Colorado Supreme Court Issues Decision in Martinez v. COGCC

On January 14, 2019, the Colorado Supreme Court issued its decision in Martinez v. Colo. Oil & Gas Conservation Comm’n, 2019 CO 3, ___ P.3d ___. In a unanimous decision, the Court reversed the decision by the Court of Appeals and concluded that the Colorado Oil and Gas Conservation Commission (COGCC or the “Commission”) properly declined to engage in rulemaking to consider a proposed rule that would have precluded all new oil and gas development unless it could occur “in a manner that does not cumulatively impair Colorado’s atmosphere, water, wildlife, and land resources, does not adversely impact human health, and does not contribute to climate change.”

In 2013, Xiuhtezcatl Martinez and six other youth activists (Respondents) submitted the proposed rule at issue in this case. Their concerns included the cumulative effects of oil and gas production on climate change, driven by carbon dioxide emissions from fossil fuels. Following extensive public comment and a hearing, the COGCC unanimously decided not to engage in rulemaking on the petition. The Commission reasoned, among other things, that the proposed rule would be inconsistent with the Colorado Oil and Gas Conservation Act (the “Act”), C.R.S. § 34-60-100 et seq., and that it was already working with the Colorado Department of Public Health and Environment (CDPHE) to address these issues and that other COGCC priorities took precedence over the proposed rulemaking.

The Commission’s denial of the petition was upheld by the Denver District Court, which agreed with the COGCC that the Act requires the Commission to “strike a balance between the regulation of oil and gas operations and protecting public health, the environment, and wildlife resources.” The case was then appealed to the Colorado Court of Appeals. In a split 2- 1 decision, the Court of Appeals reversed the District Court in Martinez v. Colo. Oil & Gas Conservation Comm’n, 2017 COA 37, __ P.3d __. The majority relied upon language in the Act stating that it is in the public interest to “[f]oster the responsible, balanced development . . . of oil and gas . . . in a manner consistent with protection of public health, safety, and welfare, including the environment . . . .” In the majority’s view, this language does not create a balancing test but indicates instead that oil and gas development is subject to the protection of public health and the environment and that the latter takes precedence over the former. The dissent deferred to the COGCC’s longstanding interpretation of the Act as creating a balancing test, and it noted that the language in question comes from a legislative declaration that does not alter the agency’s authority.

The Colorado Supreme Court granted review, and its decision focuses on two issues: 1) how to construe the Act’s legislative declaration; and 2) whether the COGCC’s ongoing work with the CDPHE and its other priorities provided an alternative justification for not initiating rulemaking. Most of the Court’s decision focuses on the first issue.

The Court found that the Act’s legislative declaration is reasonably susceptible to multiple interpretations and therefore ambiguous. The State of Colorado asserted that the COGCC is required to balance oil and gas development with the protection of public health and the environment, pointing to the phrase “consistent with” to require such action. The Respondents use the same “consistent with” phrase to argue that it establishes a mandatory condition that must be satisfied.

To resolve the ambiguity, the Court turned to the language and history of the Act. The Court construed the language and history neither to create a balancing test between oil and gas development and public health and environmental protection nor to make the latter a condition precedent for the former. Instead, the Court viewed the legislative declaration “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.” The Court further explained that the Act seeks to “minimize adverse impacts to public health and the environment while at the same time ensuring that oil and gas development . . . could proceed in an economical manner.” The Court synthesized its interpretation of the Act as follows: “[T]he pertinent provisions 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.“

Based upon the Court’s reading of the Act, it held that the COGCC properly declined to initiate rulemaking. As the Court explained, the proposed rule was inconsistent with the Act because it would require “the Commission to condition one legislative priority (here, oil and gas development) on another (here, the protection of public health and the environment).”

With respect to the second issue, the Court held that the Commission also properly declined to engage in rulemaking on the proposed rule because it was already working with CDPHE to address many of the underlying concerns and because other regulatory priorities took precedence. In ruling on this issue, the Court emphasized that agencies have substantial discretion in deciding whether to undertake rulemaking and that a high standard applies to any attempt to overturn such a decision. The Court concluded that the Commission had properly exercised its discretion in this case because “it was collaborating with the CDPHE to address the matters implicated by [the] proposed rule” and because it had determined that “other priorities took precedence over the proposed rulemaking.”

Although the Court did not identify those priorities, during the two years after the Commission denied the rulemaking petition, it “cleaned up” various regulations, increased penalties for violations and updated enforcement procedures, simplified the complaint process, imposed new flood protection requirements, implemented the Governor’s Task Force recommendations, and issued 15 new policies and guidelines, all of which directly or indirectly protect public health and the environment.

The Martinez decision clarifies the meaning of the Act’s legislative declaration and substantially upholds the COGCC’s interpretation of its authority. As discussed at length by the Court, the declaration recognizes multiple policy objectives for the COGCC to pursue, including both oil and gas development and public health and environmental protection. As a practical matter, this interpretation will make it difficult for litigants to rely on the declaration to challenge agency decisions. As has historically been the case, the declaration will provide little or no ammunition for litigants claiming that the COGCC has improperly allowed or restricted oil and gas development. Such claims will instead have to rely on the substantive provisions of the Act and the facts.

This decision also appears to reflect the Colorado Supreme Court’s confidence in the COGCC’s exercise of its authority. Since 2012, four matters concerning the COGCC have reached the Court: Colo. Oil & Gas Conservation Comm’n v. Grand Valley Citizens' All., 2012 CO 52, 279 P.3d 646 (Colo. 2012); City of Longmont v. Colo. Oil & Gas Conservation Comm’n, 2015 CO 667, 369 P.3d 573 (Colo. 2016); City of Fort Collins v. Colo. Oil & Gas Conservation Comm’n, 2015 CO 668, 369 P.3d 586 (Colo. 2016); and Martinez, 2019 CO 3, ___ P.3d ___. In all of these cases, the Court upheld the COGCC's actions or agreed with its position. Notably, three of these decisions were unanimous, and the other was decided by a vote of 6-1. This suggests that the agency is responsibly performing its job.

The effect of the decision will likely crystalize over time and will be the subject of debate in the Colorado Legislature this session. Some members of the Legislature have already indicated that they intend to introduce legislation to amend the Act and seek to undo the Court’s decision. Governor Polis indicated his support for further action, stating that he was “disappointed by [the Court’s] ruling, it only highlights the need to work with the Legislature and the Colorado Oil and Gas Conservation Commission to more safely develop our state’s natural resources and protect our citizens from harm . . . .” “Gov. Polis Responds to the Colorado Supreme Court’s Decision” [Press Release], January 15, 2019.

If you have any questions regarding the decision or how it may affect your business, please contact Dave Neslin or Greg Nibert, Jr.