Featured Resource: ODNR--An Overview


As an attorney, I've come to appreciate over the years how our state government in Ohio is quite helpful when it comes to putting resources on the Internet. You just need to know where to look for it. Since this blog is about Ohio real estate law, I wanted to provide an overview of the legal/regulatory or generally helpful information you can access through the Ohio Department of Natural Resources (ODNR), just by selecting the 'Regulation' tab on their web site navigation bar and viewing the pages for the following 4 ODNR divisions:


This division regulates Ohio's oil and gas drilling operations, oil and gas production operations, brine disposal operations, solution mining operations and underground injection operations. Its staff inspects the drilling, restoration, and plugging of all oil and gas wells in the state.
In additional to having access to the various laws, regulations and permitting requirements, this division’s web pages provide searchable databases for well locations, other well data such as information on completion, permitting and production of the wells, and shale activity in the state.


This division oversees the development and restoration of mineral and fossil fuel extraction sites. It operates various programs to address the environmental and safety aspects of the coal and mineral mining industries. The division also restores abandoned mine land, enforces mining safety laws, and ensures the protection of citizens, land and water resources.

Program and support services include permitting, bonding, inspection, enforcement, mine safety rescue support and training, hydrology, soils, blasting, archaeology, engineering, design, information technology and administrative support.

The division's stated purposes include the following:
"The Permitting, Hydrology and Bonding section reviews all permit applications to mine industrial minerals and coal; it verifies all bonding and surety requirements; and manages permit records, databases, and permit related information.
The Field Inspection and Enforcement program enforces the laws regulating active mining activities to ensure the protection of citizens and conservation of environmental resources; and oversees land reclamation requirements to assure operators restore mine lands and waters to productive uses.
The Abandoned Mine Land program eliminates health and safety hazards and cleans up lands and waters damaged by coal mining that occurred prior to today’s stricter reclamation laws; including reclamation of underground mine openings, dangerous highwalls, dangerous mine subsidence, and cleanup of hazardous and/or polluted water impoundments, acid mine drainage, burning coal refuse, and others.
The Mine Safety program promotes safe mining practices for the protection of miners through services that include inspections at surface and underground mines, focused on accident prevention; examination and certification testing; mine rescue support; and safety training."

You can also find on their web page a Mine Locator that provides an interactive map of underground and surface coal and mineral mines in Ohio


The ODNR Division of Geological Survey is the state's oldest natural resources agency, established by the state legislature in 1837 as the Geological Survey of Ohio.

Its mission is to "To provide geologic information and services needed for responsible management of Ohio's natural resources."

Topics include, to name just a few, an abandoned underground mine map, astrogeology (including a meteorite find map), Ohio seismic information, Lake Erie geology, and..... who knew ̶ Fossil Hunting in Ohio.


The Division of Soil and Water Resources was statutorily created in July 2010 through the merger of the Division of Soil and Water Conservation and the Division of Water. Its mission includes, among other things:
  • Providing administrative guidance, training, program development support and financial to Ohio's SWCDs, their board members and staff;
  • Regulating construction and repair of dams and levees; 
  • Implementing agricultural and non-point source water pollution control programs;  
  • Maintaining and distributing data on all water resources including ground water levels, stream flow, and precipitation;  
  • Supporting and assisting fund local development of watershed management and protection action plans;  
  • Implementing a comprehensive statewide soils information program; and
  • Maintaining standards for sediment control and stormwater management.
The web page for this division contains numerous mapping options including: a groundwater resources map, access to well water logs and technical assistance such as pipeline construction standards.
________________

Real Estate 101-Purchase and Sale Agreements



            General Notes: The purchase/sale agreement is probably the most misunderstood, but most important document utilized in a real estate transaction. Some of the unwary mistakenly refer to the agreement as merely an “offer”, not understanding that if signed by (accepted by) the seller, it becomes a binding contract. Others, usually to justify not obtaining a lawyer, fool themselves into believing that they only signed a standard form with unenforceable “boilerplate” (one-sided, protective) language. Whether the agreement is contained on a “standard,” printed form, is replete with numerous protective provisions, or is entitled “offer to buy real estate and acceptance,” it will be held to be a binding, enforceable agreement to purchase/sell real estate with rights and obligations of the parties arising thereto (absent contract law-type defenses – i.e. no offer, acceptance, consideration; illegal; contrary to public policy).

