Martinez v. COGCC: Colorado Supreme Court Rejects Adverse Impacts Pre-Condition

On January 14, 2019, the Colorado Supreme Court reached a decision in COGCC v. Martinez, ending more than five years of litigation between seven youth activists from Boulder-based Earth Guardians and the Colorado Oil and Gas Conservation Commission (“COGCC”). The Court held that the COGCC appropriately exercised its agency discretion when it declined to undertake a rulemaking that would have conditioned approval of applications for oil and gas drilling permits on a conditional finding of no adverse impacts to health, safety, or the environment.

The facts of the highly publicized case are well known. In 2013, Earth Guardians petitioned the COGCC to promulgate a rule requiring that COGCC withhold issuance of any new drilling permits “unless the best available science demonstrates, and an independent, third party organization confirms, that drilling can occur in a manner that does not cumulatively, with other actions, impair Colorado’s atmosphere, water, wildlife, and land resources, does not adversely impact human health, and does not contribute to climate change.” COGCC declined to undertake the proposed rule-making, finding, inter alia, that the proposed rule was beyond COGCC’s limited statutory scope. The petitioners appealed to district court, which affirmed COGCC’s denial of the petition.

On March 23, 2018, the Colorado Court of Appeals overturned the district court decision, finding that the COGCC misinterpreted the unambiguous language of the Colorado Oil and Gas Conservation Act (“the Act”). Specifically, the Court of Appeals held that the language, “[f]oster the responsible, balanced development, production, and utilization of the natural resources of oil and gas in the state of Colorado in a manner consistent with protection of public health, safety, and welfare, including protection of the environment and wildlife resources,” imposed an unambiguous pre-condition to satisfy health and safety objectives before fostering oil and gas development.¹

The Supreme Court decision reversed the Court of Appeals on the grounds that (1) the court’s review of an agency’s decision is limited and highly deferential, and (2) the COGCC correctly decided that adoption of the rule proposed by the petitioners would exceed the scope of the agency’s authority under the Act.

First, the Court considered the relevant portions of the Oil and Gas Act. The Court parted with both the District Court and the Court of Appeals by finding that the applicable provisions of the Act’s legislative declaration are “reasonably susceptible of multiple interpretations,” and therefore ambiguous. Finding the language ambiguous, the Court considered the legislative and statutory history of the Act, which the Court viewed “as reflecting a legislative intent to promote multiple policy objectives, including the continued development of oil and gas resources and the protection of public health and the environment, without conditioning one policy objective on the satisfaction of any other.” On that basis, the Court stated that the Act “[does] not allow the Commission to condition all new oil and gas development on a finding of no cumulative adverse impacts to public health and the environment . . . . Nor do we perceive the statutory language as creating a balancing test by which the public’s interest in oil and gas development is weighed against its interest in public health and the environment . . . . Rather, in our view, the pertinent provisions [of the Act] make clear that the Commission is required (1) to foster the development of oil and gas resources, protecting and enforcing the rights of owners and producers, and (2) in doing so, to prevent and mitigate significant adverse environmental impacts to the extent necessary to protect public health, safety, and welfare, but only after taking into consideration cost-effectiveness and technical feasibility.”

Next, the Court turned to whether the COGCC properly applied the Act when it declined to engage in the rulemaking on the basis that the rule proposed by Earth Guardians would have exceeded the COGCC’s statutory authority. The Court stated that “we do not believe that the pertinent provisions of the Act to condition one legislative priority (here, oil and gas development) on another (here, the protection of public health and the environment). Accordingly, in our view, the Commission properly exercised its discretion in declining to engage in rulemaking to consider [the] proposed rule.”

The Court also noted the importance of the COGCC’s consideration that its work with the Colorado Department of Public Health and Environment was already underway to address the concerns raised by the rulemaking petition.

It is not yet clear what the Supreme Court’s Martinez decision will mean for oil and gas operators in the State of Colorado. Under the decision, the COGCC’s purpose for denying Earth Guardian’s rulemaking petition was a valid exercise of authority, and any similar proposed rulemakings would likely be interpreted similarly. The COGCC can continue with business as usual, though that arguably may have been the outcome had the appellate decision stood. For operators, the decision provides some immediate regulatory certainty.

On the other hand, the political makeup of Colorado’s state government has tilted, and lawmakers have postured that they intend to address oil and gas regulation in the upcoming legislative session. The Court’s decision is being met with opposition by activist groups, and future challenges via ballot initiatives and other political measures are likely.

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¹ For an analysis of the Court of Appeals decision, see, “COGCC: A Balancing Act or ‘Subject To’ Protection of Health, Safety, and Environment – A Surprising Decision from the Colorado Court of Appeals,’ found online at https://www.wsmtlaw.com/blog/cogcc-a-balancing-act-or-subject-to-protection-of-health-safety-and-environment-a-surprising-decision-from-the-colorado-court-of-appeals.html.