Shale Gas Perspectives - Status of Gas-Drilling Law in New York (Vol. I, No.3)

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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Mar. 4, 2013 – The appellate courts in New York will soon be deciding the issue of whether the home rule authority of local governments in New York gives municipalities the carte blanche authority to restrict, regulate and/or entirely ban natural gas drilling (and associated exploration and support activities), despite New York State’s broad permitting and regulatory jurisdiction.

Two lower courts, in the well-known Dryden and Middlefield cases, held that those municipalities were within their rights in using their zoning powers to entirely ban gas drilling within their borders.  Another court, in the Jeffrey v. Ryan case, struck down a two-year gas drilling moratorium in Binghamton because moratoria are only justified when there is a “dire necessity” for such an enactment.  Appeals of the Dryden and Middlefield cases are due to be argued before the Appellate Division, Third Department, on March 21st.  Cross-appeals will shortly be filed in the Jeffrey case.

Read together, these cases (if upheld on appeal) appear to stand for the propositions that:

  • The New York State Oil, Gas & Solution Mining Law [OGSML], which expressly “supersedes all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries” (with two limited exceptions), ECL § 23-0303(2), was not meant to supersede “the power of a local government to exercise its zoning power to regulate the districts where gas wells are a permitted use” (Dryden).
  • Where a local government uses its police power rather than its zoning power, and imposes a limited-duration moratorium, rather than a total ban, sufficient “dire” need and justification must be shown in order for the moratorium to be valid (Jeffrey).  (One might question why a limited moratorium must be sufficiently justified, while a total land-use ban seemingly requires no justification or any balancing of state versus local interests, or of landowner rights versus the majority vote of a small group of local politicians.)
  • Where the locality exercises its zoning power “to regulate land use generally,” it only “incidentally” impacts upon the “activities” of the oil and gas industry (Middlefield and Dryden).  (This reasoning is strongest where, as in Middlefield, the “prohibited uses” include all “heavy industry.”  It is weakest, as in  Binghamton, where the moratorium singles out and exclusively addresses oil and gas exploration, extraction, and support activities.

These and other cases raise many issues of first impression in New York.  These include the following:

1.    Are there any circumstances in which municipalities, in enacting gas drilling bans, moratoria, or other restrictions need not first submit the proposed local law to the county planning department for review pursuant to General Municipal Law §§239-l and -m [“GML referral”]?

  •  GML referral is required whenever the “adoption or amendment of a zoning ordinance or local law” applies to real property within five hundred feet of sites or demarcations including “the boundary of any city, village or town”; the “boundary of any county or state owned land on which a public building or institution is situated”; or “the right-of-way of any… county or state parkway…, road or highway.” 

A gas drilling ban or moratorium would constitute the “amendment  of a zoning ordinance or local law” if it prohibits or restricts land uses that would have been allowed under pre-existing law.  And any municipality-wide ban or moratorium would necessarily apply to real property within five hundred feet of the municipal boundary. 

The significance of a GML referral referral is two-fold.  First, it provides neighboring jurisdictions and the county with the opportunity to provide inputs into planning and zoning decisions which have inter-community and/or county-wide implications.  And, second, if the county planning department recommends disapproval of the action, the originating municipality must either abandon the proposal or approve it by a “super-majority” vote (5 votes of a 7-person council or board; 4 votes of a 5-person board).  Thus, it provides some protection against the ability of local governments to unilaterally enact land-use or zoning legislation without taking into account potential negative impacts on residents of nearby jurisdictions.

  • GML referral would seem to be clearly necessary where a gas drilling ban was enacted pursuant to a municipality’s zoning authority.  This procedure was followed, for example, by the towns of Dryden and Middlefield prior to enactment of their gas drilling bans.
  • It would also be necessary where a “land-use moratorium” was used to temporarily ban gas drilling—and most moratoria are land-use moratoria.
  • The situation is more cloudy where a municipality uses its “general police power,” rather than its zoning authority, to restrict gas drilling.  Two scenarios are possible here:

One would be the invocation of a locality’s general police power or “home rule” authority to establish a gas drilling moratorium.  Because such an action has the intent and effect of regulating land-use, it would be logical to suppose that the GML referral requirement applicable to land use and zoning actions would still apply.  In addition, Municipal Home Rule Law [MHRL] §§10[1][i] and [ii] prohibit any new local law from being inconsistent with any “general” state law.  The General Municipal Law is a general state law.