            It is true that title cannot transfer without a deed and a closing. The closing however, merely carries out the provisions of the agreement. The agreement is of paramount importance as it creates the interest of the buyer to be conveyed by deed and determines the rights and obligations of the parties, some of which may remain in play well past the closing. While provisions concerning title, occupancy, possession, enjoyment and quantity of land conveyed will “merge” into the deed (in other words, be superseded by deed language regarding these issues), the bulk of the contract, and its representations, warranties and covenants will live on, post closing, absent language in the contract to the contrary.

            Types of Purchase and Sale Agreements: There are many different types of purchase/sale agreement forms in use. Real estate broker or legal stationary company “standard” forms are used in most residential and simple commercial deals. For sophisticated, commercial deals, most attorneys will open with their “Seller form template” or “Buyer form template”, depending, of course on who they represent, with such forms typically ranging from ten to fifty pages. The inherent problem is that there is little that is standard about a real estate transaction. Every purchase/sale is unique since there are different types of property, different buyers and sellers (with different motivations and levels of sophistication) and different potential liability in each transaction. This author, however, is not advocating abolishment of standard forms.

            The Attorney’s (Tailor’s) Role: Obviously, the attorney looking to change custom, and prepare twenty page contracts for small, “brokered” single family house deals will not generate a lot of business. The real estate attorney’s optimal role can be analogized to that of a clothing store tailor. If the off the rack suit (contract form) does not fit, you must alter it. On residential/simple commercial forms, inapplicable clauses can be crossed out and initialed by the parties, small insertions can be written in and initialed, and large insertions can be added by way of addendum. When larger, commercial forms are being used, the attorney on the other side will typically “redline” (by way of Microsoft “track changes” or similar software) the document to add, important, protective clauses to the document, and delete provisions which are thought to present too great a risk of unbudgeted-for expenses and potential liability. Usually, a number of renditions by both attorneys will be necessary until a more fairly balanced, negotiated agreement is settled upon.

            Broker Note: Please note that brokers crossing out contract provisions and substituting new language may be crossing the line into “unauthorized practice of law.” Contract modification should not be attempted without advice of counsel.

            Required Elements for Enforceability: Even before the minutiae within the agreement form is analyzed and such issues as representation and warranty provisions are debated, covenants on how the property is to be operated between signing and closing are discussed and title and survey provisions are negotiated, you must ensure that your real estate contract will be enforceable. A real estate contract, like any contract is generally defined as a binding agreement or promise to do something. Basically, to be a valid, enforceable legal contract, five elements must be present:

1. Meeting of the Minds /Agreement.   Agreement occurs when one party to a contract makes an offer or promises to do something and the other party accepts.  For example, suppose a person offers to buy a property you have advertised by virtue of sending you a contract “containing the terms upon which they would be willing to buy”.  There is no contract until the offer is accepted and signed by both the buyer and the seller.  If the seller should choose to change any of the terms of the offer, a counteroffer has been created, which must then be accepted by the buyer to constitute an agreement.

2. Consideration.     Consideration is anything of value promised to another when making a contract.  It is a detriment incurred by the promisee and/or a benefit to the promisor. The money the buyer gives as a deposit and the terms for payment in the purchase agreement are valuable consideration on the part of the buyer; and the property, as well as the promise to deliver possession of the property upon receipt of the purchase price are valuable consideration on the part of the seller.  Payment, however, does not need to be in the form of money; it may be a trade of other real property or personal property, or a promise to perform an obligation.

3. Capacity.   Capacity means that one is legally able to enter into a contractual agreement.  As a general rule of law, minors, intoxicated persons, and mentally incompetent persons cannot legally enter into valid contracts.  If they do make themselves parties to contracts, the agreements are typically voidable.

