State ex rel. AWMS Water Solutions, L.L.C. v. Mertz

2024 Ohio 4451, 253 N.E.3d 660

• Court: Ohio Court of Appeals
• Decided: September 9, 2024
• Docket: 2016-T-0085
• Status: Published

Opinion

[Cite as State ex rel. AWMS Water Solutions, L.L.C. v. Mertz, 2024-Ohio-4451.]

IN THE COURT OF APPEALS OF OHIO ELEVENTH APPELLATE DISTRICT TRUMBULL COUNTY

STATE OF OHIO ex rel. AWMS WATER CASE NO. 2016-T-0085 SOLUTIONS, LLC, et al.,

Relators, Original Action for Writ of Mandamus

-v-

MARY MERTZ, DIRECTOR OHIO DEPARTMENT OF NATURAL RESOURCES, et al.,

Respondents.

OPINION

Decided: September 9, 2024 Judgment: Petition granted in part and denied in part

Daniel J. Rudary, John N. Childs, Elizabeth Shively Boatwright, Justin M. Alaburda, and Hilary F. DeSaussure, Brennan, Manna & Diamond, LLC, 75 East Market Street, Akron, OH 44308 (For Relators).

Dave Yost, Ohio Attorney General, State Office Tower, 30 East Broad Street, 16th Floor, Columbus, OH 43215; John K. McManus and Brett A. Kravitz, Assistant Attorneys General, Environmental Enforcement Section, 30 East Broad Street, 25th Floor, Columbus, OH 43215 (For Respondents).

MARY JANE TRAPP, J.

{¶1} This matter is before the court on remand from the Supreme Court of Ohio.

See State ex rel. AWMS Water Solutions, L.L.C. v. Mertz, 2024-Ohio-200. After this court

granted judgment as a matter of law in favor of respondents, Mary Mertz, Director, Ohio

Department of Natural Resources (“ODNR”), et al. (collectively “the Division”). See State

ex rel. AWMS Water Solutions, L.L.C. v. Mertz, 2022-Ohio-4571 (11th Dist.), the high

court reversed this court’s opinion and judgment. {¶2} Pursuant to the Supreme Court of Ohio’s remand order, this court must

weigh the parties’ relative evidence to determine whether relators, AWMS Water

Solutions, LLC, et al. (collectively “AWMS”), through the Division’s September 2014

shutdown order (“Suspension Order”), suffered a categorical taking and/or, in balancing

the relevant Penn Cent. Transp. Co. v. New York City, 438 U.S. 104 (2005) factors,

engaged in a partial, regulatory taking of subject leased property. Mertz, 2024-Ohio-200,

at ¶ 31.

I. Synopsis of Ruling

{¶3} In 2014, AWMS began injecting wastewater brine pursuant to permits

issued by the Division. After induced seismic events were traced to AWMS’ primary

injection well, the Division issued the Suspension Order, which was not lifted on that well

until May 2021. In the interim, AWMS filed a petition for writ of mandamus asking this

court to find the order effected an unconstitutional taking of its leasehold. The action

requested that we order the Division to file appropriation proceedings to justly

compensate the company for its lost earnings resulting from the Suspension Order.

{¶4} After lengthy legal proceedings, this court has considered the evidence

submitted by both parties. We conclude a categorical taking did not occur, but a partial

regulatory taking occurred as to the primary well. The weight of the credible evidence

does not support the conclusion that AWMS lost all economically viable use of the

leasehold; indeed, the Division produced evidence that AWMS could utilize the leased

property in alternative, reasonable manners that would allow it to again generate income.

{¶5} We determine, however, the weight of the credible evidence supports

AWMS’ claim for a partial regulatory taking because it suffered an economic impact as a

result of the Suspension Order, which interfered with reasonable, distinct investment- 2

Case No. 2016-T-0085 backed expectations. While the Order was deemed reasonable as a matter of law, the

reasonableness does not negate the significant impact of the other prongs of a partial-

takings analysis. AWMS is entitled, in part, to relief in mandamus. The Division must,

therefore, proceed to commence an appropriation action in the Trumbull County Probate

Court for that court to determine just compensation.

