State ex rel. AWMS Water Solutions, L.L.C. v. Mertz

• Citation: 162 Ohio St.3d 400,165 N.E.3d 1167
• Decision Date: 23 September 2020
• Docket Number: No. 2019-0493,2019-0493
• Parties: The STATE EX REL. AWMS WATER SOLUTIONS, L.L.C., et al., Appellants, v. MERTZ, Dir., et al., Appellees.
• Court: United States State Supreme Court of Ohio

162 Ohio St.3d 400

165 N.E.3d 1167

The STATE EX REL. AWMS WATER SOLUTIONS, L.L.C., et al., Appellants,

v.MERTZ,¹ Dir., et al., Appellees.

No. 2019-0493

Supreme Court of Ohio.

Submitted April 7, 2020

Decided September 23, 2020

Reconsideration Granted and Slip Opinion Reissued December 2, 2020.²

Brouse McDowell, L.P.A., Matthew G. Vansuch, Canfield, and Kyle A. Shelton, Akron, for appellants.

Dave Yost, Attorney General, Samuel C. Peterson, Deputy Solicitor General, and Brett A. Kravitz and W. Scott Myers, Assistant Attorneys General, for appellees.

Fischer, J. {¶ 1} In this regulatory-takings case, appellants, AWMS Water Solutions, L.L.C.; AWMS Holdings, L.L.C.; and AWMS, Rt. 169, L.L.C. (collectively, "AWMS"), filed a petition for a writ of mandamus in the Eleventh District Court of Appeals to compel appellees, the Ohio Department of Natural Resources ("ODNR"); ODNR's director, Mary Mertz; ODNR's Division of Oil and Gas Resources Management ("the division"); and the division's chief, Richard Simmers (collectively, "the state"), to initiate property-appropriation proceedings. AWMS alleged that it had suffered a taking of its property when the division suspended AWMS's operation of one of its two saltwater-injection wells. The division suspended the operation of the well because of concerns that the well had induced a pair of earthquakes in its vicinity. The Eleventh District granted summary judgment to the state and denied the writ, determining that AWMS had suffered neither a total nor a partial governmental taking.

{¶ 2} Regulatory-takings cases present "complex and difficult" questions that often elude a "simple solution." State ex rel. R.T.G., Inc. v. State , 98 Ohio St.3d 1, 2002-Ohio-6716, 780 N.E.2d 998, ¶ 1 (plurality opinion). This case is no different.

As we will explain below, the court of appeals erred by entering summary judgment in favor of the state when genuine issues of material fact remained regarding whether AWMS had suffered a total or partial taking. Accordingly, we reverse the Eleventh District's judgment and remand this cause to the court of appeals for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. AWMS obtains permits to drill and inject wells, earthquakes ensue, and the division suspends the operation of one of AWMS's wells

{¶ 3} On December 19, 2011, AWMS, a disposer of waste from oil-and-gas production and drilling sites, secured a leasehold right to operate one or more Class II saltwater-injection wells on 5.2 acres of industrial property in Weathersfield Township, Trumbull County, Ohio. A Class II saltwater-injection well is used for the purpose of disposing of saltwater, a byproduct of oil and natural-gas production. A saltwater-injection well is designed to isolate the injected fluid in a specific formation and prevent the contamination of freshwater. United States Environmental Protection Agency, Class II Oil and Gas Related Injection Wells , https://www.epa.gov/uic/class-ii-oil-and-gas-related-injection-wells#dw_protect (accessed Sept. 14, 2020) [https://perma.cc/CH23-MYWS]. The lease obligated AWMS to pay the lessor a 5 percent royalty on its disposal revenue.

{¶ 4} On December 23, 2011, AWMS applied to the division for permits to construct and operate two wells on the site: "well #1" and "well #2." The next day, a 2.7-magnitude earthquake was recorded in Youngstown, Ohio, about seven miles from AWMS's Weathersfield Township site and about one mile from an injection well known as "Northstar #1" that was not related to AWMS's wells. On December 30, 2011, the division decided that Northstar #1 should be "shut in"—that is, taken out of operation. On December 31, 2011, a 4.0-magnitude earthquake was recorded within one mile of Northstar #1. That earthquake was felt by over 4,000 people in parts of northeastern Ohio, western Pennsylvania, and Ontario, Canada. The division later issued a report in which it found that a "compelling argument" existed linking the activities at Northstar #1 to the two December 2011 earthquakes.

