NOTICE 2020 IL App (5th) 180582-U NOTICE Decision filed 04/21/20. The This order was filed under text of this decision may be NO. 5-18-0582 Supreme Court Rule 23 and changed or corrected prior to may not be cited as precedent the filing of a Petition for by any party except in the Rehearing or the disposition of IN THE limited circumstances allowed the same. under Rule 23(e)(1).
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT ________________________________________________________________________
NEXT ENERGY, LLC, ) Appeal from the ) Circuit Court of Petitioner-Appellant, ) Wayne County. ) v. ) No. 15-L-13 ) THE DEPARTMENT OF ) NATURAL RESOURCES, ) Honorable ) Kimbara G. Harrell, Respondent-Appellee. ) Judge, presiding. ________________________________________________________________________
PRESIDING JUSTICE WELCH delivered the judgment of the court. Justices Moore and Wharton concurred in the judgment.
ORDER
¶1 Held: The trial court’s decision to grant the Illinois Department of Natural Resources’ motion for judgment on the pleadings is affirmed where Next Energy, LLC, failed to apply for a permit to conduct high-volume, horizontal hydraulic fracturing on its oil and gas leases in Wayne County, Illinois and, thus, its regulatory takings claim was not ripe for adjudication.
¶2 This action commenced when the petitioner, Next Energy, LLC, filed a complaint
against the respondent, the Illinois Department of Natural Resources (Department),
alleging that the Department’s regulations on high-volume, horizontal hydraulic fracturing
amounted to a regulatory taking of certain oil and gas leases owned by Next Energy.
Thereafter, the Department filed a motion for judgment on the pleadings pursuant to section 1 2-615(e) of the Code of Civil Procedure (Code) (735 ILCS 5/2-615(e) (West 2016)),
arguing, inter alia, that the complaint should be dismissed because it alleged a regulatory
takings claim that was not ripe for adjudication. On December 3, 2018, the circuit court of
Wayne County dismissed Next Energy’s complaint, finding that the regulatory takings
claim was not ripe because Next Energy had failed to apply for a fracturing permit from
the Department and that it had failed to plead facts to demonstrate that seeking a permit
would have been futile. For the following reasons, we affirm the decision of the trial court.
¶3 I. BACKGROUND
¶4 Next Energy is a limited liability company registered in Wyoming and authorized
to do business in Illinois. Between 2009 and 2012, Next Energy acquired five-year oil and
gas leases in Wayne County, Illinois, for the purpose of extracting oil from the leaseholds
through horizontal drilling and high-volume fracturing in accordance with the then-existing
laws. There was no other feasible basis for the extraction of oil from these leases.
¶5 A. The Fracturing Permit Process Under the Hydraulic Fracturing Act and the Adopted Regulations
¶6 In mid-2013, after Next Energy acquired the oil leaseholds, the Illinois General
Assembly enacted the Hydraulic Fracturing Regulatory Act (Act). Pub. Act 98-22 (eff.
June 17, 2013) (codified at 225 ILCS 732/1-1 et seq. (West 2014)). The Act prohibits the
use of high-volume, horizontal hydraulic fracturing without first obtaining a permit from
the Department, imposes substantive rules for construction and operation of wells, and sets
standards for the fracturing process itself. 225 ILCS 732/1-30, 1-70, 1-75 (West 2014).
2 ¶7 Because this case deals with the permit process, we will discuss in detail the
procedures set for obtaining a fracturing permit. Section 1-35(a)(3) of the Act requires
every applicant to register with the Department and submit proof of insurance of at least
$5 million to cover injuries, damages, or loss related to pollution. Id. § 1-35(a)(3). In its
permit application, the applicant must submit detailed descriptions of the proposed well
and fracturing operations; disclose the proposed location for the well site; disclose water
sources, chemicals, and proppants to be used; and provide plans for casing and cementing,
flowback storage and disposal, containment practices and well-site safety, and traffic
management for nearby roads. Id. § 1-35(b). The Act allows the Department to require an
applicant to submit other “relevant information.” Id. § 1-35(b)(20). The Act also requires
the applicant to pay a $13,500 nonrefundable permit application fee. Id. § 1-35(e).
