On June 30, 2014, the New York State Court of Appeals, the highest court in the state, held that municipalities can effectively “zone out” oil and gas operations by passing zoning ordinances that ban oil and gas production activities, including hydraulic fracturing, within municipal boundaries.  The court rejected claims that the state’s Oil Gas and Solution Mining Law (OGSML) preempts efforts on behalf of local authorities to ban hydraulic fracturing operations.

In 2011, the Town of Dryden, New York banned hydraulic fracturing by passing a zoning ordinance that prohibited “all activities related to the exploration for, and the production or storage of, natural gas and petroleum.” Norse Energy challenged the ordinance, arguing that the Town of Dryden lacked authority to prohibit natural gas exploration and extraction activities because the OGSML preempts local zoning laws that curtail energy production.  The lower court concluded there was no evidence of express or implied preemption in the OGSML.    

In May 2013, an appellate panel of the New York Supreme Court affirmed the decision of the lower court, holding that local municipalities have the power to enact zoning ordinances that ban “all activities related to the exploration for, and the production or storage of, natural gas and petroleum within its borders.”

The Dryden case was heard with a similar case between the Town of Middlefield, New York and Cooperstown Holstein Corporation (“CHC”).  In 2011, the Town of Middlefield adopted a zoning ordinance prohibiting “oil, gas and solution mining and drilling” within its boundaries.  CHC brought an action to set aside the zoning law, claiming that it was preempted by the OGSML.  As in the Town of Dryden case, both the lower court and the appellate court upheld the legality of the zoning law.

In its June 30th decision, the New York State Court of Appeals considered the power ceded to municipalities in New York under their home rule authority and whether the text of the OGSML includes any provisions that preempt zoning ordinances that ban oil and gas activities in the state.

The court distinguished between local laws that purport to regulate the actual operations of oil and gas activities (which are preempted by the OGSML) and zoning ordinances that restrict or prohibit certain land uses within town boundaries (which are not).  In the court’s view, the zoning laws at issue were directed at regulating land use generally and did not attempt to govern the details, procedures or operations of the oil and gas industry.

While the court recognized that the local bans would undeniably have an impact on oil and gas businesses and individual landowners in Dryden and Middlefield, the court found that the plain language of the OGSML, the statutory scheme, and the legislative history did not support preemption.  The court affirmed the decisions of the appellate courts.

The dissent points out that the “zoning ordinances of Dryden and Middlefield do more than just regulate land use, they regulate oil, gas and solution mining industries under the pretext of zoning.”  By creating a blanket ban on oil and gas activities within their boundaries, the dissent noted that these towns were going above and beyond zoning and, instead, regulating those industries.

The court’s decision in the Dryden and Middlefield cases will have a significant impact on future development of the New York Marcellus Shale.  Although the State of New York placed a moratorium on hydraulic fracturing in July 2008, any future attempts to lift the moratorium could prove irrelevant in light of this ruling.  With as many as 170 municipalities enacting bans or moratoriums on hydraulic fracturing and more expected to follow, absent a change in the OGSML, future oil and gas development in the state is at risk.