Sunday, March 24, 2013

Summary of Oral Arguments in the Dryden and Middlefield Cases Appealing
Decisions Upholding Local Bans Prohibiting Gas Drilling
By Nicole Dillingham, Otsego 2000

(Third Appellate Division, March 21, 2013)

The appeals from the lower court decisions in the Dryden and Middlefield cases
upholding local zoning laws,which banned heavy industry, including specifically gas
drilling, took place at the Third Appellate Division on Thursday, March 21. The Panel
consisted of 4 judges. They started the proceedings by indicating they had read all of
the briefs, including the amicus briefs, found them helpful and would address questions
to the attorneys based on all of this material. As the arguments unfolded the Judges
quickly demonstrated that they were well informed and fully engaged on the issues.
None of the attorneys was allowed to present more than a sentence or two of their
prepared remarks. Each in turn was repeatedly interrupted with questions from the
Court leading to a somewhat disjointed, but lively oral argument.

As attorney for the first Appellant, the bankrupt Norse Energy Corporation, Tom West,
argued first.He had a shaky start. He said that to make the capital commitments
necessary for gas extraction the industry needed “certainty” with respect to regulations,
not a patchwork of local rules. At this point he went so far as to urge the Court to “put
yourself in the shoes of the operators.” This quickly led to an admonition from the Chief
Judge that this was not the role of the Court. Standing in the shoes of one of the parties
was perhaps his role, but not the Court’s, which was obligated to interpret and the law to
all parties.

Mr. West then turned to the claimed important State interests that encouraged gas
drilling and by extension supported preemption of local laws. These included the
importance of domestic energy production,avoidance of "waste" of energy resources, and
even prevention of disruption of the energy markets. He said these interests were so
important, they could only be advanced through State and DEC control of drilling
operations unimpeded by local laws. (The Court later noted that these concerns are
largely questions of public policy that are for the legislature, not the courts, to decide.)
The Judges soon steered Mr. West to a discussion of the statutory construction of the
preemption language in the Oil and Gas Law(ECL 2-303). The Court indicted that
clearly the legislature could preempt local laws, but when they do so they must be “very
clear”. As discussed in the briefs, ECL 2-303provides that local laws related to the
“regulation” of the industry are preempted; the only exceptions are for local laws
concerning road use and property taxation. The issue before the Court is whether local
zoning laws of general applicability should be considered “regulation” of gas drilling
within the meaning of the preemption clause.

Interpretation of similar language in the context of the mining was discussed in the case
of Frew Run. There,the Court of Appeals found that preemption of local “regulation” of
the mining industry did not invalidate local zoning, because zoning was not a direct
“regulation” of the mining industry. The Court asked Mr. West how mining differed from
gas drilling? He responded that mining impacted surface land use more directly. Mr.

West claimed that fracking has been practiced for decades in New York without incident,
and that recent technological developments in hydraulic fracturing now made it more
like brain surgery than mining.

The Court asked whether the key was to treat the term “regulation”in ECL 2-303 as
concerned with the “how” of drilling, while zoning laws controlled the “where”, mirroring
an argument made by attorneys for the Towns. At this point Tom West argued that
regulation of the “where” of drilling must be interpreted to be included in the preemption
clause to avoid waste, an express State interest. For example, he urged the Court to
consider that well spacing, which concerned the “where” of drilling was clearly a matter
for the DEC. The Court then asked whether State control of spacing units could be
interpreted to be limited to areas where fracking was allowed by local zoning? Mr. West
asked the Court “not to fall into the Frew Run trap”. In his view ECL 2-303 exempted the
industry from all local laws, other than laws related to road use and taxation.

The Judges asked Mr. West several tough questions about the extent of the
immunity from local regulation granted the industry under his interpretation of the law.
The Judges asked incredulously whether it was his position that there was no local
control whatsoever with respect to drilling,even near or under sensitive local sites, such
as drilling under reservoirs? Also, the Judges asked: “Is it you position that that towns
have absolutely no authority even as to drilling 24 hours per day?” Mr. West replied that
all such regulation was for the DEC and that except for traffic and taxation, the Towns
had no authority. He stated that if local noise regulations were violated it was up to the
DEC,and only the DEC,to control it.

Tom West reiterated that the industry simply could not operate with a myriad of local
laws. The Chief Judge then told Mr. West that she was concerned that on pg. 7 of his
brief he went so far as to say that no prudent operator would ever invest in a state where
it operations were subject to the “fickle” decisions of municipal boards. The Judge
indicated concern that Mr. West would dismiss hard-working local Town Boards as
“fickle”. Mr. West admitted it might have been a poor choice of words, but stated it was
based on his own “real world experience”.

