On June 30 2014 the New York Court of Appeals upheld two local zoning ordinances which banned oil and gas production activities within the entirety of both towns.(1) The decision creates yet another road block to natural gas development in New York. Currently, there remains a statewide moratorium on "high-volume hydraulic fracturing combined with horizontal drilling"(2) in New York. Although that moratorium has a broader impact on industry, the court's decision may have a more long-lasting effect on natural gas development within the state. The court found that the state's Oil, Gas and Solution Mining Law does not prevent municipalities from limiting or even banning oil and gas development activities within their jurisdictions.
The decision stems from two lower court cases dealing with local zoning ordinances that banned oil and gas development activities within the entirety of each town.(3)
Norse Energy Corp USA and Cooperstown Holstein Corporation challenged the validity of both ordinances on the grounds that they were pre-empted by the Oil, Gas and Solution Mining Law's supersession clause, which reads:
"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."(4)
Before analysing whether the supersession clause barred the zoning ordinances, the court first determined whether municipalities, in the absence of any pre-empting state law, have the authority to regulate the use of land for oil and gas activities in order to further local interests.(5) Under Article IX - the 'home rule' provision of the New York Constitution - municipalities have the power to adopt and amend local laws that are not inconsistent with the New York Constitution or any general laws.(6) Municipalities also have the authority to enact land-use restrictions and/or controls in order to enhance quality of life by preserving the character and desirable aesthetic features of their communities.(7) The court found, and none of the parties contested, that in the absence of pre-empting state law, municipalities are allowed to regulate oil and gas development activities within their jurisdictions.(8)
While the Oil, Gas and Solution Mining Law clearly prevents municipalities from regulating certain aspects of oil and gas development, the issue before the court was the scope of the law's supersession clause. To resolve that issue - and specifically determine whether the law supersedes the towns' power, through zoning laws, to regulate oil and gas production activities – the court looked at three items:
- the plain language of the supersession clause;
- the statutory scheme as a whole; and
- the relevant legislative history.(9)
The court found that the three items weighed against a finding of supersession.(10)
As to the first item, the court found that the plain meaning of the Oil, Gas and Solution Mining Law prevents municipalities from regulating only the safety, technical and operational aspects of oil and gas activities.(11) According to the court, the supersession clause in the law is "quite close" to the supersession provision of New York's Mined Land Reclamation Law, which the court previously held does not prevent municipalities from regulating where mining operations can be conducted, but only how they can be conducted.(12) The court compared the supersession clause of the Oil, Gas and Solution Mining Law to a number of other statutes which clearly evidence the legislature's intent to supersede home rule zoning powers by expressly including zoning in the statutes' supersession language.(13)
The second item – the statutory scheme – also supported a finding that the Oil, Gas and Solution Mining Law is concerned with regulating only the safety, technical and operational aspects of oil and gas activities, and as such supersedes only local laws directed at the technical operations of oil and gas production activities.(14)
As to the third item – the legislative history of the Oil, Gas and Solution Mining Law's supersession clause – the court found it to be less than informative.(15) The only history about the clause was a single statement that "the existing and amended oil and gas law would supersede all local laws or ordinances regulating the oil, gas, and solution mining industries".(16)
After reviewing all three items, with the first – the plain meaning of the actual text – being primary, the court found that the supersession clause applied only to local laws that affected operational issues of oil and gas development. Therefore, given that the towns' complete bans on oil and gas development activities were merely land use regulations and did not amount to regulating the operational aspects of oil and gas development, the court found that the supersession clause did not prevent the zoning ordinances from being effective.(17)
The court made clear that the only issue before it, and the only issue which it was resolving, was "whether the State Legislature eliminated the home rule capacity of municipalities to pass zoning laws that exclude oil, gas, and hydrofracking activities in order to preserve the existing character of their communities".(18) Importantly, the court noted that "there is no dispute that the State Legislature has the right if it chooses to exercise it" to eliminate municipalities' power to exclude such development.(19) Thus, the court left the door open for future legislative action on this issue at the state level. The court's ruling also may lead to additional litigation as aggrieved mineral estate owners may seek to file regulatory takings claims to address the loss of their ability to develop the oil and gas resources.
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(1) See Cooperstown Holstein Corp v Middlefield and Wallach v Dryden, Nos 130 & 131, at *1-2 (NY June 30 2014), /www.nycourts.gov/ctapps/Decisions/2014/Jun14/130-131opn14-Decision.pdf.
(2) See Executive Order 41 Requiring Further Environmental Review (December 13 2010), www.governor.ny.gov/archive/paterson/executiveorders/EO41.html; Executive Order 2 Review, Continuation and Expiration of Prior Executive Orders (January 1 2011), www.governor.ny.gov/executiveorder/2.
(3) In Dryden, in August 2011, after holding a public hearing and reviewing a number of studies, the town board unanimously voted to amend its zoning ordinance to specify that all oil and gas exploration, extraction and storage activities were prohibited. Norse Energy Corp USA promptly commenced an action to challenge the validity of the zoning amendment. See In the Matter of Wallach v Dryden, 108 A 3d 25 (NY App Div 2013). In Middlefield, after conducting a review of the zoning ordinance, the town board unanimously voted to adopt a zoning ordinance which prohibited a range of heavy industrial uses, including oil, gas and solution mining. A lessor, Cooperstown Holstein Corporation, promptly filed an action challenging the validity of the zoning ordinance. See Cooperstown Holstein Corp v Middlefield, 105 A3d 1170 (NY App Div 2013).
(17) The dissent (Judge Pigott and Smith) took issue with this conclusion. The dissent viewed the complete prohibition of oil and gas development as regulation "under the pretext of zoning". See See Cooperstown Holstein Corp v Middlefield and Wallach v Dryden, Nos 130 & 131, at *1 (NY June 30 2014) (Pigott, J, dissenting). As regulation of the oil and gas industry is exclusively within the purview of the Department of Environmental Conservation, the zoning ordinances overreached and fell foul of the supersession clause. Id at *2-3.