Opinion ID: 4568765
Heading Depth: 2
Heading Rank: 4

Heading: Whether the division effected a partial taking

Text: {¶ 57} A regulation that prohibits less than all economically beneficial use of land falls outside of Lucas’ categorical rule and into Penn Cent.’s three-factor analysis. Palazzolo, 533 U.S. 606, 617, 121 S.Ct. 2448, 150 L.Ed.2d 592. Under the framework of the Penn Cent. analysis, a court should consider “(1) the economic impact of the regulation on the claimant, (2) the extent to which the regulation has interfered with distinct investment-backed expectations, and (3) the character of the governmental action,” Shelly Materials, 115 Ohio St.3d 337, 2007Ohio-5022, 875 N.E.2d 59, at ¶ 19. “[T]he Penn Central inquiry turns in large part, albeit not exclusively, upon the magnitude of a regulation’s economic impact and the degree to which it interferes with legitimate property interests.” Lingle, 544 U.S. at 540, 125 S.Ct. 2074, 161 L.Ed.2d 876. “These essentially ad hoc, factual inquiries,” Penn Cent., 438 U.S. at 123, 98 S.Ct. 2646, 57 L.Ed.2d 631, account for the “particular circumstances of the case,” 767 Third Ave. Assocs. v. United States, 48 F.3d 1575, 1580 (Fed.Cir.1995).
{¶ 58} Although the court of appeals did not consider the economic impact upon AWMS resulting from the state’s suspension of its operations at well #2, an established method of performing the economic-impact analysis involves “compar[ing] the value that has been taken from the property with the value that remains in the property.” Keystone Bituminous Coal Assn. v. DeBenedictis, 480 U.S. 470, 497, 107 S.Ct. 1232, 94 L.Ed.2d 472 (1987). This method is sometimes referred to as the “with and without” method. Eagle, “Economic Impact” in Regulatory Takings Law, 19 Hastings W.-Nw.J.Envtl.L. & Pol’y 407, 417-418, 420 (2013) (“The usual approach to determine the impact of the regulation subtracts the 21 SUPREME COURT OF OHIO value of a parcel with the regulation in place from the value of the parcel without the regulation”). {¶ 59} Although there does not appear to be an exclusive method of comparing the value of property before and after a regulation, at least two approaches have been expressly endorsed. The first is the market-value approach, which compares the “market value of the property with and without the restrictions on the date that the restriction began.” Cienega Gardens v. United States, 503 F.3d 1266, 1282 (Fed.Cir.2007) (“Cienega Gardens II”). The second is the lost-netincome approach, which “compare[s] the lost net income due to the restriction (discounted to present value at the date the restriction was imposed) with the total net income without the restriction over the entire useful life of the property (again discounted to present value).” (Parenthesis sic.) Id. {¶ 60} AWMS’s expert witness, Dr. Wade, calculated the economic impact of the state’s regulation on AWMS under the with-and-without method using the lost-net-income approach. In Dr. Wade’s first calculation, he computed “the actual outcome caused by the shutdown of well #2.” In his second calculation, he computed “the expected outcome, which motivated [AWMS]’s investment in the leased property.” In each scenario, Dr. Wade used a discounted-cash-flow model to arrive at the net present value of AWMS’s property interest as of September 2014 (when the suspension of operations at well #2 occurred) by looking backwards from June 2017 (the last date for which Dr. Wade had figures included on AWMS’s netincome statement from which to perform an analysis). {¶ 61} Regarding the first calculation, Dr. Wade computed a net loss of $6,119,275, and regarding the second calculation, he computed an expected net income of $14,475,770. Dr. Wade then computed the difference between those two numbers and determined that the economic impact upon AWMS was a loss of $20,595,045. Finally, Dr. Wade compared the present value of AWMS’s investment ($6,076,043 as of September 2014) with the actual outcome (a net loss 22 January Term, 2020 of $6,119,275 as of September 2014) and concluded that AWMS’s “continued ownership of the facilities through June 2017 incurred a loss of 101.5% of investment.” In his words, “the actual outcome does not recoup investment; no return on investment exists.” {¶ 62} The state’s expert witnesses agree that the lost-net-income approach is a valid method for computing economic impact. And they too performed a discounted-cash-flow analysis. But they concluded that the economic impact of the state’s suspension of operations at well #2 upon AWMS ranged from a low of $116,334 to a high of $359,374. {¶ 63} Again, the court of appeals did not consider the economic impact upon AWMS resulting from the state’s suspension of its operations at well #2. Given the significant numerical disparities in the results of the economic-impact analyses between AWMS’s and the state’s expert witnesses, we conclude that a genuine issue of material fact precluded the granting of summary judgment on the economic-impact factor under Penn Cent. We therefore reverse the Eleventh District’s judgment granting summary judgment to the state on AWMS’s partialtakings claim, remand to the court of appeals, and order it to weigh the parties’ evidence concerning the economic-impact upon AWMS of the state’s suspension of operations at well #2.