II. Introduction

{¶6} After leasing acreage in Weathersfield Township, Trumbull County, Ohio,

AWMS sought and obtained two Level II injection well permits to inject wastewater brine

deep into the subsurface areas of the leased property. To obtain the permits, AWMS was

required to follow specific statutory procedures and submit to significant governmental

oversight. The oversight was premised upon certain inherent risks attendant to injecting

wastewater, not the least of which is the risk of inducing earthquakes. Shortly after

injection commenced, two seismic events took place – the first, a 1.7M event (“M” =

“magnitude”); the second, a 2.1M event.

{¶7} The seismic events prompted the Division to issue suspension orders on

both wells. Shortly thereafter, the shallower of the two wells, AWMS #1 Well was allowed

to continue operation (which AWMS ultimately closed due to economic losses), but the

second well, AWMS #2 Well, remained closed. Although AWMS attempted to meet the

Division’s requests for a restart plan of the second well, the Suspension Order remained

active. After unsuccessfully challenging the Suspension Order, AWMS filed the instant

action seeking an order requiring the Division to file appropriation proceedings based

upon an alleged unconstitutional taking requiring just compensation.

Case No. 2016-T-0085 III. FACTUAL AND PROCEDURAL BACKGROUND

{¶8} Relator, AWMS, is a company involved in disposing wastewater from oil and

gas production sites as well as drilling sites. Respondents are Mary Mertz, the Director

of the Ohio Department of Natural Resources (“Director”); the ODNR; Richard Simmers,

the former Chief of the Division of Oil and Gas Resources Management; and the Division.

{¶9} AWMS secured a lease on 5.2 acres of property (“the Site”) in an industrial

area in Weathersfield Township, which it acquired for the purpose of constructing and

operating salt-water injection wells, also known as Class II disposal wells. The Site is

located in the urban area of Weathersfield Township, near the city of Niles. Schools,

residences, the Mineral Ridge Dam, a fire department, a hospital, and other infrastructure

are within three miles of the Site.

A. AWMS APPLIES FOR PERMITS

{¶10} On December 23, 2011, AWMS applied to the Division for permits to

construct the wells, designated AWMS #1 Well and AWMS #2 Well. At the time AWMS

submitted its applications for drilling permits, it had invested approximately $100,000 into

the development of the Site. The Division’s procedure for obtaining authorization to

operate a Class II injection well is a two-step process. First, an applicant must apply for

a permit to drill and construct a Class II injection well, and second, the applicant must

apply to inject into the well.

{¶11} Also, between March and December 2011, six seismic events of varying

magnitudes were detected in Youngstown, Ohio, near an injection well designated

“Northstar #1,” operated by a third party not connected to this matter. On December 24,

2011, a 2.7M earthquake was recorded within one mile of the Youngstown well. After

Case No. 2016-T-0085 reviewing the seismic data, the Division found that Northstar #1 Well likely induced the

earthquake.

{¶12} On December 31, 2011, one day after Northstar #1 Well voluntarily ceased

operations at the Division’s request, a 4.0M event was recorded within one mile of the

well. Northstar #1 Well is located approximately seven miles from the Site. After the

second seismic event, the Division temporarily halted the issuance of permits through

November 2012. During the pause in permit issuances, the Division drafted emergency

rules to protect the public’s health and safety.

{¶13} On July 18, 2013, the Division issued a drilling permit to AWMS. In

September 2013, AWMS furnished a Confidential Offering Memorandum to potential

qualified investors to raise the capital to construct the wells on the Site. Among other

things, including projected production volume of the wells, the Memorandum identified

“risk factors,” emphasizing that the securities at issue “involve a high degree of risk” and

prospective investors should be aware of these risks. The Memorandum highlighted the

“continuing risk” of “seismic events similar to the one that occurred in the Youngstown,

Ohio area.”

