Can Local Governments Ban Fracking After New California Fracking Legislation?
Does SB-4 preempt local government laws that ban fracking?
California’s recently enacted law, SB-4, regulates various aspects of hydraulic fracturing (“fracking”) and other well stimulation techniques, largely to provide “transparency and accountability to the public regarding well stimulation treatments, including but not limited to hydraulic fracturing, associated emissions to the environment, and the handling, processing and disposal of well stimulation and related wastes, including from hydraulic fracturing….” Passage of this legislation gives rise to the question of whether it preempts local government zoning amendments that ban fracking within their jurisdictions.
SB-4 does not contain any provision expressly superseding any related laws passed by local governments (a “supersedure” clause). Instead, SB-4 contains a “savings clause” stating “[T]his article does not relieve the [Division of Oil, Gas and Geothermal Resources (“DOGGR”)] or any other agency from complying with any other provision of existing laws, regulations, and orders.” Public Resources Code, § 3061(n). Sen. Bill Monning, co-author of SB-4, has stated that “[T]he savings clause in SB-4 also eliminates the possibility that the DOGGR’s environmental review and mitigation requirements for fracking could be interpreted to preempt the Governor, local governments, or any other agency from requiring additional review or mitigation pursuant to other laws, regulations or orders.” Thus, nothing in SB-4 expressly preempts any local government from regulating fracking in its jurisdiction, while its savings clause appears to allow local governments to impose additional environmental review and mitigation requirements related to fracking. But can local governments go so far as to completely ban fracking within their jurisdictions after the passage of SB-4?
Some local California municipalities have already banned fracking or are considering proposals to do so. For example, on September 10, 2013, the Santa Cruz Board of Supervisors adopted a temporary ban on fracking while it seeks to amend the county general plan to include a permanent ban on fracking. Also in September, 2013, the Marin County Board of Supervisors passed a resolution banning fracking in the county, an entirely symbolic act since there are no known hydrocarbon resources in Marin County. In September, 2013, Los Angeles City Council members proposed a ban on fracking in Los Angeles through a change in the city’s zoning laws.
With respect to non-fracking activities, California courts have held that local bans on private activities were not preempted by state law. In Great Western Shows v. County of Los Angeles, 27 Cal. 4th 853 (2002) the Supreme Court of California upheld a Los Angeles County ordinance prohibiting gun and ammunition sales on County property despite a State law regulating the sale of firearms at gun shows. The State law, however, did not contain an express preemption clause with regard to gun show regulations. Nor did the State law mandate that guns be sold, or that they be sold at gun shows. Thus, the ordinance banning gun shows in the County neither duplicated nor conflicted with the State law. The California Supreme Court articulated a three-part test to determine if local legislation is preempted by State law: a conflict exists if local legislation “duplicates, contradicts, or enters an area fully occupied by general law, either expressly or by legislative implication.” Great Western, supra, citing Sherwin-William Co. v. City of Los Angeles, 4 Cal. 4th 893 (1992).
However, following that same three-part test, at least one California court has found that a local ban of a private activity can be preempted by State law. In Northern Cal. Psychiatric Society v. City of Berkeley, 178 Cal. App. 3d 90 (1986), a local City of Berkeley ordinance banning electroshock therapy was found to conflict with state statutes mandating that patients be given the choice to undergo such therapy, and thus was preempted.
Based on this three-part test and the case law applying it, a number of arguments appear to weigh against California courts finding that SB-4 and related State laws and regulations addressing fracking preempt a local government fracking ban, should a preemption claim be made. First, SB-4 contains no express preemption term that would prohibit a local government from passing a fracking ban. Second, SB-4 contains a savings clause, requiring DOGGR to comply with local government fracking laws and regulations, presumably including an outright ban of fracking. Third, SB-4 serves to regulate well stimulation activities, including fracking, to protect the environment and public health, not to mandate the development of the state’s oil and gas resources. Thus, local governments that implement fracking bans will argue that any local government fracking ban is consistent with, or at least not inconsistent with, the stated purpose of SB-4. In other words, local governments that oppose fracking will argue that SB-4 and related fracking laws and regulations at the State level do not so occupy the field of fracking regulation, either expressly or by legislative implication, that there is no room for local government regulation.
Moreover, as discussed below, litigation of similar preemption issues regarding fracking regulation in other states suggests that the proponents of local government regulation, or even outright prohibition, of fracking may survive preemption challenges in California.
Summary of preemption litigation regarding local fracking bans in other states.
In New York, the Court of Appeals, that state’s highest court, soon will be deciding whether fracking bans imposed by local New York State governments are preempted. See Matter of Norse Energy Corp. USA v. Town of Dryden, 21 N.Y. 3d 863 (N.Y. 2013). Three New York lower courts already have upheld fracking bans instituted by two towns. The lower courts held that state mining and drilling laws did not bar local governments from controlling land use. In Anschutz Exploration Corp. v. Town of Dryden the Court decided that a local municipality may use its power to regulate land use to prohibit exploration for, and production of, oil and natural gas. Anschutz Exploration Corporation (AEC) proposed use of high-volume fracking to obtain natural gas from the Marcellus black shale formation in southern New York. The Town of Dryden, located in the Marcellus shale region, amended its zoning ordinance to ban all activities related to the exploration for, and production or storage of, natural gas and petroleum. AEC owns gas leases covering 22,200 acres, or one-third of the area of the Town of Dryden. AEC obtained those leases prior to passage of the town’s zoning amendment.
