Town of Frederick v. North Amer. Resources, 01CA0893.

• Decision Date: 01 August 2002
• Docket Number: No. 01CA0893.,01CA0893.
• Parties: TOWN OF FREDERICK, Plaintiff-Appellant and Cross-Appellee, v. NORTH AMERICAN RESOURCES COMPANY, Defendant-Appellee and Cross-Appellant.
• Court: Colorado Court of Appeals

60 P.3d 758

TOWN OF FREDERICK, Plaintiff-Appellant and Cross-Appellee, v. NORTH AMERICAN RESOURCES COMPANY, Defendant-Appellee and Cross-Appellant.

No. 01CA0893.

Colorado Court of Appeals, Div. IV.

August 1, 2002.

Samson, Pipis & Marsh, LLC, Richard E. Samson, Gwyneth Ayers, Longmont, Colorado, for Plaintiff-Appellant and Cross-Appellee.

Kuhn, Carnes & Anderson, P.C., Dennis N. Carnes, Carolyn J. Mitchell, Denver, Colorado; Gretchen VanderWerf, P.C., Gretchen VanderWerf, Denver, Colorado, for Defendant-Appellee and Cross-Appellant.

Geoffrey T. Wilson, Denver, Colorado, for Amicus Curiae Colorado Municipal League.

Kenneth A. Wonstolen, Denver, Colorado, for Amicus Curiae Colorado Oil and Gas Association.

Ken Salazar, Attorney General, Carol J. Harmon, Assistant Attorney General, Denver, Colorado, for Amicus Curiae Colorado Oil and Gas Conservation Commission.

Opinion by Judge VOGT.

The issue in this case is whether, and if so, to what extent, a local government may regulate the drilling of oil and gas wells within its boundaries. Plaintiff, the Town of Frederick, appeals the trial court's summary judgment invalidating certain provisions of its ordinance that required oil and gas operators, including defendant, North American Resources Company (NARCO), to obtain a permit before drilling a well in the Town. NARCO cross-appeals the trial court's determination on summary judgment that the balance of the ordinance was enforceable and that the Town was entitled to injunctive relief and attorney fees. We affirm.

In 1994, the Town enacted an ordinance, codified at art. V, ch. 16 of the Frederick Municipal Code, prohibiting the drilling of oil and gas wells within the town limits unless a special use permit was first obtained.

The ordinance prescribed procedures for applying for a permit, required payment of a $1,000 application fee, and provided that the Town's board of trustees had to approve the application if it conformed to the requirements set forth in the ordinance. These requirements included specific provisions for well location and setbacks, noise mitigation, visual impact and aesthetics regulation, and the like.

The ordinance also prescribed penalties for constructing an oil and gas facility without complying with its terms, authorized the town attorney to institute an action to enjoin or remove such unlawful facility, and provided that the Town was entitled to its costs and attorney fees if it prevailed in any such action.

In 1999, NARCO drilled a well in the Town after having been granted a drilling permit by the Colorado Oil and Gas Conservation Commission (COGCC), but without having applied for a special use permit from the Town. The Town filed suit to enjoin NARCO from operating its well and require it to remove the well and pay all fines associated with its violation of the ordinance. NARCO counterclaimed, seeking a declaratory judgment that the ordinance was unenforceable because it was preempted by state law. Both parties moved for summary judgment.

In a detailed written opinion, the trial court granted each party's motion in part. It concluded that several provisions of the ordinance were invalid because they were in operational conflict with rules promulgated by COGCC, and thus enjoined the Town from enforcing those provisions. However, the court concluded, state law did not preempt the Town's regulatory scheme in its entirety. Because NARCO had not complied with the valid portions of the ordinance, the Town was entitled to an injunction precluding NARCO from operating its well. The court also awarded the Town its attorney fees and costs pursuant to the terms of the ordinance.

I. Background

A. Applicable statutes, Bowen/Edwards, and Voss

Resolution of the issue presented in this case requires review of the statutes and case law addressing the relationship between local governments' authority over land use issues within their boundaries and the state's authority to regulate oil and gas production throughout Colorado.

As a statutory town, Frederick has the power to enact ordinances not inconsistent with state law that are necessary and proper to provide for the health, safety, prosperity, order, comfort, and convenience of the municipality. See § 31-15-103, C.R.S.2001; Minch v. Town of Mead, 957 P.2d 1054 (Colo. App.1998). In addition, the Local Government Land Use Control Enabling Act, § 29-20-101, et seq., C.R.S.2001, grants local governments broad authority to plan for and regulate the use of land within their respective jurisdictions.