4. Legality.  For a contract to be valid, it must be for a legal purpose.

5. Definiteness. The terms of the contract, especially basic terms such as price, legal description, and closing date must be reasonably certain. A court must be able to look at the agreement and determine the parties' obligations from within the “four corners of the document”.

6. Writing.  All contracts dealing with the purchase or sale of real property must be in writing for a contract to be enforceable.   (Note: contracts for the purchase or sale of personal property must be in writing if for more than $500).

Cautionary Note: Whether you are buying, or selling, the best time to consult an attorney is before the purchase agreement is signed. The disgruntled suit buyer can insist that the seller re-alter or accept the return of an ill-fitted suit. The disgruntled property buyer (or seller) however, is under no obligation to accept changes to the contract after it is signed.


Ohio Dept of Natural Resources: Recent Regulatory Notices, Rule Announcements and Updates


ODNR regulatory news:

NOTICE TO WELL OWNERS re: tubular goods (3/31/2015)—

The requirements of R.C. 1509.16 became effective March 31, 2015. The statute was enacted by Am. Sub. H.B. 59 of the 130th General Assembly. Well owners are required to file a disclosure form with the Division of Oil and Gas Resources Management that specifies the country of manufacture for tubular goods initially used in a production operation on or after March 31, 2015 unless that country cannot be determined. Tubular goods are defined as seamless or welded steel pipe used in drilling for oil and gas and include casing, tubing, drill pipe, couplings, and drill collars.

The division, in consultation with members of the oil and gas and steel industries, developed Form 15 that is to be used to report the total length of each tubular good used in wells drilled on and after March 31, 2015. Beginning in calendar year 2016, well owners must file the form with the division on or before March 31. On the form, the well owner must report the length of all casing, tubing, drill pipe and drill collars used in wells drilled in the previous calendar year and the country in which each of those goods was manufactured.

Copies of Form 15 can be found on the division's website at: http://oilandgas.ohiodnr.gov/industry/electronic-forms

Electronic submittal can be sent to: O&G.Tubulars@dnr.state.oh.us

Fax submittal can be sent to: 614-265-6910

Submittal by mail can be sent to:
Ohio Division of Oil and Gas Resources Management
2045 Morse Road-Building F-2
Columbus, OH 43229-6693

 *     *     *
 
HORIZONTAL WELL SITE CONSTRUCTION RULE ANNOUNCEMENT (3/24/2015)

ODNR's Division of Oil and Gas Resources Management is proposing new rules that address the design and construction of horizontal well sites. There will be a public hearing at the Ohio Department of Natural Resources, Building E-1 Assembly Center at 2045 Morse Road in Columbus, Ohio 43229 on April 23, 2015 starting at 10:00 a.m. At the hearing, any person affected by the proposed rule may present their comments orally or in writing. For more information about the proposed rule, or to view the proposed rule, click here. To sign up for future notifications about rule progress and opportunities for input, click here.

 *     *     *

State Updates Water Well Sealing Document (4/7/2015)
The State Coordinating Committee on Ground Water has updated the technical guidance document for sealing unused water wells.

In 2013, a workgroup was formed to re-write/edit the original document. This document is the product of the workgroup. The workgroup consisted of representatives from the drilling industry, the major grout manufacturers, and state agencies dealing with ground water. Monthly meetings were held for 13 months to revise the original 1996 technical guidance document. Some of the key changes include:

  • A table (Table 1) that lists different types of wells, the regulatory agency, if regulated, and the applicable regulation or guidance (page 2).
  • An appendix that contains associated links to the OAC or ORC (Appendix 2).
  • An emphasis on hiring or at least consulting a contractor before sealing a well. (Any well owner can seal their own well.)
  • The Preparation for Sealing section (pages 13-19) was expanded to include a table of possible concerns and the corresponding state or federal agency that may have information. A new Procedure Planning sub-section (pages 18-19) was created that lists all the items that should be in the plan before the well is sealed.
  • The cement-based grouts section (pages 20-26) was expanded to include a discussion on situations where bentonite grouts are not effective due to water quality conditions in the well to be sealed.
  • The General Sealing Procedures section (page 31) was expanded and the steps were numbered.
  • The specific well sealing procedures for dug wells and bucket auger wells were separated because ODH has different sealing procedures for these types of wells.
____________________

Use Real Estate Leases Effectively in Chapter 11 Situations

Reprinted with permission by author: Joel H. Schneider, Senior Vice President, Hilco Real Estate, LLC

Owner-occupied real estate can be an untapped source of balance-sheet value for bankrupt companies. Such real estate assets provide a potential catalyst for exiting bankruptcy successfully or a financial carrot to motivate prospective strategic or financial buyers.

