New York’s highest appellate court issued an important decision today related to oil and gas production and the authority of municipalities to ban production in their bounds.  This decision comes while a state-wide moratorium barring fracking in New York continues and has been in place since 2008.

Background

The combined cases involved legal challenges to oil and gas production bans by the Town of Dryden (located within the Marcellus Shale region) and the Town of Middlefield.  The Dryden ordinance prohibited all oil and gas exploration, extraction, and storage activities and purported to invalidate oil and gas permits issued by any state or federal agency.  The Middlefield law was passed after an oil and gas company executed two leases with a local landowner to explore the possibility of natural gas development and prohibits a range of industrial uses, including oil, gas, and solution mining and drilling.

Challengers of these ordinances claimed that they violated state statute, which gave the state authority to regulate oil and gas production, thereby pre-empting inconsistent local rules.  Further, they argue that energy policy requires a  uniform approach and that allowing the state’s 932 towns to create varying regulations would be problematic.

Applicable New York Law

There are two important New York laws at issue in this case.

First, the laws relied upon by the local municipalities passing the laws allow for local regulation.  There is the New York Constitution’s “home rule” provision, which states that “every local government shall have power to adopt and amend local laws not inconsistent with the provisions of the constitution or any general law…except to the extent that the legislature shall restrict the adoption of such a local law.”  Related to this provision is the “Municipal Home Rule Law” passed by the legislature that allows local governments to pass laws for protection and enhancement of their physical and visual environments, and for the protection, order, conduct, safety, health, and welfare of persons or property within their bounds.  Local governments also have the power to pass laws to foster the health, safety, morals or general welfare of the community.

Importantly, however, New York law is clear that a political subdivision of the state may not enact ordinances conflicting with the state Constitution or any general law.  Such local laws would be pre-empted and must yield to a state-wide law.  In order for a local ordinance to be considered “conflicting” such that pre-emption applies, there must be a “clear expression of legislative intent to preempt local control over land use.”

Second, the law relied upon by the challengers of the statute is the “supersession clause” of the state Oil, Gas and Solution Mining Law (“OGSML”), which provides that the OGSML shall supersede “all local laws or ordinances relating to the production of oil, gas and solution mining industries.”  This clause, argue the challengers, is an express intent to prohibit local regulations related to oil and gas production.

Court of Appeals Decision

The Court of Appeals in Albany held in a 5-1 decision that New York cities may block oil and gas production, including fracking, within their borders.  Municipalities may enact such bans through local zoning laws without violating state statute.  [Read full opinion here.]

The court undertook a three-prong analysis to reach this decision, considering (1) plain language of the OGSML statute; (2) statutory scheme as a whole; and (3) relevant legislative history.   With regard to the plain language of the statute, the court took a narrow reading of the statute, finding that its language applied only to “laws that purport to regulate the actual operations of oil and gas activities, not zoning ordinances that restrict or prohibit certain land uses within town boundaries.”  Next, the court found that the purpose of the OGSML is to regulate the safety, technical, and operational aspects of oil and gas production across New York.  Again, the court reasoned that this narrow purpose limits the pre-emption provision to only those activities related to actual operations.  Finally, the court found there to be nothing in the legislative history related to zoning or any evidence to remove local zoning power from municipalities.

The court also addressed the challengers’ alternative argument that even if some ordinances were proper, the broad pre-emptions at issue that completely prohibit production and fracking should be held invalid.  Essentially, the challengers claim that while it may be proper to bar drilling in certain areas–such as a residential neighborhood–a complete bar goes too far and must be seen as a law regulating the oil and gas industry, which is barred by the OGMSL suppression clause.  The court rejected this argument, finding that both towns studied the issue of oil and gas production, found that drilling could adversely impact their communities, and had the authority to issue an outright ban.

Dissent

Justice Pigott issued a dissenting opinion, arguing that because the OGSML prohibits “all” laws “relating to” the regulation of oil, gas and solution mining industries, the local laws violated the statute.  “The zoning ordinances of Dryden and Middlefield do more than just regulate land use, they regulate oil, gas and solution mining industries under the pretext of zoning.”

Why Does This Matter?

The ability of local governmental entities to ban oil and gas production is seen across the United States.  Residents in the City of Denton will be considering a fracking moratorium  on the ballot.  A New Mexico county has recently been sued for banning oil and gas production.  Three Colorado cities recently enacted production bans.  Although this case involves New York law specifically and is not binding on courts outside of the state, it may provide persuasive authority in other similar challenges going on across the country.