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American Water Management Services, LLC v. Division of Oil & Gas Resources Management

Court of Appeals of Ohio, Tenth District

July 31, 2018

American Water Management Services, LLC, n.k.a. AWMS Water Solutions, LLC, Appellant-Appellee,
v.
Division of Oil & Gas Resources Management, Appellee-Appellant.

          APPEAL from the Franklin County Court of Common Pleas (C.P.C. No. 16CV-6218)

         On brief:

          Comstock, Springer & Wilson Co., LPA, and Thomas J. Wilson, for appellant-appellee.

          Michael DeWine, Attorney General, Brett A. Kravitz, and Brian Becker, for appellee-appellant.

         Argued:

          Thomas J. Wilson.

          Brett A. Kravitz.

          DECISION

          BRUNNER, J.

         {¶ 1} Appellee-appellant[1], Division of Oil & Gas Resources Management of the Ohio Department of Natural Resources (separately "ODNR Oil & Gas" or "division" or "ODNR"), appeals a December 23, 2016 decision and a February 21, 2017 entry of the Franklin County Court of Common Pleas, acting as an appellate court for ODNR and reversing a decision of the Oil & Gas commission ("commission") that affirmed an order of the Chief of ODNR Oil & Gas ("Chief) instructing appellant-appellee, AWMS Water Solutions, LLC ("AWMS") to shut-in their No. 2 injection well at AWMS' wastewater injection site in Weathersfield Township, Trumbull County, Ohio. Following its decision on administrative appeal, the common pleas court entered a judgment that included a plan for the resumption of wastewater injection activities at the AWMS site. Because we find that the common pleas court did not account for the mandate of R.C. 1509.02[2] to the Chief of the division and the scientific possibility for seismic events to increase suddenly in magnitude and spread beyond the drilling site, the common pleas court's judgment is unreasonable and unlawful and must be reversed.

         I. FACTS AND PROCEDURAL HISTORY

         {¶ 2} Following approximately ten minor earthquakes in 2011, the most significant of which were of magnitude 2.7, ODNR ordered a waste injection well[3] known as "Northstar 1" to cease operation. (Admin. Record at 1171, 1192, filed August 1, 2016.) At 5:00 p.m. on December 30, 2011, a representative of ODNR witnessed the well shutdown. Id. at 1171. The following day, the area around Youngstown, Ohio (near the Northstar 1 well) experienced a 4.0 earthquake. Id. at 1172, 1192. Following that event, ODNR Oil & Gas declared a one-year moratorium on waste-water injection permits to study the issue of induced seismicity (earthquakes caused by human activities). Id. at 900-02.

         {¶ 3} One week before the shutdown of Northstar 1, on December 23, 2011, AWMS had applied for a permit to drill a class 2 waste injection well at a site known as AWMS No. 2 in Trumbull County, Ohio, approximately seven miles from Northstar 1. Id. at 641-43, 969, 1026. Because of the moratorium, it took approximately 19 months for the permit to be granted and 27 months before the AWMS No. 2 well became operational. Id. at 616-17. When the permits to drill and operate issued, they did so with a considerable volume of conditions and specifications, including a catch-all provision requiring the operation of AWMS No. 2 well to be in compliance with all requirements of R.C. Chapter 1509 and Ohio Adm.Code 1501:9-3. Id. at 962-63, 1028-30. But the conditions and specifications of the permits did not address what would happen if more earthquakes, including human-induced earthquakes, transpired.

         {¶ 4} In May and June 2014, AWMS began to use its No. 2 well to commercially dispose of drilling waste water. Id. at 617-18. On July 28, 2014, seismic activity of magnitude 1.7 occurred in Weathersfield Township near the AWMS No. 2 site. Id. at 280-81. Another tremblor, this one of magnitude 2.1, occurred in roughly the same location on August 31, 2014. Id. Three days later, on September 3, 2014, the Chief of ODNR Oil & Gas issued an order (No. 2014-372) requiring a suspension of all well operations (also known as a "shut-in") until ODNR Oil & Gas "c[ould] further evaluate the well." Id. AWMS immediately complied. Id. at 618-19. Two days later, the Chief issued a second order (No. 2014-374) concluding that the seismic events were not certain to be related to AWMS' well operations but that they "may" have been. Id. at 283. The No. 2014-372 order also required AWMS to "submit a written plan to the Division for evaluating the seismic concerns associated with the operation of the AWMS #2 saltwater injection well." Id. at 281.

