In the Matter of Mark S. Wallach, as Chapter 7 Trustee for Norse Energy Corp. USA, Appellant,v.Town of Dryden et al., Respondents.BriefN.Y.June 3, 2014Hon. Andrew W. Klein Clerk of the Court Court of Appeals 20 Eagle Street Albany, NY 12207 February 18, 2014 Re: Matter of Norse Energy Corp. USA v. Town of Dryden et al. Dear Mr. Klein: P.O. Box 2021 Glens Falls, NY 12801 Phone: (518) 223-0750 Cell: (518) 727-8564 Fax: (518) 338-0175 cfeathers@appealsny.com Enclosed for filing with this Court please find an original and nine copies of the brief of amicus curiae New York Farm Bureau and an affidavit of service. Thank you. Very truly yours nt · Feathers, Esq., Of counsel to New York Farm Bureau Enc. cc: Thomas S. West, Esq. Cindy Monaco, Esq. The West Firm, PLLC 677 Broadway, 8th Floor Albany, NY 11207-2996 Deborah Goldberg, Esq. EARTH JUSTICE 156 William Street, Suite 800 New York, NY 10038-5326 Alan J. Knauf, Esq. Knauf Shaw LLP 1125 Crossroads Building 2 State Street Rochester, NY 14614 Elizabeth C. Dribusch, Esq. General Counsel New York Farm Bureau 159 Wolf Road, P.O. Box 5330 Albany, NY 12205 Elizabeth Dribusch, Esq. General Counsel New York Farm Bureau P.O. Box 5330 Albany, NY 12205 New York State Court of Appeals In the Matter of Mark S. Wallach, as Chapter 7 Trustee for Norse Energy Corp. USA, Appellant, -against- Town of Dryden et al., Respondents. Cooperstown Holstein Corporation, Appellant, -against- Town of Middlefield, Respondent. BRIEF OF AMICUS CURIAE NEW YORK FARM BUREAU Dated: February 18, 2014 CYNTHIA FEATHERS, Esq. Of counsel to New York Farm Bureau Amicus Curiae P.O. Box 2021 Glens Falls, NY 12801 (518) 223-0750 TABLE OF CONTENTS NYFB' s Interest and Expertise ............................................................................ 1 Key provisions ............................................................................................... 4 ARGUMENT The state policy of fully protecting the "correlative rights" of owners and the rights of farmers and other landowners encompasses guaranteeing them a fair share of revenues from drilling; such policy is subservient to the goals of reducing waste and maximizing recovery; and these policy goals cannot be fulfilled unless the state's authority to regulate natural gas development is supreme ..................................................................................................... 5 Protecting "correlative rights" and landowner rights .................................................... 5 Frew Run Gravel Prods. is distinguishable .............................................................. 10 Conclusion ................................................................................................... 14 11 TABLE OF AUTHORITIES Cooperstown Holstein Corp. v. Town of Middlefield, 106 AD3d 1170 (2013) ................... .10 Frew Run Gravel Prods. v. Town of Carroll, 71NY2d126 (1987) .............................. 10-13 Gernatt Asphalt Prods., Inc. v. Town of Sardinia, 87 NY2d 668 (1996) ............................ 13 Norse Energy Corp. USA v. Town of Dryden, 108 AD3d 25 (2013) ............................... .10 Statutes ECL §23-0101 ............................................................................................... 7,9 ECL §23-0301 ................................................................................................. 4 ECL §23-0303 ................................................................................................. 5 ECL §23-0501 ................................................................................................. 8 ECL §23-0503 ................................................................................................. 8 ECL §23-0701 ................................................................................................. 8 ECL §23-0901 ................................................................................................. 8 ECL §23-2703 ............................................................................................ 11,13 Miscellaneous Black's Law Dictionary 396 (9th ed 2009) ................................................................. 9 Gregory R. Nearpass and Robert J. Brenner, "High Volume Hydraulic Fracturing and Home Rule: The Struggle for Control," 76 ALB. L. REv. 167 (2012-2013) ............ 6 NYS DEC Division of Mineral Resources Landowner's Guide to Compulsory Integration Options at www.dec.ny.gov/energy/1590.html .............................................. 9 Patrick Siler, "Hydraulic Fracturing in the Marcellus Shale: The Need for Legislative Amendments to New York's Mineral Resources Law," 86 ST. JOHN'S L. REV. 351 (WINTER2012) ...................................................... 10 Lindsey Trachtenberg, "Reconsidering the Use of Forced Pooling for Shale Gas Development," 19 BUFF. ENVTL. L.J. 179 (2011-2012) ....................................... 