Court viewed the Frew Run decision as “flawed, in that it ignores the maxim expressio unius est exclusio alterius [when one or more things of a class are expressly mentioned others of the same class are excluded].  The fact that land reclamation was expressly subject to tighter zoning controls by municipalities should have led to the conclusion that extractive mining operations were not.”

[Acting Justice Wiggins could have added that, applying this same rule of statutory construction to the OGSML, would indicate that the fact that “local government jurisdiction over local roads and the rights of local governments under the real property tax law were expressly subject to tighter controls by municipalities” should have led to the conclusion that tighter zoning controls by municipalities were not.]

“But that is not what the Court of Appeals held [in interpreting the MLRL in Frew Run], and its interpretation of the primary clause of the statute in Frew Run is strong persuasive precedent for the interpretation of the OGSML provision at issue here.  The reasoning of Frew Run compels the conclusion that local zoning ordinances, such as the Local Law at issue, do not ‘relat[e] to the regulation of the oil, gas and solution mining industries’ within the meaning of the OGSML (ECL 23-303 [2]).”

It is noteworthy that the MLRL was amended in 1991, following the Frew Run decision, to add the reference to “local zoning ordinances.”  The exception clause now reads:

 “provided, however, that nothing in this title shall be construed to prevent
 any local government from enacting or enforcing local zoning
 ordinances or laws which determine permissible uses in zoning districts.” 

So, the Frew Run Court in 1987 could not then have made the expressio unius argument suggested by Acting Justice Wiggins.  But, it could do so now (after the 1991 amendment).  Indeed, in interpreting the preemption provision of the OGSML, a reviewing court could differentiate it from the MLRL’s preemption provision on the basis that the Legislature has specified its intent in the MLRL to allow stricter local zoning ordinances to take precedence over otherwise applicable state reclamation requirements and other regulations for sand and gravel mining and other extractive mining, while there is no such intent to allow local zoning to override general state regulation under the OGSML.

The Court of Appeals declined to take this approach in the 1996 case of Matter of Gernatt Asphalt Prods. v. Town of Sardinia, 87 NY2d 668; 664 NE2d 1226; 642 NYS2d 164.  The Gernatt Court upheld the Town of Sardinia’s right to use its zoning authority to completely ban sand and gravel mining within its jurisdiction.  In doing so, it made the following observation:  “The express supersession provision of the MLRL… was amended in 1991….  The patent purpose of the 1991 amendment was to withdraw from municipalities the authority to enact local laws imposing land reclamation standards that were stricter than the State-wide standards under the MLRL.  The language of this amended provision accords with the distinction drawn in Frew Run between zoning ordinances and local ordinances that regulate mining activities, and there is nothing in the sparse legislative history of the amendment to the statute suggesting that the Legislature intended the MLRL to go further and limit municipalities’ broad authority to govern land use.” 

The fact remains, however, that the Legislature inserted language in the law in the case of the MLRL to preserve local zoning rights, where no such language exists in the OGSML.

Two other distinctions are apparent between extractive mining under the MLRL and oil and gas extraction from deep shales under the OGSML.  These were noted by counsel for the appellants in the March 21st oral arguments to the Appellate Division in the Dryden and Middlefield cases.  First, sand and gravel don’t have the overriding importance to the State and the Nation, in terms of energy independence and national security, that oil and gas do.  The U.S. has never had a sand and gravel crisis.  And, second, local zoning authority over subsurface mineral extraction thousands of feet beneath the ground surface is less clear and less strong than it is over aboveground activities.

If not for the Frew Run “precedent” involving a preemption provision in a separate and distinct state law (the MLRL) that was enacted at a very different time and to address distinct issues, Justice Wiggins made very clear that he would have found the Town of Avon drilling moratorium to have been superseded by the preemption provision of the OGSML.

The Lenape court also rejected the other causes of action raised by the petitioners, including the following:

1. In response to the argument that the moratorium was an “unreasonable use of [the town’s] police power,” because Avon did not demonstrate a “dire need” for it, the court concluded that, because the Local Law was not enacted pursuant to Avon’s general police powers, but “was duly enacted pursuant to the town’s zoning authority,” Avon “did not need to demonstrate a dire need for the moratorium.” 

I would respectfully note that, while that is technically true, most moratorium local laws are land-use moratoria rather than police power moratoria.  And, while “dire necessity” is not a prerequisite to passing a land-use moratorium, there are five other prerequisites that apply.  These include the need for a “valid public purpose”; the need to demonstrate that “the burden imposed by the moratorium is being shared substantially by the public at large, as opposed to being visited upon a minority of landowners”; and the need to strictly adhere to “the procedures for the enactment of local laws and ordinances.”