         {¶ 5} By way of background, we note that the byproducts of drilling are loosely referred to in the record as "saltwater" or "brine." "Brine" is legally defined as "all saline geological formation water resulting from, obtained from, or produced in connection with exploration, drilling, well stimulation, production of oil or gas, or plugging of a well." R.C. 1509.01(U). But "saline geological formation water" is legally distinct in Ohio from the "fluids" used in the "drilling of a well, flowback from the stimulation of a well, and other fluids used to treat a well." R.C. 1509.226(B)(10). According to the U.S. Geological Survey ("USGS"):

In general, hydraulic fracturing fluid is composed of water, proppant (typically sand), and chemicals. A public Web site known as FracFocus has been established by industry that lists specific materials used in many, but not all, hydraulically fractured wells. Individual companies select a few chemicals to be used from hundreds that are available and the fluids are tailored to the rocks they are being injected into as well as the conditions at the well site. Reporting to the FracFocus Web site is mandatory in some states and voluntary in the rest. The specific formulation of some chemicals may be trade secrets that may be exempt from reporting on the site.

         United States Geological Survey, What is in the fluid injected into the ground during hydraulic fracturing?, www.usgs.gov/faqs/what-fluid-injected-ground-during-hydraulic-fracturing? (Accessed June 7, 2018).

         {¶ 6} On September 17, 2014, AWMS submitted a nine-page letter detailing the history of induced seismicity, AWMS' use of No. 2 well, comparing it to other wells that are associated with induced seismicity. (Admin. Record at 1037-45.) Among other points, AWMS noted that Northstar 1 had been permitted to inject at greater depth and higher pressure than AWMS No. 2 well. Id. at 1038. AWMS described an approach to induced seismicity gaining acceptance in the industry known as the traffic light approach wherein low magnitude seismic events would not trigger a response, slightly higher-level events would trigger a cut-back in the rates and pressures of pumping, and a significant event would lead to a cessation of activities. Id. at 1042-43. AWMS suggested following the traffic light approach. Specifically, AWMS suggested continuous monitoring while cutting back the volume and pressure by 20 percent for 20 days then slowly increasing it if no further seismic events occurred. Id. at 1043-45. The plan provided for again reducing the flow and pressures if minor events occurred and ceasing operations immediately if an imminent threat to safety, health, or the environment appeared. Id. at 1045.

         {¶ 7} No one from the division contacted AWMS to collaborate on the plan or critique what AWMS had submitted. Id. at 621-23, 898-99. On October 2, 2014, AWMS appealed the Chiefs orders to the Oil & Gas commission. Id. at 275.

         {¶ 8} In a meeting on February 24, 2015, shortly before the March 11, 2015 hearing on the appeal, ODNR Oil & Gas provided AWMS with a "demonstrative" list of 14 criteria they were planning to use in creating a policy on how to treat earthquakes caused by human activity or induced seismicity. Id. at 623-24, 1046. AWMS responded on March 4, 2015, addressing each of the 14 criteria stating whether and when AWMS had already addressed it or how AWMS could address it. Id. at 624-25, 1048-51. Concerning two criteria having to do with modeling the underground topography and pressure front growth, AWMS noted it would need more detail about the objectives and purposes of this modeling before it could engage a firm to complete it. Id. at 1050. With respect to some criteria, AWMS also noted that it would only be possible to collect responsive data if the well were operating. Id. at 1049-50. Once again, the division did not respond to AWMS. Id. at 624-27.

         {¶ 9} At the hearing on the appeal on March 11, 2015, the Chief of ODNR Oil & Gas testified that although the division initially intended to deal with AWMS' well on an individual basis, ODNR Oil & Gas had instead decided to work with interstate commissions to develop and implement a policy on induced seismicity and that the Chief was not intending to consider AWMS' well until that work was done. Id. at 883-87, 890-95. When asked, the Chief could give no answer as to when that policy might be in place. Id. at 892-95. He admitted that no one from ODNR Oil & Gas contacted AWMS to work with it on the plan it submitted but said he might consider a plan from AWMS if it were a "very comprehensive plan." Id. at 895-96, 903-04. The Chief also stated that, although ODNR Oil & Gas staff developed a letter giving AWMS permission to operate at less than 50 percent of their originally permitted capacity under a series of other conditions, he never signed it because he felt it was not comprehensive enough. Id. at 896-98. He admitted that one barrel of injected material per day would be extremely unlikely to cause any problems but declined to speculate as what level of operation would be appropriate. Id. at 903. He stated that AWMS had fully complied with all permits and orders and that there has been no allegation that AWMS misled the division or acted negligently. Id. at 899-900.