{¶14} The Memorandum additionally noted that, due to the inherent risks of

operating a well site, there is a possibility that well operations could be suspended and/or

terminated by the Ohio Environmental Protection Agency (“OEPA”) and/or the ODNR.

The Memorandum also outlined certain geologic risks. It stated that AWMS had

performed no “subsurface testing.” As a result, the Memorandum disclosed that the

adequacy of the geology and the suitability of the wells “will only be known upon drilling,

completion, and operation of the wells.”

Case No. 2016-T-0085 B. AWMS BEGINS OPERATIONS

{¶15} AWMS #1 Well was drilled to a true vertical depth of 4,403 feet below

ground surface, and AWMS #2 Well was drilled to a true vertical depth of 8,502 feet below

ground surface. On March 24, 2014, an operational permit was issued. Full commercial

operations of the wells commenced in May and June of 2014. AWMS installed four

seismic monitoring stations for monitoring seismic activity around the Site and the

surrounding community in accordance with and at the request of the Division.

{¶16} During July 2014, AWMS injected 71,434 barrels of fluid, and, in August

2014, it injected 54,734 barrels. During the time the wells were operating, AWMS #1 Well

represented 5% of total injections between the two wells, while AWMS #2 Well

represented 95% of total injections. AWMS generated a gross income of $242,799 in

July 2014 and $170,695 in August 2014.

{¶17} On July 28, 2014, a seismic event measuring a magnitude of 1.7 occurred

in Trumbull County in the vicinity of AWMS’ wells. ODNR did not receive any “felt reports”

for the July event.1 On August 31, 2014, another seismic event occurred in the vicinity of

the wells measuring 2.1M. The earthquakes were connected in time and space with

injections at AWMS #2 Well, and experts agreed that the events were likely induced by

AWMS’ operations.

C. ODNR ISSUES SUSPENSION ORDER

{¶18} On September 3, 2014, the Division issued Chief’s Order No. 2014-372,

amended by Chief’s Order No. 2014-374, ordering AWMS to (1) immediately suspend all

operations at AWMS #2 Well, and (2) submit a written plan to the Division for evaluating

1. When a member of the public feels a seismic event, it is known as a “felt event.” 6

Case No. 2016-T-0085 certain “seismic concerns associated with the operation of the AWMS #2 saltwater

injection well.” The Division also suspended operations at AWMS #1 Well but

subsequently terminated this suspension in September 2014 after AWMS submitted

additional information that AWMS #1 Well did not contribute to the earthquake activity.

{¶19} Following the termination of the order on AWMS #1 Well, AWMS injected

into AWMS #1 Well from September 2014 until September 2015. The monthly revenues

generated from the AWMS #1 Well did not cover the monthly expenses incurred to keep

the facility running. In effect, AWMS was unable to inject the volumes at the AWMS #1

Well that it expected in its Confidential Offering Memorandum. And, because of the

Suspension Order, AWMS #2 Well was not operational, and the company was unable to

generate revenue.

{¶20} AWMS submitted a plan to restart its operations at AWMS #2 Well. The

Division found, however, that the plan was deficient, “generic and inadequate,” and did

not support terminating the Suspension Order. AWMS #2 Well was not operational or

allowed to operate until May 2021, when an order (“Restart Order”) was issued allowing

AWMS to recommence injection in AWMS #2 Well as long as it adhered to certain

conditions.

D. ADMINISTRATIVE AND JUDICIAL PROCEEDINGS

{¶21} AWMS appealed the Suspension Order to the Ohio Oil & Gas Commission

(“Commission”). On February 24, 2015, the Division and AWMS met to discuss resolution

of the appeal of the Suspension Order. The Division provided AWMS with a list of 14

criteria consisting of additional tools and/or recommendations for AWMS to consider in

aid of potentially restarting AWMS #2 Well.

