Posted by: Patricia Salkin | October 4, 2018

MN Appeals Court Holds County’s Zoning Ordinance Amendment Did Not Violate the Dormant Commerce Clause Nor was it a Taking

This post was authored by Matthew Loeser, Esq.

Richard Frick, president of appellant Minnesota Sands, LLC, entered into several leases with various landowners in Winona County to use the properties to mine silica sand to be processed and used in hydraulic fracturing for oil and natural gas. Frick then assigned the leases to Minnesota Sands. This type of industrial mining, fracking, was a conditional use requiring a conditional use permit (“CUP”) prior to excavation. In 2011, respondent Winona County received three applications for CUPs to engage in industrial mining for silica sand; however, none of the applications were for the parcels leased by Minnesota Sands. In 2012, the county denied the pending applications and enacted a three-month moratorium to allow its board of commissioners to study the issue more closely. After the moratorium expired, a company that is not a party in this litigation, Nisbit operation, submitted a second CUP application to engage in silica-sand mining, which the county granted. In 2016, the county board formally adopted an amendment to the zoning ordinance. The amendment prohibited all industrial mineral operations within the county and permitted construction mineral operations, which remained a conditional use.

In 2017, Southeast Minnesota Property Owners (“SMPO”) sued the county, alleging that the ordinance was arbitrary and capricious; violated the Due Process, Equal Protection, and Takings Clauses of the Minnesota and United States Constitutions; and violated the Interstate Commerce Clause of the United States Constitution. Later in 2017, Minnesota Sands sued and alleged the same. The district court granted the county’s summary judgment motion, and affirmed the validity of the ordinance. Minnesota Sands appealed.

On appeal, Minnesota Sands contended that the ordinance was a per se violation of the dormant Commerce Clause because it was facially discriminatory against out-of-state interests and was a ban on the exportation of industrial minerals mined in the county. The court rejected this contention, finding no reason to believe that the ordinance benefited instate interests and burdened those out-of-state. Here, the across-the-board application of the ordinance was equally detrimental to both in-state interests, such as those of Minnesota Sands, as well as out-of-state interests. Minnesota Sands also alleged that the ordinance was facially discriminatory because it singles out the end-use of the industrial minerals; specifically, silica sand to be processed and used in fracking. The court found that the ordinance outlawed all silica-sand mining—not just silica sand to be processed and used in fracking. Thus, the ordinance did not discriminate on its face.

Minnesota Sands next claimed that the ordinance violated the dormant Commerce Clause because the county permitted the Nisbit operation to mine silica sand that was sold for various purposes, including animal bedding. However, the record reflected that the previous zoning ordinance did not distinguish between silica sand and other types of sand as the amendment at issue did. The court noted that one limitation imposed on the right of a governmental body to enact zoning restrictions is that “such restrictions are subject to the preexisting uses already established within the zoning district.” Accordingly the court found the amendment was even-handed in its application, burdened both in-state and out-of-state interests, and did not violate the dormant Commerce Clause.

Minnesota Sands lastly contended that it was entitled to compensation because the zoning ordinance amendment was a regulatory taking of its property. Here, of the six leases that Minnesota Sands entered into, four were specifically conditioned upon Minnesota Sands obtaining any required zoning or governmental approvals on or before the commencement date of each agreement, in November 2011. However, since Minnesota Sands never applied for a CUP prior to the county’s amendment of the zoning ordinance, the court found Minnesota Sands failed to fulfill a condition precedent before its leasehold interest accrued. As such, Minnesota Sands had no compensable property interest, and its regulatory takings claim therefore failed.

Minnesota Sand, LLC v County of Winona, 917 N.W. 2d 775 (MN App. 7/30/2018)

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