10 NEW YORK STATE COURT OF APPEALS In the Matter of Mark S. Wallach, as Chapter 7 Trustee for NORSE ENERGY CORP. USA, Appellant, -against- TOWN OF DRYDEN et al. Respondents. COOPERSTOWN HOLSTEIN CORPORATION, Appellant, -against- TOWN OF MIDDLEFIELD, Respondent. BRIEF OF AMICUS CURIAE NEW YORK FARM BUREAU NYFB's Interest and Expertise New York farmers will be greatly affected by the outcome of this litigation and by any state action regarding natural gas exploration and production in the Marcellus Shale in New York. Much of the land where drilling will occur is owned by farmers, and the economic impact of high-volume hydraulic fracturing ("HVHF") to recover shale gas will be deeply felt by farm families and businesses. Revenues from natural gas can help many farms thrive or even survive. New York Farm Bureau ("NYFB") has relevant expertise, and it seeks to assist this court by offering insights on the state policy of fully protecting the "correlative rights" of owners and the rights of landowners. These rights are, to a large extent, those of farmers, who seek to take advantage of the economic potential of natural resources beneath their soil, while ensuring environmentally sound mining operations. Agriculture is New York's most important industry, and NYFB is the voice of agriculture in the state. NYFB is the state's largest general farm advocacy organization. A non-governmental organization, NYFB is dedicated to serving and strengthening agriculture in the state, meeting the needs of New Yorkers who make their livelihood in rural regions, and addressing economic and public policy issues facing farmers. New York has a long history of oil and gas development. For more than a decade, NYFB has been integrally involved in such activities. The organization has consistently advocated for the development of natural gas resources to protect agricultural operations and has urged that such development be done in an environmentally safe way. Water is a particularly precious resource for New York's farmers; farmers depend on a clean source of water for their families, their livestock, and their crops. NYFB was among the few entities working with landowners involved in the Trenton-Black River, a deep oil and natural gas formation in western and southern New York. The organization has also been actively involved in the debate 2 regarding HVHF that arose after sophisticated techniques made it possible to economically extract shale gas. Such techniques can be used to tap into shale gas reserves in the portion of the massive Marcellus Shale located in the Southern Tier of western New York. HVHF in the Marcellus Shale could revitalize the region's economy and provide power to our state for decades to come. NYFB's Deputy Director of Public Policy (now Public Policy Director) was appointed to, and continues to serve on, the state Department of Environmental Conservation ("DEC") HVHF Advisory Panel charged with: ( 1) developing recommendations to ensure that DEC and other agencies can properly oversee, monitor, and enforce HVHF activities; (2) developing recommendations to avoid and mitigate impacts to local governments and communities; and (3) evaluating the current fee structure and other revenue streams to fund government oversight and infrastructure related to HVHF. In addition, in every major proceeding involving HVHF in the Marcellus Shale, NYFB has participated. The organization has been actively involved in the drafting of DEC's draft Supplemental Generic Environmental Impact Statements ("dSGEIS"). During the drafting process, NYFB has been a leading advocate for the protection and proper usage of water resources used in the drilling process. NYFB's 2012-2014 priorities include drilling in the Marcellus Shale to stimulate economic recovery needed by farm families and others, while ensuring 3 strict state oversight of extraction and production to protect the land, as well as ground and surface water. In advancing that priority, NYFB leaders testified at a DEC hearing voicing support for natural gas drilling in the Marcellus Shale, advocating for protection of agricultural water and land resources, and opining that the dSGEIS combines the toughest environmental standards in the country with the promise of tens of thousands of new jobs upstate. Finally, NYFB 's President previously wrote to Governor Cuomo to express concerns about the delay in a deadline for comments on the dSGEIS for Marcellus Shale drilling; and NYFB has commented on drafts of the dSGEIS, noting the economic potential of HVHF, but cautioning that DEC must ensure plentiful water resources by monitoring operations and demanding disclosure of the chemical content of the fluid used. Key provisions At the heart of this HVHF litigation are two provisions of the Oil, Gas and Solution Mining Law ("OGSML"), which authorizes oil and gas drilling. ECL §23-0301 states: Declaration of policy: It is hereby declared to be in the public interest to regulate the development, production and utilization of natural resources of oil and gas in this state in such a manner as will prevent waste; to authorize and to provide for the operation and development of oil and gas properties in such a manner that a greater ultimate recovery of oil and gas may be had, and that the correlative rights of all owners and the rights of all persons including landowners and the general public may be fully protected, and to provide in similar 4 fashion for the underground storage of gas, the solution mining of salt and geothermal, stratigraphic and brine disposal wells. ECL §23-0303. Administration of article. 