Posted by: Patricia Salkin | April 7, 2015

OH Supreme Court Holds Home Rule Amendment to the Ohio Constitution Does Not Grant Local Governments the Power to Regulate Oil and Gas Activities and Operations Within Their Borders

Beck Energy Corporation (“Beck Energy”), obtained a state permit through R.C. Chapter 1509 from a division of the Ohio Department of Natural Resources (“ODNR”) for the purpose of drilling an oil and gas well on property within the corporate limits of the city of Munroe Falls, Ohio. Soon after Beck Energy began drilling, the city issued a stop-work order. The Court of Common Pleas granted injunctive relief prohibiting the company from drilling until it complied with all local ordinances. Beck Energy appealed. The Court of Appeals reversed and remanded.

On appeal the Ohio Supreme Court affirmed stating that the Home Rule Amendment to the Ohio Constitution, Article XVIII, Section 3, did not allow a municipality to discriminate against, unfairly impede, or obstruct oil and gas activities and production operations that the state has permitted under R.C. Chapter 1509. The court held the: ordinances violated the Home Rule Amendment; the ordinances were an exercise of police power; statewide oil and gas drilling statute was general law; and the ordinances conflicted with statute.  The Court noted that while under the Home Rule Amendment,  “Municipalities shall have authority to exercise all powers of local self-government and to adopt and enforce within their limits such local police, sanitary and other similar regulations, as are not in conflict with general laws.” This amendment gives municipalities the “broadest possible powers of self-government in connection with all matters which are strictly local and do not impinge upon matters which are of a state-wide nature or interest.” However, it does not allow municipalities to exercise their police powers in a manner that “conflicts with general laws.” Therefore, a municipal ordinance must yield to a state statute if (1) the ordinance is an exercise of the police power, rather than of local self-government, (2) the statute is a general law, and (3) the ordinance is in conflict with the statute.

The city’s ordinances prohibited the act of drilling for oil and gas without a municipal permit. Therefore, the ordinances represent an exercise of police power rather than local self-government.  The Court found that the state law was a general law explaining that a statute qualifies as a general law if it satisfies four conditions: it must (1) be part of a statewide and comprehensive legislative enactment, (2) apply to all parts of the state alike and operate uniformly throughout the state, (3) set forth police, sanitary, or similar regulations, rather than purport only to grant or limit legislative power of a municipal corporation to prescribe those regulations, and (4) prescribe a rule of conduct upon citizens generally. Canton v. State, 95 Ohio St.3d 149, 2002-Ohio-2005, 766 N.E.2d 963, syllabus.

The Court went on to explain that the uniformity requirement comes from Article II, Section 26 of the Ohio Constitution, which states that “all laws, of a general nature, shall have a uniform operation throughout the State.” The purpose of this provision is not “to render invalid every law which does not operate upon all persons, property or political subdivisions within the state,” but simply to ensure that a general law operates uniformly with respect to every person and locality to which it relates. The court has recognized that a general law can operate uniformly throughout the state “even if the result is that the statute does not operate in all geographic areas within the state.”Clermont Environmental Reclamation Co. v. Wiederhold, 2 Ohio St.3d 44, 49, 442 N.E.2d 1278 (1982). Further in Clermont the court concluded that the law operated uniformly throughout the state because its terms applied to all political subdivisions equally and did not create any classifications or exemptions favoring some over others.

Whether or not every acre of Ohio constituted viable drilling land, R.C. 1509.02 imposes the same obligations and grants the same privileges to anyone seeking to engage in oil and gas drilling and production operations within the state. The statute applies to all municipalities in the same fashion, by prohibiting all local governments from interfering in the regulation of any oil and gas activities covered by R.C. Chapter 1509.