Currently, real estate investors are clamoring for stabilized properties occupied by creditworthy tenants. The competition for income-producing real estate assets has caused capitalization rates to nosedive in recent years. Today, properties in many real estate categories, such as industrial, are priced at cap rates below the 2007 peak.
This article reviews two cases where bankrupt companies enhanced the value of their owner-occupied real estate. Through new lease agreements that included higher rents, reimbursement of expenses, and multiyear lease terms, substantial cash flow streams were created. The properties were then marketed via auctions to maximize recoveries, and sale proceeds were used to expedite the reorganization process, satisfy creditors, and/or hasten the successful sale of the go-forward enterprise.

A Reorganization
Giordano’s, the Chicago-based deep dish pizza retail chain, filed Chapter 11 bankruptcy in 2011 after defaulting on approximately $45.5 million in loans.
As part of the filing, the company listed 20 parcels of owned real estate associated with corporate and franchised restaurants. Of the 20 parcels, 10 were considered operationally significant to the go-forward business, including a high profile 139,000-square-foot mixed-use property that served as the company’s corporate headquarters and flagship restaurant location. One of the keys to this situation was to position the Giordano’s real estate to take advantage of a re-capitalized corporate balance sheet to encourage buyer interest in buildings occupied by a ”reconstituted” Giordano’s.
Hilco Real Estate worked with the debtor to restructure the company’s leases to make them more attractive and marketable, while concurrently crafting a plan to market the properties to the largest possible real estate investment market. Prior to the lease restructurings, initial bids for the real estate had yielded offers around $20 million. When the newly leased properties went to auction, 14 qualified bidders were at the table. After 13 hours of spirited and contentious bidding, the properties sold for more than $30 million. Proceeds from the real estate sale along with the sale of the operating business yielded nearly $66 million, which enabled the estate’s secured creditor to be paid in full.

A Sale Scenario
The degree of interest in acquiring a bankrupt company, either by a strategic buyer such as a competitor or a financial buyer such as a private equity firm, is often influenced by real estate. In many cases, the potential acquirer plans to maintain operations in the buildings, but does not want to be in the real estate business or simply does not want to use additional capital to buy the buildings.

By structuring new leases based on go-forward tenancy in the building, a valuable asset for the estate is created, which enables the debtor or the acquirer to offer a fully leased building to the investment marketplace.
Based in suburban Chicago, Qualteq was a market leader in manufacturing plastic credit and gift cards for companies such as American Express, Visa, and MasterCard. The owner’s personal financial difficulties forced Qualteq into Chapter 11 in 2013. The bankruptcy trustee and his financial advisers first stabilized the company, then sold the business to Brazil-based Valid S.A. through a Bankruptcy Code Section 363 bankruptcy sale. However, Valid had no interest in purchasing the four buildings Qualteq occupied.

Working in tandem with the bankruptcy trustee and advisers, Hilco structured new, five-year leases on each of the four buildings with Valid as the tenant, based on the strong balance sheet that was created with Valid’s purchase, enabling Qualteq to continue operations in their current facilities.