2. The provisions of this article shall supersede all local laws relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law. ARGUMENT The state policy of fully protecting the "correlative rights" of owners and the rights of farmers and other landowners encompasses guaranteeing them a fair share of revenues from drilling; such policy is subservient to the goals of reducing waste and maximizing recovery; and these policy goals cannot be fulfilled unless the state's authority to regulate natural gas development is supreme. Protecting "correlative rights" and landowner rights The migratory nature of natural gas informs every aspect of the OGSML. Implicit in the statutory scheme is the premise that drilling and recovery will not be confined by property or municipality lines. Compulsory integration provisions make possible the efficient recovery of the resource and the prevention of inefficient competition and excessive drilling. Such provisions thereby directly address the statutory purpose of fully protecting the correlative rights of owners, that is, providing for reasonable compensation for multiple landowners with a stake in a single reservoir of natural gas. Compulsory integration provisions 5 protect-but necessarily limit-the rights of landowners that are also to be fully protected under the statute, as discussed below. Mining can be contained in a specific area, so that if a municipality decides that mining is not a permissible use, that will not prevent other localities from mining. The situation is entirely different with natural gas. This resource cannot be confined within the boundaries of property owners or municipalities; it is a migratory resource that can cross such lines. Shale gas cannot be efficiently recovered unless boundaries do not interfere with drilling, such as by local bans. Recovery from a single HVHF well could come from hundreds of acres involving multiple neighbors and municipalities. See Gregory R. Nearpass and Robert J. Brenner, "High Volume Hydraulic Fracturing and Home Rule: The Struggle for Control," 76 ALB. L. REV. 167, 188 (2012-2013). Thus, one town's ban on HVHF could affect an adjacent town that wants to allow such activity. These localities are largely agricultural areas, and affected landowners are largely farmers. The Marcellus Shale region encompasses all or part of 29 counties, and all of these counties have state-certified agricultural districts. The migratory nature of natural gas means that the statutory policy goals cannot be met unless the state scheme precludes local bans. The nature of natural gas is a central reality reflected in every element of the statutory scheme: the preemption provision, the policy goals, and the compulsory integration protocols. 6 The preemption provision has been fully analyzed by the plaintiffs, who explain why the statute trumps local home rule power in the realm of oil and gas development. The nature of natural gas is also reflected in the statute's policy goals of regulating the development of oil and gas in such a manner as will prevent waste, including physical waste and the inefficient use of, or unnecessary dissipation of, reservoir energy (ECL §23-0101 [20]); developing properties in such a manner that greater ultimate recovery of oil and gas may be had; and fully protecting the correlative rights of all owners and rights of all persons, including landowners and the general public. Compulsory integration is vital to meet the statutory goals. The cooperation of landowners over a common reservoir increases efficiency in the development of its gas resources. Pursuant to compulsory integration provisions, the state can compel landowners who are not developing their oil and gas resources to enter a pool with a well operator and neighboring landowner who do want to develop such resources. The state might also want to compel landowners who are developing oil and gas resources to include a neighboring landowner who has not drilled on his own land. Because a well may capture gas accumulated in an underground reservoir from more than one property, after the state issues a permit, a spacing unit is 7 -: I ·:··.1 j .