Ohio supreme court strikes down local regulation of oil and gas operations

On February 17, 2015, the Ohio Supreme Court issued a long-awaited opinion in State ex rel. Morrison v. Beck Energy Corp. The Court, in a divided opinion (3-1-3), held that Ohio’s Home Rule Amendment does not allow a local municipality to enforce its own permitting scheme in addition to the statewide scheme adopted under Ohio Revised Code Chapter 1509.

The case arose after Beck Energy Corporation (Beck) obtained a permit from the Ohio Department of Natural Resources (ODNR) in 2011 to drill an oil and gas well within the city limits of Munroe Falls, Ohio. Munroe Falls then obtained a permanent injunction from a trial court blocking the drilling until Beck complied with five local ordinances. These local ordinances required Beck to:

1. obtain a “zoning certificate” from the local zoning inspector
2. retain the zoning certificate for one year prior to commencing drilling
3. pay a fee of $800
4. pay a deposit of $2,000 for a performance bond
5. hold a public hearing for all property owners and residents within 1,000 feet of the proposed well head three weeks prior to commencing drilling operations

Munroe Falls claimed it was entitled to enforce its ordinances pursuant to the Ohio Home Rule Amendment. However, the Court, in a plurality opinion, reasoned that a municipal ordinance must yield to a state statute if:

1. the ordinance is an exercise of police power, rather than of local self-government
2. the statute is a general law
3. the ordinance is in conflict with the statute

The Court determined that all three elements were satisfied and, therefore, the Monroe Falls ordinances had to yield to Chapter 1509. First, the Court held that the local ordinances in question constituted an exercise of police power because they prohibited the act of drilling without a municipal permit. The Court then determined that Chapter 1509, and specifically Section 1509.02, qualified as a general law because it operates uniformly throughout the state, notwithstanding the fact that not all parts of Ohio are capable of producing oil and gas. Finally, in the plurality opinion, the Court held that the ordinances conflict with the statewide scheme because they restrict activities which the state framework allows.

Notwithstanding the potentially broad scope of this holding, the plurality limited its judgment to the type of double-licensing ordinances at issue in Munroe Falls and declined to rule on whether other local ordinances could coexist with Chapter 1509.

In his concurrence, Justice O’Donnell concurred with the plurality’s determination that Section 1509.02 preempts local permitting ordinances regulating construction and operation of oil and gas wells within the municipality. Because the Munroe Falls ordinances would have required a city permit and compliance with the city’s regulations on technical aspects of drilling, Judge O’Donnell joined in the plurality’s judgment. He emphasized, however, that the appeal before the Court did not present the issue of local land use ordinances that address only traditional concerns of zoning laws, and whether a municipality has the authority to enact such ordinances remained to be decided.

In an opinion joined by two other justices (who also wrote separately), Justice Lanzinger dissented on the grounds that it was not clear to her that the zoning ordinances at issue actually conflict with the statute. The dissent points to other Ohio laws in which the legislature expressly prohibited the enforcement of local zoning ordinances as part of a statewide statute, and notes that Section 1509.02 does not specifically prohibit local zoning regulation.

The dissent argues that municipalities may supplement general law with non-conflicting zoning ordinances. The dissent would, therefore, have remanded to the court of appeals to examine whether the Munroe Falls ordinances could be enforced as zoning regulations that supplement, rather than supplant, the statewide regulation of oil and gas drilling.

Notably, and in contrast to the Pennsylvania Supreme Court’s 2013 position in Robinson Township v. Commonwealth, both the concurrence and one of the dissenting opinions suggested that the Ohio legislature could entirely override all local zoning ordinances that affect oil and gas development by simply making such language explicit in Chapter 1509. Read Norton Rose Fulbright’s white paper on the Robinson Township decision.

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This article was prepared by Janet McQuaid (janet.mcquaid@nortonrosefulbright.com or +1 724 416 0427) , Jeremy Mercer (jeremy.mercer@nortonrosefulbright.com or +1 724 416 0440), Shannon DeHont (shannon.dehont@nortonrosefulbright.com or +1 724 416 0431) and Michael Gaetani (michael.gaetani@nortonrosefulbright.com or +1 724 416 0429) from Norton Rose Fulbright's Energy Practice.