Case No. 2016-T-0085 {¶22} A hearing was held on AWMS’ appeal of the Suspension Order, at which

the Division’s former Chief, Richard Simmers, issued a report and testified that “AWMS

has not submitted a plan with sufficient detail or information to minimize risk presented by

induced seismicity.” Additionally, he testified that if AWMS “presented a very

comprehensive plan; then it’s possible we would consider that plan.” Experts for AWMS

testified that, in their view, AWMS’ plan was reasonable but could also not conclude the

Suspension Order was unreasonable. Still, AWMS’ experts opined that the Order was

unnecessary.

{¶23} In August 2015, the Commission found former Chief Simmers’ issuance of

the Suspension Order was not unlawful or unreasonable and affirmed the Division’s

issuance of the Suspension Order.

{¶24} AWMS filed an appeal of the Commission’s affirmance of the Suspension

Order to the Franklin County Court of Common Pleas. In November 2016 and on

December 20, 2016, ODNR informed AWMS through letters from its counsel that,

consistent with former Chief Simmers’ testimony at the March 2015 Commission hearing,

the Division was open to considering a comprehensive plan from AWMS that properly

minimized risk.

{¶25} On December 23, 2016, the Franklin County Court of Common Pleas found

that the Suspension Order was lawful but reversed the judgment of the Commission,

concluding the Order was unreasonable. The Division appealed this decision to the Tenth

District Court of Appeals.

{¶26} Meanwhile, on August 26, 2016, AWMS filed the instant petition for writ of

mandamus alleging the continued enforcement of the Suspension Order had substantially

interfered with AWMS’ property rights by depriving them of all economically viable use of 8

Case No. 2016-T-0085 the property. AWMS sought a judgment ordering the Division to commence appropriation

proceedings for the purpose of awarding it just compensation for the State’s alleged

taking of its leasehold.

{¶27} In light of the appeal to the Tenth Appellate District, this court stayed the

underlying proceedings due to the possibility of rendering an inconsistent ruling contrary

to the jurisdictional-priority rule.

{¶28} On July 31, 2018, in the administrative appeal, the Tenth District reversed

the judgment of the court of common pleas in part, concluding, inter alia, the lower court

based its decision on impermissible evidentiary inferences made between experts who

testified before the Division and the trial court drew conclusions regarding the likelihood

of seismic risk without reliable evidentiary support. See Am. Water Mgt. Servs., LLC v.

Div. of Oil & Gas Resources Mgt., 2018-Ohio-3028, (10th Dist.).

{¶29} The Tenth District determined the Suspension Order was reasonable and

reinstated the same. See id. at ¶ 59. AWMS filed a jurisdictional appeal with the Supreme

Court of Ohio, and, on November 21, 2018, the Court declined jurisdiction. See Am.

Water Mgt. Servs., L.L.C. v. Div. of Oil & Gas Resources Mgt., 2018-Ohio-4670. On

December 26, 2018, the Court denied AWMS’ motion for reconsideration. See Am. Water

Mgt. Servs., L.L.C. v. Div. of Oil & Gas Resources Mgt., 2018-Ohio-5209.

{¶30} This court subsequently lifted the stay and proceeded to consider the

Division’s motion for summary judgment and AWMS’ memorandum in opposition. On

March 15, 2019, after considering the parties’ filings, this court entered summary

judgment in the Division’s favor, concluding AWMS failed to establish a genuine issue of

material fact requiring trial on both their categorical-regulatory takings claim and their

Case No. 2016-T-0085 partial-regulatory takings claim. See State ex rel. AWMS Water Solutions, LLC v.

Zehringer, 2019-Ohio-923, ¶ 17, ¶ 50 (11th Dist.).

{¶31} AWMS filed a direct appeal to the Supreme Court of Ohio, and, on

December 2, 2020, the Court reversed this court’s order entering summary judgment.

See State ex rel. AWMS Water Solutions, L.L.C. v. Mertz, 2020-Ohio-5482. The Supreme

Court determined there were genuine issues of material fact for trial on both AWMS’

categorical-regulatory takings claim and their partial-regulatory takings claim and

remanded the case to this court for further proceedings. See id. at ¶ 88-89.