2.  Relative to the scope of a municipality’s zoning authority, the court also made the point that, if a town may use its zoning authority to outlaw all mining within its borders (as held in the Gernat Asphalt case under the MLRL), “then it would seem that, a fortiori, it is empowered to halt such drilling temporarily.” 

Again, I must comment.  First, it is beyond dispute that a Town has the power to halt gas drilling temporarily—but only if it follows the procedures and satisfies the prerequisites as laid out in the caselaw.  But the converse of this argument is also true.  If a temporary moratorium can be invalidated for failing to appropriately balance the interests of impacted landowners against those of the general public and/or for failing to follow legally-mandated procedures, a fortiori, how much more important is it to adhere to the same safeguards when a permanent ban is contemplated!

3. The court also rejected Lenape’s taking claim, but it did not do so on the merits.  Rather, it held that this cause of action “is not ripe, inasmuch as [Lenape] has failed to exhaust all of its administrative remedies under the Local Law.”  Thus, the Lenape case does not stand as precedent to block future taking claims where proper administrative steps are followed.  Indeed, the decision does not even preclude Lenape Resources Inc. from reactivating its taking claim against the Town of Avon once it exhausts its administrative remedies.

Several other separately pleaded causes of action did “not merit extended discussion” by the court and will not be addressed here.

I will conclude with some brief comments regarding the overblown claims by gas drilling opponents as to the significance of the Lenape decision.  (These points all appear in the ShaleShockMedia blog of March 19, 2013 under the banner: “Avon Wins!  4th New York Case Upholds Home Rule!”)

1. “This is the fourth trial court to uphold Home Rule.  Not the 3rd.  The Binghamton court [Jeffrey v. Ryan] upheld the concept of Home Rule, while striking down Binghamton’s moratorium on a technicality.”  [The reality: the Binghamton case dealt with a general police power moratorium which was designed as such by the city so as to avoid invoking the city’s zoning authority.  Any side comments by the Judge in that case regarding the lower court decisions in Dryden and Middlefield—which both involved drilling bans based on town zoning authority—were not germane to the outcome and carry no precedential weight.]

2. “This is the first [court] to affirm a moratorium.  The Binghamton moratorium was invalidated by the court on a technicality.  So towns can proceed with properly enacted moratoriums without worrying much about frivolous lawsuits from fracking wing-dings like Lenape.”  [Comment: when they lose, it’s on a “technicality.”  When they win, it’s a great legal victory.]

3. “[This was] [t]he first for the DEC to acknowledge deference to such a local ordinance – confirming their previous statements on the matter – this time in court.”  [Comment: DEC was dismissed from this case on an actual “technicality” and played no role in shaping the Lenape court’s findings or conclusions.]

4. “[This was] [t]he first [case] to successfully defend against an alleged “regulatory takings” claim of a mineral right – which had been threatened by the Middlefield and Dryden plaintiffs.  So the threat of [a] takings claim[ ] can be consigned to the trash can, where they [sic] belong.”  [Comments: As noted above, the takings claim in the Lenape case was dismissed for failure to exhaust administrative remedies; not on the merits.  It does not limit the ability of this or other plaintiffs to pursue takings claims in the future.  Also, no takings claims were raised in either Dryden or Middlefield.]

5. “With the Avon precedents, our job of defending Home Rule is that much easier to prove in court [specifically, the Middlefield and Dryden appeals before the Third Department on March 21st]….”  [Comment: The Lenape Resources, Inc. v. Town of Avon decision was neither briefed nor raised at oral argument in the appeal before the Third Department Appellate Division.]

The legal battle over the power of local governments in New York to ban or restrict natural gas drilling is not fundamentally a matter of whether “home rule” trumps the authority of the State.  New York is and will remain a strong “home rule” state, but the state government has the preemptive power and responsibility to step in where important statewide interests are at stake.  Significant issues remain over the authority of one municipality to prevent horizontal gas drilling from occurring from a well-pad located in a neighboring jurisdiction, and over the ability of a municipality to use its zoning power over land-use to regulate the extraction of natural gas from deep shales thousands of feet beneath the land surface.

Most of the key issues have been clearly joined before an attentive and capable four-judge panel of the Appellate Division, Third Department, whose decision can be expected within the next two months.  Whatever the outcome, the Court of Appeals will most likely have the final say—unless the Legislature decides to step in.

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Article by Kenneth S. Kamlet, Hinman, Howard & Kattell, LLP, kkamlet@hhk.com .

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