AEC argued that Dryden’s zoning amendment was invalid because it was preempted by the “supersedure” clause of New York’s Oil, Gas and Solution Mining Law (“OGSML”) and that it impermissibly conflicted with the substantive provisions of the OGSML that regulate gas production. The OGSML supersedure clause states that the OGSML shall supersede all local law and ordinance 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 (recall that SB-4 contains no such supersedure clause, but to the contrary, has a “savings” clause). The AEC lower court found that the OGSML supersedure clause nonetheless did not preempt the local zoning ordinance banning all fracking activities. In so ruling, the AEC lower court followed New York precedent finding that a similar supersedure clause in New York’s Mined Land Reclamation Law did not preempt local land use ordinances (see In the Matter of Frew Run Gravel Products v. Town of Carroll.) The Frew Run court distinguished ordinances that regulate property uses and ordinances that regulate mining activities, and applied the supersedure clause to preempt only the later. Also, another New York court has held that a total ban on extraction of natural resources by a local government is permissible if the legislature has not expressly restricted municipal authority to regulate land use. See Matter of Gernatt Asphalt Prods. v. Town of Sardinia, 87 NY2d 668 (1996).
The AEC lower court also distinguished a zoning ordinance that directly regulates natural gas activities from those that regulate land use. The AEC court found that the OGSML supersedure clause preempts only local regulations relating to the natural gas industry and its operations, not local regulation of land use, which it found the Dryden zoning law to be. The court also looked to the legislative history of the OGSML supersedure clause and did not find that the legislature intended to preempt local zoning authority.
The AEC lower court dismissed AEC’s second argument that the zoning amendment conflicted with substantive provisions of the OGSML because the OGSML provisions address technical operational concerns to further the stated statutory purpose of avoiding waste, and providing for greater recovery of oil and gas, not land use concerns.
Lastly, the AEC lower court discussed that although this issue (use of local zoning power to regulate location of natural gas drilling operations) is one of first impression in New York, it has been decided in Pennsylvania and Colorado. The Pennsylvania Supreme Court found that zoning laws serve a different purpose than statutes aimed at production of natural resources. See Huntley & Huntley, Inc. v. Borough Council of the Borough of Oakmont, 600 Pa 207 (2009). The Pennsylvania Supreme Court found further that statutes governing natural gas operations do not preempt ordinances governing where natural gas operations may take place. Thus, it refused to preempt local municipality fracking bans. The Colorado Supreme Court also found that the state’s Oil and Gas Conservation Act did not preempt local municipalities from regulating where gas drilling may occur, but went on to find that inasmuch as gas pools do not conform to municipal boundaries, a zoning ordinance banning all drilling within the local government’s borders would be preempted because it conflicted with the state’s interest in fostering efficient development and production of oil and gas reserves. See Bowen/Edwards Assoc., Inc. v Board of County Commissioners of La Plata County, 830 P.2d 1045 (1992).
In a second lower court case in New York addressing a fracking ban imposed by a local municipality, Cooperstown Holstein Corp. v. Town of Middlefield, the New York Supreme Court (lower court) decided the issue of whether the Town of Middlefield’s zoning law pertaining to gas, oil or solution drilling or mining and its ban on oil and gas drilling within Middlefield were preempted by the New York State Environmental Conservation Law (Conservation Law). Cooperstown Holstein Corporation (CHC) held two oil and gas leases on property located in Middlefield which would be frustrated by the oil and gas drilling ban, so it brought an action to have Middlefield’s fracking ban law declared void as having been preempted. CHC argued that the Conservation Law preempts local municipalities from regulating gas, oil and solution drilling or mining. The CHC lower court, however, held that Middlefield’s zoning law banning oil and gas drilling was not preempted by the State’s Conservation Law.
The Conservation Law contains the same supersedure clause as the OGSML. The Cooperstown Holstein Court again looked to the legislative intent and history of the Conservation Law to determine the scope of its intended preemptive effect and concluded that the purpose of the Conservation Law is to promote the growth and development of, and to regulate, oil and natural gas resources in New York. The Court emphasized that promotion of oil and gas resources and the regulation of oil and gas resources were considered separate and distinct activities from the regulation of land uses through zoning laws. The regulation of oil and gas resources dealt with the activities of the industry such as the method and manner of drilling, not the development of the natural resource. The Court did not find any language in the legislative history to support CHC’s claim that the Conservation Law’s supersedure clause impacts or diminishes a local municipality’s constitutional right and statutory authority to regulate land use. The Court reasoned that the legislature’s intent in including the supersedure clause in the Conservation Law was “to insure state wide standards be enacted by the Department of Environmental Conservation as it related to the manner and method to be employed with response to oil, gas and solution drilling or mining, and to insure proper state-wide oversight of uniformity with a view towards maximizing utilization of this particular resource while minimizing waste.” The court concluded that the state maintains control over the “how” of oil and gas procedures, while municipalities maintain control over the “where” of oil and gas exploration. The CHC court also looked to the Frew Run case for support in New York precedent.
