January 01, 2013

When Do State Oil and Gas or Mining Statutes Preempt Local Regulations?

Keith B. Hall

In recent years, oil and gas activity in the United States has increased and spread to new areas. This has boosted the economy and improved the nation’s energy security, but it also has prompted concerns that the activity might cause local inconvenience or harm to the environment. Many local governments have responded to such concerns by enacting ordinances that purport to prohibit or regulate oil and gas activity or to restrict where it can be conducted. These ordinances potentially conflict with state laws governing oil and gas activity, and this has led to disputes and litigation in several states regarding the enforceability of the local ordinances. To resolve such disputes, courts analyze the state and local laws using a preemption analysis.

“Preemption” is a doctrine that “establishes a priority between potentially conflicting laws enacted by various levels of government”—federal, state, and local. Huntley & Huntley, Inc. v. Borough Council of Oakmont, 964 A.2d 855, 862 (Pa. 2009). Under this doctrine, the law enacted by the higher level of government generally will be given priority, and the law enacted by the lower level of government will be “preempted,” rendering it unenforceable, at least to the extent of the conflict. Thus, if state and local laws conflict, the local law might be preempted.

There are three types of preemption: (1) express preemption, (2) conflict preemption, and (3) field preemption. “Express preemption” occurs when a state law expressly prohibits local government from enacting a particular type of ordinance. “Conflict preemption” occurs when a local ordinance conflicts with a state law so that it is impossible to comply with both state and local law, or when enforcement of local law will frustrate the purpose of a particular state law. “Implied preemption” occurs when state statutes or regulations imply that they completely cover a subject, thereby leaving no room for local ordinances to “occupy the same field.”

Each of these types of preemption is potentially at issue with respect to local ordinances that attempt to regulate oil and gas activity. State laws often provide a comprehensive regulation of oil and gas activity, making it possible for courts to conclude that there was an implicit intention for state laws to completely occupy the field. Even if there is not field preemption, a local law might conflict with a state law. Further, state oil and gas laws often contain a clause that expressly preempts local laws on the subject.

Express Preemption of Local Ordinances Regulating Oil and Gas or Mining Activity

An example of express preemption comes from Louisiana. Louisiana Revised Statute 30:28 prohibits any person from drilling an oil or gas well without first obtaining a drilling permit from the Office of Conservation. The statute goes on to state, “No other agency or political subdivision of the state shall have authority, and they are hereby forbidden, to prohibit or in any way interfere with the drilling of a well or test well in search of minerals by the holder of such permit.” Thus, the statute expressly preempts any local ordinance that would “interfere with the drilling of a well” by someone who has obtained a permit from the Office of Conservation. In Energy Mgmt. Corp. v. City of Shreveport, 397 F.3d 297 (5th Cir. 2005), the court held that the statute preempted a city ordinance that purported to ban drilling within one mile of a particular lake.

Another example of express preemption comes from New York. Section 23-0303 of the New York Environmental Conservation Law states that the law “shall supersede all local laws or ordinances relating to the regulation of the oil, gas, and solution mining industries.” In the early eighties, a state court held that this provision preempted a local zoning ordinance that purported to prohibit the drilling of any oil or gas well within the municipality unless the company seeking to drill paid a twenty-five dollar permit fee to the town and posted a $2500 bond. See Envirogas v. Town of Kiantone, 447 N.Y.S.2d 221 (N.Y. Sup.), aff’d, 454 N.Y.S.2d 694 (N.Y.A.D.), appeal denied, 458 N.Y.S.2d 1026 (N.Y. 1982).

Does a Local Oil and Gas or Mining Ordinance Conflict with a State Law?

An example of conflict preemption comes from Louisiana. The first sentence of Louisiana Revised Statute 30:28(F) states that if a person obtains a permit from the Office of Conservation to drill an oil or gas well in a particular location, the permit “shall be sufficient authorization to the holder of the permit to enter upon the property covered by the permit and to drill in search of minerals thereon.” Because state law makes such a permit “sufficient authority” to drill in a particular location, any local ordinance that would prohibit drilling in that location would conflict with state law. Thus, when the City of Shreveport passed an ordinance prohibiting drilling within one mile of a particular lake, the ordinance directly conflicted with the first sentence of 30:28(F) and therefore was preempted (and, as noted above, the ordinance was also expressly preempted). City of Shreveport, 397 F.3d at 306.

But a local ordinance is not subject to “conflict preemption” merely because a state law exists on the same subject. For example, the Pennsylvania Surface Mining Act prohibits certain mining operations from being conducted within 300 feet of an “occupied dwelling.” 52 Pa Cons. Stat. Ann. § 1396.4b(c). A township enacted a zoning ordinance that prohibited such mining activity from being conducted within 1000 feet of a residence. Hoffman Mining Co. v. Zoning Hearing Bd., 32 A.3d 587, 590 (Pa. 2011).

