Opinion ID: 4568765
Heading Depth: 3
Heading Rank: 2

Heading: Reasonable investment-backed expectations

Text: {¶ 64} “The reasonable, investment-backed expectation analysis is designed to account for property owners’ expectation that the regulatory regime in existence at the time of their acquisition will remain in place, and that new, more restrictive legislation or regulations will not be adopted.” Love Terminal Partners, L.P. v. United States, 889 F.3d 1331, 1345 (Fed.Cir.2018). The Federal Circuit has developed three factors to guide a court when conducting that inquiry: “(1) whether the plaintiff operated in a ‘highly regulated industry;’ (2) whether the plaintiff was aware of the problem that spawned the regulation at the time it purchased the 23 SUPREME COURT OF OHIO allegedly taken property; and (3) whether the plaintiff could have ‘reasonably anticipated’ the possibility of such regulation in light of the ‘regulatory environment’ at the time of purchase.” Apollo Fuels, Inc. v. United States, 381 F.3d 1338, 1349 (Fed.Cir.2004), quoting Commonwealth Edison Co. v. United States, 271 F.3d 1327, 1348 (Fed.Cir.2001). {¶ 65} Starting with the first factor—whether AWMS operated in a highly regulated industry—AWMS correctly notes that an entrant into a highly regulated field does not abandon all reasonable investment-backed expectations. See Cienega Gardens I, 331 F.3d at 1350. It is also true, however, that “reasonable investment-backed expectations are greatly reduced in a highly regulated field.” Branch v. United States, 69 F.3d 1571, 1581 (Fed.Cir.1995). And here, AWMS does not deny that it had entered a highly regulated industry—that of oil and gas. {¶ 66} Turning to the second factor—whether AWMS had been aware of the potential seismicity problem—AWMS admits to having known that induced seismicity could be an issue with its injection wells. However, we disagree with some of the state’s arguments concerning the problem-awareness factor because they focus on circumstances that arose after AWMS had acquired its leasehold on December 19, 2011. First, the state points to the seismic events that took place in Youngstown on December 24 and December 31, 2011, which prompted former Governor Kasich to impose a moratorium on certain injection activities. Second, the state emphasizes the September 2013 confidential offering memorandum that AWMS prepared for prospective investors in which AWMS acknowledged that governmental regulation of injection wells might increase, that its wells might induce a seismic event, and that such an event could cause a suspension of its injection operations. True, that evidence tends to show AWMS’s awareness that its operations might be suspended if its wells were to be determined to have induced seismic events. But it is the interestholder’s expectations at the time it acquired its 24 January Term, 2020 interest that is determinative, not its expectations following an event occurring at some later point in time. See Apollo Fuels, 381 F.3d at 1349. {¶ 67} At the time AWMS acquired its leasehold interest, AWMS could not have anticipated that the state would waver between a case-by-case approach and a statewide approach to addressing induced seismicity while rebuffing AWMS’s attempts to meet the state’s inchoate regulatory expectations. The parties do not dispute that at the time AWMS obtained its leasehold in December 2011, the division had not established its approach to managing induced seismicity. When the division first issued its suspension orders in September 2014, it put the onus on AWMS to “submit a written plan to the Division for evaluating the seismic concerns associated with the operation of” well #2. Although AWMS had not received direction from the division about what to include in the plan, AWMS nevertheless submitted a plan that included several proposals to establish certain controls over injections at well #2. The division rejected the plan as “generic and inadequate.” {¶ 68} During its appeal of the suspension order, AWMS met twice with the division in an attempt to understand the division’s regulatory position. At the first meeting in October 2014, the division stated that its statewide policy would not be ready for at least four to six more months and declined to address the circumstances of its suspension of AWMS’s operations. At the second meeting in February 2015, the division presented AWMS a single sheet of paper containing 14 criteria that the division was considering for evaluating induced seismicity in its statewide policy. But the division also told AWMS that it would not implement a statewide policy for at least another eight months. A few days after the February 2015 meeting, AWMS sought clarification on some of the division’s proposed criteria. Once again, the division failed to offer any direction or clarification. AWMS nevertheless submitted a plan to the division in early March 2015 25 SUPREME COURT OF OHIO addressing the division’s proposed criteria. The record does not indicate that the division responded. {¶ 69} AWMS got its answer in August 2015 when the commission issued its decision affirming the division’s suspension of operations of well #2. AWMS could not have reasonably anticipated when it acquired its leasehold interest that the state’s inconsistent regulatory approach or its lack of responsiveness to AWMS’s attempts at remediation would leave AWMS in limbo for years with an indefinite suspension of its operations. {¶ 70} AWMS has demonstrated a material issue of fact that the division’s suspension of operations at #2 interfered with AMWS’s reasonable investmentbacked expectations. We therefore reverse the Eleventh District’s granting of summary judgment on this factor under Penn Cent.