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Ohio Supreme Court: Appeals court failed to follow orders when reconsidering wastewater well closure

Dan Trevas, Court News Ohio

An appeals court failed to follow instructions from the Supreme Court of Ohio when considering the case of a wastewater well operator that was shut down for potentially causing earthquakes in Trumbull County.

In a unanimous per curiam opinion, the Supreme Court last week stated that the Eleventh District Court of Appeals ignored the high court’s directive to “weigh the parties' evidence ” to determine if the state should compensate AWMS Water Solutions for suspending its permits to operate in Weatherfield Township.

In 2014, the Ohio Department of Natural Resources (ODNR) suspended the operation of one of two AWMS wells. The wells were used to inject waste fluid from the oil and natural gas drilling process of hydraulic fracturing, known as fracking. ODNR suspended the operations when seismic activity was recorded near AWMS well #2, which is close to the city of Niles.

A protracted legal battle led to a 2020 Supreme Court decision regarding AWMS’ claim that the state’s actions amounted to a “taking” of its property under the Fifth Amendment to the U.S. Constitution. AWMS argued that it was entitled to compensation from ODNR for improperly shutting down the wells and hindering the company’s ability to reopen. The Supreme Court did not definitively decide whether AWMS was owed money but remanded the case to the Eleventh District.

After conducting a nine-day trial in 2021, and ordering the parties to file additional briefs, the Eleventh District dismissed the case, finding that AWMS was not entitled to compensation. AWMS appealed the decision to the Supreme Court, asserting the appellate court made its decision without following the Supreme Court’s directions.

In December 2011, AWMS secured a lease from the owner of 5.2 acres of industrial property in Trumbull County. The lease gave the company the exclusive right to operate disposal wells and install, operate, and maintain infrastructure to facilitate waste disposal from oil and gas drillers. That month, the company applied for ODNR permits to operate the two disposal wells: well #1 and well #2.

About a week after AWMS applied for permits, a 4.0-magnitude earthquake was recorded a few miles from the AWMS property. The event originated near another deep-well injection site and was felt by more than 4,000 people in parts of northeastern Ohio, western Pennsylvania, and Ontario, Canada. After the earthquake, former Ohio Gov. John Kasich imposed a moratorium on well-injection activities.

The moratorium delayed the processing of AWMS’ permits, but the company was authorized to use the two wells in July 2013. AWMS then spent $5.6 million to construct the wells and other infrastructure, including tanks and pumps. ODNR authorized the company to begin wastewater injections in March 2014. Four months later, a 1.7-magnitude earthquake was recorded near well #2, and a month later, a 2.1-magnitude quake was recorded in the same area.

ODNR ordered AWMS to suspend its operations of both wells, stating the earthquakes were related to the well operations. The agency later allowed well #1 operations to resume, but not well #2.

AWMS sought ODNR permission to restart well #2 but was unsuccessful. In 2016, the company sought a writ of mandamus from the Eleventh District. AWMS wanted the appellate court to order ODNR to start a “property appropriation” proceeding, claiming that the state was, in effect, taking the property of the disposal company but not permitting it to operate.

The Eleventh District dismissed the case, finding that ODNR regulation of the facility did not constitute a taking. AWMS appealed to the Supreme Court.

In 2020, the Supreme Court ruled there was a “genuine issue of material fact” concerning whether the state’s suspension of AWMS’ operation constituted a taking by depriving the company of all economically beneficial uses of its lease. The Supreme Court remanded the case to the Eleventh District with instructions to weigh the evidence related to AWMS’ claim that the state “totally” took all the economic value of well #2 or “partially” took the value.

The Supreme Court directed the Eleventh District to use a process set out by the U.S. Supreme Court to determine if AWMS suffered a partial taking.

Based on the Supreme Court’s directive, an Eleventh District three-judge panel conducted a nine-day trial in 2021. The parties presented 14 witnesses and more than 250 exhibits. Several months after the trial’s conclusion, the court of appeals asked the parties to address a separate question: Does AWMS have an interest in the property that entitles it to compensation? The appeals court stated that before it could even consider how much money AWMS was entitled to receive, it first had to decide if it had “property” that could be taken.

ODNR argued that AWMS’ lease to dispose of waste was not a property interest that qualified for compensation. ODNR also argued that AWMS possessed no other property interest that had been taken and entitled the well operator to compensation. The Eleventh District agreed and dismissed the case.

In their Jan. 24 decision, the Supreme Court ruled that the court of appeals failed to comply with the Court’s order in the 2020 decision. In that decision, the Supreme Court found that AWMS did have a property interest in its lease. The appeals court did not have to decide whether AWMS had a property interest because the Supreme Court had already decided that AWMS did, the opinion stated. The duty of the appeals court was to weigh the evidence to consider how much money, if any, the state owes AWMS, the opinion noted. The Court stated that “the court of appeals failed to perform the task we ordered it to do on remand.”

The opinion stated that it is hard to understand how the appeals court could rule that AWMS did not have an interest that entitled it to compensation without doing the takings analysis that the appeals court was ordered to do.

“By deciding the case in this manner, the court ventured beyond the scope of our remand order,” the opinion stated.