A mining company challenged the ordinance, arguing that it was preempted because it provided for a different setback distance than was provided by state law. The Pennsylvania Supreme Court disagreed, noting that the state and local laws did not directly conflict. The court observed that state law did not guarantee a company the right to operate at any site located at least 300 feet from any residence. Instead, the statute merely prohibited operations from being conducted any closer than 300 feet from a residence. By locating its mining operations at least 1000 feet from any residence, a company could comply with both local and state law. Moreover, the local ordinance did not frustrate the purpose of state law. Accordingly, the local ordinance was not preempted. Id. at 590; but see St. Croix, Ltd. V. Bath Township, 693 N.E.2d 297 (Ohio Ct. App. 1997) (ordinance could not set greater setback than was established by state law).

Do State Laws Occupy the Entire Field of Oil and Gas or Mining Regulation?

An example of field preemption comes from West Virginia, where there are several circumstances that could support a conclusion that state law is implicitly intended to occupy the entire field of oil and gas regulation. For example, the state has a series of statutes, the West Virginia Oil and Gas Act, which governs various aspects of oil and gas activity. The Act is administered by a state agency, the West Virginia Department of Environmental Protection’s Office of Oil and Gas. Further, W. Va. Code R. Sec. 22-1-1 provides that the purpose of the DEP is to “consolidate environmental regulatory programs in a single state agency, while also providing a comprehensive program for conservation, protection, exploration, development, enjoyment, and use of the natural resources of the state of West Virginia.”

In 2011, the City of Morgantown enacted an ordinance that purported to prohibit hydraulic fracturing anywhere within the city limits, as well as anywhere within one mile of the city’s borders. A company filed an action challenging the ordinance and arguing that it was preempted by state law. The court agreed, holding that state law establishes a “comprehensive regulatory scheme” that “fully occupies” the subject of oil and gas regulation, leaving no room for operation of local regulations. Northeast Natural Energy, LLC v. City of Morgantown, No. 11-C-411, Circuit Court of Monongalia County (order dated Aug. 12, 2011).

Regulation of Oil and Gas or Mining Activity Through Zoning

Some of the most interesting preemption issues that arise relate to zoning. For example, assuming that state law generally preempts local ordinances governing oil and gas activity, can a local government nevertheless use zoning ordinances to regulate such activity? The answer depends in part on the particulars of state law and in part on the substance of the ordinance at issue.

For example, as previously noted, Louisiana law expressly preempts any local ordinance that “interferes” with drilling by a person holding a drilling permit from the Office of Conservation, even if the ordinance is a zoning ordinance. In contrast, some states have statutes that generally provide for express preemption of local ordinances regulating oil and gas or mining activity, but which explicitly exempt zoning ordinances from that express preemption. Examples of such statues include the Pennsylvania Surface Mining Act, Pennsylvania Noncoal Mining Act, Pennsylvania Oil and Gas Act, and the Colorado Mined Land Reclamation Act. Courts in Colorado and Pennsylvania have explained that these provisions generally allow local government to use zoning to regulate where drilling or mining activity can take place, while simultaneously prohibiting local governments from regulating how drilling or mining is performed.

Consistent with that reasoning, the courts have noted that local government cannot immunize an ordinance from preemption merely by characterizing it as a “zoning ordinance.” For example, local government cannot enforce an ordinance regulating how drilling or mining is conducted, even if the local government characterizes the ordinance as a “zoning ordinance.” Huntley & Huntley, Inc. v. Borough Council, 964 A.2d 855, 866 (suggesting that municipality could not “permit drilling in a particular district, but then make that permission subject to conditions addressed to features of well operations regulated by [state law]”). Further, courts have noted that “traditional zoning” designates both zones in which an activity is restricted or banned altogether as well as zones where the activity is permitted. Colorado Mining Ass’n. v. Board of County Commissioners, 199 P.3d 718, 733 (Colo. 2009). Thus, when local governments have used “zoning” to ban a type of drilling or mining activity throughout the local jurisdiction, Pennsylvania and Colorado courts have held that the ban was preempted. Voss v. Lundvall Bros., Inc., 830 P.2d 1061, 1069 (Colo. 1992) (oil and gas); Exton Quarries, Inc. v. Zoning Bd. of Adjustment, 228 A.2d 169, 179 (Pa. 1967).

But two courts in New York have held that a municipality can use zoning to completely ban oil and gas activity, notwithstanding a provision in New York’s oil and gas statutes that provides for express preemption of local laws. That section, Section 23-0303 of the New York Environmental Conservation Law (McKinney 2012), 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 jurisdiction over local roads or the rights of local governments under the real property tax law.”