Prior to the finalization of the new leases and with no certain commitment from Valid to remain as a tenant, there was no immediate interest from the real estate investment community for four potentially vacant industrial buildings. Once the new leases were finalized, the leased buildings were then put through a sale process by Hilco, which garnered significant interest from third-party investors. Stalking horse bidders were obtained for each property, followed by an auction. Hilco estimated the four buildings, on an empty basis, were valued at approximately $10.5 to $12.5 million. When the gavel came down, the auction resulted in total sales of almost $19 million for the four fully occupied buildings.
Utilizing the real estate as a vehicle to enhance value further ensured that the estate achieved maximum value of the Qualteq business/assets and helped to secure a successful transaction with Valid. Furthermore, the added value created by selling buildings occupied by a quality credit tenant resulted in sufficient proceeds to fully pay all mortgage holders.

Whether a company in Chapter 11 reorganizes and exits from bankruptcy on its own or is acquired by a strategic or financial buyer, the real estate occupied by the business can be transformed into a value enhancer. By recasting leases with a strong tenant and aggressively marketing the properties, a significant amount of incremental cash can be generated to benefit the bankruptcy estate in a reorganization and/or a going-concern sale. In bankruptcy, debtors and creditors should regard companies’ real estate as a value-creation tool, not an illiquid liability.

Joel H. Schneider is senior vice president, dispositions, for Hilco Real Estate, LLC, a unit of Hilco Global. You can contact Joel at jschneider@hilcoglobal.com.

Hilco Real Estate (www.hilcorealestate.com) advises and executes strategies to help both healthy and distressed clients maximize the value of their real estate assets. Their extensive property valuation knowledge, lease renegotiation experience and innovative sales strategies are leveraged by substantial access to capital, a vast network of tenants/landlords and motivated buyers/sellers. Services include real estate lease repositioning and advisory solutions; extensive real estate disposition services through an expert brokerage team as well as high-performance accelerated property auctions-live, online, sealed bid; a sale/leaseback advisory practice with unique deal structuring; and, real estate investments including acquisition deals for vacant, value-add, or stable income-producing properties as well as joint venture transactions. Hilco Real Estate is part of Northbrook, Illinois based Hilco Global (www.hilcoglobal.com), a world-wide leading authority on maximizing the value of business assets by delivering valuation, monetization and advisory solutions to an international marketplace. Hilco Global operates more than twenty specialized business units offering services that include asset valuation and appraisal, retail and industrial inventory acquisition and disposition, real estate and strategic capital equity investments.


Ohio Supreme Court: OEPA Must Follow Rulemaking Procedure For New TMDLs Before Submitting To US EPA




On March 24, 2015, the Ohio Supreme Court issued its decision in Fairfield Cty. Bd. of Commrs. v. Nally, Slip Opinion No. 2015-Ohio-991, in which the court held that --

  1. A total maximum daily load established by the Ohio Environmental Protection Agency (OEPA) pursuant to the Federal Water Pollution Control Act, 33 U.S.C. 1251 et seq. (the Clean Water Act), is a rule that is subject to the requirements of R.C. Chapter 119 of the Ohio Administrative Procedure Act; and
  2. The OEPA must follow the rulemaking procedure in R.C. Chapter 119 before submitting a total maximum daily load (TMDL) to the United States Environmental Protection Agency (USEPA) for its approval and before the TMDL may be implemented in a National Pollution Discharge Elimination System (NPDES) permit.

This case involved a challenge brought by Fairfield County regarding a renewed NPDES permit issued by the OEPA back in 2006 to a wastewater treatment place that discharges into Blacklick Creek.  The renewed permit included new phosphorus limitations that were not previously included in the county's permit. The county contended that it should have had a 'full and fair' opportunity to be heard and the right to review and challenge the TMDL before it was submitted to the USEPA for approval. The Ohio Supreme Court agreed affirming the judgment of the court of appeals that had vacated the NPDES phosphorus limitations but for different reasons.

The court of appeals and the Environmental Review Appeals Commission (ERAC) before it had both determined that OEPA had a right to impose the new limits in a renewed NPDES permit without following Ohio's Administrative Procedures Act (the APA) but vacated the limits and remanded to the OEPA for further consideration due to the OEPA's failure to consider with the new permit limits on phosphorus were technologically feasible and economically feasible as required by R.C 6111.03(J)(3).

