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A Policy Analysis of Local New York Laws Banning Oil and Gas Exploration

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March 1, 2012

by Robert Alt

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Enhancements in gas well technology have made it more practical to extract some of the estimated 489 trillion cubic feet of natural gas in the Marcellus Shale (enough to meet New York State’s natural gas needs for more than 440 years) and have sparked public interest and concern about high-volume hydraulic fracturing, commonly referred to as “fracking.” In response, and in compliance with the State Environmental Quality Review Act (SEQRA), the New York State Department of Environmental Conservation (DEC) conducted a Supplemental Generic Environmental Impact Statement (SGEIS), which provided a comprehensive review of the potential environmental impacts of hydraulic fracturing.

The DEC conducted an extensive study, analyzing the experience of other jurisdictions, and assessing the risks and benefits of high-volume fracturing. The resulting SGEIS establishes guidelines that the Department intends to apply in conjunction with existing regulations in reviewing and processing permit applications.

Notwithstanding the DEC’s effort to study high-volume hydraulic fracturing, and to establish uniform regulations regarding its use and licensing in the state, a number of local municipalities have enacted prohibitions on gas drilling and related activity within their borders.

Local municipalities that adopt prohibitions on natural gas drilling face substantial risks, including costly and protracted litigation. While the towns of Dryden and Middlefield recently achieved success in the early phases of litigation, these court rulings should not embolden other local governments to follow their lead in banning drilling. The decisions in those lower court cases failed to adequately address the broader preemption language in New York’s Oil, Gas and Solution Mining Law (OGSML) (ECL 23-0303(2)), and the decisions are therefore vulnerable on appeal. The cases inevitably will continue at great cost to local governments, and other municipalities that implement similar regulatory measures are likely to be subject to similar litigation.

In addition to the litigation costs, the decisions of these governments to prohibit drilling activities put these towns at a strategic disadvantage to other New York municipalities, and put New York State at a competitive disadvantage to other states on the Marcellus Shale. Indeed, the erosion and uncertainty of property rights is likely to prompt developers seeking to recover the natural resources of the Marcellus Shale to take operations to neighboring jurisdictions, like Ohio and Pennsylvania, where they are not likely to see investments made all-but-worthless by local fiat. While activists promoting local regulations may be immune to the costs of the decision to ban drilling, which necessarily include litigation expense, lost jobs, and lost tax revenues, the local residents are not.

New York Law Strongly Suggests That Regulating Hydraulic Fracturing is a State Issue

New York’s Oil, Gas and Solution Mining Law expressly sets forth the legislature’s policy purpose regarding oil and gas development in the state:

It is hereby declared to be in the public interest to regulate the development, production and utilization of natural resources of oil and gas in this state in such a manner as will prevent waste; to authorize and to provide for the operation and development of oil and gas properties in such a manner that a greater ultimate recovery of oil and gas may be had, and that the correlative rights of all owners and the rights of all persons including landowners and the general public may be fully protected.…

ECL § 23-0301. To promote these policies, the legislature vested in the Department of Environmental Conservation (DEC) the authority to regulate the extraction of oil and natural gas. To prevent a patchwork of state and local regulations from impeding the policy goals, the legislature included a supersedure or preemption provision, which states:

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.

ECL § 23-0303(2). In 2011, several local jurisdictions in New York, including Dryden and Middlefield, sought to regulate the practice by enacting laws or ordinances prohibiting drilling for oil or natural gas within their towns. Prior to the passage of these ordinances, developers had made substantial investments in leases and pre-drilling activities in the towns. See, e.g., Anschutz Exploration Corp. v. Town of Dryden, No. 2011-0902, slip op. at 3 (N.Y. Sup. Ct. (Tompkins) Feb. 21, 2012) (“Dryden”) (noting the $5.1 million investment made by plaintiffs before the town passed a regulation prohibiting drilling); Cooperstown Holstein Corp. v. Town of Middlefield, No. 2011-0930, slip op. at 2 (N.Y. Sup. Ct. (Otsego) Feb. 24, 2012) (“Middlefield”) (detailing two oil and gas leases executed by plaintiff prior the passage of the drilling ban).