·, I established, based on the depth of the reservoir, and is assigned to each well. If the well operator does not control 100% of the acreage of the spacing unit, integration of all affected landowners' interests is necessary. See ECL §§23-0501, 23-0503 (permitting wells and establishing spacing units). The state will issue an integration order where it finds that integration of interests in spacing units is necessary to prevent waste, generate greater recovery, and protect the rights of owners and landowners, and where the landowners have not reached a voluntary agreement. ECL §§23-0701 (voluntary agreements), 23- 0901 (compulsory integration). The forced-in landowner has three options: royalty ownership, integrated participating ownership or integrated non-participating ownership. ECL §23-0901. Integrated owners pay well costs up front, while nonparticipating owners' costs are subtracted from revenue received. Id. Compulsory integration provisions make possible efficierit recovery and prevention of inefficient competition and excessive drilling. They directly address the purpose of fully protecting the correlative rights of owners by providing for reasonable, proportional compensation for all affected landowners. Finally, the compulsory integration provisions protect-but necessarily limit-the rights of landowners. Owners, in relevant part, are persons who have the right to drill into and produce from a pool and to appropriate the gas they produced for themselves 8 and/or others. See ECL §23-0101 (11). "Correlative rights of landowners" are generally defined as the rights of landowners in a common underground source to a reasonable or proportional share, based on the amount of surface each landowner owns. See Black's Law Dictionary 396 (9thed 2009). DEC has defined correlative rights as the right of an owner of oil and gas rights in a spacing unit to the opportunity to receive the benefits of drilling in a spacing unit that includes his acreage. See NYS DEC Division of Mineral Resources Landowner's Guide to Compulsory Integration Options at www.dec.ny.gov/energy/1590.html. The rights of landowners that are to be fully protected are primarily the rights to revenue resulting from oil and gas beneath the surface-which can be substantial. Real property owners in fee simple own surface and subsurface rights to their land. The revenues at issue are to be received via leases with gas companies granting them the right to explore and develop the rights to subsurface oil and gas deposits, and via compulsory integration. There is an obvious tension between compulsory integration and fully protecting the rights of landowners. By definition, those rights are subservient to compulsory integration, since landowners do not have a right to abstain from the development of mineral resources under their land if the requirements for compulsory integration are met. In short, the landowner's rights to be fully protected by the statute are not the commonly understood rights of fee simple 9 ownership, since compulsory integration limits the landowner's rights. See generally Patrick Siler, "Hydraulic Fracturing in the Marcellus Shale: The Need for Legislative Amendments to New York's Mineral Resources Law," 86 ST. JOHN'S L. REV. 351, 373-374 (Winter 2012); Lindsey Trachtenberg, "Reconsidering the Use of Forced Pooling for Shale Gas Development," 19 BUFF. ENVTL. L.J. 179, 200 (2011-2012). Landowners' rights are protected to the extent that they are entitled to recover a proportional share of revenue derived from drilling on nearby land. New York's farmers recognize and embrace these rights, since the revenue from lease rents and royalties and compulsory integration agreements and orders can make a difference in the success or failure of agricultural operations in the Marcellus Shale. ··! I Frew Run Gravel Prods. is distin2uishable As set forth in the plaintiffs' briefs, the Third_Department.erroneously interpreted the OGSML preemption clause in the challenged decisions, Cooperstown Holstein Corp. v. Town of Middlefield, 106 AD3d 1170 (2013), and Norse Energy Corp. USA v. Town of Dryden, 108 AD3d 25 (2013). Such interpretation, allowing local bans of gas exploration and development, undermines the statutory scheme. These decisions were incorrect in analogizing the instant situations to Frew Run Gravel Prods. v. Town of Carroll, 71NY2d126 (1987). 