Schmude Oil, Inc. v. Department of Environmental Quality
306 Mich. App. 35
| Mich. Ct. App. | 2014Background
- Petitioners (Schmude Oil, Wellmaster, Dennis Schmude) applied for 11 permits (10 Antrim Shale wells + 1 brine-disposal) on privately owned Song of the Morning Ranch (SOMR) located inside the Pigeon River Country State Forest (PRCSF).
- The PRCSF is governed by an Amended Stipulation and Consent Order (ASCO) adopted into law by the Legislature as Part 619 of NREPA (MCL 324.61901 et seq.), which divides the forest into Units I–IV: Unit I = limited development; Units II–IV = nondevelopment.
- Eight proposed well sites were in Unit II (nondevelopment); three were in Unit I (limited development); one Unit I site was within 1/4 mile of surface water.
- DEQ (OGS) concluded Part 619/ASCO applied to private as well as public lands, denied nine permit applications (eight in nondevelopment, one within 1/4 mile in limited region), and allowed two in Unit I away from water; petitioners’ administrative and circuit-court appeals were denied.
- The Court considered: (1) whether Part 619/ASCO applies to private land within PRCSF and thus bars drilling in nondevelopment areas, (2) whether denial constituted a taking (categorical or Penn Central), and (3) whether the classification violates equal protection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Part 619/ASCO applies to private lands within the PRCSF | ASCO/Part 619 should be read to limit restrictions to state-owned/dedicated lands only | Part 619 expressly adopts the ASCO; ASCO’s plain language covers “all the lands” in designated units irrespective of ownership | Held: Part 619 adopted ASCO; ASCO’s plain language covers all lands in Units II–IV and Unit I as designated, including private land, so DEQ lawfully denied permits in nondevelopment areas |
| Denial of permits in nondevelopment region | Denial unlawfully restricts petitioners’ rights to develop leased hydrocarbons | ASCO prohibits development in Units II–IV (“all the lands”), so DEQ must deny permits there | Held: DEQ required to deny permits in nondevelopment region because ASCO is all‑inclusive and unambiguous |
| Denial of permit within 1/4 mile of surface water in limited development region | Director must allow reasonable development; petitioners sought relief | ASCO prohibits well sites within 1/4 mile unless Director authorizes encroachment after environmental findings; no authorization here | Held: ASCO bars wells within 1/4 mile absent Director’s exception; DEQ properly denied that permit |
| Regulatory takings (categorical and Penn Central) | Denial of permits amounts to a taking of petitioners’ oil and gas lease rights | Owners retain value: wells still allowed in limited region and horizontal drilling remains an option; regulations are comprehensive and owners had notice | Held: No categorical taking (not all economically beneficial use lost); Penn Central factors do not favor petitioners (regulatory scheme broad, economic loss insufficient, investment‑backed expectations tempered by enactment date) |
| Equal protection challenge | ASCO’s regional classifications arbitrarily discriminate among private landowners | Classifications are rationally related to legitimate environmental and resource‑management purposes; different regions face different environmental concerns | Held: Rational-basis review satisfied; equal protection claim fails |
Key Cases Cited
- West Michigan Environmental Action Council v. Natural Resources Comm'n, 405 Mich. 741 (discussed PRCSF history and injunction against drilling)
- K & K Constr., Inc. v. Dep't of Natural Resources, 456 Mich. 570 (takings framework and categorical-taking standard)
- Paragon Props. Co. v. Novi, 452 Mich. 568 (property owner not guaranteed profit from use of land)
- Chelsea Inv. Group, LLC v. Chelsea, 288 Mich. App. 239 (application of Penn Central factors)
- McCormick v. Carrier, 487 Mich. 180 (statutory construction principles)
- Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (rejection of ‘‘substantially advances’’ as a separate takings test)
- Crego v. Coleman, 463 Mich. 248 (rational-basis review description)
- Miller Bros. v. Dep't of Natural Resources, 203 Mich. App. 674 (contrast where denial eliminated all viable economic use)