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February 15, 2016 Practice Points

NY Supreme Court Upholds Decision Voiding Fracking Water Sale Agreement

The decision voids a water sale agreement and a lease agreement for failing to comply with state environmental review requirements.

By Meghan Carter

On December 31, 2015, the New York State Supreme Court, Appellate Division, Fourth Judicial Department, issued an opinion upholding a lower court decision voiding determinations by the Village of Painted Post that authorized a water sale agreement with SWEPI LP, a subsidiary of Shell Oil Co., as well as a lease agreement between Painted Post Development, LLC (PPD) and Wellsboro and Corning Railroad, LLC, for failing to comply with the environmental review requirements of the State Environmental Quality Review Act (SEQRA). Sierra Club v. Vill. of Painted Post, 134 A.D.3d 1475, 23 N.Y.S.3d 506 (N.Y. App. Div. 2015).

The village’s board of trustees, in February of 2012, adopted a resolution to enter into a surplus water sale agreement with SWEPI for approximately 314,000,000 gallons of water taken from the municipal water supply in increments of up to one million gallons per day, with an option to increase the amount by an additional 500,000 gallons per day. The village determined that the water sale agreement was a Type II action, which is exempt from review under SEQRA.

The village also adopted a resolution authorizing a lease agreement between PPD and Wellsboro and Corning Railroad for the construction of a water trans-loading facility on 11.8 acres of land where the water would be withdrawn, loaded, and transported to Pennsylvania; there, the water would be used at drilling sites for high-volume hydraulic fracturing (fracking). The village determined that lease agreement was a Type I action under SEQRA, which required an environmental review, but issued a negative declaration finding that the lease would not result in any significant adverse impact on the environment.

The Sierra Club, other environmental organizations, and a resident brought suit against the village, PPD, SWEPI, and Wellsboro and Corning Railroad in June of 2012 challenging the resolutions authorizing the water sale and lease agreements.

The court struck down the village’s water sale agreement as arbitrary and capricious and further held that it had improperly segmented the SEQRA review of the lease from the water agreement.

Because the water agreement called for the sale of only one million gallons per day of water, the agreement was not specifically a Type I or Type II action. Type I actions include projects or actions that would use ground or surface water in excess of two million gallons per day. On the other hand, Type II actions include the purchase or sale of furnishings, equipment, or supplies, including surplus government property other than land, radioactive material, pesticides, herbicides, or other hazardous material. The court rejected the notion that the sale was a Type II action dealing with surplus government property “inasmuch as water constitutes a natural resource, not property.”

The court noted that Type I actions, under applicable state regulations, include “unlisted actions,” or those not previously defined as a Type I or Type II. Another regulatory provision states that Type I actions could include any “unlisted action” that exceeds 25 percent of any threshold in that section for use of a natural resource, occurring wholly or partially within or contiguous to any publicly owned park, recreation area, or designated open space. Because the Department of Environmental Conservation had imposed a threshold clarifying the use of the amount of a natural resource (such as water or land) as a Type I action, the court found that the state agency implicitly determined that an annexation of less than the threshold constitutes an “unlisted action.” As a result, the court concluded that the water agreement was either an “unlisted action” or a Type I action, both of which required SEQRA review.

The court further concluded that, because segmentation or the division of environmental review for different sections or stages of a project is generally disfavored, the village should not have segmented the SEQRA review of the lease from the water agreement. Thus, the court upheld the lower court’s ruling that the village’s resolutions should be annulled and that a consolidated SEQRA review of both agreements was required.

Keywords: energy litigation, hydraulic fracturing, fracking, water agreement, New York Supreme Court Appellate Division

Meghan Carter is with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC in New Orleans, Louisiana.

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