By its express terms, the preemptive effect of that New York statute arguably is broad enough to preempt virtually “all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries,” even including traditional zoning laws. Further, even if traditional zoning laws are not preempted by § 23-0303, many observers would have concluded that an ordinance prohibiting oil and gas activity from being conducted anywhere whatsoever in a local jurisdiction would be preempted. Nevertheless, several local governments enacted ordinances to do just that—prohibit oil and gas activity altogether. One of local governments was the Town of Middlefield, which enacted a ban on oil and gas activity in June 2011. A landowner who had granted an oil and gas lease filed a suit challenging the ordinance and arguing that it was preempted by § 23-0303. The trial court rejected the challenge. Judge Donald F. Cerio, Jr. issued an opinion concluding that § 23-0303 was only intended to preempt regulations regarding how drilling is done, not where it is performed. Cooperstown Holstein Corp. v. Town of Middlefield, 943 N.Y.S.2d 722 (N.Y. Sup. Ct. 2012). Judge Cerio did not discuss the jurisprudence which concludes that, when local regulation of oil and gas or mining activity is generally preempted, the retention of local government authority to regulate where such activity takes place does not include the authority to ban the activity altogether throughout the local jurisdiction.

Another New York jurisdiction that banned oil and gas activity altogether was the Town of Dryden. A company that held a mineral lease within that jurisdiction brought an action to challenge the ordinance, asserting that the ordinance was preempted by § 23-0303. The trial court rejected the challenge, holding that the ordinance was permissible as a regulation of where drilling occurs, as opposed to how drilling occurs. Anschutz Exploration Corp. v. Town of Dryden, 940 N.Y.S.2d 458 (N.Y. Sup. Ct. 2012). The opinion, by Judge Phillip R. Rumsey, briefly discussed one of the authorities, which holds that the authority to regulate where an activity takes place does not include authority to ban the activity altogether. But Judge Rumsey rejected that view. It will be interesting to see what the appellate courts say regarding the Dryden and Middlefield ordinances, assuming that the cases are pursued through appellate decisions.

In any event, by reaching a different result than that which would have been predicted by some observers, the trial court decisions in those cases illustrate two significant points. First, the analysis of whether a particular ordinance is preempted involves case-specific analyses of the language of the local ordinance at issue and the state law or laws that arguably preempt the local ordinance. Second, various courts can reach different conclusions regarding preemption even when facing somewhat similar questions (such as whether the authority to regulate where an activity is conducted includes the authority to say that the places are “nowhere”). This makes it difficult to predict the outcome of a preemption challenge, absent clear guidance from prior decisions that constitute binding authority. The difficulty in predicting outcomes is particularly high when the question is whether a state regulatory scheme implies an intent to occupy the entire field, or whether an ordinance is subject to conflict preemption because it would frustrate the intent of state law even though the ordinance is not directly contrary to state law. Lawyers should keep these points in mind when advising their clients.

Lawyers should also be aware of a few final issues. First, aside from the possibility that a local ordinance might be preempted, parties should be aware that sometimes a local government might lack the authority to enact a particular ordinance. Local governments can be divided into two categories: those that have been granted home rule authority and those that have not. A grant of home rule authority generally includes a broad grant of authority, basically making the local government a separate sovereign that can enact whatever types of laws it wishes, though its laws still can be subject to preemption. See, e.g., Voss, 830 P.2d at 1069.

In contrast, a local government that has not been granted home rule authority is generally deemed to be a subdivision of the state and to possess only the authority that has been expressly delegated to it. Colorado Mining Assoc. v. Board of County Commissioners, 199 P.3d 718, 723-4 (Colo. 2009). Thus, an ordinance enacted by any unit of local government that lacks home rule authority is vulnerable to challenge unless the ordinance is based on some authority (such as zoning authority) that has been explicitly delegated to that local government.

Second, certain ordinances are non-preemptible, but this should not affect an analysis regarding whether an ordinance regulating oil and gas activity or mining is preempted. Although California and Colorado make certain ordinances non-preemptible, most states do not. Further, even in California and Colorado, the non-preemptibility does not apply if the local government lacks home rule authority. Finally, the non-preemptibility does not apply if the matter being regulated is a matter of both local and state concern, as opposed to a matter of purely local concern, and there is authority that oil and gas and mining activities are matters of both local and state concern. See, e.g., Voss, 830 P.2d at 1065, 1066.

Finally, given that I’ve discussed certain Pennsylvania cases that recognize a local government’s authority to regulate where oil and gas activity can take place, it is worth noting that Pennsylvania recently enacted statutes that place certain limitations on local governments’ authority to use zoning ordinances to regulate oil and gas activity. (Some say the statutes are a response to local governments abusing their “zoning” authority.) 58 Pa. Cons. Stat. Ann. §§ 3301-3309 (West 2012). A group of plaintiffs has challenged the new statutes, arguing that they violate the Pennsylvania Constitution. Robinson Township v. Pennsylvania, No. 284 MD-2012, Pennsylvania Commonwealth Court. This will be another interesting case to watch for those of us who are interested in preemption issues.

Keith B. Hall

Keith B. Hall is an Assistant Professor of Law and Director of the Mineral Law Institute at Louisiana State University Law Center.