{¶32} Subsequently, on May 21, 2021, Chief Vendel issued Chief’s Order No.

2021-97, which terminated the Suspension Order, i.e., the Restart Order. The Restart

Order authorized AWMS to resume injection operations at the AWMS #2 Well to the

extent it met and maintained certain operational conditions.

{¶33} In light of the Supreme Court’s remand order, the matter proceeded to trial.

Trial commenced on September 20, 2021, and concluded on October 1, 2021. After trial,

this court ordered additional briefing on a threshold legal issue of whether AWMS

possessed a cognizable property interest in its lease such that it could proceed with its

respective takings’ claims. We determined AWMS did not. See State ex rel. AWMS

Water Solutions, LLC v. Mertz, 2022-Ohio-4571, at ¶ 104 (11th Dist.).

{¶34} AWMS filed another direct appeal to the Supreme Court of Ohio. The Court

reversed this court’s judgment, finding that AWMS had established a constitutionally-

protected property interest in its leasehold interest, and remanded for further proceedings.

See State ex rel. AWMS Water Solutions, L.L.C., 2024-Ohio-200, at ¶ 25-31. Accordingly,

we proceed to an analysis of the merits of AWMS’ claim.

Case No. 2016-T-0085 IV. MANDAMUS

{¶35} In order for a writ of mandamus to issue, AWMS must establish a clear legal

right to compel the Division to initiate an appropriation action, the Division’s corresponding

duty to institute the action, and the lack of an adequate remedy for AWMS in the ordinary

course of law. See State ex rel. Duncan v. Mentor City Council, 2005-Ohio-2163, ¶ 10.

{¶36} The “standard of proof” is the threshold quantum of evidence that a party

must establish in order to be entitled to the relief requested. State ex rel. Todd v. State

Teachers Retirement Sys., 2016-Ohio-5073, ¶ 17 (6th Dist.). The standard of proof

placed upon a relator seeking a writ of mandamus is heightened. See State ex rel. Doner

v. Zody, 2011-Ohio-6117, ¶ 56. “Parties seeking extraordinary relief bear a more

substantial burden in establishing their entitlement to this relief.” Id. In a mandamus

case, a relator must prove its entitlement to a writ by clear and convincing evidence. See

State ex rel. Summit Cty. Republican Party Executive Commt. v. LaRose, 2021-Ohio-

1464, ¶ 8. Clear and convincing evidence is “intermediate” evidence, in that it requires

more than a preponderance of evidence, but less than evidence beyond a reasonable

doubt. Cross v. Ledford, 161 Ohio St. 469, 477 (1954). “Clear and convincing evidence

is that measure or degree of proof which will produce in the mind of the trier of facts a

firm belief or conviction as to the allegations sought to be established.” Id.

{¶37} “[M]andamus is the vehicle for compelling appropriation proceedings by

public authorities where an involuntary taking of private property is alleged.” State ex rel.

Levin v. Sheffield Lake, 70 Ohio St.3d 104, 108 (1994). “In such actions, the court, as

the trier of fact and law, must determine whether any property rights of the owner have

been taken by the public authority.” Id.

Case No. 2016-T-0085 V. THE DIVISION’S PARTIAL TAKING ARGUMENT AND NUISANCE DEFENSE

{¶38} The Division has argued that the suspension of AWMS #2 Well was, at

most, merely a temporary taking and could never rise to the level of a categorical taking.

Thus, the Division contends we need not consider AWMS’ position that a complete taking

was effected by the Suspension Order. We do not agree.

{¶39} The Division asserted, during summary judgment, that no categorical taking

occurred because the Suspension Order did not require AWMS #2 Well to be

permanently “plugged.” The Supreme Court, however, emphasized “there is no material

difference between a plugged well and a suspended well – neither can be used.” Mertz,

2020-Ohio-5482, at ¶ 39. The Division further argued that a restart of AWMS #2 Well is

entirely within the control of AWMS because the burden was on it, not the Division, to

submit a restart plan. The Supreme Court found this argument disingenuous because

“[e]ven if AWMS were to submit another plan, the [D]ivision might again fail to respond to

it or disapprove of it.” Id.