¶8 A 30-day public comment period must begin 7 calendar days after the Department
receives a permit application. Id. § 1-45(a). Within that 30 days, any person may file
written comments to the Department concerning any portion of the permit application and
any issue relating to the applicant’s compliance with the requirements of the Act and any
other applicable laws. Id. § 1-45(c). The Department may ask the applicant to respond to
the substantive public comments. Id. § 1-45(d). Any person having an interest that is or
may be adversely affected by the proposed fracturing may file written objections to the
permit and request a public hearing during the comment period. Id. § 1-50(a).
¶9 The Department then has 60 days from receipt of the permit application to approve,
with any conditions that it deems necessary, or reject the permit application unless the
deadline is waived by the applicant. Id. § 1-35(i). During the review period, if the 3 Department determines that the permit application is incomplete, does not meet the
statutory requirements, or requires additional information, the Department shall allow the
applicant to correct the deficiencies and provide the Department with any information
requested to complete the application. Id. § 1-35(j). The Department may reject the
application if the applicant fails to provide adequate supplemental information within the
review period. Id. The Department may approve an application only if it meets the
statutory requirements set forth in the Act. Id. § 1-53(a). The Department’s decision to
approve or deny a permit is considered a final administrative decision subject to judicial
review under the Administrative Review Law (735 ILCS 5/3-101 et seq. (West 2014)).
225 ILCS 732/1-53(d) (West 2014). If the Department issues a permit, the permittee must
comply with all provisions of the Act and all other local, state, and federal rules and
regulations, and all statutorily required plans must be conditions contained in the permit.
Id. § 1-55(a). The Department has discretion to impose other permit conditions that it
deems necessary. Id. § 1-53(a).
¶ 10 The Act permits the Department to adopt rules as necessary to accomplish the
purposes of the Act. Id. § 1-130. Pursuant to this authority, the Department adopted
regulations related to the issuance of permits in November 2014. 38 Ill. Reg. 22052 (eff.
Nov. 14, 2014). The rules reiterate the Act’s requirements pertaining to permit
applications, registration, standards for issuing a permit, and deadlines for public notices,
comment periods, hearings, and the Department’s permit decision. 62 Ill. Adm. Code
245.120, 245.200, 245.210, 245.250, 245.260, 245.270, 245.300 (2014). When
determining whether to grant a permit, the Department considers the complete application, 4 all written public comments, any hearing information, and the applicant’s response to
public comments. Id. § 245.300(b).
¶ 11 The Department will issue the permit only if the applicant has satisfied nine
regulatory requirements, including, the proposed well-site locations meeting the specific
statutory requirements, the plans submitted with the application being “adequate and
effective” to comply with the Act and the administrative rules, and the fracturing operations
being conducted in a manner that protects the public health, public safety, property,
wildlife, aquatic life, and environment and prevents pollution or diminution of any water
source. Id. § 245.300(c). The applicant is also required to produce a water-use self-
certificate, which explains the applicant’s compliance with the Water Use Act (525 ILCS
45/0.01 et seq. (West 2014)) and applicable regional water supply plans, and provide proof
of delivery of the plan to the local Soil and Water Conservation District and any community
water supply within 20 miles of the proposed water source. Id. § 245.210(a)(9).
¶ 12 Like the Act, each permit requires the permit holder to comply with the Act and the
administrative rules, and the permit application, plans, maps, and diagrams submitted with
the application are incorporated into the permit as conditions. Id. § 245.320(a), (b). The
rules allow the Department to impose additional conditions that, based on the review of the
permit application, it deems necessary to promote the goals of the Act and its rules. Id.
§ 245.320(c). Once the permit is issued, the rules require a permit holder to seek
modification of the permit where the holder wishes to take actions that “materially deviate
from the original permit.” Id. § 245.330(a). Any permit modification application for a
5 significant deviation shall be accompanied by a nonrefundable fee of $13,500 and will be
reviewed and approved or rejected as if it is a new permit application. Id. § 245.330(c).