Scott Kurkowski argued the case for Jennifer Huntington. He urged the court to consider
that the Middlefield ordinance was overbroad because it would ban not only horizontal
drilling, but also vertical wells, which Ms. Huntington was depicted as eager to profit
from. He also maintained that there is a clear State interest to maximize gas extraction
that should not be impaired by local laws, such as the Middlefield zoning law. In his
view, the State’s goal to maximize energy extraction was clear, in the interest of all the
people of New York, and not to be compromised by local government. He distinguished
Frew Run and other cases under the Mined Land Reclamation Law as inapplicable
because “we have never had a gravel crisis in our country.” He insisted that risk of
another energy crisis required the State to take control of all laws which might affect gas
extraction away from local government and that the only traffic and taxation, as
specifically mentioned in ECL 2-303, were excluded from the preemption clause.

The Court asked Mr. Kurkowski why, if such broad preemption was intended, the
legislature did not insert specific language preempting zoning laws in ECL 2-303,such
as the examples cited by attorneys for Dryden at p. 24 of their brief. Mr. Kurkowski
pressed that the statute was clear; the only exceptions for local control were road
regulations and taxation. He then turned to reading legislative history into the record
claiming the legislative history supported his view that broad preemption was
intended.The Judges pointed out that legislative history is irrelevant if the law is clear on
its face as Mr. Kurkowski claimed. The Court also politely pointed out that policy
questions with respect to energy policy generally were not for the courts to decide; the
job of the courts was to apply the law.

Alan Knauf, of Knauf Shaw LLP, representing Dryden Resources Awareness Coalition,
commenced arguments in support of the Town of Dryden. Mr. Knauf began by stating
that Frew Runwas controlling and could not be distinguished. He was immediately
interrupted by questions from the Court regarding the outer bounds of the claims being
advanced by the industry. The Court focused on three questions. First, the Court asked
whether even local noise regulations would be deemed “regulation” and therefore
preempted. Mr. Knauf answered that “probably” they would be deemed regulations and
would be preempted.

Secondly, the Court again referenced the cases cited at page 24 of the Dryden brief
indicating that “the legislature knows how to” preempt local zoning when it wants to do
so. They noted, however, that clarifications were added to the Mining Law to protect local
zoning after the Frew Run decision was decided, but that similar changes were not
added to the Oil and Gas Law. Mr. Knauf emphasized that the plain language of the
ECL 2-303supports the Town’s position, that the ECL 2-303 is not ambiguous, and that
legislative history is, therefore, irrelevant.

Thirdly, the court turned to a discussion of the policy to avoid “waste” expressing
concern that unless an economic process for the retrieval of gas could be implemented
the resource might be wasted. Regarding the industry’s claimed need for contiguous
spacing units to avoid waste, the Court asked how the industry would know where it
could start and stop drilling? Similarly, the Court asked whether zoning, which is
generally concerned with surface activities, extended to below ground impacts. The
Court was interested in whether a town could control activities under its borders that
originated from a neighboring town and how an operator would know where to stop if
certain lands were not leased for drilling. The Court noted cemeteries, which involved
subsurface activity, were subject to zoning, but was uncertain about how the zoning
provisions in issue would be applied. Mr. Knauf stated that zoning laws probably did
extend to below ground activities and that the gas remains trapped under ground and is
not therefore wasted in any event.

Next, Deborah Goldberg of Earthjustice presented additional, compelling argument for
the Town of Dryden. Immediately upon stepping to the podium and outlining her
intended remarks, she too was interrupted by questions, many of which had been posed
to other counsel. The Court first asked whether town-wide zoning was unique either in
New York or other jurisdictions? Ms. Goldberg answered that under land use powers, it
was in fact common to zone-out certain activities on a town-wide basis as the Town of
Dryden had done here. It was a commonly utilized expression of local zoning power.
The Court then returned to questions about the legislature’s power to preempt, again
citing page 24 of the Earthjustice brief, where examples of specific preemption clauses
upheld by the courts were cited. Ms. Goldberg urged the Court to apply those cases and
utilize standard principles of statutory construction to the issue of the preemption clause
in ECL 2-303. She pointed out that the enacting clause of 2-303 dealt only with
“regulation of an industry”; it did not reach “regulation of land use.” The exceptions
clause,dealing with road use and taxation, must be read as limited to the scope of the
enacting clause.