Given that the drilling bans significantly devalued prior investments and made future development impossible, litigation followed. In defense of their policies, the municipalities relied upon the New York Court of Appeals decision in Matter of Frew Run Gravel Prods. v. Town of Carroll, 71 N.Y.2d 126 (1987) (“Frew Run”) to support the proposition that zoning ordinances are not “local laws or ordinances relating to the regulation of the oil, gas and solution mining industries” and therefore not subject the preemptive effect of ECL § 23-0303(2). The lower courts which heard the challenges arising in Dryden and Middlefield agreed with the municipalities, finding Frew Run controlling.

In Frew Run, the Court of Appeals reviewed whether provisions of a town zoning ordinance establishing a zoning district where sand and gravel operation is not a permitted use is preempted by the New York State Mined Land Reclamation Law (MLRL). At the time of the litigation, the MLRL’s supersedure clause stated:

For the purposes stated herein, this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from enacting local zoning ordinances or other local laws which impose stricter mined land reclamation standards or requirements than those found herein.

ECL § 23-2703(2). As this was a case of express preemption, the court acknowledged that “the appeal turns on the proper construction of this statutory provision.” Frew Run, 71 N.Y.2d at 131. The court concluded that the general zoning ordinance in question does not relate to the extractive mining industry but relates instead to an entirely different subject matter and purpose. The court highlighted that the “purpose” of the zoning ordinance is to divide a government area into districts and “to regulate land use generally.” Id. (emphasis added). The court emphasized that in the context of this general regulation of land use, there may be “incidental” control of mining consistent with the MLRL supersedure clause. Id. Finally, the court noted that “the sole purpose of the supersession provision is to prevent local governments from enacting laws which conflict with or frustrate one or both of the statute’s purposes.” Id. at 133 (internal citation omitted). The court accordingly found that the MLRL did not supersede the general zoning ordinance.

Even though the decision in Frew Run addressed the supersedure clause in the MLRL and not the OGSML, both the Dryden and Middlefield courts relied upon the purported similarity between the two clauses. 1 The Dryden court found “[t]he primary language of the two supersedure clauses is nearly identical[,] and concluded “[i]nasmuch as both statutes preempt only local regulations ’relating’ to the applicable industry, they must be afforded the same plain meaning—that they do not expressly preempt local regulation of land use, but only regulations dealing with operations.” Dryden, slip op. at 13 (citing Frew Run, 72 N.Y.2d at 133).

All-but-absent from this analysis is any review of the dissimilarities between the supersession clauses of the MLRL and the OGSML. Notably, while the MLRL expressly contemplates and exempts certain zoning ordinances and local laws from the preemptive effect of the statute, the OGSML speaks in far broader terms, exempting only local jurisdiction over roads and real property taxes—the latter of which is now governed exclusively by another state statute, the Real Property Tax Law (N.Y. RPT. Law § 594)—from the preemptive effect of the statute.

The Dryden court dismissed this difference with a footnote, arguing that the fact that “the two supersedure provisions contain different exceptions to preemption is not a basis for ascribing different meanings to the nearly identical language of their respective primary clauses.” Dryden, slip op. at 16 n.11. This is contrary to well-established rules of statutory construction. Indeed, the Court of Appeals has repeatedly said that “[a] court must consider a statute as a whole, reading and construing all parts of an act together to determine legislative intent.…” Friedman v. Connecticut Gen. Life Ins. Co., 9 N.Y.3d 105, 115 (2007) (citing McKinney’s Cons. Laws of N.Y. § 97); see also People v. Mobil Oil Corp., 48 N.Y.2d 192, 199, 422 N.Y.S.2d 33, 397 N.E.2d 724 (1979) (“It is a well-settled principle of statutory construction that a statute or ordinance must be construed as a whole and that its various sections must be considered together and with reference to each other.”). It is therefore necessary to read the primary clauses with the exceptions to determine the scope of preemption.

In analyzing the primary language in conjunction the exceptions enumerated by the legislature, standard rules of statutory construction should guide the inquiry. When interpreting exemptions in statutes, the Court of Appeals has relied upon the canon of expressio unius est exclusio alterius to infer that “the expression of [ ] exemptions in the statute indicates an exclusion of others.” Morales v. County of Nassau, 94 N.Y.2d 218, 224 (1999); see also McKinney’s Statutes § 240 (“[W]here a law expressly describes a particular act, thing or person to which it shall apply, an irrefutable inference must be drawn that what is omitted or not included was intended to be omitted or excluded.”) The OGSML, unlike the MLRL, does not include exceptions for zoning or local ordinances, and therefore given the other enumerated exceptions, “an irrefutable inference must be drawn” that zoning and other local laws were not intended to be excluded from the scope of preemption—that is, the legislature intended all local laws, including zoning and land use laws that are even “relat[ed] to” regulating oil and gas mining to be preempted.