{¶ 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.
{¶ 71} The court of appeals began its analysis of the character-of-thegovernmental-action factor under Penn Cent. as follows: In evaluating the character of the Suspension Order, we emphasize that the issue of the reasonableness of the Suspension Order has been fully litigated and the Tenth District’s opinion has preclusive effect on that point.    The character of the order has been deemed reasonable as a matter of law and that judgment was issued in an action between the same parties. Collateral estoppel therefore bars [AWMS] from challenging the reasonableness of the underlying order. 2019-Ohio-923, 132 N.E.3d 1151, at ¶ 22. The court of appeals did not, however, cite any takings-related authority to support its application of the doctrine of collateral estoppel as a means of deciding the character-of-the-governmental-action 26 January Term, 2020 inquiry. And neither party’s brief defends the court of appeals’ invocation of that doctrine. The parties’ silence is justified because the character of a governmental action is not determined by its lawfulness or propriety. See Norman v. United States, 63 Fed.Cl. 231, 285 (2004) (“the lawfulness or appropriateness of the governmental action is not akin to the character of the governmental action”). Applying this principle, we will analyze the character-of-the-governmental-action factor on its merits rather than recognize the court of appeals’ procedural bar. {¶ 72} Without attempting to provide an exhaustive list of the factors that courts have used to guide their character-of-the-governmental-action inquiries, we will focus on three factors emphasized by the parties. The first factor involves whether the interestholder has been impermissibly “singled out” by the government for unfavorable treatment, Sherman v. Chester, 752 F.3d 554, 565-565 (2d Cir.2014), or instead been permissibly included within a governmental program aimed at “adjusting the benefits and burdens of economic life to promote the common good,” Penn Cent., 438 U.S. at 124, 98 S.Ct. 2646, 57 L.Ed.2d 631. The second factor involves whether the regulation bears a “harm-preventing purpose.” Rose Acre Farms, Inc. v. United States, 559 F.3d 1260, 1281 (Fed.Cir.2009). And the third factor involves the extent to which regulatory delay accompanied the government’s decisionmaking process. State ex rel. Duncan v. Middlefield, 120 Ohio St.3d 313, 2008-Ohio-6200, 898 N.E.2d 952, ¶ 19-20. {¶ 73} Turning to the first factor—whether the state impermissibly singled out AWMS for unfair treatment—AWMS claims that the division unfairly did so by suspending its operations at well #2 while not suspending operations at a seismicity-inducing well in Washington County (the “Long Run well”). The state’s expert witnesses agreed that the Long Run well contributed to seismicity in its surrounding area. And the division’s personnel do not dispute that the division contacted the operator of the Long Run well and asked it to reduce—rather than suspend—the well’s injection volumes in an effort to mitigate seismicity risks. 27 SUPREME COURT OF OHIO {¶ 74} The state argues, however, that there has been no unfair singling out of well #2 because the characteristics of well #2 and the Long Run well differ. First, the state asserts that the wells differ from a geological standpoint. The state stresses the proximity of the bottom of well #2 to a region known as the Precambrian basement, which consists of “igneous and metamorphic rocks that exist below the oldest sedimentary rock cover.” Ground Water Protection Council & Interstate Oil & Gas Compact Commission at 124. According to Simmers, the division’s chief, well injections near that region should be avoided. In Washington County, the separation between the bottom of the Long Run well’s injection zone and the Precambrian basement is just under a mile, which is a significant separation. Well #2, however, is drilled much deeper and bottoms out in an area located directly above the Precambrian basement. {¶ 75} AWMS agrees that the Long Run well and well #2 differ geologically. But it maintains that the significance of the differences have been overblown. The problem with AWMS’s argument in that regard, however, is that AWMS’s brief cites nothing from the record to support that view. See State ex rel. Coulverson v. Ohio Adult Parole Auth., 62 Ohio St.3d 12, 14, 577 N.E.2d 352 (1991) (holding that conclusory allegations are not sufficient to withstand summary judgment). {¶ 76} The state’s second basis for distinguishing the Long Run well from well #2 rests on the respective wells’ relative proximities to population centers. In support, the state points to a report prepared by one of its expert witnesses concluding that “the seismic risk in Trumbull and Washington Counties are at opposite ends of