On February 17, 2015, the Supreme Court of Ohio ruled that certain oil and gas-related ordinances of the city of Munroe Falls are preempted by state law. State ex rel. Morrison v. Beck Energy Corp., 2015-Ohio-485 (Read the opinion here). In this case, Beck Energy obtained a permit from the Ohio Department of Natural Resources (“ODNR”) to drill an oil and gas well within the city of Munroe Falls. Beck Energy, however, did not comply with Munroe Falls’ ordinances specifically regulating oil and gas drilling, including requiring a local zoning certificate (which included a one-year waiting period before drilling could begin), fees, performance bonds, and a public hearing. The City sought and was granted an injuction by the trial court. Beck Energy appealed on the basis that the local ordinances were in conflict with the state statutory scheme set forth in R.C. 1509, which granted ODNR the “sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations.” After the 9th District Court of Appeals held that the City’s ordinances conflicted with state law and ODNR had exclusive jurisdiction, the issue before the Ohio Supreme Court was whether Munroe Falls’ ordinances were a valid exercise of the City’s power under the Home Rule Amendment to the Ohio Constitution.
Under “Home Rule”, municipalities have authority “to exercise all powers of local self-government and to adopt and enforce within their limits such local police, sanitary and other similar regulations, as are not in conflict with general laws.” While a municipality’s police power is broad, a municipal ordinance cannot conflict with “general laws” of the state. To determine whether there was a conflict between Munroe Falls’ ordinances and R.C. 1509, the Ohio Supreme Court applied a three-step conflict analysis to determine whether: (1) the ordinance is an exercise of the police power; (2) the state statute is a general law; and (3) the ordinance conflicts with the statute. The Court concluded that the ordinances were an exercise of police power and that R.C. 1509.02 was a general law. As to whether there was an actual conflict, the Court determined that the ordinances prohibited oil and gas drilling without local approval. But, state law specifically allows for the drilling of a well if a permit is issued by ODNR. Further, R.C. 1509.02 explicitly reserves for the state, to the exclusion of local governments, the right to regulate “all aspects” of oil and gas operations. In the end, the Ohio Supreme Court held that the Home Rule Amendment to the Ohio Constitution does not allow a municipality to “discriminate against, unfairly impede, or obstruct oil and gas activities and production operations that the state has permitted under R.C. Chapter 1509.” As such, Munroe Falls’ oil and gas related-ordinances were in conflict and, therefore, preempted by state law.
Significantly, the Court limited its holding to the ordinances at issue in this case, and as such, was not as sweeping as recent decisions by the high courts of New York and Pennsylvania. Additionally, the Court potentially allowed room for a future challenge by municipalities to regulate oil and gas within its borders by using its zoning powers under the Home Rule Amendment. Justice O’Donnell in his concurring opinion explains that “[n]othing in R.C. Chapter 1509 expressly addresses zoning or requires ODNR to regulate the location of oil and gas wells to ensure compatibility with local land use, preserve property values, effectuate a municipality’s long-term plan for development, or uphold any of the other traditional goals of zoning.” Consequently, while this decision was a win for state regulators and oil and gas production companies, the battle between local and state regulation of oil and gas will likely continue both in Ohio and nationally.