10 At issue in that case was language in the Mined Land Reclamation Law ("MLRL"), establishing a scheme to regulate mining and the reclamation of mined lands. The MLRL formerly stated: For the purposes stated herein, this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from enacting local zoning ordinances or other local laws which impose stricter mined land reclamation standards or requirements than those found herein. See former ECL §23-2703 (2). A Town of Carroll zoning law established a zoning district, AR-2, to promote the maintenance of agricultural lands, as well as to allow large lot residential development. Sand and gravel operations were not permitted in such district, but were allowed by special permit in the AR-3 district. The petitioner obtained a state permit for a sand and gravel operation within the AR-2 district, but was denied a town permit. The trial court found that the zoning law was superseded by the MLRL. The Appellate Division reversed, holding that the zoning law was not a "law relating to the extractive mining industry." To the extent that the local law barred gravel and sand operations in the AR-2 zone, but allowed such operations elsewhere, it did not regulate an industry, but instead regulated land use generally. The question, as framed by this court, was whether the MLRL "was intended to preempt provisions of a town zoning law establishing a zoning district where a 11 sand and gravel operation is not a permitted use." Id. at 129. This court held in the negative, based on the supersession clause. Local laws establishing districts in which some uses are permitted and others are prohibited were not the laws contemplated by the preemption clause, the Frew Run court held. The subject zoning ordinance related not to the extractive mining industry but to regulating the location, construction and use of buildings, and to the use of land. The ordinance divided the town into districts and established permitted uses to regulate land use generally, not to control an industry. Id. at 131-132. The ordinance exerted "an incidental control over any of the particular uses or business" that might "be allowed in some districts but not in others," the Frew Run court held. Id. at 131. The purpose of the MLRL scheme was to encourage mining by providing statewide regulations, to address environmental concerns through reclamation, and to allow stricter local control of reclamation. Local laws relating to the operation and process of mining would frustrate such purposes, the Frew Run court stated; but there was no demonstrated intent to preempt a zoning ordinance establishing whether mining operations should be permitted or prohibited in a particular district, the Frew Run court held. The issue in that case was whether state preemption applied where the town allowed the subject operations to apply in some zones, but not others. Here the 12 issue is if preemption applies where the towns imposed complete bans on natural gas mining. In Frew Run, local laws resulted in "incidental control" over a business that was allowed in some districts. At issue here is not "incidental control," but the undermining of a statutory scheme that cannot succeed unless localities are precluded from banning gas development and usurping state authority. In 1991, the MLRL was amended: For purposes stated herein, this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from * * * enacting or enforcing local zoning ordinances or laws which determine permissible uses in zoning districts. ECL §23-2703 (2) (b ). The Town of Sardinia enacted a zoning ordinance eliminating mining as a permitted use throughout the Town, except that existing mining operations continued as a nonconforming use. See Gernatt Asphalt Prods., Inc. v. Town of Sardinia, 87 NY2d 668 (1996). This court found that the zoning law was consistent with the amended state preemption provision allowing local towns to determine whether mining should be a permitted use. The right to determine permissible uses assumes the right to also determine impermissible uses. The amended statute authorized municipalities to completely ban mining. In contrast, the OGSML does not state that local laws on mining can be enacted to determine permitted and prohibited uses. On the contrary, it only allows local laws on roads and real property taxes. Thus, this court's prior decisions 13 dealing with different resources, different statutory schemes, different policy goals, and different preemption provisions are distinguishable and were improperly relied upon by the Third Department. Conclusion Mining gravel and developing oil and gas resources are very distinct enterprises. This fact led to the different home rule powers set forth in the gravel and gas statutory schemes, providing in the latter arena for statewide control of the industry in order to meet the policy goals of minimizing waste and providing for optimal recovery. The statute outlaws local bans that would disrupt drilling operations and jeopardize such goals. The further purpose of fully protecting the correlative rights of owners to enjoy a fair share in revenue from gas recovery and the rights of landowners-insofar as such rights are consistent with the waste/recovery goals and compulsory integration-cannot be fulfilled unless the state statute preempts local bans. Since the challenged Appellate Division decisions undermine the state's ability to fulfill all of the objectives set forth in the OGSML, the orders appealed from should be reversed. Dated: February 18, 2014 Glens Falls, NY Respectfully submitted, a~ Cynth$eathers, Esq., Of counsel to New York Farm Bureau, Amicus Curiae 14