¶ 13 B. Next Energy’s Complaint
¶ 14 On November 9, 2015, Next Energy filed a one-count complaint against the
Department, alleging that the Department’s regulations on high-volume, horizontal
hydraulic fracturing amounted to a regulatory taking of its oil and gas leases in Wayne
County. Specifically, the complaint made the following allegations. Sometime in mid-
2012, after Next Energy acquired the leases, the Department imposed a “moratorium” on
the issuance of fracturing permits for an indefinite period of time, and no applications for
horizontal drilling and high-pressure hydraulic fracturing were processed under the then-
existing laws. Thereafter, although Public Act 98-22 was enacted and had an effective date
of June 17, 2013, the Department failed to adopt regulations related to the issuance of
permits until November 2014, which made it impossible for leaseholders to seek fracturing
permits because it was “well known in the industry” that any application would not be
reviewed or approved.
¶ 15 The Department then resumed accepting applications in November 2014, after the
rules were promulgated, but the provisions of the Act and the accompanying regulations
were so “odious, ill-defined and burdensome as to render application for such a permit
economically futile and impractical.” The complaint identified the following reasons for
why the permit application process was economically futile and impractical: (1) the high
cost of the application permit, which was “unrelated to any legitimate purpose related to
the application process especially in light of its non-refundable nature and the ability of the 6 Department to deny said pre-applications for non-descript reasons”; (2) the requirement
that the applicant obtain insurance of at least $5 million before applying for a permit; (3) the
requirement that an applicant must obtain a separate permit for each well stimulated by
horizontal fracturing; (4) there was no definable, objective criteria that must be met for the
granting of a permit; (5) there were no regulations adopted that established rules and
procedures to determine when a public hearing may be granted; (6) there was no criteria
established as to what data presented at the public hearing or in a public comment was
sufficient to defeat the applicant’s submission to obtain a permit; (7) because there was no
objective criteria for the issuance of a permit established, it was impossible to determine
the relevance of a public hearing or the nature of the material that could be presented at a
public hearing for the purpose of defeating the permit; (8) there was no discernable criteria
established as to what adversely-affected interest a person must have to justify the filing of
a written objection; (9) there was a presumption of pollution in the area of a well regardless
of causation, which could only be rebutted by clear and convincing evidence, and this
burden was “onerous and impossible to meet”; (10) that the applicant was required to waive
the 60-day period for public comment or forfeit the permit fee with permit denial; (11) that
the Department was permitted to include additional conditions on the permit that it deemed
necessary without any guidelines; (12) that 62 Ill. Adm. Code 245.110 (2014) vastly
expanded the definition of base fluid 1 beyond that contemplated by section 1-5 of the Act
1 Section 1-5 of the Act defined base fluid as “the continuous phase fluid type, including, but not limited to, water used in high volume horizontal hydraulic fracturing operation.” 225 ILCS 732/1-5 (West 2014). 7 (225 ILCS 732/1-5 (West 2014)); (13) that 62 Ill. Adm. Code 245.210(a)(9) (2014)
converted the certification requirement by the Act into a notification with proof of delivery
to every Soil and Water Conservation District and any community water supply within 20
miles of the proposed water source with the purpose of attracting the largest number of
people possible to incite rebuttal to prevent fracturing operations; and (14) that 62 Ill. Adm.
Code 245.210(d) (2014) required insurance that was neither referred to nor authorized by
the Act.
¶ 16 The complaint asserted that, because the permit application process was
economically futile and impractical, the Department had effectively committed a
regulatory taking of Next Energy’s oil and gas leasehold interests without compensating
Next Energy for the fair value of those leaseholds. Next Energy requested that the trial
court determine that a taking had occurred and to order the Department to institute eminent-
domain proceedings for the purpose of determining just compensation.
¶ 17 On January 19, 2016, the Department filed a motion to dismiss pursuant to section
2-615 of the Code (735 ILCS 5/2-615 (West 2014)). In the motion, the Department
contended, inter alia, that Next Energy failed to plead facts showing a regulatory taking in
that it alleged no facts in support of its assertion that the only economically viable use of
the leases was extraction of oil through high-volume, horizonal hydraulic fracturing; the
Department asserted that Next Energy pled “nothing to suggest that there [was] anything
unique about its property that prohibit[ed] extraction of oil and gas by other means.” On
November 21, 2016, the trial court denied the Department’s section 2-615 motion to
8 dismiss, stating that it was not “prepared to say there [are] no set of facts in support of the
allegations of the Complaint that would entitle [Next Energy] to relief.”