Unlike the Dryden and Middlefield courts’ interpretation of the OGSML, this reading avoids making the exceptions in the statute surplusage. See Matter of Kamhi v. Planning Bd. of Town of Yorktown, 59 N.Y.2d 385 (1983) (“Our task in interpreting the statute is to give effect to the intent of the Legislature, construing words by giving them their natural and ordinary meaning and construing the various parts of the statute in a manner seeking to harmonize the whole and avoid rendering any part surplusage.”) The legislature clarified that the OGSML 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.” If the term “relating to the regulation” of gas mining were given the narrow reading the Dryden decision gives the term, then there would have been no reason to specify that local jurisdiction for roads is excepted. Such regulations would presumably be construed as land use regulations with “incidental” effects on mining operations, and not be construed as operational regulations. As such, there would have been no reason to list jurisdiction for roads in the list of exceptions. The fact that the legislature did include jurisdiction over roads makes clear that the preemptive effect of OGSML is broad, and includes traditional local zoning and land use regulations if not expressly excepted.

Furthermore, the SGEIS strongly suggests that the DEC understands its authority to issue drilling permits to supersede local regulations. The SGEIS states in relevant part:

[I]n cases where an applicant indicates that all or part of their proposed project is inconsistent with local land use laws, regulations, plans or policies, or where the potentially impacted local government advises the Department that it believes the application is inconsistent with such laws, regulations, plans or policies, the Department would, at the time of permit application, request additional information so that it can consider whether significant adverse environmental impacts would result from the proposed project that have not been addressed in the SGEIS and whether additional mitigation or other action should be taken in light of such significant adverse impacts.

SGEIS at 8-4 – 8-5. If the DEC believed that local governments had the authority to regulate drilling through local zoning or other regulations, then there would be no need for this provision. Indeed, the DEC’s provisions for requesting additional information would be a colossal waste of time and effort. Instead, the provision suggests that the DEC will take additional precautions in circumstances where there is a conflicting local regulation to assure that environmental concerns are addressed, but to allow drilling operations to commence where it makes that considered judgment. This is consistent with the statutory scheme, which gives the DEC the authority to implement uniform environmental regulations.

Both the Dryden and Middlefield courts also cite to Matter of Gernatt Asphalt Prods. v. Town of Sardinia, 87 N.Y.2d 668 (1996) (“Gernatt”) for the proposition that a municipality may completely ban an activity in furtherance of its land use authority. See Dryden, slip op. at 20-21; and Middlefield, slip op. at 9 n.2 (citing Gernatt, 87 N.Y.2d at 683). But both the Dryden and Middlefield courts fail to recognize that the court in Gernatt was analyzing an amended version of the MLRL, which has a supersedure clause that permits even more local control than the version of the MLRL reviewed in Frew Run. The amended MLRL provides in relevant part:

For the purposes stated herein, this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from … enacting or enforcing local zoning ordinances or laws which determine permissible uses in zoning districts.

ECL § 23-2703(2)(b) (emphasis added). Given the broad local zoning discretion in the amended MLRL, it is not surprising that the court found that “in amending ECL 23-2703 in 1991, the Legislature expressly excluded [the authority to regulate permissible land uses within a municipality] from its preemptive reach. Thus we conclude that the MLRL does not preempt the Town’s authority” to enact zoning ordinances disallowing mining within its borders. Gernatt, 87 N.Y.2d at 683. While the court addressed Frew Run in dicta, its decision was predicated on the language of the MLRL, as amended. Reliance on this decision to justify a ban under the far broader preemption language of the OGSML, which does not provide either a narrow exception for local zoning like the old MLRL, or a broad exception like the amended MLRL, is therefore misplaced.

It is also worth noting that the regulations enacted by localities banning gas drilling at issue here are far less general and the regulatory effects far more targeted than the zoning regulation approved in Frew Run. There, petitioner brought an action based upon an existing zoning regulation that prohibited a land use in a particular zone of the town. The court relied upon the fact that the land use regulations were general and the control of mining was “incidental.” Here, however, the towns are enacting legislation based upon concerns about hydraulic fracturing and specifically seeking to regulate that practice. These are not zoning regulations aimed at controlling land use which may have an incidental effect on gas drilling—these are regulations that were implemented with the purpose of regulating hydraulic fracturing, which amount to local officials second-guessing the state agencies regarding the regulation of hydraulic fracturing.