When asked about application of zoning laws to below ground activities, Ms.
Goldberg conceded that the Dryden zoning law expressly regulated only surface
activities, although zoning laws frequently regulated at least the near surface, such as
burials.She explained that this is a unique feature of the Dryden law.

The Court then again asked if a town could be deprived of power to regulate even 24-
hour noise and dust if it allows fracking? Ms. Goldberg indicated that towns
generally have the right to regulate noise within their borders. However if fracking is
allowed by local zoning, then certain powers like those to regulate noise may not be
retained. (The question of the enforceability of local laws of general applicability such as
noise restrictions was not in issue in the cases now before the Court;these cases
concerned only the validity of a complete bans.)

Lastly, the court returned to the issue of potential of waste of the resource. Ms.
Goldberg was asked if the highest and best use of the technology, to avoid waste,
required contiguous extraction units. Ms. Goldberg stated the concerns about waste
must be tempered by concerns for the welfare of all citizens and that issues about waste
only arise once extraction has been commenced, and only in zones where drilling is

Lastly, John J. Henry, of Whiteman, Osterman and Hanna, stepped forward to
represent the Town of Middlefield. Like all the other counsel, his argument was
consumed by questions from the bench, which he ably handled. Initially, the Court
asked if Mr. Henry agreed that lateral drilling from a town that allowed drilling would be
allowed to intrude under a town that banned it? Mr. Henry thoughtfully noted that he
could not at this time fully answer this question, as it was hypothetical and not presently
before the Court.

He was also asked if he agreed that the exceptions in ECL 2-303 regarding road use
and taxation could reasonably be considered “regulations” within the enabling clause of
the statute. For example, the Court asked how taxation would be considered a
regulation. Mr. Henry replied that the Court need not consider the exceptions.
Appropriate statutory construction of ECL 2-303 started and ended with the enabling
clause, which clearly stated that preemption applied only to “regulation of the industry”,
not regulation of land use.

The Court went on to ask what if a “land use” regulation incidentally impacts the
industry? Mr. Henry pointed out that this was an “implied pre-emption” argument that
should be rejected in light of the express preemption language in the statute. And what
if the industry needs a large geographic area in which to operate, asked one of the
Judges? Mr. Henry responded by emphasizing that in order to preempt the traditional
power of towns to exercise home rule to enact laws of general applicability, the
legislature must be “explicit” and very clear. He stated the Frew Run decision cannot be
distinguished and is controlling on the issues before this Court.

In conclusion, Tom West reserved a few minutes of time for rebuttal. He used this time
to make three points. First, that the language of Frew Run is not identical to that of ECL
2-303 and that therefore it is not binding precedent. Second, urging the Court to
invalidate the zoning bans so as to protect the “correlative rights” of landowners who
wish to profit from drilling. Lastly, he offered rather weakly that perhaps the ECL 2-303
could have been written more clearly to expressly specify broad preemption, but that the
Court must consider that the legislature may have had a "bad day” and the Court should
find preemption nonetheless. The notion that the legislature simply had a bad day when
writing ECL 2-303 was a novel last thought with which to end the argument.
At least 8 amicus briefs were accepted for filing. Brewery Ommegang and other
businesses submitted an amicus brief, prepared by John Barone of Tooher and Barone,
supporting home rule because it was crucial to protecting local business and economic
activity. Also, Otsego 2000 joined the Preservation League of New York and several
other environmental groups in a brief supporting home rule with an emphasis on the
need for local control over community character and historic assets, prepared by Kate
Sinding and Dan Raichel of NRDC.We are very grateful for the contributions made to
the presentation of these issues by Earthjustice on behalf of Town of Dryden,
Whiteman, Osterman and Hanna, on behalf of Town of Middlefield, NRDC on behalf of
environmental groups, and Tooher and Barone on behalf of businesses, among many
other fine briefs.

(The Middlefield briefs and all of the amicus briefs can be found on the Otsego 2000 website: )

It is not possible to predict with any certainty how or when the Court will rule, but those
familiar with appellate procedures estimate a decision should be expected in 4-8
weeks.Since the panel was composed of 4 judges, we are informed a 2/2 split would
result in affirmance of the judgments below. Thus, the appellants need three judges to
overturn the decisions. We remain hopeful, based on the excellent briefs and arguments
presented, that the decision, when issued,will uphold home rule and the carefully
reasoned decisions of the trial courts.

Nicole Dillingham
March 23, 2013

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