¶ 18 On August 1, 2018, the Department filed a motion for judgment on the pleadings
pursuant to section 2-615(e) of the Code (id. § 2-615(e)), arguing that Next Energy’s
takings claim was not ripe for adjudication. Specifically, the Department contended that
Next Energy had failed to plead that it had applied for the permit to conduct horizontal
fracturing on its Wayne County wells, that Next Energy had also failed to plead that it had
reached out or sought information from the Department concerning the process of applying
for a drilling permit, and that Next Energy had failed to plead sufficient facts to demonstrate
that pursuing a final decision would have been futile.
¶ 19 On September 13, 2018, Next Energy filed a response to the Department’s motion
for judgment on the pleadings, contending that two exceptions to the ripeness doctrine
applied: futility and unfair/repetitive procedures. Next Energy contended that applying for
a fracturing permit would have been futile because, prior to the enactment of the current
statute and the regulations, there had been a moratorium on horizontal fracturing permits
as the Department would not consider any permit applications under the former law; that,
between the effective date of the Act and the enactment of the regulations, there was no
process in place to apply for a horizontal drilling permit; and that the regulations that were
enacted regarding the permit application process were so “onerous, ambiguous, and ill-
defined that it was not, in any practical sense, possible to comply.”
¶ 20 In support of its futility argument, Next Energy attached portions of an application
that was submitted by a nonparty applicant, Woolsey Operating Company, LLC (Woolsey 9 or Woolsey application), which was the only application submitted to the Department for
a horizontal drilling and fracturing permit at that time. 2 The attached documents indicated
that Woolsey obtained the required insurance to register as a potential applicant for a permit
on August 1, 2015 (expiring August 1, 2016); that it submitted its first registration to apply
for a permit thereafter; that it submitted another registration on February 2, 2016; and that
the registration was approved on February 23, 2016, which meant that Woolsey was
permitted to submit a permit application. On August 1, 2016, Woolsey renewed its liability
insurance as required to continue with the application process. On May 22, 2017, Woolsey
submitted its initial application for a permit to drill one well in White County along with
the required supporting documentation. On May 26, 2017, the Department notified
Woolsey that the public comment period would begin on May 29, 2017, and would end on
June 27, 2017. On June 5, 2017, the Department notified Woolsey that its permit
application was deficient and identified 10 areas in which the Department required
additional information or documents, or the application could be rejected. Subsequently,
Woolsey submitted a supplemental application addressing the listed deficiencies. The
public comment period was extended as a result of this supplemental application, a public
hearing was held on August 2, 2017, and a second public comment period began on August
4, 2017. The Department received various written comments about the proposed permit,
which noted deficiencies in the Woolsey application as well as stated concerns about the
2 Next Energy contended that the Woolsey application was a matter of public record and, as such, the trial court could take judicial notice of it. See Muller v. Zollar, 267 Ill. App. 3d 339, 341 (1994) (judicial notice is proper where the document is part of the public record). 10 environmental effects of fracturing; one such written comment was from the Natural
Resources Defense Council, an environmental action group with offices in New York,
Washington D.C., Chicago, and Beijing.
¶ 21 On August 14, 2017, the Department required Woolsey to respond to the issues
raised in the public comment period and to provide additional documentation. Woolsey
submitted its second supplemental application on or about August 25, 2017. Woolsey was
also required to submit a third supplemental application on or about August 31, 2017, with
additional documentation. On August 31, 2017, the Department notified Woolsey that its
application for a permit had been granted. The permit contained 86 conditions that must
be met for Woolsey to utilize its permit. However, on October 30, 2017, Woolsey
requested that the Department release its permit and withdraw its pending permit
application. In the letter, Woolsey did not specifically state a reason for withdrawing its
application but acknowledged that, if in the future, it determined that it was economical to
pursue the project contemplated by the permit, it would be required to begin the permit
process in accordance with the applicable statutes and regulations in effect at that time. In
response, the Department, by letter dated November 1, 2017, released Woolsey’s permit,
noting that the fees paid were nonrefundable and, if Woolsey chose to reapply, there would
be no credit for already-paid fees.
