N.Y. Dairy Farm With Gas Leases Urges End to Drill Ban

A New York dairy farm and a Norwegian energy company asked an appeals court to throw out drilling bans imposed by two towns as a five-year moratorium on hydraulic fracturing in the state nears an end.

Attorneys for the dairy farm, Cooperstown Holstein Corp., and Norse Energy Corp. (NEC) urged the four-judge state appellate panel in Albany, New York, to overturn lower-court rulings that upheld drilling bans instituted in the towns of Dryden and Middlefield, saying state regulations of the oil and gas industry supersede local zoning laws.

Thomas West, an attorney for Norse Energy, argued state regulations can pre-empt local laws, especially if for “the greater good.” Municipalities can still have some say in the process through the Department of Environmental Conservation, he said.

“Nothing limits local government from choosing where to permit it,” West said.

Governor Andrew Cuomo, a Democrat, is poised to decide whether to allow the practice, known as fracking, in the next few weeks as the moratorium draws to an end. Fracking already is banned in more than 50 New York towns, while dozens more have moratoriums in place or are considering bans, according to Karen Edelstein, a geographic information-systems consultant in Ithaca.

Local Concerns

The cases and others like them are arising as matters traditionally regulated by the state intersect with local concerns, said Shaun Goho, a staff attorney and clinical instructor at the Emmett Environmental Law and Policy Clinic at Harvard Law School.

“On the one hand, states have an interest in how their natural resources including oil and gas are developed,” Goho said. “On the other, local governments usually take the lead on land use and zoning issues. They obviously have a strong interest in things that will significantly affect the character of their communities.”

The dairy farm, which executed two oil and gas leases in 2007 with Elexco Land Services Inc. to explore and develop natural gas resources under the property, said in a September 2011 lawsuit that Middlefield, a town of about 2,000 people about 50 miles west of Albany, had no authority to enact a ban because the activity is governed by state law.

Denver-based Anschutz Exploration Corp., an affiliate of billionaire Philip Anschutz’s closely held company, sued Dryden, a town of 14,000 people about 75 miles west of Middlefield, the same month.

Dryden’s Ban

Justice Phillip Rumsey in Cortland upheld Dryden’s ban on Feb. 21, 2012, and Justice Donald Cerio Jr. in Wampsville ruled four days later that Middlefield’s was also legal. The cases have been consolidated for appeal, and Norse Energy, an Oslo- based explorer whose U.S. unit filed for Chapter 11 bankruptcy protection in December, replaced Anschutz Exploration in the Dryden appeal.

Last week, a third New York town, Avon, won a lawsuit challenging its natural gas drilling ban, according to the Associated Press.

The fracking bans are aimed at involves forcing millions of gallons of chemically treated water underground to break up rock and free trapped natural gas. The practice has sparked environmental concerns and lawsuits across the U.S.

Marcellus Shale

Parts of New York sit atop the gas-rich Marcellus Shale formation, and the governor must balance prospects for the booming economic development seen in Ohio and Pennsylvania against environmentalists’ warnings that fracking may damage water supplies and make farmland unusable.

The Marcellus Shale beneath parts of New York, Ohio, West Virginia, Pennsylvania, Maryland and Virginia has an estimated 400 trillion cubic feet of natural gas, one of the largest such formations in the world, according to trade groups that represent companies with natural gas-leases in New York state.

Last month, Cuomo’s appointed environmental commissioner, Joseph Martens, threw out a lengthy regulation-making process, saying the state will start issuing fracking permits if Health Commissioner Nirav Shah gives his approval. Shah said March 11 that he’s a few weeks from a decision. In the interim, environmentalists and lawmakers who oppose fracking have joined to press for bills banning the drilling practice.

Cuomo appeared close to a decision before. In June, administration officials floated a plan that would have allowed fracking to move forward in five gas-rich counties in the Southern Tier, a mostly rural region along the Pennsylvania border. Instead, Cuomo asked Shah in September to conduct the health review and determine the outcome, a decision he reiterated on March 11.

