California Supreme Court Holds That State Law Preempts County Anti-Fracking Ordinance

The issue in Chevron U.S.A., Inc. v. County of Monterey, Calif. was whether California Public Resources Code § 3106 preempts a November 2016 ballot initiative/county ordinance entitled “Protect Our Water: Ban Fracking and Limit Risky Oil Operations Initiative” (Measure Z). Measure Z, which passed with 56% of the vote, banned fracking,[1] oil and gas wastewater injection and/or impoundment, and the drilling of new oil and gas wells throughout Monterey County’s unincorporated areas.[2] The California Supreme Court ruled that state law preempts Measure Z. 

On December 14, 2016, plaintiffs Chevron, U.S.A. and other energy producers filed writ of mandate petitions, complaints for declaratory and injunctive relief, and inverse condemnation against the defendants in Monterey County Superior Court. The plaintiffs won at a bench trial, and the court issued a writ of mandate directing Monterey County to invalidate Measure Z. The California Court of Appeal affirmed.[3] The California Supreme Court affirmed.[4]

The court noted that although Article XI, § 7 of the California Constitution gives counties and cities the power to make and enforce “local, police, sanitary, and other ordinances and regulations not in conflict with general laws,”[5] prior California Supreme Court opinions held that “[i]f otherwise valid local legislation conflicts with state law, it is preempted by such law and is void.”[6] 

The court found that § 3106 gives “well operators the authority to use all methods and practices the [Geologic Energy Management Division] supervisor has approved, including specifically, the water and steam injections methods that Measure Z bans.”[7] The court stated that because Measure Z disallowed certain oil production methods, it nullified and thus contradicted § 3106’s mandate “that the state ‘shall’ supervise oil operation in a way that permits well operators to ‘utilize all methods and practices’ the supervisor has approved.”[8]  

The court further stated that

In other words, whereas section 3106 directs the supervisor to make decisions about the use of all oil production methods—inclusive of those methods Measure Z identifies—Measure Z authorizes the County to make decisions regarding some of those methods. Thus, were any oil producer to ask the state to decide whether those methods are authorized for use in the County, Measure Z, by banning those methods, has made that decision for—and in lieu of—the supervisor; it has, in all cases, usurped the supervisor’s statutorily granted authority to decide whether those methods are “suitable . . . in each proposed case.”[9]

The court noted that it stated in Calif. Fed. Savings & Loan Ass’n v. City of Los Angeles that a conflict is “a genuine one” where it is “unresolvable short of choosing between one enactment and the other.”[10] Here, a “genuine conflict” existed because § 3106 and Measure Z conflicted regarding whether the state or county controlled the permissibility and use of certain oil and natural gas extraction methods. Accordingly, the court found that “the local ordinance must yield to the supreme state law.”[11]

Section 3106 explicitly provides that it is the State of California's oil and gas supervisor who has the authority to decide whether to permit an oil and gas drilling operation to drill a new well or to utilize wastewater injection in its operations. Section 3106 commits these operational aspects of oil drilling operations to the state’s discretion, not that of localities, and thus § 3106 preempts local regulation.

The court dismissed the county’s argument that “several statutes that allow local control over some aspects of oil extraction reflect the Legislature’s [purported] intent not to preempt local oil-related ordinances.”[12] The court stated that local entities have the authority to determine “whether and where oil production may occur within their boundaries based on local zoning laws; [but] they do not address oil production methods at existing wells.”[13] Therefore, restricting “the location at which oil may be extracted—a proper concern of [local] zoning measures”[14]—is different and inapplicable to the question of whether “a local ordinance that regulates certain methods and practices of oil extraction in areas where oil production has already been approved and is ongoing.”[15]

Similarly, the court distinguished its opinion from Big Creek Lumber Co. v. County of Santa Cruz, Cal.,[16] stating that Measure Z did not address “where” local operations could take place, but “how” oil producers and well operators should be permitted to extract oil—the same subject matter covered by § 3106. The court stated that Measure Z, “by its plain language,”[17] banned “oil production methods, i.e., activities in support of ‘oil and gas wastewater injection or oil and gas wastewater impoundment’” rather than imposing “a locational restriction.”[18]

The court affirmed the trial and appellate courts’ rejections of the appellants’

characterization of Measure Z as a “land use” ordinance entitled to a strong presumption against preemption, stating that the measure’s “prohibition on certain ‘land uses’ is clearly a pretextual attempt to do indirectly what [the County] cannot do directly,” i.e., ban certain methods of oil production in a way that will bring oil production in the County “to a complete halt in five years or less.”[19]

 As the court stated in Great Western Shows, Inc. v. County of Los Angeles, Cal., “when a [state] statute or statutory scheme seeks to promote a certain activity and, at the same time, permits more stringent local regulation of that activity, local regulation cannot be used to completely ban the activity or otherwise frustrate the statute’s purpose.”[20]

The court stated that it did not need to reach the questions of whether the doctrines of field preemption and/or federal obstacle preemption applied,[21] or whether the federal Safe Drinking Water Act of 1974[22] preempted Measure Z, because it found that California state law did.

In sum, the court in Chevron U.S.A., Inc. held that a local entity may not use its traditional zoning and land use powers to nullify, contradict, or otherwise frustrate a state statute’s purpose or as a pretextual attempt to do indirectly what state law does not permit it to do directly.

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