¶ 22 Relying on Woolsey’s experience, Next Energy contended that the entire permit
application process was futile, onerous, and financially impractical. Pointing to the
financial costs associated with the application process and the lack of definable criteria in
the Act and regulations, Next Energy contended that it would be futile for it to apply for a 11 permit because it would likely have the same experience as Woolsey. Next Energy argued
that the Department had burdened Woolsey’s property interest, the oil and gas leasehold,
with unfair and onerous procedures, which were indicated by the 86 conditions attached to
the permit, and that the procedures made it impossible for Woolsey to proceed with the
extraction of the oil from the property. Next Energy pointed to the public comments
received during Woolsey’s public comment period and noted that, although the comments
were received from organizations having no presence or interest in White County and from
individuals who stated no interest or residence in White County, Woolsey was required to
respond to those comments and submit additional documentation. Next Energy noted that
the Woolsey application was the only application submitted to date.
¶ 23 A hearing on the motion for judgment on the pleadings was held on October 22,
2018. During the hearing, the Department argued that the fact that Woolsey successfully
navigated the permit application process demonstrated that the regulations were not too
onerous to comply with and that it was possible for Next Energy to be issued a drilling
permit. The Department acknowledged that Woolsey voluntarily withdrew its permit but
noted that its withdrawal letter did not, on its face, show the reason for the withdrawal; the
Department contended that the letter did not show that Woolsey withdrew the permit
because complying with the permit conditions would be too onerous.
¶ 24 In response, Next Energy argued that the only question at this stage in the
proceedings was whether the pleadings raised a question of fact that must go to trial. Next
Energy contended that, at a minimum, a question of fact existed as to whether the entire
application process was futile, which was evidenced by Woolsey’s experience with the 12 permit application process. After hearing the arguments, the trial court granted the
Department’s motion for judgment on the pleadings.
¶ 25 On December 3, 2018, the trial court entered a written order, which reiterated that
it was granting the Department’s motion for judgment on the pleadings. In the order, the
court noted that, when ruling on a motion for judgment on the pleadings, it could only
consider the well-pleaded facts alleged in the complaint and any attached exhibits.
Examining the complaint, the court noted that it was left with the following allegations:
that Next Energy acquired five-year oil and gas leases in Wayne County; that subsequent
to obtaining the leases, the Department imposed a moratorium on the issuance of permits
for horizontal drilling and high-pressure fracturing for an indefinite period of time; that
Public Act 98-22, which addressed high-volume, horizontal hydraulic fracturing, had an
effective date of June 17, 2013; and that the Department adopted regulations related to the
issuance of permits for horizontal drilling and fracturing in November 2014. The court
noted that Next Energy did not plead that it applied for a permit to drill in Wayne County
(or anywhere else in Illinois) before or during the alleged moratorium, after the passage of
Public Act 98-22, or after the adoption of the Department’s regulations.
¶ 26 The trial court found that Next Energy had not pleaded sufficient facts to meet the
high burden required to invoke the futility exception to the ripeness doctrine. The court
found that Next Energy’s allegation regarding a moratorium was not well pleaded because
it never alleged that it applied for a permit and was denied. The court also concluded that
Next Energy’s futility argument, with regard to the Department’s regulations, was “belied
by its own submission of documents” showing that Woolsey applied for and received a 13 permit to conduct high-volume, horizontal hydraulic fracturing in Illinois. Thus, the court
found, from the issuance of the Woolsey permit and its own review of the Department’s
regulations, that the regulations were not so onerous and overreaching to support Next
Energy’s invocation of the futility exception. Accordingly, the court dismissed Next
Energy’s complaint with prejudice because its claims were not ripe for adjudication. Next
Energy appeals.
¶ 27 II. ANALYSIS
¶ 28 A. Judgment on the Pleadings
¶ 29 This appeal comes before this court on the trial court’s grant of a judgment on the
pleadings in favor of the Department pursuant to section 2-615(e) of the Code (735 ILCS
5/2-615(e) (West 2016)). Any party may seasonably move for a judgment on the pleadings.