The other scenario would be invocation of a local government’s general police power to impose restrictions—not amounting to zoning or land-use controls—on gas drilling.  Such restrictions could theoretically take the form of environmental or public health protection measures, permit requirements and/or fees, road use limitations, and the like.  In certain circumstances, such restrictions might be valid and might not need to comply with GML referral requirements—if the restrictions are not in the nature of land-use controls and not otherwise inconsistent with any general law.  Intermediate-level appellate courts have upheld  the validity of such restrictions in several cases where state law confers specific authority on a locality to regulate an activity to protect health and safety.¹   Examples are garbage collection, solid waste management, and the siting and placement of medical waste incinerators.  (Villages also have special authority to supersede or amend the State Village Law.) 

However, where a locality seeks to directly limit or restrict oil and gas drilling activities or operations, or intrudes into an area where the State (NYS Department of Environmental Conservation or NYS Department of Health) has primacy (e.g., environmental permitting or regulation of gas drilling operations), the municipality must generally yield to the State’s preemptive authority.

This is particularly clear in relation to the Oil, Gas & Solution Mining law which, as previously noted, “supersedes all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries….”  Excluded from this preemption provision is a locality’s “jurisdiction over local roads or the rights of local governments under the real property law ….”  So, local police power restrictions on use of local roads by vehicles supporting gas drilling activities would be permissible (provided they did not interfere with the free flow of interstate commerce).  But, direct regulation of gas drilling activities and operations would not be permissible.

2.   At what point do local restrictions on oil and gas drilling, even under  the zoning power, relate too   directly to the regulation of the oil and  gas industry?

  • Most likely to pass muster:
    • Where done as part of a broad-ranging comprehensive plan update
    • Where oil and gas drilling is only incidentally addressed as part of general restrictions on heavy industrial land uses
    • Where oil and gas drilling is limited or prohibited in parts of the municipality, but not in others
  • Least likely to pass muster:
    • Where local legislation is targeted solely and specifically at the oil and gas industry
    • Where local legislation invades areas of regulation where the state has traditionally played a lead role (e.g., environmental protection, well-spacing, issuance of drilling permits)
    • Where local legislation operates to frustrate state-issued drilling permits
    • Where local law is changed without adhering to the procedures and other formalities employed to establish the existing local law
    • Where GML referral requirements have not been met

3.   Under what circumstances does a municipality’s prohibition or  restriction of gas drilling on private property amount to an  unconstitutional taking of private property for public use without just  compenation?

  • The case for a compensable “taking” (or regulatory taking) would be strongest where NYSDEC issued a gas drilling permit, yet the local government denied the property owner (or a drilling company with whom the landowner had entered into a drilling lease) the right to drill (or to enter into a drilling lease).
    • In the Dryden case, the Supreme Court Judge invalidated a provision of the Town’s gas drilling ban which purported to invalidate any State-issued drilling permit within the Town, on the basis that the municipality “has no authority to invalidate a permit lawfully issued by any State agency—including DEC ….”  The Court also noted that attempting to invalidate a State gas-drilling permit would run afoul of the OGSML’s preemption provision because it would relate directly to the regulation of the oil and gas industry.
    • Under the rationale of Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978), the existence of a State gas-drilling permit would also support the landowner’s “reasonable investment-backed expectation” of being able to exploit the subsurface mineral rights beneath his land.   See also, Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470 (1987).
  • In New York, where the mineral “estate” is considered to be a legally separate interest in land, the best case for a compensable taking would appear to be a situation where subsurface rights had been separately conveyed (i.e., “severed”) and all or substantially all of the value of those subsurface rights had been impaired by the ban or restrictions imposed by the municipality.  (Even in the case of a temporary gas-drilling moratorium, a case could be made for a compensable temporary taking for the period of time the owner of the subsurface rights had been deprived of the use and value of those rights. See Tahoe-Sierra Pres. Council v. Tahoe Reg'l Planning Agency, 535 U.S. 302 [2002].)
  • A 1976 New York State Court of Appeals case, Fred F. French Investing Co. v. New York, is instructive.  It involved “floating [transferable] development rights [there, the right to build private parks],” with “the development rights [being] an essential component of the value of the underlying property because they constitute some of the economic uses to which the property may be put.”  Although these rights “were not nullified by the city,” in rezoning the land for use exclusively as parks open to the public the city’s action “fail[ed] to assure preservation of the very real economic value of the development rights as they existed when still attached to the underlying  property ….”   The Court characterized this deprivation as “an extreme example.”  Where a municipality “nullifies” the right of landowners to lease or drill their land for natural gas development (or various support activities), this deprivation has “very real economic value” no less than the development rights at issue in Fred F. French.  In both cases, “unfair or disproportionate burdens may not, constitutionally, be placed on single properties or their owners.”
  • Under Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992), and Keystone Bituminous (1987), supra, a prohibition on the use of property for purposes that are declared by valid legislation to be injurious to the health, morals or safety of the community cannot be deemed a taking or appropriation of property with a burden on the state to compensate.  On the other hand, land use regulation can effect a taking if it does not substantially advance legitimate state interests.  See Keystone Bituminous, supra.

