American Water Management Services, LLC, n.k.a. AWMS Water Solutions, LLC, Appellant-Appellee,
Division of Oil & Gas Resources Management, Appellee-Appellant.
from the Franklin County Court of Common Pleas (C.P.C. No.
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.
1} Appellee-appellant, 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 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.
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 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.
States Geological Survey, What is in the fluid injected
into the 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
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
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
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
ASSIGNMENTS OF ERROR
20} The division assigns four alleged errors for our
[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) ...