Id. A motion for a judgment on the pleadings is similar to a motion for summary judgment,
but it is limited to the pleadings. Allstate Property & Casualty Insurance Co. v. Trujillo,
2014 IL App (1st) 123419, ¶ 15. A judgment on the pleadings is proper only where the
pleadings disclose that there is no genuine issue of material fact and that the movant is
entitled to judgment as a matter of law. Indian Harbor Insurance Co. v. City of Waukegan,
2015 IL App (2d) 140293, ¶ 12. When ruling on a motion for judgment on the pleadings,
the court will consider only those facts apparent from the face of the pleadings, matters
subject to judicial notice, and judicial admissions in the record. Id. “A party moving for a
section 2-615(e) judgment on the pleadings concedes the truth of the well-pleaded facts in
the nonmovant’s pleadings.” Allstate Property & Casualty Insurance Co., 2014 IL App
(1st) 123419, ¶ 16. For purposes of resolving the motion, the court must take as true all 14 reasonable inferences from those facts but disregard any conclusory allegations and
surplusage. Id. Our review of a section 2-615(e) ruling is de novo. M.A.K. v. Rush-
Presbyterian-St. Luke’s Medical Center, 198 Ill. 2d 249, 255 (2001).
¶ 30 B. Takings Claims and the Ripeness Doctrine
¶ 31 The takings clause of the fifth amendment prohibits the government from taking
private property for public use without just compensation. U.S. Const., amend. V. The
takings clause is made applicable to the states through the fourteenth amendment. Davis
v. Brown, 221 Ill. 2d 435, 443 (2006). The Illinois Constitution of 1970 provides that
private property shall not be taken or damaged for public use without just compensation.
Ill. Const. 1970, art. I, § 15. There are two types of takings: physical takings and regulatory
takings. Estate of Hage v. United States, 687 F.3d 1281, 1286 (Fed. Cir. 2012). A physical
taking generally occurs where there is a direct government appropriation or a physical
invasion of private property. Id. A regulatory taking occurs where the government action
does not encroach upon or occupy the private property, but it affects or limits the property’s
use to such an extent that a taking occurs. Id. “Although property may be regulated to a
certain extent, a governmental regulation that goes too far will be considered as a taking.”
(Internal quotation marks omitted.) LaSalle Bank National Ass’n v. City of Oakbrook
Terrace, 393 Ill. App. 3d 905, 911 (2009).
¶ 32 However, before a party may initiate an action alleging a regulatory taking, the
claim must be ripe. Id. A regulatory takings claim is not ripe until the government entity
charged with implementing the regulations has reached a final, definitive decision
concerning the application of the regulations to the particular property at issue. Id. “This 15 ripeness or finality rule ensures that the courts can properly assess the scope or existence
of a taking.” Anaheim Gardens v. United States, 444 F.3d 1309, 1315 (Fed. Cir. 2006). A
court cannot resolve a takings claim without facts about the extent of permitted
development or the restriction on the land. Id.; Palazzolo v. Rhode Island, 533 U.S. 606,
620-21 (2001).
¶ 33 Next Energy acknowledges that it never applied for a fracturing permit for its
Wayne County wells pursuant to the procedure set out in the Act. Thus, its takings claim
would be considered unripe unless the final decision requirement was excused. There are
two exceptions where the lack of a final decision may be excused: futility and
unfair/repetitive procedures. Sherman v. Town of Chester, 752 F.3d 554, 561 (2d Cir.
2014). Although these are distinct concepts, the analyses for the two are the same. Id. “A
claimant can show its claim was ripe with sufficient evidence of the futility of further
pursuit of a permit through the administrative process.” Anaheim Gardens, 444 F.3d at
1315; see also Morris v. United States, 392 F.3d 1372, 1376 (Fed. Cir. 2004) (a failure to
obtain a final decision may be excused under the futility exception where an agency’s
decision makes clear that pursuing remaining administrative remedies would not result in
a different outcome). Also, government authorities may not burden property by imposing
repetitive or unfair land-use procedures to avoid a final decision. Palazzolo, 533 U.S. at
621. Although a court cannot determine whether a regulation goes too far unless it knows
how far the regulation goes, the ripeness doctrine does not require a landowner to submit
applications for their own sake. Id. at 622. The property owner bears the burden of
16 pleading facts to establish that pursuing a final decision would have been futile. LaSalle
Bank National Ass’n, 393 Ill. App. 3d at 912.