While there are environmental and safety concerns with any drilling or mining activity, the regulation of these issues is reserved to the DEC. To this end, the DEC made detailed findings concerning areas that should be off-limits to surface drilling for natural gas using high-volume hydraulic fracturing in order to protect watersheds, primary aquifers, and wells.

The minutes of the town council meetings make clear that the towns were seeking to regulate hydraulic fracturing based upon concerns about environmental impact and chemicals used in the process. See, e.g., Minutes of the Town of Dryden Planning Bd., June 16, 2011, available online at < http://dryden.ny.us/Board_Meeting_Minutes/PB/2011/PB2011-06-16.pdf > (discussing the use of regulations to protect the environment, scientific studies conducted by Middlefield regarding hydraulic fracturing, and concerns about chemicals used). The regulations in question raise serious concerns about whether municipalities may use zoning laws in a functionally pretextual way to regulate the practice of hydraulic fracturing. While the OGSML’s broader supersedure provision distinguishes the holding in Frew Run, that case does not support the conclusion that pretextual, non-general, and non-incidental regulations are permitted where they seek to address environmental concerns expressly delegated to the DEC.

Why Selective Citation to and Erroneous Reliance Upon Other States’ Laws May Put New York at a Competitive Disadvantage

The Dryden decision also looks at the law of other states—predominantly Pennsylvania and Colorado—that have addressed the similar question of whether state statutes governing oil and gas production preempted local regulation. While conceding that the decisions of these states are not binding, the court finds it “instructive” that both courts reach the same conclusion as the Dryden court, namely that the state statutes do not preempt local regulation. But the preemption provisions in the Pennsylvania and Colorado laws are quite different from the law in New York in ways that suggest that New York’s preemption is broader than those states. Furthermore, a review of an Ohio case on the question (which is relegated to a footnote in the Dryden decision) demonstrates that Ohio’s law—while still arguably narrower—is closer to New York’s law. It is therefore instructive that the Ohio Supreme Court ruled that the state law does preempt local regulation. Not only does this suggest that the lower court rulings in New York are vulnerable on appeal, it also emphasizes the potential competitive disadvantage to which the Dryden and Middlefield regulatory decisions put New York relative to neighboring Pennsylvania and Ohio, which also sit on the Marcellus Shale.

In Pennsylvania, for example, the Oil and Gas Act expressly authorizes localities to enact zoning ordinances. 58 Pa. Stat. § 601.602. These ordinances are exempted from the preemptive effect of the Oil and Gas Act so long as the zoning laws do not contain “conditions, requirements or limitations on the same features of oil and gas well operations regulated by this act or that accomplish the same purposes as set forth in this act.” Id. In reviewing the Pennsylvania Supreme Court’s decision in Huntley & Huntley, Inc. v. Borough Council of the Borough of Oakmont, 600 Pa. 207, 964 A.2d 855 (2009), the Dryden court concluded that “[t]his language is similar to the supersedure provisions of the OGSML and the MLRL, which both preempt only those local laws which regulate operations.” Dryden, slip op. at 22.

The Pennsylvania Oil and Gas Act language does bear some resemblance to the amended MLRL, which exempts zoning ordinances from supersedure, but, as previously discussed, the OGSML lacks this similarity because it does not exempt local zoning laws. The OGSML covers all local laws and ordinances relating to the regulation of gas mining with the only exceptions being local jurisdiction over roads and real property taxes—the latter of which is now governed exclusively by another state statute, the Real Property Tax Law (N.Y. RPT. Law § 594). If the legislature did not want the OGSML to preempt local zoning laws, they could have written it in a way to do so. Far from supporting the court’s conclusion in Dryden, Pennsylvania’s Oil and Gas Act and the amended MLRL both show that when legislatures—including notably the New York legislature—want to preserve local zoning control, they know how to craft supersedure provisions which do so. The supersedure provision in the OGSML is broader than the supersedure provisions in both of those laws, and therefore reliance on those laws for guidance in misplaced.

