By Martin L. Eide, Sedgwick New York
The Insurance Law Blog has been following decisions related to hydraulic fracturing for potential impacts on insurance coverage issues. As we previously reported in May 2013, the New York Supreme Court, Appellate Division, upheld two zoning ordinances passed in 2011 by the Towns of Dryden and Middlefield, New York, which prohibited the exploration and production of natural gas and petroleum – including hydraulic fracturing, or hydrofracking. On June 30, 2014, the New York Court of Appeals affirmed the Appellate Division’s ruling finding that the New York Oil, Gas and Solution Mining Law’s (“OGSML”) supersession clause does not preempt “home rule” authority vested in the Towns to regulate land use.
In Matter of Mark Wallach, as Chapter 7 Trustee for Norse Energy Corp. USA, v. Town of Dryden, et al., and Cooperstown Holstein Corp., v. Town of Middlefield, – N.Y.3d –, (June 30, 2014), the New York Court of Appeals affirmed the Appellate Divisions’ May 2013 decision upholding summary judgment in favor of Dryden and Middlefield which passed zoning ordinances banning natural gas and petroleum production operations. The ordinances were established in 2011, and subsequently challenged by natural gas exploration companies alleging that the ordinances were preempted by the OGSML which, among other things, regulates the production and storage of oil and natural gas. The trial courts disagreed with the production companies’ preemption arguments, and granted cross-motions for summary judgment in favor of the Towns because the zoning ordinances in question only limit the use of land and do not attempt to regulate the manner in which oil and gas is extracted under the OGSML. The Third Department affirmed in May 2013, finding that the OGSML does not expressly preempt the local zoning regulations which did not limit the methods and means of mining proscribed by the OGSML, but merely limited where mining could occur. Thus, the local zoning ordinances at issue were reasonable uses of the Towns’ home rule powers established pursuant to Article 9 of the New York Constitution.
In its opinion, the Court of Appeals affirmed finding that the OGSML’s supersession clause does not preempt the Town’s home rule power to regulate industrial land use, preserve a communities’ characteristics, and protect the health, safety and welfare of the community as a whole. In particular, the Court of Appeals rejected the appellants’ arguments based on a three-pronged test previously discussed in Matter of Frew Run Gravel Prods. v. Town of Carroll, 71 N.Y. 2d 126 (1987). In Frew Run, the Court of Appeals found that the Town of Carroll’s ordinance which restricted mining operations from a certain portion of the Town did not conflict with the Mined Land Reclamation Law (MLRL). The Court of Appeals analyzed the plain language of the MLRL’s supersession clause, the statutory scheme of the MLRL as whole, and the MLRL’s legislative history to determine if the ordinance interfered with the MLRL. The Court of Appeals found that the MLRL did not preempt a town’s ability to regulate land use because the New York Legislature passed the MLRL to regulate only the means and methods of extractive mining operations, and not where those operations could occur.
Here, the Court of Appeals applied the test in Frew Run and found that the plain language of the OGSML’s supersession clause, the statutory scheme as a whole, and the legislative history only focus on regulating the means and methods of gas, oil, and mining operations and not the location of where such operations could occur. Therefore, the OGSML does not preempt the Towns’ home rule power to regulate land use and exclude gas and oil production operations.
The Court of Appeals also rejected the appellants’ secondary argument. In this regard, the appellants argued that land use ordinances may only limit hydrofracking operations from certain portions of the Towns (i.e., residential areas) because a complete ban would run afoul of the OGSML and essentially, regulate the oil and gas industry. The Court of Appeals disagreed, relying on Matter of Gernatt Asphalt Prods. v. Town of Sardinia, 87 N.Y.2d 668 (2006), a decision that follows Frew Run. In Gernatt Asphalt, the Town of Sardinia amended its zoning ordinance to prohibit all mining operations following the New York State Legislature’s revision of the MLRL in accordance with Frew Run. As a result of the Town’s amendment, a mining operator challenged the prohibition based on the MLRL’s supersession clause. The Court of Appeals rejected the mining company’s challenge, finding that nothing in Frew Run or the MLRL obligates a town to permit mining just because minerals are available to be mined as a natural resource.
The Court of Appeals found that the restrictions at issue here are no different in substance to the ordinances passed by the Town of Sardinia and upheld in Gernatt Asphalt. In addition, Dryden and Middlefield acted reasonably because they each studied the potential negative effects that hydrofracking may have on the character of their respective communities prior to enacting the ordinances.
Sedgwick tracks local and national developments in hydraulic fracturing in its newsletter, Hydraulic Fracturing Digest. Prior issues can be found here.