¶ 34 C. Relevant Cases Applying the Futility Exception
¶ 35 In Palazzolo, plaintiff owned waterfront property in Rhode Island, a large portion
of which was salt marshland subject to tidal flooding. Palazzolo, 533 U.S. at 613. Plaintiff
submitted multiple requests to develop the property, which would have required substantial
fill to accommodate the building of significant structures. Id. at 613-14. However, the
applications were rejected. Id. at 614. Years later, plaintiff submitted a new proposal to
construct a wooden bulkhead and to fill the entire marshland area, but it was rejected
because it did not comply with a state agency wetland regulation. Id. at 614-15.
Subsequently, plaintiff submitted a plan for a private beach club, which was denied for the
same reason. Id. at 615. Plaintiff then filed a complaint for inverse condemnation,
asserting that the application of the governing regulations to his property constituted a
taking without just compensation in violation of the fifth and fourteenth amendments. Id.
The Rhode Island Supreme Court found that the claim was not ripe because there remained
doubt regarding the extent of the development the state agency responsible for applying
the regulations would allow. Id. at 616. On certiorari, the United States Supreme Court
held that plaintiff was not required to submit further applications to develop the property
because the agency’s decisions made clear that the state regulations prevented plaintiff
from engaging in any filling or development activity on the marshland. Id. at 621. Because
no additional application was needed to clarify the extent of permitted development,
17 plaintiff had no further obligation to pursue his claim before the agency, and the issue was
ripe for judicial review. Id. at 625-26.
¶ 36 Similarly, in Sherman, the Second Circuit Court of Appeals held that a developer’s
takings claim against the town was ripe even though the town zoning board had not yet
reached an official decision on the developer’s application for subdivision approval.
Sherman, 752 F.3d at 561-63. For nearly a decade, the zoning board obstructed the
developer’s attempts to obtain subdivision approval by changing the zoning regulations.
Id. at 557. Based on the town’s decade of obstruction, the court concluded that a final
decision would be futile because the town used, and would likely continue to use, repetitive
and unfair procedures to avoid making a final decision. Id. at 563.
¶ 37 In contrast, in the Second District case of LaSalle Bank National Ass’n, the
plaintiffs-landowners contended that, although it had never submitted a proposed
development plan to the city, doing so was futile because correspondence between the
municipal planner and a third party (the developer for the owner’s property) demonstrated
that officials had signaled their intent to strictly adhere to zoning rules unfavorable to the
planned development. LaSalle Bank National Ass’n, 393 Ill. App. 3d at 912. The appellate
court affirmed the dismissal of plaintiffs’ complaint, finding that it was not ripe because
plaintiffs had never sought approval for any development on the subject property. Id. at
914-15. In making this decision, the court distinguished Palazzolo, noting that Palazzolo
held that a decision was final when the government entity charged with implementing the
regulations in question, after rejecting development proposals, made clear that additional
proposals would be denied. Id. As plaintiffs had not sought approval for any development 18 on the subject property, the court found that there was “no indication that the extent of
development that would be allowed on the subject property was determined in a concrete
way or that any development proposal would be automatically rejected.” Id. at 914.
¶ 38 D. Present Case
¶ 39 The Department contends that Next Energy has failed to sufficiently allege that its
regulatory takings claim was ripe because it did not assert that it sought relief under the
regulation, i.e., applied for the fracturing permit under the procedures set forth in the Act
and the regulations. Because this is from an order dismissing Next Energy’s complaint,
the allegations in the complaint are considered true. Allstate Property & Casualty
Insurance Co., 2014 IL App (1st) 123419, ¶ 16. As for the allegations in a pleading, a
pleader is only required to plead ultimate facts to be proved; the pleader is not required to
set out the evidence. Casualty Insurance Co. v. Hill Mechanical Group, 323 Ill. App. 3d
1028, 1034 (2001).