Further, a conflict exists if “the ordinance permits or licenses that which the statute forbids and prohibits, and vice versa.” The court stated that the city’s ordinances conflicted with R.C. 1509.02 in two ways. First, they prohibit what R.C. 1509.02 allows: state-licensed oil and gas production within Munroe Falls. Beck Energy’s state permit expressly “granted permission” to “Drill a New Well” for “Oil & Gas” within Munroe Falls. But the city ordinances would render the permit meaningless unless Beck Energy also satisfied the permitting requirements in Chapters 1163 and 1329 of the Munroe Falls Ordinances. Section 1163.02(a) prohibited Beck Energy from building any structure or beginning “any excavation” until it followed all of the procedures necessary to obtain a zoning certificate. Even if Beck Energy were to satisfy the conditions of Chapter 1163, without violating the 67 conditions of its state permit, Beck Energy still could not “drill a well for oil, gas, or other hydrocarbons” until it “wholly complied with all provisions” in Chapter 1329. To comply with these provisions, Beck Energy would need to (1) wait one year after the city council approved the conditional zoning certificate, 1329.03(a), (2) pay a nonrefundable $800 application fee, 1329.04, (3) deposit a $2,000 “performance bond,” 1329.06, and (4) schedule a public meeting at least three weeks prior to drilling, 1329.05(a).

The Court noted that this is a classic licensing conflict under the home-rule precedent, and that the Court has 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.”Ohio Assn. of Private Detective Agencies, Inc. v. N. Olmsted, 65 Ohio St.3d 242, 245, 602 N.E.2d 1147 (1992); Auxter, 173 Ohio St. at 447, 183 N.E.2d 920; Anderson v. Brown, 13 Ohio St.2d 53, 58, 233 N.E.2d 584 (1968); see also Am. Fin. Servs. Assn. v. Cleveland, 112 Ohio St.3d 170, 2006-Ohio-6043, 858 N.E.2d 776.

The city argued that there was no conflict, because the statute and the ordinances “regulate two different things.” It explains: the ordinances address “traditional concerns of zoning,” whereas R.C. 1509.02 relates to “technical safety and correlative rights topics.” The court stated that this distinction is fanciful, and it ignores the plain text of the ordinances, as well as the statute. The ordinances and R.C. 1509.02 unambiguously regulate the same subject matter—oil and gas drilling—and they conflict in doing so. Under the city’s ordinances, a state permit holder cannot begin “any excavation” or “drill a well for oil, gas, or other hydrocarbons” without fully complying with local provisions. And state law prohibits any person—including a municipal permit holder—from drilling for oil or gas “without having a permit to do so issued by the chief of the division oil and gas resources management.” Because Beck Energy obtained a valid state permit in accordance with R.C. Chapter 1509, the city cannot “extinguish privileges arising thereunder through the enforcement of zoning regulations.”Westlake v. Mascot Petroleum Co., Inc., 61 Ohio St.3d 161, 573 N.E.2d 1068 (1991).

The Court noted that the City’s ordinances create a second type of conflict with R.C. 1509.02. “In determining whether a conflict does exist, a court refers to the language of the statute to determine whether the General Assembly intended to preempt local regulation on the subject.”  R.C. 1509.02 not only gives ODNR “sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations” within Ohio; it explicitly reserves for the state, to the exclusion of local governments, the right to regulate “all aspects” of the location, drilling, and operation of oil and gas wells, including “permitting relating to those activities.” While R.C. 1509.02 preserves the extensive regulatory control given to municipalities over a wide range of infrastructure—from alleys to aqueducts, it explicitly prohibits them from exercising those powers in a way that “discriminates against, unfairly impedes, or obstructs” the activities and operations covered. In Clermont, 2 Ohio St.3d 44, 442 N.E.2d 1278, the court rejected a home rule challenge involving a similar provision, which prohibited any political subdivision from requiring additional zoning or other approval for the construction and operation of a state-licensed hazardous-waste facility. Here, this language was sufficient to supersede “any conflicting municipal ordinance.”

The court’s recent decision in Cleveland v. State, 138 Ohio St.3d 232, 2014-Ohio-86, 5 N.E.3d 644, they applied the general-law prong to R.C. 4921.25, the statute granting state regulatory authority over towing companies. Applying the four-part general-law analysis the court struck down a part of the statute that exempted towing entities from municipal licensing and registration ordinances. They reasoned that the exemption did not prescribe police, sanitary, or similar regulations, but instead purported only to limit legislative power of a municipal corporation to prescribe police, sanitary, or similar regulations.

State ex rel. Morrison v. Beck Energy Corp., 2015 WL 687475 (OH 2/17/2015)

The opinion can be accessed at: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2015/2015-Ohio-485.pdf


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