{¶40} To the extent the Division attempted to limit this court’s analysis at trial to a

temporary taking, we decline to indulge this invitation. The issue, even after the

Suspension Order was lifted in May 2021, is not only whether the Suspension Order’s

effect and scope was temporary, but whether it eliminated all economically beneficial use

such that it was completely unable to derive any economic benefits from its lease. This

question is a matter of evidential weight, not a matter of law. We will proceed with an

analysis of this important issue in this opinion. The Division’s arguments to the contrary

are unpersuasive.

Case No. 2016-T-0085 {¶41} Next, the Division asserts that background principles of property and

nuisance law are a viable affirmative defense and thus preclude consideration of a

categorical taking.

{¶42} At the summary judgment stage, the Supreme Court held the Division

“waived its nuisance defense” for purposes of the appeal on award of summary judgment.

Id. at ¶ 55. The Supreme Court, however, preserved the Division’s nuisance defense

upon review of its motion for reconsideration, noting the defense was not waived for trial.

Id. at fn. 2. We conclude the Division failed to establish the defense such that AWMS’

categorical takings claim would require dismissal or judgment as a matter of law.

{¶43} “There is no more impenetrable jungle in the entire law than that which

surrounds the word ‘nuisance.’” Keeton, Dobbs, Keeton & Owen, Prosser and Keeton on

The Law of Torts, Section 86, at 616 (5th Ed. 1984). Traditionally, a nuisance is defined

as “the wrongful invasion of a legal right or interest.” Taylor v. Cincinnati, 143 Ohio St.

426, 432 (1944). “Wrongful invasion” envelops the compromise of one’s use and

enjoyment of property or of personal rights and privileges associated with the property.

Kramer v. Angel’s Path, L.L.C., 2007-Ohio-7099, ¶ 15 (6th Dist.) A public nuisance is “an

unreasonable interference with a right common to the general public.” Brown v. Scioto

Cty. Bd. of Commrs., 87 Ohio App.3d 704, 712 (4th Dist.1993). A private nuisance is

understood as “a non[-]trespassory invasion of another’s interest in the private use and

enjoyment of land.” Id.

{¶44} We acknowledge that the public’s welfare is paramount in a matter such as

this. Consistent with this observation, the Division argues there can be no taking when

the State acts to abate a nuisance. In Lucas, 505 U.S. at 1029, the Supreme Court of

the United States recognized that there are certain property-use limitations that “inhere in 13

Case No. 2016-T-0085 the title itself, in the restrictions that background principles of the State’s law of property

and nuisance already place upon land ownership” or “by the State under its

complementary power to abate nuisances that affect the public generally, or otherwise.”

{¶45} The Division asserts that AWMS’ use of its leasehold, under the

circumstances, constitutes a nuisance because its operations will (at some point)

fundamentally cause harm to others. See, e.g., Louden v. Cincinnati, 90 Ohio St. 144,

152 (1914) (noting that “one may not use his own property to the injury of any legal rights

to another . . .”). Moreover, the Division underscores, “the constitutional right of the

individual to use private property has always been subservient to the public welfare under

Section 19, Article I of the Ohio Constitution, such use is subject to the legitimate exercise

of local police power pursuant to Sections 3 and 7, Article XVIII of the Ohio Constitution.”

N. Ohio Sign Contrs. Assn. v. Lakewood, 32 Ohio St.3d 316, 318 (1987).

{¶46} The Division claims that the threat of catastrophic harm – an induced

seismic event that could destroy basic and necessary infrastructure – or even the

annoyance of “felt events” constitute sufficient, credible evidence of a nuisance which

would preclude a categorical taking.