¶ 40 Next Energy made the following factual allegations in its complaint: (1) that it
acquired five-year oil and gas leases for the specific purpose of developing the leaseholds
through horizontal drilling and high-volume fracturing in accordance with the then-existing
law; (2) that no other feasible basis existed for extraction of oil from those leaseholds;
(3) that, after acquiring the leaseholds, the Department imposed a moratorium on the
issuance of permits for fracturing for an indefinite period of time; (4) that the legislature
passed Public Act 98-22, effective June 17, 2013, which set out the application procedures
for the permit process; (5) that the Department did not adopt regulations related to the
issuance of the permits until November 2014; (6) that it was impossible to apply for a 19 permit between June 2013 and November 2014 because it was well known that the
applications would not be reviewed; and (7) that the statutory and regulatory provisions
were so odious, ill-defined, and burdensome as to render application for the permit
economically futile and impractical. Next Energy then identified the relevant provisions
in the statute and regulations that it considered ambiguous and burdensome. The complaint
also contended that the futility exception applied to excuse Next Energy’s failure to seek a
final decision for the above-stated reasons.
¶ 41 Relying on LaSalle and the federal cases analyzing the futility exception, we find
that Next Energy has not alleged sufficient facts to support its claim of futility. Absent
from Next Energy’s complaint are any factual allegations showing that it sought a
fracturing permit under the Act and the adopted regulations in the approximately three
years that were remaining on its oil and gas leases (Next Energy obtained five-year leases
in mid-2012, and the Department adopted the regulations in late 2014). By failing to follow
the procedures created by the Department, Next Energy has denied the Department an
opportunity to apply the regulations to determine whether to issue a fracturing permit and,
if so, under what conditions the permit should be issued. Unlike the futility cases cited by
Next Energy, the present case does not involve a situation in which a regulatory agency,
after rejecting submitted permit applications, makes it clear that additional applications
would be denied. Like the LaSalle plaintiff, Next Energy has not applied for a fracturing
permit under the Act and new regulations; Next Energy has not even contacted the
Department to inquire about its likelihood of success in obtaining such a permit. Thus, the
impact of the regulations on Next Energy’s oil and gas leases is not reasonably certain. 20 ¶ 42 In asking us to apply the futility exception here, Next Energy asks us to hold that
a plaintiff can show futility without ever trying to seek a permit from the regulatory agency
or without a history of engaging with that agency regarding the regulations at issue. Next
Energy wants us to hold that a plaintiff can demonstrate futility just by showing a nonparty
applicant’s experience in seeking a permit. This is contrary to case law. The cases applying
the futility exception have not eliminated the requirement that the party claiming a
regulatory taking must follow reasonable and necessary steps to allow the regulatory
agency to exercise its discretion. See Kawaoka v. City of Arroyo Grande, 17 F.3d 1227,
1232 (9th Cir. 1994) (the futility exception does not alter a party’s obligation to file at least
one meaningful development proposal); Freeman v. United States, 875 F.3d 623, 628 (Fed.
Cir. 2017) (the private party must follow reasonable and necessary steps to allow the
regulatory agency to exercise its full discretion). Because Next Energy has made no such
attempt to obtain a fracturing permit, it is impossible for the trial court to determine the full
extent to which the Department’s fracturing rules would have burdened Next Energy’s
lease or whether its permit application would have been automatically rejected. Although
Next Energy uses a nonparty’s experience with the fracturing permit process to support its
claim of futility, we note that the nonparty’s experience in seeking a permit would not
necessarily be Next Energy’s experience. Further, we find that the nonparty’s experience
cannot be characterized as futile when that applicant actually received a permit, albeit with
conditions.
¶ 43 Moreover, we find unpersuasive Next Energy’s argument that the high cost of
applying for the permit demonstrates the economic futility of complying with the 21 regulations. We recognize that a nonrefundable fee of $13,500 and other potential
nonrefundable fees for amending the permit may be burdensome. However, at this point,
we do not know how much it would cost Next Energy to obtain a fracturing permit, and we
cannot know until the Department has had some meaningful opportunity to exercise its
discretion. Thus, we find that the trial court did not err in granting the Department’s motion
for judgment on the pleadings.
¶ 44 III. CONCLUSION
¶ 45 For the foregoing reasons, we affirm the trial court’s dismissal of Next Energy’s
complaint.
¶ 46 Affirmed.