Ohio Supreme Court Invalidates Local Oil and Gas Regulation

February 26, 2015

Good news for the oil and gas industry in Ohio came last week in the form of a Supreme Court decision invalidating local ordinances that sought to regulate oil and gas production activities, weighing in on what has recently become one of the most contentious issues in the Appalachian Basin. Specifically, the Court held that the Home Rule Amendment to Ohio’s Constitution does not grant municipalities the power to enact their own oil and gas permitting schemes, as the state government holds “sole and exclusive” authority over the regulation of oil and natural gas. However, the Court’s 4-3 ruling was narrowly confined to the ordinances in question, leaving open the possibility of permissible local regulation through zoning.

Bittersweet for the industry in Ohio:

The Supreme Court invalidated five local permitting ordinances
that conflicted with R.C. 1509.02, but left the door open for
potentially valid local regulation in the zoning context.

In State ex rel. Morrison v. Beck Energy Corp., No. 2013–0465, 2015-Ohio-485 (Feb. 17, 2015), the city of Monroe Falls (a suburb of Akron) alleged violations of multiple local ordinances purporting to regulate oil and gas development within its borders, seeking injunctive relief to prohibit Beck Energy Corp. from continuing operations. Beck had obtained a permit to drill within the city from the Ohio Department of Natural Resources (ODNR) pursuant to Chapter 1509 of the Revised Code. Chapter 1509 is a comprehensive regulatory scheme that entrusts ODNR with “sole and exclusive authority” over oil and gas regulation within the state, and expressly prohibits local governments from impinging on that power. Despite this, the Summit County Court of Common Pleas enjoined Beck from drilling within the city pursuant to its ODNR permit until it complied with all local ordinances. The Court of Appeals for the Ninth District reversed and remanded. See 2013-Ohio-356, 989 N.E.2d 85. The city appealed, and the Ohio Supreme Court accepted jurisdiction.

The city argued on appeal that the drilling ordinances represented a valid exercise of its home rule authority. Although Ohio’s Home Rule Amendment grants municipalities broad power, it prohibits them from exercising their police powers in a manner that “conflict[s] with general laws.” Under a three-step analysis, Justice French (writing for the majority) held that: (1) the ordinances undisputedly constituted an impermissible exercise of the city’s police power; (2) R.C. 1509.02, which delineates the respective roles of state and local governments in the regulation of oil and natural gas, is a “general law” as it uniformly applies to all parts of the state; and (3) the ordinances conflicted with R.C. 1509.02, which was intended to preempt the field of oil and gas regulation in Ohio, because they restricted what the statute allows (i.e., state-licensed natural gas production within the city). While the Court acknowledged that the case presented an interesting policy question, the decision noted that it was one best decided by the General Assembly.

However, Justice French declined to address whether other ordinances could coexist with R.C. 1509.02, and the Court’s actual holding (given that Justice O’ Donnell’s opinion concurring in the judgment was the deciding vote) is narrowly limited to the five ordinances at issue in the case. As expressly highlighted in the concurrence and three dissenting opinions, zoning remains an area open for valid local oil and gas regulation in Ohio. This could prompt municipalities to promulgate zoning ordinances regulating oil and gas drilling within their jurisdiction, which will likely lead to future legal skirmishes.

The Ohio Court’s ruling goes against a recent decision from New York’s highest Court, which generally upheld local bans. See Wallach v. Town of Dryden, 16 N.E.3d 1188 (N.Y. 2014). But it falls generally in line with Pennsylvania authority, which has allowed municipal control over the location of oil and gas activities, but which has held that the specifics of oil and gas operations are preempted by the Commonwealth’s Oil and Gas Act. See generally Robinson Twp. v. Comm., 83 A.3d 901 (Pa. 2013); Range Resources–Appalachia, LLC v. Salem Twp., 964 A.2d 869 (Pa. 2009); Huntley & Huntley, Inc. v. Oakmont, 964 A.2d 855 (Pa. 2009). The issue remains pending in other states, including Texas (where there are pending Court challenges to the city of Denton’s recent ban on hydraulic fracturing), Colorado and Oklahoma.