Friday, February 8, 2013

Latest Court Case- John Holko of Lenape Resources vs Town of Avon

LATEST COURT CASE : Last Monday in the Livingston County Courthouse in Geneseo, New York, John Holko of Lenape Resources brought a lawsuit against the Town of Avon to invalidate their recent Moratorium on Natural Gas Development or, if the Moratorium stands, for $50 million for lost assets and earnings. This case joins three other cases already in various State courts that are focused on the issue of whether local towns or the State determine where drilling occurs. Five news vans were parked in front of the courthouse to cover about 20 students from the nearby college demonstrating outside with signs and props. Seated inside were about an equal number of their older counterparts. Also seated in the audience were several Lenape employees and leaseholders. Lenape operates about 20 wells in Avon. It has been a good corporate citizen for close to 30 years without incident. It is suing the Town of Avon because the recent action prevents Lenape from expanding its operations to fulfill its contracts. Without guarantees for possible expansion, Lenape goes out of business. It loses its current assets (leases, pipelines, offices, other fixed property, etc.) and the value of its business gong forward. The Town of Avon asserts that the moratorium still allows Lenape to extract gas from existing wells through a grandfather clause. It just bars further expansion temporarily. Michael Joy of ReedSmith represented John Holko of Lenape Resources. Mr. McLarin represented the Town of Avon. The Attorney Generals office sent Steve Nagle, an attorney, to represent the DEC, a co-defendant in the case. Judge Robert Wiggins heard the case. In a nod to the many drawn to the courthouse by the current controversy, all agreed that the case did not involve the practice of hydraulic fracturing, but rather the law. Mr. Joy led off with a brief history of oil and gas development in western NY and its recent decline due to activism on part of antis and inaction on part of political leadership. Small oil and gas businesses like Lenape are now squeezed by the arbitrariness of individual Town Boards. Business needs certainty in order to thrive. When a business depends on the results of the election cycle, that certainty vanishes. History is important in this context. In 1981 the legislature recognized that geology and local political boundaries don’t coincide. To stem the growing chaos at that time (local towns were making a patchwork of regulations) the legislature wrote new laws. One key element was the Oil, Gas, and Solution Mining section of the Environmental Conservation Law (ECL), specifically Article 23 - 0303 (2) with its preemption of “all local laws or ordinances relating to the regulation of the oil, gas, and solution mining industries” except in matters dealing with roads and taxes. Under this statute local zoning is not permissible. The anti camp asserts that the Mining Land Reclamation Law (MLRL) is substantially the same as the OGSL Simply put, their argument is since MLRL allows zoning, OGSM must also allow zoning. Mr. Joy acknowledged the findings in the Dryden and Middlefield cases which support this line of thinking but asked the Judge Wiggins to look further. He noted the DEC’s long term, ordinary practice in regard to the oil and gas industry underscores its preemption powers. Since enactment in 1981, the DEC has been telling drillers where they can (or cannot) put their wells through spacing, setbacks, and other rules and regulations. Is this the legislature’s intent? Obviously, it is. No entity has objected or tried to take over the function of placing wells for about 30 years. The judges in the Dryden and Middlefield cases, in coming to the conclusion that the DEC only has the power to tell the driller HOW to drill, not WHERE to drill, didn’t take the history of day-to-day standard operating procedures of the industry into account. Mr. Joy asked the judge to re-read the law, note the history, and come to his own conclusions. In spite of this line of logic, Judge Wiggins was still concerned with precedent set by Dryden and Middlefield. Mr. Joy once again advised the judge that ECL, Article 23 -0303 (2) preempted zoning and stated that Envirogas v. Kianatone, the only relevant case, also agreed with State preemption. His suggestion again -- please read the law and judge for yourself. Mr. McLarin, representing the Town of Avon, stressed precedent, citing Dryden and Middlefield, and adding the Binghamton case (Jeffries v. Ryan). In Jeffries v. Ryan, the court dismissed the Binghamton ban but commented favorably on the reasoning in Dryden and Middlefield (Editor’s Note -- Dryden and Middlefield should be overturned at the appellate division. Middlefield goes back to court on March 21. Expect a decision about 2 months later. Then it will go to the Court of Appeals -- another year in the courts before the matter is finally settled). Mr. McLarin also noted that Mr. Holko of Lenape Resources did not make use of a hardship provision in the local banning law. Mr. Holko’s lack of action in this instance precludes him from a takings argument later on. Mr. McLarin further stated that the Court should not supersede local democratically elected officials. In questioning, the judge asked Mr. McLarin if Avon was allowed to shut down a business such as Lenape Resources. Mr. Mclarin answered no. There was a grandfather clause in the ordinance and there are other legal remedies. The DEC, represented by Steve Nagle from the Attorney General’s Office, argued on technical grounds that DEC should not be a party to this case. In the summation, Mr. Joy noted that historical context is important. Since 1981 drillers haven’t had to go to towns for drilling permits. They go to the DEC. Permits indicate location of wells, WHERE wells are permitted. Permitting is done at the State level, not the Town. Both HOW to drill and WHERE to drill are State prerogatives. Mr. McLarin restated that towns could not regulate oil and gas activities but they could determine WHERE drilling could occur. Furthermore, he said, Towns have always had the right to decide what activities could occur within their borders. Mr. Joy brought up a interesting contradiction in Mr. McLarin’s arguments. If Lenape is required to seek a hardship provision in order to drill, isn’t this a form of permitting? If a business has to get something (permission) in order to operate, then it is regulated. But, he noted, Mr. McLarin just said that Towns could not regulate oil and gas … Judge Wiggins will review written and oral arguments before returning a decision. He indicated it could be a speedy decision. Mr. Joy estimated this could be as soon as 6 weeks. ENDNOTE: Courthouse records in Cooperstown show that Lenape Resources has 26 leases in Otego, 8 in Butternuts, and 5 in Unadilla.

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