         {¶ 10} The vice president of AWMS also testified. He explained that while AWMS is a subsidiary of a larger company and while AWMS maintains another well (Northstar 1), AWMS No. 2 well is approximately 95 percent of AWMS' business. Id. at 614-15, 649-50. He testified that if No. 2 well is not reactivated, AWMS will go out of business. Id. at 627. AWMS' vice president also testified that meetings with ODNR Oil & Gas had led AWMS to believe that No. 2 well would be allowed to reopen. Id. at 628-30. But, he said, he understood that the division had changed its approach at some juncture and refused to consider the matter further until the State of Ohio had completed some final policy-making on induced seismicity. Id. at 630.

         {¶ 11} Two expert witnesses also testified on behalf of AWMS. Id. at 593. Both acknowledged that the two "microseismic" events in July and August near the AWMS wells were likely caused by AWMS' activities with No. 2 well. Id. at 745-47, 793-94. However, based on their decades of experience and analysis of other wells in Ohio, both testified that the traffic light approach could allow AWMS' No. 2 well to operate safely. Id. at 697-701, 788-89; see also id. at 1064, 1088. Both declined to conclude that the shut-in of the AWMS well was "unreasonable," as that was a legal conclusion for the commission rather than a scientific opinion. Id. at 744, 805. But both expressed the belief that a complete shut-in was unnecessary and that the well had not produced any seismicity that would have had any impact on public health or safety. Id. at 744, 788-90, 797-98. One expert laid out the general ranges of magnitudes stating that quakes below 2.5 magnitude are usually not felt by humans and even minor damage to structures typically does not occur until the 3.5 to 3.8 range. Id. at 774-76.

         {¶ 12} On August 12, 2015, the commission affirmed the shut-in order of the division's Chief. Id. at 331. It recognized that the Chief did not intend to allow resumption of injection operations at AWMS No. 2 well until a state policy on injection-induced seismicity was in place. Id. at 338. The commission recognized that AWMS had not violated any terms of its injection permit nor did anything that could constitute a "material and substantial violation" as defined in R.C. 1509.01(EE). Id. The commission recognized that it was the opinion of both experts who testified in the hearing on behalf of AWMS that although the small seismic events were likely associated with injections into AWMS No. 2 well, resumption of activities at AWMS No. 2 well could be accomplished safely at lower volumes and pressures with monitoring as contemplated by the traffic light system. Id. at 339. The commission stated, however, that neither expert "could state that the Chiefs issuance of the Suspension Order was unreasonable given the specific facts of this matter." Id. at 340. The commission recognized that nowhere in R.C. Chapter 1509 or implementing sections of the Ohio Administrative Code is a chief specifically empowered to suspend operations or to revoke a permit based on induced seismicity where there is no accompanying "material and substantial violation" by the operator. Id. at 344. Nonetheless, based on what the commission characterized as the Chiefs "exclusive jurisdiction over injection operations," the commission inferred that the Chief had such a power by implication. Id. at 345-47. Then, with respect to whether the Chiefs order was reasonable, the commission concluded:

The Commission must defer to the expertise of the Division. If the Division has identified a problem, or a lack of adequate information to evaluate seismic concerns associated with the AWMS #2 Well, the Commission must respect that agency's position. The Commission finds that the suspension of injection operations at the AWMS #2 Well is appropriate under the facts of this specific case.

Id. at 349.

         {¶ 13} On September 8, 2015, AWMS filed a notice of appeal with the Franklin County Court of Common Pleas. Am. Water Mgmt. Servs., LLC v. Div. of Oil & Gas Resources Mgmt, 10th Dist. No. 16AP-4, 2016-Ohio-2860, ¶ 4. The common pleas court dismissed the appeal because AWMS did not file the notice of appeal with the commission as required by R.C. 1509.37 and AWMS appealed to this Court. Id. We found that the commission had not properly given notice of its decision to the parties and remanded to the commission for it to comply with R.C. 1509.36. AWMS thereby received a second chance to appeal the commission's decision with the common pleas court and timely appealed it when it was re-issued on June 21, 2016. Id. at ¶ 13-15. (June 30, 2016 Notice of Appeal; Ex. A, June 21, 2016 Order after Remand, attached to June 30, 2016 Notice of Appeal.)