{¶47} Nothing in the evidence indicates AWMS’ injection activities were an

imminent threat to public health and safety. During the course of its operations, two minor

seismic events occurred at magnitudes that did not pose a danger to public health, safety,

or the environment. Moreover, the Restart Order reflects that AWMS #2 is allowed to

operate to the extent it did not cause an event over a specific magnitude set by regulatory

authorities. This essentially undercuts, if not refutes, the Division’s argument that the

Site’s operations are either a public or private nuisance.

Case No. 2016-T-0085 {¶48} AWMS was allowed to move forward with injections in AWMS #2 Well in

May 2021. The Restart Order was a result of the governing, regulatory body concluding

that AWMS can safely operate its facility that would not cause a dangerous-magnitude

event to occur. The Restart Order was issued pursuant to Ohio law governed by R.C.

Chapter 1509 (controlling the oil and gas sector, which also embraces injection wells of

the variety AWMS drilled at the Site). “What the law sanctions cannot be held to be a

public nuisance.’” Allen Freight Lines, Inc. v. Consol. Rail Corp., 64 Ohio St.3d 274, 277

(1992), quoting Mingo Junction v. Sheline, 130 Ohio St. 34 (1935), paragraph three of the

syllabus.

{¶49} Furthermore, nothing in evidence demonstrates that the seismic activity

traced to the injections at AWMS #2 Well resulted in felt events that materially or

substantially affected any local resident’s enjoyment of his or her property. The events

connected to the Site in the summer of 2014 were not felt by any members of the public

and did not approach any level of magnitude that caused even superficial property

damage.

{¶50} We therefore conclude that the Division failed to adduce credible evidence

that AWMS’ operations at the Site created either a public or private nuisance sufficient to

meet its burden on the affirmative defense. At most, the Division provided speculative

arguments that continuing injections at the Site could cause a public or private nuisance.

The issuance of the Restart Order, however, undermines the Division’s current

postulations. The affirmative defense of nuisance, therefore, is inapplicable to the actual

facts and circumstances of this case.

Case No. 2016-T-0085 VI. REGULATORY TAKINGS DOCTRINE

{¶51} The Takings Clause of the Fifth Amendment to the United States

Constitution provides that private property shall not “be taken for public use, without just

compensation.” This clause applies to the individual states by virtue of the Fourteenth

Amendment to the United States Constitution. See Barber v. Charter Twp. of Springfield,

Michigan, 31 F.4th 382, 387 (6th Cir.2022). Moreover, the Takings Clause applies to both

ownership interests in fee and unexpired leasehold interests. See Alamo Land & Cattle

Co., Inc. v. Arizona, 424 U.S. 295, 303 (1976) (“It has long been established that the

holder of an unexpired leasehold interest in land is entitled, under the Fifth Amendment

[of the United States Constitution], to just compensation for the value of that interest . . .”)

(Footnote omitted.)

{¶52} Originally, the federal Takings Clause was thought to apply only to

situations where the direct appropriation of property or the functional equivalent of a

practical elimination of an owner’s possession. Lucas v. South Carolina Coastal Council,

505 U.S. 1003, 1014 (1992). The Supreme Court of the United States has recognized,

however, that the clause may also be applied to overly burdensome governmental

regulations of property. See Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922)

(“[W]hile property may be regulated to a certain extent, if regulation goes too far it will be

recognized as a taking”).

{¶53} The Court has established guidelines for identifying regulations that go too

far. See Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 538-540 (2005). “The rub, of

course, has been - and remains - how to discern how far is ‘too far.’” Id. at 538. “In

answering that question, we must remain cognizant that ‘government regulation—by

definition - involves the adjustment of rights for the public good,’ and that ‘[g]overnment 16

Case No. 2016-T-0085 hardly could go on if to some extent values incident to property could not be diminished

without paying for every such change in the general law[.]’” (Internal citation omitted.)

Id., quoting Mahon at 413.