the spectrum” due to the differences in the “distribution and density of [the] population and structures” in those areas. AWMS responds that it is not the proximity of injection wells to population centers that should matter but rather the proximity of seismic events to population centers. Yet, AWMS fails to identify anything in the record that affirmatively negates the state’s emphasis on 28 January Term, 2020 the wells’ proximity to population centers. And even if it had done so, there are still enough differences between well #2 and the Long Run well to persuade us that the state did not unfairly single out well #2. {¶ 77} Under the second character-of-the-governmental-action factor— whether governmental regulation bears a harm-preventing purpose—the character of a regulation will “weigh[] strongly against finding a taking” when the purpose of that regulation is to prevent harm to public health and safety. Rose Acre Farms, 559 F.3d at 1281. “[I]n the context of the protection of public health and safety, ‘the private interest has traditionally been most confined and governments are given the greatest leeway to act without the need to compensate those affected by their actions.’ ” Dimare Fresh, Inc. v. United States, 808 F.3d 1301, 1311 (Fed.Cir.2015), quoting Rose Acre Farms at 1281-1282. In Rose Acre Farms, the federal circuit addressed a governmental action undertaken to limit the spread of salmonella bacteria in the chicken-egg market. Id. at 1261. In rejecting the plaintiff’s takings claim, the court gave considerable weight to the government’s harm-preventing purpose, explaining that human consumption of the “infected eggs could have caused serious illness and possibly even death.” Id. at 1283. {¶ 78} In this case, the state presents a similar harm-prevention justification, arguing that the purpose behind the division’s suspension of operations at well #2 was to protect the public against the threat of earthquakes. A December 2017 report prepared by Simmers bears out this assertion. Simmers explained in his report that the “protect[ion] [of] public health and safety” was the purpose of the state’s suspension of operations at well #2. He further noted a strong correlation between the operations at well #2 and the seismic events that took place in the vicinity of well #2 on July 28, 2014, and August 31, 2014. And he concluded that the restarting of operations at well #2 would pose a continued threat of harm to public health and safety because the division has, since issuing the suspension order, obtained evidence that well #2 sits near a geological fault. 29 SUPREME COURT OF OHIO {¶ 79} AWMS does not challenge Simmers’s statement that the purpose of the suspension was to protect the public from harm—in fact, AWMS recognizes that preventing harm to the public is a laudable goal. Nor does AWMS challenge Simmers’s determination that its operations at well #2 correlated with the seismic events from 2014—two of AWMS’s expert witnesses concur in that determination. But AWMS does say in its merit brief that no one has determined that AWMS’s operations posed an “imminent threat” to public safety. However, AWMS identifies no authority that requires a governmental actor to establish that there is an imminent threat of harm before the government implements a regulatory action to protect public health and safety. {¶ 80} The third and final character-of-the-governmental-action factor involves the extent to which delay accompanied the state’s decisionmaking process. Although “[a] requirement that a person obtain a permit before engaging in a certain use of his or her property does not itself ‘take’ the property in any sense,” United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, 127, 106 S.Ct. 455, 88 L.Ed.2d 419 (1985), “a taking may occur by reason of ‘extraordinary delay in governmental decisionmaking,’ ” Wyatt, 271 F.3d at 1097, quoting Tabb Lakes, Ltd. v. United States, 10 F.3d 796, 803 (Fed.Cir.1993). In deciding whether a delay is extraordinary, a court must weigh “all relevant factors,” Duncan, 120 Ohio St.3d 313, 2008-Ohio-6200, 898 N.E.2d 952, at ¶ 20, including the length of the delay, Bass Ents. Prod. Co., 381 F.3d at 366. Bad faith on the part of the government will influence the inquiry, as will any delay that the interestholder’s conduct caused. Duncan at ¶ 20. The “nature of the permitting process” and the “reasons for any delay” may also inform the analysis. Wyatt at 1098. {¶ 81} The party alleging a governmental taking must tie its claim of extraordinary delay to the government’s decisionmaking process, namely, the process by which the government reviews an interestholder’s formal request to use its property in a particular way. Duncan at ¶ 19-20. In Duncan, a case cited by 30 January Term, 2020 AWMS in its merit brief, a landowner tied his claim of extraordinary