4.   What are the limits on New York State’s ability to continue to put off making a decision on authorizing High Volume Horizontal Fracturing (HVHF) based on the assessment of environmental and public health impacts?

  • The State Environmental Quality Review Act (SEQRA), Section 8-107, requires all agencies to carry out the terms of SEQRA “with minimum procedural and administrative delay” and to “expedite all proceedings hereunder in the interests of prompt review.”  See also 6 N.Y.C.R.R. §§617.3(h); and 617.9(a)(7)(i). 

New York’s Supplemental Generic Environmental Impact Statement (SGEIS) has yet to be finalized after four-and-a-half years. 

Appellate Division courts have held that “a lead agency does not have unbridled discretion to delay making a determination as to whether or not to accept a DEIS [Draft Environmental Impact Statement] prepared by an applicant” (East Clinton Developers, Inc. v. Clinton, 4th Dept. 1982) and where an EIS has been annulled by a reviewing court, the lead agency may require a supplemental EIS limited to the specific significant adverse environmental impacts not adequately addressed in the EIS, rather than commencing a new environmental review which “would be contrary to the legislative mandate that lead agencies implement SEQRA ‘with minimum procedural and administrative delay,’ and that they ‘expedite all proceedings… in the interests of prompt review’ (Mobil Oil Corp. v. City of Syracuse Indus. Dev. Agency, 4th Dept., 1996).  See also, Matter of Cosco Wholesale Corp. v. Town Bd. of the Town of Oyster Bay, 2d Dept., 2011) and Fortress Bible Church v. Feiner, 2d Cir., Sep. 24, 2012) (Court declined to insulate the town from liability for acting in bad faith on zoning issues simply because it acted “under the rubric of an environmental quality review process,” where it “disingenuously misused the SEQRA process to block the… project”).

  • DEC’s decision to prepare an SGEIS [Supplemental Generic Environmental Impact Statement], and its subsequent decision to rely on a Department of Health analysis of potential adverse public health impacts, are subject to limitations under SEQRA.  A lead agency’s discretion to solicit comments at a late stage of the SEQRA process must be balanced against SEQRA’s mandate to minimize procedural and administrative delay and in the interest of prompt review.  Matter of Riverkeeper, Inc. v. Planning Bd. of Town of Southeast, 9 N.Y.3d 219 (2007).  And “… A lead agency improperly defers its duties when it abdicates its SEQRA responsibilities to another agency or insulates itself from environmental decisionmaking….  While a lead agency is encouraged to consider the opinions of experts and other agencies, it must exercise its own judgment in determining whether a particular circumstance adversely impacts the environment.”  Id.  And, “[t]hough the SEQRA process and individual agency permitting processes are intertwined, they are two distinct avenues of environmental review.”  Id.
  • Under the Lake Tahoe case (535 U.S. 302 [2002]), any moratorium that lasts for more than one year should be viewed with special skepticism.  The State’s 4-1/2-year delay in completing the EIS process and beginning to issue drilling permits could be viewed as a de facto moratorium.  “[I]mplementing [this] moratorium and continuing to prevent [landowners] from using their properties” could be viewed as depriving New York landowners in the Marcellus Shale region of all economically beneficial use of their land pursuant to Lucas.

 Gas drilling in New York has stimulated much litigation, but much litigation no doubt remains before the last word is said.  When all the dust settles, it will be interesting to see whether there are any drilling companies left who are willing to invest in New York.

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¹ Town of Islip v. Zalak, 566 N.Y.S.2d 306 (2nd Dept., 1991) (garbage collection); Pete Drown, Inc. v. Town Board of Ellenburg, 591 N.Y.S.2d 584 (3rd Dept., 1992) (medical waste incinerators).

 Article written by Kenneth S. Kamlet, Esq. For more information, contact Mr. Kamlet at (607) 231-6914 or via email at kkamlet@hhk.com .

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