The state's interest in oil and gas development and operations is expressed in the Oil and Gas Conservation Act, § 34-60-101, et seq., C.R.S.2001, whose declared purposes include promoting the development, production, and utilization of oil and gas resources in the state. The COGCC is charged with enforcing that act and promulgating rules necessary to carry out its provisions.

In 1992, the Colorado Supreme Court addressed the effect of these statutes on local governments' ability to regulate oil and gas operations in two cases, Board of County Commissioners v. Bowen/Edwards Associates, Inc., 830 P.2d 1045 (Colo.1992), and Voss v. Lundvall Brothers, Inc., 830 P.2d 1061 (Colo.1992). In Bowen/Edwards, the court held that the Oil and Gas Conservation Act did not totally preempt a county's land use authority over oil and gas operations. In Voss, the court held that a home rule city could regulate various aspects of oil and gas operations within the city, but could not totally ban all drilling.

The Town and NARCO agree that the preemption analysis delineated in those two cases controls resolution of the issue presented here.

Where, as here, the issue is one in which both state and local concerns are present, a three-part analysis is applied to determine whether the local ordinance or regulation is preempted by state law. First, the express language of the state statute may indicate state preemption of all local authority over the subject matter. Second, preemption may be inferred if the state statute impliedly evinces a legislative intent completely to occupy a given field by reason of a dominant state interest. Third, a local law may be partially preempted where its operational effect would conflict with the application of the state statute.

Applying those preemption principles, the supreme court concluded in Bowen/Edwards that the Oil and Gas Conservation Act neither expressly nor impliedly preempted all aspects of a local government's land use authority over land that might be subject to oil and gas development or operations. Regarding the third, or "operational conflict," type of preemption, the court articulated the inquiry as follows: "State preemption by reason of operational conflict can arise where the effectuation of a local interest would materially impede or destroy the state interest. Under such circumstances, local regulations may be partially or totally preempted to the extent that they conflict with the achievement of the state interest." Bowen/Edwards, supra, 830 P.2d at 1059 (citation omitted). Concluding that the operational conflicts question must be resolved on an ad hoc basis under a fully developed evidentiary record, the court remanded the case to the trial court for determination of the issue.

In Voss, the court applied the Bowen/Edwards analysis and further clarified the extent to which a local government may regulate oil and gas drilling. A complete ban was impermissible because it would conflict with the state's interest in efficient production and development of oil and gas resources in a manner preventing waste and protecting the rights of producers. However, that fact did not foreclose all local regulation:

If a home-rule city, instead of imposing a total ban on all drilling within the city, enacts land-use regulations applicable to various aspects of oil and gas development and operations within the city, and if such regulations do not frustrate and can be harmonized with the development and production of oil and gas in a manner consistent with the stated goals of the Oil and Gas Conservation Act, the city's regulations should be given effect. We thus do not conclude . . . that there is no room whatever for local land-use control over those areas of a home-rule city where drilling for oil, gas, or hydrocarbon wells is about to take place.

Voss, supra, 830 P.2d at 1068-69.

B. The trial court's application of Bowen/Edwards and Voss

Applying the Bowen/Edwards and Voss analysis in this case, the trial court first rejected NARCO's argument that post-1992 statutory amendments and rules establish that, contrary to Bowen/Edwards, all local regulation of oil and gas operations is now impliedly preempted. The court then analyzed the Town's ordinance to determine whether there were operational conflicts between it and the Oil and Gas Conservation Act or the COGCC rules.

The trial court did not agree with NARCO that the entire ordinance was invalid based on operational conflict, but nevertheless concluded that certain sections were in conflict with the state's interest as set forth in the COGCC rules. While those sections thus could not be enforced, the remaining sections were enforceable.

Because the permitting process as a whole was valid and enforceable, NARCO was required to obtain a special use permit before drilling a well, but admittedly did not do so. Accordingly, the Town was entitled to judgment on its claims to enjoin NARCO from drilling or otherwise operating its nonconforming well and to require NARCO either to remove the well or to obtain a special use permit.

II. Implied Preemption

If, as NARCO contends on cross-appeal, a local government's ability to require permits for oil and gas drilling is now impliedly preempted in its entirety, we need not reach the specific issues raised by the parties regarding operational conflicts. Therefore, we first address the implied preemption issue.

NARCO contends...