The OEPA denies that the TMDL is a rule and characterizes it as simply guidance. The court has previously held that the Ohio EPA "cannot regulate through 'guidelines' that are in reality rules requiring formal promulgation" (Jackson Cty. Environmental  Commt. v. Schregardus, 95 Ohio App.3d 527, 642 N.E.2d 1142 (10th Dist. 1994)). When reviewing guidelines or other 'documents' the court has long emphasized that it will look at such guideline or document's effect not how an agency or other governmental entity chooses to characterize it.

When determining that the establishment a new TMDL is a rule requiring the OEPA to follow Ohio's APA, the court notes that it creates new legal obligations, and the standards have general and uniform effect even though they will not be implemented against a point source (such as a wastewater treatment facility) until an NPDES permit is issued.  The court further noted that the USEPA itself is required to proceed through rulemaking when it establishes its own TMDLs and other state supreme courts (ID; SC) have addressed this issue, finding that TMDLs must be promulgated as rules before becoming the basis for discharge limitations in a permit.

Justices O'Donnell and Kennedy, while concurring in the result, did so on the grounds held by ERAC and the court of appeals. In the concurrence prepared by Justice O'Donnell, he noted that the OEPA has issued 1,761 TMDLs, including 132 TMDLs for phosphorus.  Since the OEPA did not follow the Ohio APA for any of these TMDLS, this court's decision for Fairfield County essentially invalidates all of these TMDLs and opens up all of the permits for challenges.

I sympathize with Justices O'Donnell's and Kennedy's concern over the repercussions of this decision. However, in a time when private citizens, including private business, are being subjected to an ever increasing rules and regulations from all levels of government, it's important to all of us that the government is made to follow the rules as well. Only time will tell what the fallout is from this decision.
_____________________

Pending Real Estate Legislation in the Ohio Legislature


Spring is finally in the air and that means, among other things that the Ohio Legislature (https://www.legislature.ohio.gov/) is in session. The bills of the 131st General Assembly pending in the Ohio House and Ohio Senate related to real estate are as follows:

-----------------------------------------------------------------------------------------------------------------------
HB 18
To amend sections 5301.072 and 5311.191 and to enact sections 4781.401 and 5321.131 of the Revised Code to prohibit manufactured homes park operators, condominium associations, neighborhood associations, and landlords from restricting the display of blue star banners, gold star banners, and other service flags, and to prohibit manufactured homes park operators and landlords from restricting the display of the United States flag.

HB 77
To amend sections 4740.01-4740.06, 4740.061, 4740.07- 4740.10, 4740.101, 4740.12, 4740.13, 4740.131, 4740.15, 4740.16, and 4740.99 and to enact sections 4740.18- 4740.21 of the Revised Code to require statewide registration of home improvement contractors, to modify the membership of the Ohio Construction Industry Licensing Board, and to make an appropriation.

SB 84
To amend sections 4781.40, 5301.072, and 5311.191 and to enact section 5321.131 of the Revised Code to prohibit manufactured homes park operators, condominium associations, neighborhood associations, and landlords from restricting the display of Ohio flags and blue star banners, gold star banners, and other service flags, and to prohibit manufactured homes park operators and landlords from restricting the display of the United States flag.

SB 85
To amend sections 307.699, 3735.67, 5715.19, 5715.27, and 5717.01 of the Revised Code to limit the right to initiate most types of property tax complaints to the property owner and the county recorder of the county in which the property is located.

SB 96
To amend section 5715.39 of the Revised Code to waive any penalty due with respect to unpaid property taxes resulting when a mortgage lender fails to notify the county auditor of a satisfied mortgage.

SB 104
To amend sections 505.86 and 3929.86 of the Revised Code to provide owners and lienholders of insecure, unsafe, or structurally defective or unfit buildings with a right to a hearing before the board of township trustees proceeds to remove, repair, or secure the buildings.

SB 108
To amend section 5323.04 and to enact sections 525.01- 525.04, 525.99, and 5715.111 of the Revised Code to permit townships to require owners of residential rental property located within the township to register certain information with the board of township trustees.

SB 109
To enact sections 5755.01 to 5755.12 of the Revised Code to authorize townships to levy impact fees on new development to finance capital improvements necessitated by that development.

