SWEPI, LP, v. Mora County, New Mexico
The first opportunity for a U.S. district court to address whether a local fracking ban violates the U.S. Constitution hailed from Mora County, New Mexico, in the recent case of SWEPI, LP, v. Mora County, New Mexico, CIV 14-0035, 2015 WL 365923 (D. N.M. Jan. 19, 2015). The litigation ensued after the Mora County Board of County Commissioners adopted an ordinance purporting to ban corporations from engaging in fracking and other natural gas drilling operations.
According to section 5.5 of the ordinance, “[c]orporations in violation of the [ordinance’s] prohibitions . . . shall not have the rights of ‘persons’ afforded by the United States and New Mexico Constitutions, nor shall those corporations be afforded rights under the [First of Fifth Constitutional Amendments].” SWEPI contested the constitutionality of the ordinance on several grounds, asserting violations of the Supremacy Clause, SWEPI’s substantive due-process rights, the Equal Protection Clause of the Fourteenth Amendment, and the First Amendment. Accepting SWEPI’s arguments, in part, the U.S. District Court for the District of New Mexico determined that the ordinance violated the Supremacy Clause. The court specifically rejected Mora County’s ability to deny corporations—considered “persons” under the Equal Protection Clause—the protections under the First and Fifth Amendments, the Commerce Clause, and the Contract Clause. Furthermore, the court held that the terms and impact of section 5.5 were substantially overbroad and placed “illogical” restrictions on corporations’ First Amendment rights:
The Ordinance, in contradiction to the Constitution and Supreme Court precedent, states that corporations that violate, or that seek to violate, the Ordinance have no First or Fifth Amendment rights. See Ordinance § 5.5, at 4. Mora County lacks the authority to nullify constitutional rights.
While the court invalidated the ordinance based upon violations of the Supremacy Clause and corporations’ constitutional rights, the question of whether a corporation’s rights are equal to or triumphant over the rights of people was not as easily addressed. Noting its obligation to abide by precedent from the U.S. Supreme Court, the court stated, “[Mora County’s] argument that corporations should not be granted constitutional rights, or that corporate rights should be subservient to people’s rights are arguments that are best made before the Supreme Court.”
The latter portion of the decision addressed whether the ordinance conflicted with New Mexico state law. First, the court considered Mora County’s contention that its general zoning authority encompassed the authority to enforce zoning ordinances on state lands due to the potential impact of extraction to water on adjoining county lands. Unpersuaded, the court held that Mora County lacked the statutory authority necessary to enforce the ordinance on state lands. The court further invalidated the ordinance through conflict preemption, explaining that “banning hydrocarbon exploration-and-extraction activities . . . is antagonistic to [New Mexico] state law because it prohibits activities that New Mexico state law permits,” highly regulates, and impliedly encourages. Finally, considering the inextricable intertwinement of the ordinance’s invalid provisions with the otherwise valid provisions, the court invalidated the ordinance in its entirety.
State courts have also considered whether municipalities have authority to ban fracking locally within their borders. For example, in Clouser v. City of Norman, 393 P.2d 827 (Okla. 1964), the Supreme Court of Oklahoma evaluated the validity of a zoning ordinance prohibiting the drilling of an oil well in “Single Family Dwelling Districts.” Recognizing the limits of a city’s zoning authority, the court deemed the “zoning ordinance to be arbitrary, unreasonable and void as to the [particular 10 acre tract] as bearing no reasonable relation to the public health, safety, morals or general welfare.”
Similarly, in Voss v. Lundvall Bros., 830 P.2d 1061 (Colo. 1992), the Supreme Court of Colorado considered whether Colorado’s constitution and Oil and Gas Conservation Act preempted the city of Greeley’s authority to enforce a ban on drilling any oil, gas, or hydrocarbon wells within the city’s limits. The court evaluated four factors to determine the superiority of Colorado’s interest in oil and gas production over Greeley’s self-governance authority:
- whether there [was] a need for statewide uniformity of regulation;
- whether the municipal regulation [had] an extraterritorial impact;
- whether the subject matter [was] one traditionally governed by state or local government; and,
- whether the Colorado Constitution specifically commits the particular matter to state or local regulation.
The court held that Colorado’s interest in efficient oil and gas development and production trumped Greeley’s self-governing authority and, thus, invalidated Greeley’s attempted ban on all oil and gas well-drilling activities.
