What place do you think of when you hear the word “earthquake? Most likely California, we’re betting.

And it’s also very likely that you didn’t think “Ohio.”

Well, that’s probably what everyone involved in the Ohio Supreme Court case State ex rel. AWMS Water Solutions, LLC v. Mertz, No. 2019-0493 (Sep. 23, 2020) thought too. Until AWMS sought salt-water injection well permits from the State of Ohio, and “[t]he next day, a 2.7-magnitude earthquake was recorded in Youngstown, Ohio, about seven miles from AWMS’s Weathersfield Township site and about one mile from an injection well known as “Northstar #1” that was not related to AWMS’s wells.” Slip op. at 3. Earthquakes? In Ohio?

A week later, the State determined that Northstar #1 should be taken out of operation, and the very next day, a 4.0 earthquake “was recorded within one mile of Northstar #1. Slip op. at 3. [That sound you hear in the background is Californians scoffing at a 4.0 magnitude earthquake.] “The division later issued a report in which it found that a “compelling argument” existed linking the activities at Northstar #1 to the two December 2011 earthquakes.” Id.

After a moratorium on permits to study whether the well activity was linked to the earthquakes (“AWMS’s expert witness on seismicity, Michael A. Hasting, testified at a March 2015 hearing in this case that Ohio probably experiences a couple of 2.0-magnitude earthquakes per day,” according to the opinion), the State issued two permits, and the wells were built.

But just a few months later — you guessed it — earthquakes! A 1.7 and 2.1, to be precise. Not even detectable on the surface. But just about a month later, the State ordered one of the wells shut.

AWMS chased an administrative appeal and follow-on court review, and while the appeal was pending, AWMS sought a writ of mandamus to compel the State to institute eminent domain proceedings. Remember that in Ohio, they don’t do “inverse condemnation” actions where an owner who alleges her property has been taken by regulatory conduct sues for just compensation; instead, the property owner seeks a writ to compel the government to affirmatively take (and pay) for the property it is taking by regulatory conduct. But the theory is the same. Here, AWMS alleged the suspension of its injection well was a taking:

In support, AWMS argued that it had complied with the relevant law and AWMS’s permit conditions, had not endangered public health and safety or the environment, and had been subjected to a “permanent shutdown” (rather than a temporary suspension) of its operations. AWMS emphasized that its mandamus action was not an attempt to challenge the suspension order.

Slip op. at 8. Go ahead shut me down…but you gotta pay up!

The court granted the State summary judgment: no Lucas total take because AWMS had some uses left for its property; nor had there been a partial regulatory taking because the shut down was to protect the public’s safety and health.

The Ohio Supreme Court reversed. We recommend you read the entire opinion, but here are the highlights:

  • The case is ripe for review. The State argued that AWMS had not submitted a third “restart” plan despite two earlier such plans being rejected. The court rejected the argument because “[w]e decline the state’s invitation to issue a decision establishing precedent permitting the state to create moving targets.” Slip op. at 14.
  • Permanent or temporary takings? The court rejected the State’s argument that the taking was merely temporary because the suspension wasn’t permanent. We didn’t order the well to be plugged up forever, nor did we foreclose a “restart” plan (see ripeness argument, above). Nope, held the court, “[t]he state’s attempt to characterize the suspension of operations at well #2 as temporary founders on its open-endedness.” Slip op. at 15. Permanent, not temporary.
  • Lucas total take? Maybe. (Or at least you can’t decide this one as a matter of law, because a jury could reasonably conclude there was a wipeout.) Our late friend and colleague, economist Bil Wade, Ph.D, there was a 99.4% loss of value and that the suspension order meant that AWMS could not ever cover its operating costs. “As he explained, ‘operations without Well #2 are not economically viable’ because ‘Well #2 is essential to the business operations.'” Slip op. at 16. The State’s witness contradicted Dr. Wade. That, the court concluded, meant that summary judgment wasn’t the way to go — it should have been the jury deciding which of them was more believable. Citing Lost Tree, the court rejected the State’s argument that there was some value left in the property because it could be sold. (This is the same cockeyed theory that the Hawaii Supreme Court accepted in Leone v. County of Maui.)
  • But what about the “nuisance” defense? The State argued that it was trying to protect the health and safety of the public, and this is a “background principle” of state law and thus no taking. The court held that the defense wasn’t available here, not because it might not be a good defense, but because the State didn’t set it out properly, and thus waived it. Slip op. at 20.
  • Penn Central taking: the court didn’t make a ruling on the merits of the taking, but instead emphasized that there is competing evidence and testimony about the three factors. And you know what that means: jury question, no summary judgment. You should not skip over this part of the opinion, however, as the court properly rejected many of the usual arguments that regulating authorities make in these kind of cases. You knew of the regulations, highly-regulated activity, who-knew-what-and-when. Read it all.
  • The most interesting factor the court analyzed was the “character of the government action” prong. The court looked at the public safety claims (a claim that AWMS did not dispute, by the way), and held that on remand, the lower court should truly balance all of the factors.

Check it out.

State ex rel. AWMS Water Solutions, LLC v. Mertz, No. 2019-0493 (Ohio Sep. 23, 2020)