Both New York Supreme Court decisions, Anschutz Exploration Corp. v. Town of Dryden and Cooperstown Holstein Corp. v. Town of Middlefield, were appealed. On May 2, 2013, the Appellate Division for the New York State Supreme Court ruled on the appeals together since the same preemption issue was being decided. See Cooperstown Holstein Corp. v Town of Middlefield, 106 A.D. 3d 1170, 1171 (N.Y. App. Div. 3d Dep’t 2013). The appeal taken from the Anschutz Exploration Corp. matter is now captioned Matter of Norse Energy Corp. USA v. Town of Dryden, 108 A.D. 3d 25 (N.Y. App. Div. 3d Dep’t 2013) because Anschutz Exploration Corp. has been succeeded in interest by Norse Energy Corp.
In its May, 2013 decision, the Appellate Division court preliminarily found that the plain language of the OGSML supersedure clause prohibits municipalities from enacting laws or ordinances “relating to the regulation of the oil, gas and solution mining industries.” The court then found, however, that the Town of Dryden’s zoning ordinance banning all activities related to the exploration for, and production or storage of, natural gas and petroleum does not seek to regulate the details or procedures of the oil, gas and solution mining industries. Instead, the court found that it establishes permissible and prohibited uses of land within the Town of Dryden for the purpose of regulating land use generally. The Court concluded: “while the Town’s exercise of its right to regulate land use through zoning will inevitably have an incidental effect upon the oil, gas and solution mining industries, we conclude that zoning ordinances are not the type of regulatory provision that the Legislature intended to be preempted by the OGSML.” The Court cited to the legislative history of the OGSML to support its conclusion. The Court reasoned that the provisions of the OGSML focus on matters that are regulatory in nature and do not address traditional land use issues that are the subject of local municipality’s zoning authority. “From the legislative history of the OGSML and, in particular, the 1981 amendments, it is evident that the Legislature’s intention was to ensure uniform statewide standards and procedures with respect to the technical operational activities of the oil, gas and mining industries in an effort to increase efficiency while minimizing waste, and that the supersedure provision was enacted to eliminate inconsistent local regulation that impeded that goal.”
Norse Energy (Anschutz) argued that even if Dryden’s zoning amendment is not expressly preempted by the OGSML, it is invalid under principles of implied preemption. The Appellate Division Court rejected this argument, finding that the zoning amendment does not conflict with the language or policy of the OGSML. “Under the doctrine of conflict preemption, a ‘local government . . . may not exercise its police power by adopting a local law inconsistent with constitutional or general law’”. The Court found that “provisions of the OGSML concern technical, operational aspects of drilling and are separate and distinct from a municipality’s zoning authority, such that the two do not conflict, but rather, may harmoniously coexist; the zoning law will dictate in which, if any, districts drilling may occur, while the OGSML instructs operators as to the proper spacing of the units within those districts in order to prevent waste.” The Court also rejected Norse Energy’s claim that municipal zoning ordinances that ban drilling conflict with the policies of OGSML. The Court indicated that there is nothing in the statute or legislative history suggesting a state policy of maximizing recovery of oil and gas resources at the expense of municipal land use decision making as alleged by Norse Energy. Nor does the statute or legislative history contain any statement of intention to require oil and gas drilling operations to occur in each and every location where the resource is present. The Court found that the policy of the OGSML seeks to protect the rights of all persons, including landowners and the general public, not just the owners of oil and gas properties. “A goal which is realized when individual municipalities can determine whether drilling activities are appropriate for their respective communities.” It is this decision by the Appellate Division of the Supreme Court that will be reviewed by New York’s highest court.
What might California courts do?
Given the lack of a preemption clause in SB-4, and the presence of a savings clause, and given California, Pennsylvania and New York precedent on the issue, barring a reversal by the New York Court of Appeal on the two pending cases, it is likely that SB-4 will be deemed not to preempt any local government zoning laws banning fracking within that jurisdiction. Pennsylvania and New York courts reached that conclusion, even though their fracking statutes included supersedure clauses, rather than savings clauses. At best, perhaps a California court may follow the Colorado court, which overturned a blanket prohibition due to the nature of gas deposits in that state and elsewhere, which can extend beyond a municipality’s boundaries. Thus, unless there is further legislative activity in California to pass a supersedure clause prohibiting local government bans, such bans likely will be upheld if challenged. Accordingly, advocates of fracking and other well stimulation activities in California would appear to be well-advised to try to win the political debate regarding proposed fracking bans at the local government level, and to seek passage of an effective supersedure clause at the State and/or Federal level, rather than rely on the California court system to invalidate any fracking bans based on a preemption argument.