Most recently, in State ex rel. Morrison v. Beck Energy Corp., 2013-0465, 2015 WL 687475 (Ohio Feb. 17, 2015), the Ohio Supreme Court addressed whether the city of Munroe Falls validly exercised its self-governance power granted by the Ohio Constitution in passing an ordinance prohibiting oil and gas drilling without a zoning certificate. Munroe Falls argued that the enforcement of the ordinance was a valid exercise of its police powers according to the Home Rule Amendment of the Ohio Constitution. According to Beck Energy Corp., however, the ordinance violated R.C. 1509.02, which centralized the “sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations within Ohio,” with the Ohio Department of Natural Resources.
The Ohio Supreme Court and Munroe Falls recognized that, as a general rule, Ohio’s Home Rule Amendment is invalid to the extent it conflicts with a statewide regulatory scheme. Accordingly, Munroe Falls argued that R.C. 1509.02 did not qualify as a statewide general law considering that its effective application pertained only to state areas with economically viable quantities of gas and oil. In rejecting this argument, the court held:
Whether or not every acre of Ohio constitutes 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. Moreover, 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.
The court then invalidated the ordinance for two primary reasons. First, R.C. 1509.02 allows state-licensed oil and gas production within Munroe Falls, while the ordinance purported to prohibit the same without a zoning certificate. The court condemned such a result because “any local ordinance that seek[s] to prohibit conduct that the state has authorized [is] in conflict with the state statute.”
Second, the ordinance conflicted with the plain language of R.C. 1509.02 by “prohibit[ing] municipalities from exercising [their regulatory control] powers in a way that ‘discriminate[d] against, unfairly impede[d], or obstruct[ed]’ the activities and operations” falling under R.C. 1509.02’s scope. Because R.C. 1509.02 “reserve[s] 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,” the court held that the ordinance directly conflicted with R.C. 1509.02’s plain language.
Despite invalidating the ordinance, the court recognized a desire for local and state governments to work toward a harmonious resolution of their conflicting interests in remarking:
The city presents a variety of policy reasons why local governments and the state should work together, with the state controlling the details of well construction and operations and the municipalities designating which land within their borders is available for those activities. This is no doubt an interesting policy question, but it is one for our elected representatives in the General Assembly, not the judiciary.
The New York Court of Appeals, in contrast, upheld a zoning ordinance banning all activities related to the exploration for, and the production or storage of, natural gas and petroleum within the city of Dryden’s borders in Norse Energy Corp. USA v. Town of Dryden, 108 A.D.3d 25, 38, 964 N.Y.S.2d 714, 724 (2013) leave to appeal granted, 21 N.Y.3d 863, 995 N.E.2d 851 (2013) and aff'd sub nom. Wallach v. Town of Dryden, 23 N.Y.3d 728, 992 N.Y.S.2d 710 (2014) reargument denied, 24 N.Y.3d 981, 995 N.Y.S.2d 704 (2014). InWallach, Anschutz Exploration Corp., a driller/developer of oil and natural gas wells and lease owner of approximately 22,200 acres in Dryden, challenged the ban and asserted preemption by the Oil, Gas and Solution Mining Law (OGSML). According to the New York Court of Appeals, the OGSML only superseded local laws purporting to regulate the oil, gas, and solution mining industries. The court parsed the ban’s application from falling under the OGSML’s scope by categorizing it as a regulation of land use, not of the oil and gas industries. The court explained:
The well-spacing 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.
Therefore, the New York Court of Appeals demonstrated a court’s willingness to uphold a fracking ban depending upon the specific ban’s reach.
In Huntley & Huntley, Inc. v. Borough Council of Borough of Oakmont, 600 Pa. 207 (2009), the Pennsylvania Supreme Court similarly upheld a zoning ordinance only permitting drilling for natural gas as a “conditional use” in single family districts. The Pennsylvania Supreme Court explained, “absent further legislative guidance, we conclude that the ordinance serves different purposes from those enumerated in the Oil and Gas Act, and hence, that its overall restriction on oil and gas wells in R–1 districts is not preempted by that enactment.”
Local fracking bans ultimately hinge on the fact-intensive question of whether the restriction can harmoniously coexist with state laws and regulatory authority and the U.S. Constitution. While the conflict between state and local authority may persist, the U.S. District Court for the District of New Mexico seemingly resolved at least one issue: a locality may not pass a fracking ban placing illogical restrictions on or taking away the rights guaranteed to corporations by the U.S. Constitution.
Keywords: energy litigation, hydraulic fracturing, fracking, SWEPI, zoning, constitution, preemption
Elizabeth Rutledge is an associate with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC in New Orleans, Louisiana.