On February 17, 2015, the Ohio Supreme Court announced its ruling in The State Ex Rel. Morrison v. Beck Energy Corporation et al. That closely-watched case addressed whether local ordinances that impact drilling operations are preempted by the Ohio Department of Natural Resources’ (ODNR’s) authority to issue oil and gas drilling permits under R.C. Chapter 1509. In this case, Beck Energy had received a permit from ODNR to drill for oil and gas in the city of Munroe Falls. As Beck Energy began its operations, Munroe Falls successfully sought an injunction from an Ohio state court based on Beck Energy’s non-compliance with several local ordinances, including requirements to obtain a “zoning certificate,” pay a specified fee, and secure a performance bond. The court of appeals reversed the trial court, holding that Ohio’s Home Rule Amendment did not allow the city to impose its own permit requirements on oil and gas drilling operations.
In a clear victory for Beck Energy, a divided Ohio Supreme Court agreed with the appeals court ruling and invalidated all five local ordinances. A close reading of the multiple opinions, however, shows that the court did not categorically preempt all forms of local regulation that impact drilling operations. Rather, it left the door open for further litigation regarding whether “local land use ordinances that address only the traditional concerns of zoning laws, such as ensuring compatibility with local neighborhoods, preserving property values, or effectuating a municipality’s long-term plan for development, by limiting oil and gas wells to certain zoning districts” are enforceable. In other words, the court invalidated what it considered to be a “separate permitting regime” at the local level, but declined to rule on whether more traditional exercises of local zoning that impact drilling operations are enforceable.
While the court ultimately struck down each of the local ordinances by a vote of four to three, the court’s seven justices issued a total of five opinions: a primary opinion, a concurring opinion, and three dissents. The primary opinion, signed by three justices, applied a three-part test for determining whether the city’s ordinances “represent a valid exercise of its home-rule power” or whether they “exercise their police powers in a manner that conflicts with general laws.” The primary opinion concluded:
- the ordinances constituted an exercise of the police power rather than local self-government, because they do not “regulate the form and structure of local government” but instead prohibited “the act of drilling for oil and gas without a municipal permit”;
- R.C. 1509, which gave the ODNR its authority to issue the drilling permits, was a generally applicable law; and
- the ordinances did conflict with the state statute because they “prohibit what [the statute] allows” by creating additional requirements that must be satisfied before a company can commence drilling operations.
As a result, the court invalided each of the ordinances. Notably, however, the primary opinion explicitly limited its “holding … to the five municipal ordinances at issue in this case” and made “no judgment as to whether other ordinances could coexist with the General Assembly’s comprehensive regulatory scheme.”
The concurring opinion, which was signed by two justices (Justice Sharon L. Kennedy signed both the primary and concurring opinions) and was necessary for the judgment to attain a majority, provides additional clarity regarding which types of ordinances are not prohibited by the majority opinion. In relevant part, the concurring opinion states that it agrees “with the determination that this statute preempts local permitting ordinances applicable to the construction and operation of oil and gas wells within the municipality” and must therefore be struck down. The concurring opinion stresses, however, that it is not answering whether “local land use ordinances that address only the traditional concerns of zoning laws” and do not “impos[e] a separate permitting regime applicable only to oil and gas drilling” are untenable or whether the “General Assembly intended to wholly supplant all local zoning ordinances.” Instead, the main purpose of the concurring opinion appears to be to bolster the position that local zoning ordinances should be afforded significant respect and construed, if possible, to be given effect alongside state drilling statutes.
When read together with the three dissents, the concurring opinion provides some insight as to how the court may ultimately decide future drilling-preemption cases concerning legitimate zoning regulation. First, the opinion goes out of its way to state that a municipality’s authority to enact zoning ordinances flows from both the Ohio Constitution and statute and, under the case law, courts are “obliged to accord a strong presumption in favor of the validity of [a zoning] ordinance.” Next, the concurring opinion asserts that while the legislature granted ODNR the “sole and exclusive authority to regulate the location and spacing of oil and gas wells,” the terms “location” and “spacing” have “specialized, technical meanings in oil and gas law” relating to “the placement of wells on a tract in relation to the resource pool and to each other.” It follows, according to the concurring opinion, that it is the state that has the scientific expertise to make judgments related to these safety and efficiency considerations, but “that same scientific and regulatory expertise is not required to determine whether an oil and gas well is compatible with the character and aesthetics of a particular zoning district, such as a residential neighborhood, and we generally presume that zoning authorities are far more familiar with local conditions and therefore are better able to make land use decisions.” This view, to which two justices subscribe in the concurring opinion, lines up with that of the three dissenting justices, who want to “leave room for municipalities to employ zoning regulations that do not conflict with the statute” because “the state and the local authority have differing interests in this important matter.” Lastly, both the concurring opinion and the principal dissent note that New York, Pennsylvania, and Colorado are all home-rule states whose courts have held that certain local zoning ordinances that do not attempt to regulate actual drilling operations can and should survive alongside state drilling statutes as legitimate exercises of local control. From the Ex Rel. Morrison opinions, it appears that five of the seven Ohio Supreme Court justices agree.
Although oil-and-gas drilling in Ohio may be slowing down due to current oil, gas, and natural gas prices, conflicts concerning whether drilling companies must comply with all local ordinances and regulations will certainly continue. The Ohio Supreme Court spoke clearly that local regulations that create additional permitting requirements or “discriminate against, unfairly impede, or obstruct oil and gas activities and production operations that the state has permitted” are preempted and unenforceable. While the justices gave clues regarding how they will likely approach legitimate local zoning regulations that have an incidental impact on drilling operations, their future rulings will necessarily be influenced by the scope of those zoning regulations and whether those regulations attempt to broadly restrict all drilling activity within a municipality. In that respect, Ex Rel. Morrison is just the beginning of the court’s jurisprudence regarding local authority to regulate drilling activities, not the end.