delay to the government’s conduct in reviewing his zoning-permit applications. Duncan at ¶ 21 (addressing delays of six and nine months). In Byrd v. Hartsville, a case Duncan cites with approval, see Duncan at ¶ 19, a landowner similarly claimed to have suffered from extraordinary delay during the government’s review of his zoning petition, 365 S.C. 650, 660-662, 620 S.E.2d 76 (2005) (addressing delays of two and eleven months). Although the plaintiffs in Duncan and Byrd did not succeed on their extraordinary-delay claims, the salient point for the purpose of our analysis is that the plaintiffs in those cases tied their claims to the manner in which the government conducted itself in reviewing their formal requests to use their property in a particular way. {¶ 82} Here, although it is a bit unclear, AWMS appears to allege extraordinary delay stemming from the division’s decision to delay, and then abandon, the implementation of its once-promised statewide policy on induced seismicity. But AWMS cites no authority supporting its argument that a claim of extraordinary delay will lie against the government for unduly delaying the implementation of a policy, as opposed to deciding an interestholder’s pending request to use its property in a certain way. And AWMS makes no claim that it is awaiting the division’s approval of its plans to restart well #2. {¶ 83} AWMS next alleges that the division has engaged in extraordinary delay based on the length of time that operations at well #2 have been suspended. But that argument is misplaced because it targets the consequences of the division’s decisionmaking process, not the decisionmaking process itself. {¶ 84} AWMS also alleges that the division has acted in bad faith. In support of that contention, AWMS points to an affidavit provided by Kilper, its vice president, in which he stated that he was told by a member of the division that “press and politics” (rather than science) was the real reason that the Long Run well had been permitted to operate and well #2 had not. But as explained above, there 31 SUPREME COURT OF OHIO is no genuine dispute that well #2 and the Long Run well differ in significant ways. Given these differences, AWMS’s allegations of bad faith are not “significantly probative.” Buckeye Union Ins. Co. v. Consol. Stores Corp., 68 Ohio App.3d 19, 22, 587 N.E.2d 391 (10th Dist.1990) (if evidence is “merely colorable” or not “significantly probative,” summary judgment may be entered). {¶ 85} If the crux of AWMS’s argument is that the division took too long to conduct its review of AWMS’s restart plan—again, AWMS’s argument regarding the division’s delay is a bit unclear—then the temporal scope of such reviews must be considered. AWMS is not clear on how it imputes value to a particular length of time. Approximately seven months—from September 2014 to March 2015—elapsed between the dates on which it submitted its first and second restart plans. And approximately 17 months—from March 2015 to August 2016— elapsed between the dates on which it submitted its second restart plan and filed its mandamus petition. Because the record does not show that the division ever formally rejected AWMS’s second restart plan, see also AWMS I, 2018-Ohio-3028, 118 N.E.3d 385, at ¶ 8, in the absence of further guidance, we construe the filing of AWMS’s mandamus petition as setting the date upon which AWMS regarded the division as having effected a constructive denial of its plans. Even if we were to assume that the state acted in bad faith, AWMS cites no authority supporting its argument that delays of the lengths that occurred in this case are extraordinary under the circumstances. Further, delays of 45 months and longer have been deemed unextraordinary when, as here, complex regulatory schemes are involved. See, e.g., Bass Ents. Prod. Co., 381 F.3d at 1363, 1366-1368 (45-month delay); Wyatt, 271 F.3d at 1098-1100 (76-month delay). {¶ 86} In summary, we conclude that AWMS has not demonstrated that there is a genuine issue of material fact regarding whether the character of the division’s suspension order was to protect the public’s health and safety. 32 January Term, 2020
{¶ 87} In a typical partial-takings case, a reviewing court must balance the Penn Cent. factors to determine whether a partial taking has occurred. Reoforce, Inc. v. United States, 853 F.3d 1249, 1271 (Fed.Cir.2017). But genuine issues of material fact preclude us from performing that balancing exercise. We reverse the Eleventh District’s judgment granting summary judgment to the state on AWMS’s partial-takings claim. On remand, the court of appeals must weigh the parties’ economic-impact evidence and determine in whose favor that factor falls. After doing so, the court of appeals must balance all three Penn Cent. factors to determine whether AWMS suffered a partial taking.