Suit Dismissed

U.S. District Judge Nicholas G. Garaufis in Brooklyn in September threw out a lawsuit by New York Attorney General Eric Schneiderman seeking a full environmental review of hydraulic fracturing. Garaufis granted a motion by the U.S. Environmental Protection Agency to dismiss the case, finding that the development plans are in the early stages and the threat of harm is speculative.

Schneiderman sued the Delaware River Basin Commission, the EPA and other federal agencies in May 2011 to force a fuller assessment of the environmental impact that gas development could have on the state’s water supply.

The river commission, created in 1961, is a compact among New York, Delaware, New Jersey, Pennsylvania and the federal government. It is responsible for water quality in the Delaware River Basin, which supplies drinking water to the four states.

Permitted Fracking

Schneiderman said in the lawsuit that the commission’s proposed regulations would allow fracking at 15,000 to 18,000 gas wells without a full environmental review. If the regulations are issued, New York’s moratorium will be lifted.

New York said it has shown that fracking generates millions of gallons of wastewater contaminated with toxic metals and radioactive substances, and that companies using the process in Pennsylvania have violated the law 1,600 times, harming the state’s water.

West argued today that it’s prudent to develop all resources in the state, and that there’s a difference between the horizontal holes used in drilling now and the vertical holes used in the past.

“If a hole is made one mile under the earth, there’s no effect on the surface,” West said.

Alan Knauf, an attorney with Knauf Shaw LLP representing the Dryden Resources Awareness Coalition, a group formed by residents concerned about the impact of fracking, argued that local zoning is the “heart of industry” in New York and that nothing says it “doesn’t apply below the earth.”

Finger Lakes

“The appellant is stating that no one will allow this but plenty of communities will, near the Finger Lakes and the Southern Tier,” Knauf said.

Deborah Goldberg, an attorney for the San Francisco-based environmental group Earthjustice that is representing Dryden, said the town acknowledges that drillers could go to the border of the municipality and frack below.

“They have that ability,” Goldberg said.

John J. Henry, a lawyer with Whiteman Osterman & Hanna LLP who is representing the town of Middlefield, said a company has no rights to take resources from the land, while Scott R. Kurkoski, an attorney with Levene Gouldin & Thompson LLP representing the dairy farm, said he is trying to protect the rights of his client, owner Jennifer Huntington.

Client’s Resources

“We have to protect my client’s correlative rights to utilize the resources on her property,” Kurkoski said. “Middlefield is trying to take that away.”

Local ordinances related to oil and gas drilling, which have existed throughout the U.S. for more than a century, are getting increased attention as fracking brings gas drilling into places unfamiliar with mineral rights issues, Goho said.

Such ordinances face attacks from the industry in court and in state legislatures, Goho said. In Pennsylvania, the state has appealed a court ruling invalidating parts of a law easing energy development of the Marcellus Shale, and in Colorado, where the city of Longmont was sued over its fracking ban, there are plans to introduce a bill in the state legislature to limit local control, he said.

The legal question the legislature of New York intended, Goho said. While the answer won’t bind on other states, it can still help “throw down a marker” in terms of both fracking and traditional zoning powers.

“And in that sense, cities and towns all across the country will be watching the outcome of this case,” he said.

The appeals court in Albany typically issues decisions within four to six weeks, Goldberg said. West said he expects a ruling within six to eight weeks and said he was confident the panel will overturn the bans and the towns will appeal, sending the case to the state’s highest court.

The cases are Anschutz Exploration Corp. v. Dryden, 902/2011, New York Civil Supreme Court, Tompkins County (Ithaca); and Cooperstown Holstein Corp. v. Town of Middlefield, 1700930/2011, New York Civil Supreme Court, Otsego County (Cooperstown).

To contact the reporters on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at cdolmetsch@bloomberg.net; Danielle Sanzone in New York State Supreme Court in Albany at dmsanz01@gmail.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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