{¶ 5} To put these events in context, we note that the United States Geological Survey estimates that more than one million earthquakes of magnitude 2.0 or greater occur naturally per year globally. Ground Water Protection Council & Interstate Oil & Gas Compact Commission, Potential Injection-Induced Seismicity Associated with Oil & Gas Development: A Primer on Technical and Regulatory Considerations Informing Risk Management and Mitigation 44 (2015), http://www.gwpc.org/sites/default/files/finalprimerweb.pdf (accessed Sept. 14, 2020) [https://perma.cc/H9SS-FVKF]. Earthquakes of about magnitude 2.0 or less are called "microseismic events" because they usually cannot be felt by people. Id. Buildings usually do not suffer structural damage unless an earthquake in their vicinity reaches a magnitude of 5.0, although nonstructural damage can occur to a building during a 4.0-magnitude earthquake depending on the building's age and the materials used to construct it. Id. at 50. AWMS's expert witness on seismicity, Michael A. Hasting, testified at a March 2015 hearing in this case that Ohio probably experiences a couple of 2.0-magnitude earthquakes per day.

{¶ 6} Immediately after the December 31, 2011 earthquake occurred, former Governor John Kasich imposed a moratorium on certain injection-well activities, thereby enabling the division to study whether the earthquakes were due to "induced seismicity," a term used to describe earthquakes triggered by human activity. Thereafter, the division adopted rules regarding induced seismicity, developed a seismic monitoring network, hired a seismologist, and participated in workgroups to enhance its understanding of induced seismicity.

{¶ 7} The former governor's moratorium delayed the processing of AWMS's application for its operating permits. But on July 18, 2013, the division authorized AWMS to drill wells #1 and #2. AWMS spent approximately $5.6 million constructing its facilities, which included the costs of wells #1 and #2, infrastructure, drilling, tanks, pumps, installation, and start-up. Well #2, the deeper of the two wells, was drilled to a depth of 8,502 feet, which enabled it to accept 95 percent of total injections.

{¶ 8} In September 2013, AWMS prepared a "confidential offering memorandum" for prospective investors in which it offered membership shares for $50,000 each. AWMS disclosed several investment risks in the memorandum, including that the government's regulation of injection wells could increase in scope and complexity due to growing industry awareness, that AWMS's wells could cause a seismic event similar to the events that had occurred in Youngstown, and that a seismic event caused by AWMS's wells could lead to the suspension of its injection operations.

{¶ 9} On March 24, 2014, the division authorized AWMS to commence injections into wells #1 and #2. AWMS's permits did not contain express language empowering the division to suspend AWMS's operations due to a seismic event of a specific magnitude.

{¶ 10} The risks that AWMS outlined in its offering memorandum turned out to be well founded. On July 28, 2014, a 1.7-magnitude earthquake was recorded near well #2. And on August 31, 2014, a 2.1-magnitude earthquake was recorded in the same area. The Ohio Oil and Gas Commission ("the commission") later determined that the "July and August events were not detectable on the surface, and no property damage was reported."

{¶ 11} On September 3, 2014, the division issued orders requiring AWMS to suspend its operations at wells #1 and #2, stating that the two earthquakes from July and August 2014 were related to AWMS's operations at the wells. The division also required AWMS to "submit a written plan to the Division for evaluating the seismic concerns associated with the operation of" well #2. Two days later, the division issued new orders clarifying that the seismic events "may" have been related to AWMS's wells. The division later determined that well #1 likely did not contribute to seismicity in the area, terminated its suspension of operations at well #1, and allowed AWMS to resume operations at well #1. It left the suspension of operations at well #2 in place.

{¶ 12} On September 17, 2014, AWMS submitted to the division its written plan for well #2. In its plan, AWMS explained that it had not received direction from the division about what to include in the plan. Nevertheless, AWMS's plan included several proposals addressing the division's concerns, including a proposal to establish certain operational and management controls over injections at well #2. The division found AWMS's plan to be "generic and inadequate."

{¶ 13} On October 2, 2014, AWMS appealed the division's suspension of operations at well #2 to the commission. During the pendency of the appeal, AWMS and the division held two meetings during which they discussed the induced-seismicity issue. In the first meeting, which took place near the end of October 2014, the division communicated to AWMS that it was planning to adopt a statewide policy on induced seismicity that it expected to be completed in "four to six" months. According to Stephen G. Kilper, vice president of AWMS, the division stated at that meeting that it was not prepared to address the suspension order regarding well #2 or AWMS's plan until the statewide policy was in place.

{¶ 14} In the second meeting, which was held near the end of February 2015, the division presented AWMS with a single sheet of paper containing 14 criteria that the division was considering for evaluating induced seismicity in its statewide policy. According to Kilper, the division stated at that meeting that it would not implement the statewide induced-seismicity policy for at least eight months and that it would not recommend a policy to ODNR unless the policy "guaranteed zero risk."

{¶ 15} A few days after the February 2015 meeting, AWMS sent an e-mail to the division seeking...