New York court confirms home rule, municipal fracing bans stand

ALBANY COUNTY, NY—In May, the New York Supreme Court Appellate Division ruled that towns have the right to ban hydraulic fracturing and natural gas drilling in a 4-0 decision.

The ruling stemmed from two lawsuits, Norse Energy vs. the Town of Dryden (Tompkins County) and Cooperstown Holstein vs. Town of Middlefield (Otsego County). Both courts found that land use restrictions set by municipalities were not pre-empted by New York's Oil and Gas Law.

In New York, the Supreme Court Appellate Division, 3rd Judicial Department, serves as the second-highest court. Legal analysts predict that since both courts have ruled in favor of the local bans, it is unlikely that New York's final Court of Appeals will hear the cases a third time. Largely, these decisions may represent the end of a road for landowners seeking to lease properties in New York communities that resist fracing activities.

In June, the Town of Dryden petitioned New York's Court of Appeals to reject a request to appeal its fracing ban. The town reportedly argued that decisions against the previous appeal should be enough to uphold the ruling.

The midlevel court of appeals ruled unanimously in favor of Dryden's ban. According to court documents, the New York Court of Appeals has granted a mere 64 appeals out of 999 requests for nonsplit Appellate decisions in 2012.

To date, nearly 150 municipalities in New York have adopted bans or moratoria on drilling since the debate over fracing in the state began. Both Dryden and Middlefield were among the first towns to do so. Despite the State's current regulatory moratorium on high-pressure hydraulic fracturing, New York towns are passing preemptive legislation to avoid future development.

"I think these decisions give Governor Cuomo an out," said James A. Pardo, partner, McDermott Will & Emery LLP. "With the local preemption debate settled, the governor can now put in place the most comprehensive regulations for hydraulic fracturing in the US." There has been speculation that New York's inability to pass fracing regulations has been driven by political interests. Passing those regulations would open the state for development, thereby appeasing oil and gas interests and possibly infuriating those opposing the practice of hydraulic fracturing. "With this Appellate Division decision in place, the onus will now be on local communities to ban fracing within their jurisdictions in light of statewide regulations that, while likely very restrictive, will allow fracing to take place," Pardo said.

Some of the issues in New York's fracing debate revolve around the state's Oil and Gas Law, which was amended in the late 1970s to address what was then considered an energy crisis. A provision in the updated rules provided that state regulations preempted all local laws relating to oil and gas and solution mining, with the sole exception of rules regarding taxation and roads. "This provision has taken on a new life with hydraulic fracturing," Pardo said. "It's a new paradigm."

The rules, as interpreted by the court, provide a regulatory framework for local municipalities. "Basically, the trial court and appellate court rulings say that a town can tell an operator ‘not' to drill at all, but if they do allow drilling they cannot tell you how the operations must be conducted," Pardo said. "Operational rules are reserved solely for state regulatory authorities." Hence, towns are banning oil and gas operations through local zoning laws. Court decisions have confirmed these decisions to be in line with the New York State Constitution.

Recent polling also has shown that New York voters are split on the issue of hydraulic fracturing. In upstate New York, where communities are often economically depressed, the polling numbers shift in favor of development. "Many of these communities will welcome oil and gas activity," Pardo said. "You'll see unconventional development take place in New York."

At the time of this writing, New York regulators had not yet announced any final rules that would allow hydraulic fracturing, and Pardo believes these will not be issued before late-2013.

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