June 14, 2018 Articles

Litigation Update: Repeal of the Obama Fracking Rule

The fracking regulations were subjected to multiple legal challenges; the repeal of those regulations has been no different.

By Charles T. Wehland, Will Taylor, and Diane Myers – June 14, 2018

The Obama administration’s fracking regulations for federal and Indian lands, promulgated by the U.S. Bureau of Land Management (BLM) in 2015, were subjected to multiple legal challenges immediately after they were issued. The Trump administration’s repeal of those regulations in late 2017 has been no different. Shortly after the repeal was issued, the state of California and several environmental groups filed lawsuits against the BLM, the secretary of the interior, and the assistant secretary for Land and Minerals Management, seeking an injunction and a declaration that the repeal violated numerous federal statutes. After the suits were filed, multiple industry groups and the state of Wyoming have sought to intervene and transfer the case to federal court in Wyoming, which decided the initial legal challenge to the Obama administration’s fracking regulations. Industry participants should continue to keep a close eye on this latest legal battle over fracking on federal and Indian lands, which will likely be decided on cross-motions for summary judgment based on the sizable administrative record.

Background
On March 26, 2015, the BLM promulgated a final rule regulating hydraulic fracturing on federal and Indian lands (Fracking Rule). See 80 Fed. Reg. 16, 128 (Mar. 26, 2015). The Fracking Rule, which the BLM developed over an almost five-year period, attempted to accomplish several goals, including (1) ensuring proper construction of wells to protect water supplies and manage fracking fluids in a way that protects the environment, (2) provide public disclosures of the chemicals used in fracking fluids, (3) improve public awareness of where fracking has occurred, (4) align requirements with state and tribal authorities regarding water zones that require protection, and (5) coordinate standards with individual states.

The Fracking Rule never went into effect because the Ute Indian Tribe; certain oil and gas industry groups; and the states of Wyoming, Colorado, North Dakota, and Utah filed or intervened in lawsuits challenging the rule in Wyoming federal court. See Indep. Petroleum Ass’n of Am. v. Jewell,Case No. 2:15-cv-041 (D. Wyo. Mar. 20, 2015). The Wyoming district court ruled that the BLM lacked the statutory authority to promulgate the rule, and the decision was appealed to the Tenth Circuit.

The case was still on appeal when President Trump signed Executive Order No. 13,783, Promoting Energy Independence. The order directed all federal agencies to enact policies to avoid “burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation” and specifically directed the secretary of the interior to publish for notice and comment proposed rules suspending, revising, or rescinding the Fracking Rule. The next day, Secretary of the Interior Ryan Zinke issued Order No. 3349, which stated, in part, that the BLM “shall proceed expeditiously with proposing to rescind” the Fracking Rule. Sec’y Order 3349 § (c)(1). On July 25, 2017, the BLM published a proposed rule that would rescind the Fracking Rule and restore BLM’s pre–Fracking Rule regulations. See 82 Fed. Reg. 34,464 (July 25, 2017). On September 21, 2017, the Tenth Circuit dismissed the appeal of the Wyoming federal court’s decision, holding that further proceedings would be a waste of judicial resources in light of the BLM’s proposed rule and Executive Order No. 13,783. Wyoming v. Zinke, 871 F.3d 1133, 1137, 1146 (10th Cir. 2017).

On December 29, 2017, the BLM published the final repeal rule (Repeal Rule), citing to Executive Order No. 13,783 and Secretary Zinke’s Order No. 3349. 82 Fed. Reg. 61,924. The Repeal Rule stated that repeal of the Fracking Rule was necessary to “prevent the unnecessarily burdensome and unjustified administrative requirements and compliance costs of the 2015 [Fracking Rule] from encumbering oil and gas development of federal and Indian lands.”

The Northern District of California Lawsuit
Less than a month after the BLM issued the Repeal Rule, the state of California, through California’s Attorney General Xavier Becerra, filed suit against the BLM; Joseph Balash, the assistant secretary for Land and Minerals Management; and Ryan Zinke, the secretary of the interior. In the suit, the state of California seeks an injunction compelling the defendants to reinstate the Fracking Rule in its entirety. The state also seeks a declaratory judgment that the defendants acted arbitrarily, capriciously, and contrary to law; abused their discretion; and failed to follow the procedure required by law when promulgating the Repeal Rule.

In particular, the plaintiff alleged that the Repeal Rule violated the following:

  • The Mineral Leasing Act of 1920, 30 U.S.C. § 181 et seq. (MLA)
  • The Federal Land Policy and Management Act, 43 U.S.C. § 1701 et seq. (FLPMA)
  • The Indian Mineral Leasing Act of 1938, 25 U.S.C. §§ 396a-396g (IMLA)
  • The National Environmental Policy Act, 42 U.S.C. § 4321 et seq.(NEPA)
  • The Administrative Procedure Act, 5 U.S.C. § 551 et seq.(APA)

All of these statutes, according to the plaintiff, impose certain obligations on the BLM and a duty to regulate hydraulic fracturing on federal and Indian lands. For example, the MLA directs the BLM to “prescribe necessary and proper rules and regulations” to ensure that operations on federal leases are conducted with “reasonable diligence, skill and care”; to protect “the interests of the United States”; and to safeguard “the public welfare” in federal mineral leases. See Case No. 3:18-cv-521, Dkt. Entry No. 1, at 7; 30 U.S.C. §§ 187, 189. Likewise, the FLPMA requires the BLM to regulate “the use, occupancy, and development of the public lands” under the principles of “multiple use and sustained yield . . . in a manner that will protect the quality of . . . ecological, environmental, air and atmospheric, [and] water resource . . . values.” See Case No. 3:18-cv-521, Dkt. Entry No. 1, at 7; 43 U.S.C. § 1701(a)(8). The plaintiff also pointed to numerous sections of the APA governing the BLM’s rulemaking process.

