In a landmark, yet divided, ruling in favor of the oil and gas industry, the Ohio Supreme Court said Tuesday that state municipalities may not use their "home rule" powers to interfere with drilling because its regulation is the dominion of state government.
In a 4-3 decision, the high court upheld an appellate court ruling from 2013 that struck down ordinances enacted by the City of Munroe Falls (see Shale Daily, Feb. 8, 2013). The city had filed a stop-work order against Beck Energy Corp. shortly after drilling started in 2011.
"This is a classic licensing conflict under our home-rule precedent," Justice Judith French wrote for the majority. "We have consistently held that a municipal-licensing ordinance conflicts with a state-licensing scheme if the 'local ordinance restricts an activity which a state license permits.'"
In a dissenting opinion, Justice Paul Pfeifer said "it appears that the General Assembly has attempted to bring order to Ohio's historically scattershot way of dealing with oil booms. I would find that RC [Revised Code] 1509.02 leaves room for municipalities to employ zoning regulations that do not conflict with the statute. By leaving some space for local control, the General Assembly has recognized that a 'big picture' approach with local input is the best way to encourage the responsible and sustainable development of Ohio's natural resources."
French added that the city, which is located in Summit County, "presents a variety of policy reasons why local governments and the state should work together, with the state controlling the details of well construction and operations and the municipalities designating what land within their borders is available for those activities.
"This is no doubt an interesting policy question, but it is one for our elected representatives in the General Assembly, not the judiciary," French said. "The issue before us is not whether the law should generally allow municipalities to have concurrent regulatory authority, but whether RC 1509.02 and the Home Rule Amendment do allow for the kind of double licensing at issue here. They do not.
"We make no judgment as to whether other ordinances could coexist with the General Assembly’s comprehensive regulatory scheme. Rather, our holding is limited to the five municipal ordinances at issue in this case."
That concerns Alan Wenger, chairman of the oil and gas law group at Harrington, Hoppe & Mitchell Ltd. In a blog post Tuesday, Wenger said that a close review of the arguments set forth by the four justices who sided with Beck, appears to show that they also favor some degree of local zoning in oil and gas development, citing precedent in Colorado, New York and Pennsylvania.
"Thus, four of the seven justices who heard this case appear to adamantly maintain that state preemption does not apply to local zoning generally, and the whole court seems to agree that the application of ODNR [Ohio Department of Natural Resources] preemption to local zoning in Ohio remains an open question," Wenger said.
"So the preemption battle will rage on. Undoubtedly, Ohio municipalities will be flexing their muscles and push the issue. And the oil and gas industry has little to gloat over."
John Keller, an attorney for Beck, told NGI's Shale Daily that the high court's ruling was not a surprise.
"The Ohio General Assembly enacted a strong and clear law that the oil and gas industry is to [be] regulated by the state agency which possesses the expertise to do a good job," Keller said Tuesday. "Local governments do not have the experience or resources to regulate these activities."
A trial court had ruled in favor of Munroe Falls in May 2011, but the Ninth Appellate District Court ultimately reversed the decision in 2013. The supreme court agreed to hear the case, and opening arguments began in 2014 (see Shale Daily, Dec. 30, 2013; June 24, 2013).