SB 112
To amend section 3781.109 of the Revised Code to require public buildings to have at least one rest room facility with an adult changing station.

HB 114
To amend section 3737.84 and to enact section 3781.106 of the Revised Code to require the Board of Building Standards to adopt rules for the use of a barricade device on a school door in an emergency situation and to prohibit the State Fire Code from prohibiting the use of the device in such a situation.



Ohio Supreme Court Decides in Favor of Beck Energy; Local Drilling Ordinances Not a Valid Exercise of Home Rule


The Ohio Supreme Court decided a critical case in February affecting the state’s oil and gas drilling industry when it issued its decision in State ex rel. Morrison v. Beck Energy Corp (Slip Opinion No. 2015-Ohio-485) on February 17, 2015.
 
Beck Energy Corporation (“Beck Energy”) obtained a state permit to drill an oil and gas well on private property in the city of Munroe Falls (the “City”), located in Summit County.  The City attempted to block Beck Energy from drilling the well despite its state permit based on its own ordinances. The permit  was issued to Beck Energy by the Ohio Department of Natural Resources (“ODNR”) under O.R.C. 1509.02.  It contained 67 separate conditions, including many that addressed issues related to site preparation, pit construction and waste disposal, along with many others that govern “Urbanized Areas,” such as noise mitigation, erosion control, tree trimming and parking. Beck Energy, as an applicant for a drilling permit, was also required to provide notices to each owner within 500 feet of the well’s surface location, as well as to the municipality where the well was to be drilled.
 
The City issued a stop-work order and sought an injunction against Beck Energy alleging that the company was violating the City’s ordinances. The appeal to the Ohio Supreme Court involved 5 of these ordinances; including a general zoning ordinance and 4 ordinances that specifically relate to oil and gas drilling. Violations of these drilling ordinances constitute misdemeanors and could result in jail time and fines, with each day of the violation being a separate offense.
 
Beck Energy opposed the City’s injunction request which was granted by the trial court but overturned by the court of appeals.  The City appeals to the Ohio Supreme Court who addressed the question as to whether the City’s ordinances represented a valid exercise of its home-rule power.
 
The home rule amendment to Ohio’s constitution gives municipalities the “broadest possible powers of self-government in connection with all matters which are strictly local and do not impinge upon matters which are of a state-wide nature or interest.” (State ex rel. Hackley v. Edmonds, 150 Ohio St. 203, 212, 80 N.E.2d 769 (1948))  However, a municipality is not allowed to exercise its police powers in a manner that conflicts with general laws. In those instances, it must yield to the state’s law.
 
In reaching its decision that the City’s ordinances must yield to O.R.C. 1509.02, the Ohio Supreme Court followed a 3 step analysis: (1) is the ordinance an exercise of the police power rather than of local self-government, (2) the statute is a general law, and (3) the ordinance is in conflict with the statute.
 
In this case, the City did not dispute that its ordinance involved the exercise of police power rather than local self-government. The court then found that O.R.C. 1509.02 is a general law as it (1) is part of a statewide comprehensive legislative enactment, (2) applies to all parts of the state alike and operates uniformly throughout the state, (3) sets forth policy, sanitary or similar regulations, and (4) prescribes a rule of conduct upon citizens generally. The court noted that just because a state statute will have more impact in one geographic section of the state over others does not prevent it from being a ‘general law’.
 
Finally, the court found that the City’s ordinances conflict with the state’s statute. An ordinance conflicts with a state statute when it permits or licenses that which the statute forbids and prohibits, and vice versa. In this case, the City’s ordinances prohibited a permit that was lawfully issued by the state under O.R.C. 1509.02 and attempts to provide for double licensing which is not permitted under the state statute.
 
Finding a balance between home-rule authority and state regulatory authority is difficult, even without the added controversy of fracking. Under the circumstances, it comes as no surprise that the Ohio Supreme Court’s decision in favor of Beck Energy was issued by a divided (4-3) court. It will be interesting to see what transpires in the future on this subject.
__________________