In arguing that the BLM violated the APA and the other statutes by promulgating the Repeal Rule, the plaintiff contrasted the years-long rulemaking process that led to the Fracking Rule with the rulemaking process that led to the Repeal Rule, which lasted for only five months. The plaintiff cited to the substantial record created during the rulemaking process for the Fracking Rule, including the need to create regulations because the older, existing regulations did not anticipate or adequately address the prevalence of hydraulic fracturing. The plaintiff argued that hydraulic fracturing creates a substantial environmental risk due to the chemicals used in the fracking process, and the BLM’s Repeal Rule violates the BLM’s statutory duty to ensure the environmentally responsible development of oil and gas resources on federal and Indian lands. Finally, the BLM’s own findings regarding the Repeal Rule, according to the plaintiff, also contradict the purpose of the Repeal Rule. For example, the Regulatory Impact Analysis found that compliance with the Fracking Rule would cost approximately $9,690 per well, which, the plaintiff argued, was a negligible amount.

Parallel Proceeding by Environmental Groups
On the same day that California filed its suit, multiple environmental groups filed a separate suit in the Northern District of California against the same defendants. The environmental groups included the Sierra Club, Center for Biological Diversity, Diné Citizens Against Ruining our Environment, Earthworks, Fort Berthold Protectors of Water and Earth Rights, Southern Utah Wilderness Alliance, the Wilderness Society, and Western Resource Advocates. These plaintiffs made claims similar to those of the state of California and sought similar relief.

After filing their suit, the environmental group plaintiffs sought to consolidate their case with the state of California action. On February 20, 2018, the court denied the Sierra Club’s motion to consolidate but held sua spontethat the cases are related.

Interventions in the California Case and Motion to Transfer Venue
Within the first few months after the state of California filed its lawsuit, multiple parties filed motions to intervene, including the state of Wyoming and various industry associations such as the Independent Petroleum Association of America, Western Energy Alliance, and American Petroleum Institute. See Case 4:18-cv-521, Dkt. Entry Nos. 15, 33, 46.

The state of Wyoming emphasized in its motion to intervene that taxes from oil and natural gas production on federal lands generate billions of dollars in revenue. Moreover, the state argued that its own regulatory scheme for hydraulic fracturing is more protective than the repealed Fracking Rule. For example, well operators in Wyoming must provide a pre–hydraulic fracturing chemical disclosure, and the state prohibits the injection of certain compounds and distillates into groundwater. For these and other reasons, the state argued that it has a substantial interest in the litigation that would be impaired if the Fracking Rule were reinstated.

The industry associations argued that they have a substantial interest in the lawsuit given their members’ interest in the ability to design and implement hydraulic fracturing operations in a cost-effective and environmentally sensitive manner. The industry associations emphasized their extensive involvement in the rulemaking process relating to the 2015 Fracking Rule, including the submission of comments, attendance at public information sessions regarding fracking, and meetings held with various lawmakers. Finally, the industry associations argued that reinstating the Fracking Rule would be improperly burdensome, hinder oil and gas development, and potentially put oil and gas companies’ trade secrets and confidential information at risk.

After filing their motions to intervene, industry associations Independent Petroleum Association of America and Western Energy Alliance filed a motion to transfer venue to the District of Wyoming. In support, the movants argued that it was wasteful to repeat more than three years of litigation that occurred in the District of Wyoming, that the state of California should have intervened in the District of Wyoming proceeding that resulted in the Fracking Rule being invalidated, and that there is “almost no oil and gas production on federal lands within the Northern District of California.” See Case No. 4:18-cv-521, Dkt. Entry Nos. 5–11.

All motions to intervene were unopposed. The court granted the state of Wyoming’s motion to intervene on May 2, 2018, but has not yet ruled on the motion to transfer venue or the motions to intervene filed by the industry associations.

Looking Ahead
As shown in the initial filings, the state of California plans to rely heavily on the existing administrative record relating to the original Fracking Rule and will seek to contrast the findings of the rulemaking process for the Fracking Rule with those of the Repeal Rule. The defendants and intervenors, however, will point to other aspects of the record and will emphasize the District of Wyoming’s 2016 decision that the BLM had no legal authority to regulate hydraulic fracturing. The Northern District of California suit, they will argue, is simply an untimely collateral attack on the District of Wyoming’s decision. While this litigation and any appeal will likely be protracted, the parties notably agreed in their joint case management plan that discovery is not necessary and that the case should be decided on cross-motions for summary judgment based on the administrative record. See Case No. 4:18-cv-521, Dkt. Entry No. 65. The court’s decision on the industry associations’ motion to transfer venue will also play an important role in the outcome of this case.


Charles T. Wehland is a partner in Jones Day’s Chicago, Illinois, office. Will Taylor and Diane Myers are associates in Jones Day’s Houston, Texas, office.

 


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