Barclay Damon
Barclay Damon

Legal Alert

Court Upholds Local Moratorium on Natural Gas Development – Opponents’ Strongest Arguments Avoided

On March 15th, the State Supreme Court, Livingston County, upheld the Town of Avon’s one-year moratorium on all new natural gas development. In the case of Lenape Resources, Inc. v. Town of Avon, Justice Robert Wiggins upheld the moratorium because it was enacted as a zoning law concerned with general land use planning and did not directly regulate natural gas extraction.

The Court found that Environmental Conservation Law (“ECL”) §23-0303(2) must be read such that it preempts only those local laws that regulate the mode and method of the oil, gas and solution mining industries given the precedent established by New York’s highest court in Frew Run Gravel Products v. Town of Carroll relative to the extractive mining industry, and a one-year moratorium on new natural gas developments does not regulate the mode and method of gas extraction. The Court’s decision did not address Lenape’s strong arguments for implied or conflict preemption.

Justice Wiggins even noted in dicta that, “in this Court’s view, the Court of Appeals’ decision in Frew Run is flawed.” But, Justice Wiggins nevertheless felt that he was constrained by the Frew Run precedent, which upheld a local ban on surface mining despite an express preemption clause with arguably similar language, to read the preemption language in ECL §23-0303(2) narrowly and uphold the Town of Avon’s moratorium. Because Justice Wiggins decision in Lenape came out on the eve of oral arguments before the intermediate appellate division court on the decisions of the two initial trial courts that upheld local bans in the Towns of Middlefield and Dryden on similar grounds, Justice Wiggins may be hoping that the appellate court will consider his view that the Frew Run decision is flawed. See our Legal Alert, Did the Dryden and Middlefield Courts Get it Wrong?

As we reported in December, in Natural Gas Company Seeks Damages in Hydrofracking Lawsuit, Lenape Resources, Inc. is a small natural gas production company in western New York. Although its existing wells were grandfathered out of the Town of Avon’s one-year moratorium on natural gas development, Lenape felt constrained to sue because it felt that it would have no way to replenish its capacity.

Lenape’s lawsuit also named the New York State Department of Environmental Conservation (“Department”) as a party to the litigation. Lenape alleged that the Department was acting arbitrarily, capriciously and contrary to law for failing to assert the preemption of ECL §23-0303(2) over the Town’s moratorium. Lenape wanted the court to enjoin the Department to act against the Town for illegally encroaching on the preemptive authority of New York State to exclusively regulate natural gas wells under Article 23 of the ECL. Perhaps, even more so, Lenape wanted to force the Department to take a position on the preemption issue.

Lenape also sought damages of at least $50 million based on the moratorium being an unconstitutional regulatory taking of the present market value of its mineral leases, wells, and supporting facilities already installed in the Town of Avon and adjoining areas.

In the March 15th decision, the Court dismissed all of Lenape’s claims. The Court focused its decision on explaining why it was rejecting Lenape’s claim of state law preemption, an issue it described as “the closest one presented.”

Lenape asserted that the Town’s law is expressly preempted and further runs afoul of the State’s comprehensive statutory and regulatory scheme regulating oil, natural gas and solution mining. A part of that law, ECL §23-0303(2) provides that it shall

supersede all local laws or ordinances relating to the regulation of the… gas… mining industr[y] with the exception of local jurisdiction over local roads and real property taxes.

Justice Wiggins stated that “were this provision considered in a vacuum, the Court would tend towards the view that it does indeed preempt Local Law at issue here.” He went on to note, however, that “case law compels the Court to reach a contrary conclusion.”

Justice Wiggins cited the Court of Appeals’ 1987 ruling in Frew Run in which the Court upheld a local zoning law that prohibited all sand and gravel mining operations in certain zoning districts in spite of an arguably similar preemption provision in the State’s comprehensive Mined Land Reclamation Law (“MLRL”) stating that the MLRL

shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from enacting… laws which impose stricter mined land reclamation standards or requirements than those found herein.

ECL §23-2703(2). The Court of Appeals rejected the claim that the town’s mining prohibition should be annulled in light of this preemption provision, finding, instead, that the MLRL only preempts laws that directly regulate the mode and method of extractive mining, and does not preempt a zoning ordinance that is concerned with general land use planning, which only “exerts an incidental control over any particular uses or business.”

Justice Wiggins questioned the Court of Appeal’s reasoning in Frew Run because “it ignores the maxim expression unius est exclusion alterius [i.e., the expression of one thing is the exclusion of another].” Justice Wiggins reasoned that, “by expressly setting aside from MLRL preemption local laws regarding ‘mined land reclamation standards,’ the MLRL made it clear that the Legislature did not intend to exclude zoning laws from preemption.” Nevertheless, Judge Wiggins concluded that he was compelled to follow the flawed Frew Run as “strong persuasive precedent.”

Lenape also argued that the Town’s moratorium was preempted because it conflicted with and frustrated ECL Article 23’s elaborate regulatory scheme for natural gas development as well as the statute’s stated purpose and policy objectives. The Court, however, decided that the Court of Appeals’ precedent with regard to Article 23’s express preclusion provision precludes the inquiring as to whether there is “implied preemption” of local natural gas drilling bans due to the broad scope of Article 23’s regulation of natural gas facilities. In doing so, it ignored recent Court of Appeals precedent considering implied and conflict preemption despite the existence of an express statutory provision.

The Court also dismissed Lenape’s claims against the Department on a legal technicality of improper service. Lenape had failed to serve a copy of its papers directly on the NY Attorney General as required by law for any litigation against a State agency. Therefore, not only did it fail to obtain an injunction, but the briefs filed with the court by the Department did not have to, nor did they, take a position on the issue of preemption.

Finally, the Court summarily dismissed the rest of Lenape’s claims. It dismissed as not ripe Lenape’s $50 million takings claim because Lenape had failed “to exhaust all of its administrative remedies under the Local Law,” which allows adversely impacted parties to seek a “hardship use variance” from the Town Zoning Board of Appeals.

The irony of the Lenape, Dryden and Middlefield decisions following the Court of Appeals’ decision in Frew Run is that a law which was intended by the Legislature to prevent the patchwork development of oil and gas resources is being interpreted by the courts in such a way as to support a patchwork approach by other means.

It is too early to tell if Lenape will appeal the Court’s decision. Importantly, if an appeal was filed, it would go to a different appeals court than the one considering the Dryden and Middlefield appeals and could set the stage for different outcomes at the appellate division level, following by consideration by New York’s highest court. This would then give the Court of Appeals the opportunity to definitively determine Frew Run’s applicability to the oil, gas and solution mining preemption provision.

If you require further information regarding the issues presented in this article, feel free to contact the chair of our Land Use practice area, Thomas Walsh, at twalsh@hblaw.com; or the chair of our Oil & Gas team, Yvonne Hennessey, at yhennessey@hblaw.com.