Furthermore, it is worth noting that Pennsylvania recently amended its Oil and Gas Act. See 2012 Pa. Legis. Serv. Act. 2012-13 (H.B. 1950) (Purdon’s). The new law, which repeals 58 Pa. Stat. § 601.602, includes a broader supersedure provision, and states that “all local ordinances regulating oil and gas operations shall allow for the reasonable development of oil and gas resources.” Id. (to be codified at 58 Pa. Const. Stat. Ann. § 3303). This modification of Pennsylvania law as it existed in Huntley & Huntley makes clear that the policy of Pennsylvania going forward is to forbid localities from prohibiting gas development through zoning or other means. If New York permits localities to prohibit drilling, and makes all-but valueless leases and property rights, development is likely to proceed in the neighboring jurisdiction of Pennsylvania.

The Colorado cases relied upon by the Dryden court provide even less support. See Dryden, slip-op. at 23 (citing Board of County Com’rs, La Plata County v. Bowen/Edwards Associates, Inc., 830 P.2d 1045 (Colo. 1992)). Colorado’s Oil and Gas Conservation Act does not even contain a supersedure clause. The question in the Dryden case is one of statutory interpretation—whether the OGSML’s supersedure clause prohibits the local regulation through express preemption. The Dryden court erred in finding the Colorado cases instructive, because, given the absence of a supersedure clause, the Colorado statute provides no guidance on the question before the New York courts.

By contrast, the decision of the Ohio Supreme Court in Newbury Twp. Bd. of Trustees v. Lomak Petroleum (Ohio), Inc., 62 Ohio St.2d 387, 683 N.E.2d 302 (1992) (“Newbury”) is instructive. In Newbury, the court analyzed whether a zoning ordinance prohibiting oil and gas wells in residential districts was preempted by state law which superseded local regulation of operational aspects of oil and gas drilling, but permitted localities to enforce health and safety standards. See Ohio Rev. Code § 1509.39. Here, the court found that the regulation was not based on legitimate health and safety concerns which would have constituted a basis for legitimate local zoning regulation, but was an attempt to prohibit drilling. The court found that even local courts are well equipped to determine whether regulations are “an attempt to prohibit, in the guise of a health and safety regulation, that which the state encourages.” 62 Ohio St.2d at 391.

Ohio’s supersedure law permits localities more regulatory authority than the broad terms of the OGSML. In this sense, it is more instructive than the now-amended Pennsylvania law which exempted large categories of zoning laws, and the Colorado law which did not have an express preemption provision. Furthermore, the Ohio Supreme Court’s disallowing zoning regulations which were pretextual prohibitions on drilling may prove instructive to assessment of New York laws targeting, rather than merely “incidentally” affecting, hydraulic fracturing.

In addition to demonstrating the Dryden court’s selective use of other state law, the examination of Pennsylvania and Ohio law is instructive because of those states’ proximity to New York and location on the Marcellus Shale. If New York localities continue to pass a patchwork of regulations prohibiting drilling operations, this will increase regulatory uncertainty and likely will drive development to the Ohio and Pennsylvania, which have more uniform application of state laws on the subject.

The impact of such a move for New York could be drastic. In examining the socio-economic effects of permitting gas drilling, the DEC found that under an average scenario, gas development is likely to create 46,808 new jobs in New York. SGEIS 2011, at 17. The DEC also found positive impacts on income levels for employees, totaling $621.9 million to $2.5 billion per year at peak production and construction levels in year 30. Id. But these gains are predicated on operations locating in New York—which becomes far more dubious if companies can see even their existing investments made nugatory by patchwork regulation.

Conclusion

The DEC is the state agency responsible for administration and enforcement of the Environmental Conservation Law, and for the regulation of the extraction of oil and gas. As such, the DEC has performed a comprehensive analysis of hydraulic fracturing, subject to public comment and review.

New York’s OGSML provides for broad preemption of local regulation of oil and gas drilling. Local attempts to use zoning or other land use laws or ordinances are therefore likely to spur continued costly litigation for the municipalities. These local laws or ordinances prohibiting oil and gas exploration create the kind of patchwork regulation that the comprehensive regulatory scheme established by the state through the DEC is designed to avoid.

Given the vast resources available in the Marcellus Shale, and the more uniform application of regulatory law in Ohio and Pennsylvania, the move by some localities to prohibit gas exploration is likely to hurt those towns and New York relative neighboring municipalities and states. New York’s environmental regulatory agency has determined that the job and revenue growth potential for New York from hydraulic fracturing is significant. Conversely, the loss of these jobs and revenue to competing states would be significant.

Robert Alt is a Fellow in Legal and International Affairs at the Ashbrook Center at Ashland University.

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