         {¶ 14} In the common pleas court, the parties engaged in briefing on the merits and AWMS submitted, but subsequently withdrew, a motion to include additional evidence. (July 22, 2016 AWMS Mot. to Include Additional Evidence; Aug. 12, 2016 AWMS' Brief; Sept. 22, 2016 Division's Brief; Sept. 29, 2016 AWMS' Reply Brief; Nov. 1, 2016 Hearing Tr. at 4, filed Jan. 27, 2017.) The trial court also held oral argument on the merits on November 1, 2016.

         {¶ 15} On December 23, 2016, the court of common pleas issued a decision on the appeal. (Dec. 23, 2016 Decision & Order.) The common pleas court concluded that the Chief of ODNR Oil & Gas had legal authority to suspend the operation of the AWMS No. 2 well, notwithstanding the lack of any violation on the part of AWMS. Id. at 9. However, the common pleas court found that the Chiefs decision was unreasonable. The court noted that both experts who evaluated AWMS' plan found it was a reasonable and responsible method for reinstating operations at the well and that the division had not responded to the plan or evaluated the well, rather, using the AWMS No. 2 well situation as a catalyst to justify developing a statewide policy. Id. at 11, 13. The common pleas court found that ODNR Oil & Gas had "stalled" for over 26 months, denying AWMS a site-specific evaluation and plan to restart its well despite AWMS' full cooperation. Id. at 14. It concluded that there was "no factual basis for [the division] to continue the suspension of the operation of the AWMS #2 Well." Id. at 15. The common pleas court observed that it would prefer for the parties to work together in developing a comprehensive plan for restarting the well, but, given the history of the delays, it instead ordered each party to submit a proposed entry "setting forth the order that the Commission should have made to restart the AWMS #2 Well that would initially limit the amount of volume, the amount of saltwater and brine that is being put into the well; initially limit the amount of pressure used; and then incrementally increase the volume and pressure while simultaneously providing constant monitoring for seismicity; and address the concerns of public health and safety." Id. at 16.

         {¶ 16} ODNR Oil & Gas filed a notice of appeal from the common pleas court's decision and order on January 19, 2017. (Jan. 19, 2017 Notice of Appeal.) This Court dismissed that appeal on February 22, 2017 as not having been taken from a final appealable order. Am. Water Mgmt. Servs., LLC v. Div. of Oil & Gas Resources Mgmt, 10th Dist. No. 17AP-45 (Feb. 22, 2017) (Entry).

         {¶ 17} The day before, on February 21, 2017, having reviewed proposed entries submitted by both parties, the trial court issued an entry ordering AWMS No. 2 well to restart under a number of restrictive conditions. (Feb. 21, 2017 Jgmt Entry.) Principally, these conditions consisted of reduced pressures and volumes, constant monitoring, and adjustments depending on observed levels of earthquakes. Id. at 2-5. However, there was also a provision that "if at any time an imminent threat to safety, health, or the environment is experienced at or near the facility for any reason, injection operations will immediately cease and will not resume until two representatives of AWMS and two representatives from the Commission determine that the threat has passed and it is safe to resume operations." Id. at 5.

         {¶ 18} ODNR Oil & Gas timely appealed to this Court. (Feb. 22, 2017 Notice of Appeal.)

         {¶ 19} On March 21, 2017, this Court stayed the common pleas court's entry during the pendency of this appeal. Am. Water Mgmt. Servs., LLC v. Div. of Oil & Gas Resources Mgmt, 10th Dist. No. 17AP-145 (Mar. 21, 2017) (Entry). As a consequence, and because the Chiefs original order requiring the well to be shut-in has never been stayed, AWMS No. 2 well has been shut-in since the original order on September 3, 2014 and continues to in effect remain dormant as of the date of this decision. See Admin. Record at 618-19.

         II. ASSIGNMENTS OF ERROR

         {¶ 20} The division assigns four alleged errors for our review:

[1.] The Court of Common Pleas erred by vacating the Oil & Gas Commission's order and establishing a plan for resuming AWMS #2 Well operations because it lacked the authority and jurisdiction to issue a plan that (1) creates a new board not authorized by statute to determine imminent seismic threat issues; (2) infringes upon the sole and exclusive authority of the Chief to regulate injection operations as mandated by the General Assembly; (3) ...

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