New York Court of Appeals Rules Towns Can Ban Fracking
On June 30, 2014, the New York State Court of Appeals decision in Matter of Wallach v. Town of Dryden affirmed two lower court rulings that upheld municipalities’ “home rule” authority to regulate land use—specifically, by adopting zoning ordinances to restrict or ban the natural gas drilling method known as high-volume hydraulic fracturing (“fracking”). In the 5-2 ruling, the Court of Appeals declared valid zoning ordinances enacted by the towns of Dryden and Middlefield that banned fracking within their respective borders in order to preserve their community’s “small-town” character, health, and environment. The Court of Appeals held that the zoning bans were not preempted by the supersession clause of New York State’s Oil, and Gas and Solution Mining Law (“OGSML”), and affirmed the concept of “home rule,” which vests local governments with broad powers to enact local laws to protect the health, safety, and welfare of persons and property within their jurisdiction.
New York State’s Oil, Gas and Solution Mining Law (“OGSML”)
The OGSML regulates natural gas exploration in New York. The appellants that challenged Dryden’s and Middlefield’s zoning bans focused on a supersession clause contained in the OGSML, which states in relevant part: “[t]he 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 government jurisdiction over local roads or the rights of local governments under the real property tax law.” The appellants argued that this supersession clause expressly and impliedly preempted the municipalities from enacting such zoning bans on oil and gas production.
The OGSML Does Not Preempt Municipal Zoning Authority
Challenging Dryden’s ban, Norse Energy Corp. USA—an energy company now in bankruptcy proceedings—had acquired oil and gas leases back in 2006, prior to the town’s 2011 amendment to its zoning ordinance banning fracking. The Appellate Division, Third Department, considered whether a local municipality may use its power to regulate land use to prohibit exploration for, and production of, oil and natural gas. Citing Matter of Frew Run Gravel Products, Inc. v. Town of Carroll, which held that a similar supersession clause in the Mined Land Reclamation Law (“MLRL”) did not preempt local zoning ordinances, the court concluded that Dryden’s fracking ban was not preempted by the OGSML.
Challenging Middlefield’s ban, Cooperstown Holstein Corp.—a local dairy farm—had leased its land to a gas drilling company four years prior to the town’s enactment in 2011 of its zoning ordinance banning fracking. Cooperstown Holstein’s lawyers claimed the ban stripped landowners of their mineral rights and that, under the New York State Environmental Conservation Law (“ECL”), the State Department of Environmental Conservation (“DEC”) held all regulatory authority over drilling. The trial court focused on the legislative history and statutory scheme of the OGSML, noting that the OGSML and its subsequent amendments “specifically dealt with the activity of the industry, i.e., method and manner of drilling and the like,” and the supersession clause was not intended by the Legislature “to abrogate the constitutional and statutory authority vested in local municipalities to enact legislation affecting land use.” Citing Frew Run and Matter of Gernatt Asphalt Products v. Town of Sardinia, in which the Court of Appeals decided that a complete ban on gravel mining was not preempted by the MLRL, the trial court held that the supersession clause does not preempt local regulations that relate to land use which may have an “incidental” impact on the oil, gas, and solution drilling or mining industry within the State but do not attempt to govern the details, procedures, or operations of those industries. The trial court reasoned that: “The state maintains control of the ‘how’ of such procedures while the municipalities maintain control over the ‘where’ of such exploration.”
In Matter of Wallach, the Court of Appeals consolidated the appeals of Norse Energy and Cooperstown Holstein and affirmed the fracking bans put in place by both the Town of Dryden and the Town of Middlefield as reasonable exercises of their zoning authority. The Court of Appeals emphasized that it was not passing judgment on the merits of fracking itself but on the legal authority of the towns to enact the bans. “Plainly, the zoning laws in these cases are directed at regulating land use generally and do not attempt to govern the details, procedures or operations of the oil and gas industries,” Judge Victoria Graffeo reiterated, writing for the majority. In dissent, Judge Eugene Pigott Jr. said the challenged ordinances encroached on the DEC’s regulatory authority of these industries, extending beyond land-use regulation by creating a “blanket ban on an entire industry without specifying the zones where such uses are prohibited.”
What is Fracking?
The controversial practice involves drilling a well several thousand feet below ground surface and then turning the well horizontally, injecting millions of gallons of high pressure fluids to fracture the shale formation in which oil and natural gas is embedded. This “frack fluid” contains chemical additives, sand, and other particulates that dilate the fractures while the oil and natural gas is released and collected. Critics say the procedure may cause harm to public health and the environment, including contaminating water supplies and causing hazardous gas emissions and seismic activity near wells. Proponents cite the significant benefit to local economies from new jobs and tax revenues, as well as the advancement of our nation’s energy independence.
What are the Implications for the Oil and Gas Industry?
This decision is a huge boost for municipalities that are considering banning fracking within their borders, giving them clear legal authority to regulate and ban certain kinds of natural resource extraction. More than 170 towns and cities have instituted bans or moratoria on drilling. Conversely more than 40 municipalities in New York, mostly in areas atop the Marcellus Shale—one of the most prolific natural gas regions in the world, 20% of which underlies the State—have passed resolutions in support of fracking. According to Independent Oil and Gas Association of New York Executive Director Brad Gill, this ruling “will have a real chilling effect . . . on New York’s ability to attract new investment capital to the state for leasing and drilling.” More likely, the ruling will sharpen the divide between wealthy and poor communities where fracking will be welcomed to boost the local economy.
State legislative action to undo the local bans is possible but unlikely. New York has been under a moratorium on fracking since 2008 as regulators investigate the impact of drilling on the environment and public health. And Governor Andrew Cuomo has indicated that localities will retain some regulatory control over fracking in any regulatory scheme the State enacts.
For more information concerning the matters discussed in this publication, please contact the authors, Christopher Rizzo (212-238-8677, email@example.com), Christine A. Fazio (212-238-8754, firstname.lastname@example.org) or Victor J. Gallo (212-238-8771, email@example.com), or your regular CL&M attorney. Summer associate Josephine J. Yoon assisted in the preparation of this advisory.
 Matter of Wallach v. Town of Dryden,—N.E.3d—, 2014 N.Y. Slip Op. 04875 (2014).
 ECL § 23-0301 et seq.
 ECL § 23-0303(2).
 Matter of Norse Energy Corp. USA v. Town of Dryden, 964 N.Y.S.2d 714 (3d Dep’t 2013), aff’g Anschutz Exploration Corp. v. Town of Dryden, 940 N.Y.S.2d 458 (N.Y. Sup. Ct. 2012).
 Matter of Frew Run Gravel Products, Inc. v. Town of Carroll, 71 N.Y.2d 126 (1987).
 Id. at 721–23.
 Cooperstown Holstein Corp. v. Town of Middlefield, 964 N.Y.S.2d 431 (3d Dep’t 2013), aff’g 943 N.Y.S.2d 722 (N.Y. Sup. Ct. 2012).
 Cooperstown Holstein, 943 N.Y.S.2d at 728.
 Matter of Gernatt Asphalt Products v. Town of Sardinia, 87 N.Y.2d 668 (1996).
 Id. at 729–30.
 Id. at 729.
Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
© 2017 Carter Ledyard & Milburn LLP.
© Copyright 2014