Ohio Appeals Court Rules on Forced Pooling Issue
The Tenth District Court of Appeals issued a ruling in Simmers v. City of North Royalton, affirming the decision of the Oil and Gas Commission which overturned a mandatory pooling order of the Chief of the Division of Oil & Gas Resources Management. The case was decided under R.C. 1509.27 — the statute utilized by conventional oil and gas operators to apply for a mandatory pooling orders. R.C. 1509.27 allows the Chief to issue a mandatory pooling order on a “just and equitable” basis to property owners that do not voluntarily enter a lease to participate in a drilling unit.
In the case, the City of North Royalton did not voluntarily enter into a lease with the oil and gas operator due to purported safety concerns. In addition, the City was required to hold a public hearing before entering the proposed lease. Prior to the public hearing, the oil and gas operator applied for a permit and for a mandatory pooling order both of which were granted by the Chief.
The City appealed the Chief’s orders to the Oil and Gas Commission. The Commission found the Chief limited his consideration of whether negotiations for a lease with the City were conducted on a “just and equitable” basis to the financial considerations of the lease, but not the City’s safety concerns. The Commission found the Chief should had considered the safety concerns of the City in his order granting mandatory pooling.
The Commission’s decision was appealed to the Franklin County Court of Common Pleas and then to the Tenth District Court of Appeals. The Court of Appeals agreed with the decision the Commission under a deferential standard of review. The Court rejected the argument of the Chief that any safety issues are addressed in the permitting stage holding it “may not provide sufficient protection to a municipality concerned about particular safety issues …”
The majority opinion elicited a dissent from Judge Sadler relying on the statutory provisions of R.C. 1509.27. In particular, the dissent focused on the protection of “correlative rights” the mandatory pooling statute afford property owners. Those “correlative rights” relate to the monetary compensation a property owner may receive from oil and gas extracted from his property and that Ohio law only permits the Commission to consider non-economic factors (such as safety) to the extent they may affect the value of the property owner’s correlative rights.
The dissent also expressed its view that the Commission did not have jurisdiction to consider safety issues in the context of an appeal from the order of the Chief granting a mandatory pooling application.