{¶54} Two forms of regulatory acts are deemed per se unconstitutional takings:

(1) governmental actions that cause an owner to experience a permanent physical

invasion of the property. State ex rel. Shelly Materials v. Clark Co. Bd. of Commrs., 2007-

Ohio-5022, ¶ 18, citing Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419,

435-440 (1982); and (2) governmental regulations that completely deprive the owner of

all economically beneficial use of the property. Shelly, supra, citing Lucas v. South

Carolina Coastal Council, 505 U.S. 1003, 1019 (1992).

{¶55} Beyond these two narrow categories, temporary takings are governed by

the standards set forth in Penn Cent. Transp. Co., 438 U.S. 104, Shelly. “Penn Cent.

recognizes an ad hoc, factual inquiry that requires the examination of the following three

factors to determine whether a regulatory taking occurred in cases in which there is no

physical invasion and the regulation deprives the property of less than 100 percent of its

economically viable use: (1) the economic impact of the regulation on the claimant, (2)

the extent to which the regulation has interfered with distinct investment-backed

expectations, and (3) the character of the governmental action.” Shelly, supra, at ¶ 19,

citing Penn Cent. at 124.

VII. ANALYSIS

A. CATEGORICAL TAKING

{¶56} As adumbrated above, a categorical-takings’ claim applies to narrow

scenarios “where the government has deprived a landowner of all economically beneficial

uses.” Lucas, 505 U.S. at 1018. Pursuant to Lucas, the essential analysis is whether the 17

Case No. 2016-T-0085 suspension order effected a “complete elimination of a property’s value.” Lingle, 544 U.S.

at 539.

{¶57} After the September 3, 2014 Suspension Order was issued, the Division

issued an amended order which allowed AWMS #1 Well to recommence injecting brine.

At trial, Dr. Brian Roach, an environmental and natural reserve economist testifying as an

expert for AWMS, stated:

[R]ight after the suspension of well #2 AWMS went from, at the time of the suspension, a profitable enterprise to now, over the last seven years, an unprofitable enterprise. Even with [the] possibility of operating well #1 that was not sufficient to cover their ongoing cost, and they have been essentially shut down since 2015 accruing losses and paying some modest amount each month to keep the sites active.

{¶58} Dr. Roach testified the goal of his report was to determine, absent the

shutdown, the volume of brine that would have been delivered to AWMS’ facility at the

Site. He stated that the key variable in his analysis was how much brine would AWMS

have been or would be receiving had the Division not issued the Suspension Order. Dr.

Roach outlined the customer base within AWMS’ region and estimated percentages of

brine received from Ohio customers and Pennsylvania customers. In doing so, Dr. Roach

set forth a nine-step methodology for calculating his estimations regarding the profitability

of the Site without the Suspension Order.

{¶59} Our task does not require a damages calculation. Rather, we must merely

decide whether a categorical taking occurred. Hence, we need not indulge in a discussion

of the estimated or potential profits the Site may have garnered or might be received in

futuro. Instead, we simply must determine whether, in light of the Suspension Order

affecting the Site at large, the Division created a categorical taking, i.e., whether the

Case No. 2016-T-0085 Suspension Order completely deprived AWMS of all economically beneficial use of the

property. We conclude it did not.

{¶60} Andrew Adgate, the Division’s Natural Resources Administrator, testified on

behalf of the Division. Mr. Adgate has a bachelor’s degree of science and geology and a

master’s degree in geology and, when he originally began work with the Division, he,

along with his seven-person staff, oversaw “all of the permitting, reporting, [and] field

enforcement compliance” regarding, inter alia, Class II injection wells for the Division. Mr.

Adgate testified to the nuances of the permit process for such wells.

{¶61} Mr. Adgate additionally testified, after serving in this capacity, he was in the

emergency-incident response section of the Division. After working in this role for

approximately one year, he became the Division’s Natural Resources Administrator. In

this role, he testified he ensures that permittees are in compliance with applicable rules

and that enforcement amongst permittees occurs in a standard and uniform manner.

{¶62} With Mr. Adgate’s experience, as well as the foundation for his opinion in

mind, we acknowledge the Supreme Court, in Mertz, 2020-Ohio-5482, determined certain

testimony by Mr. Adgate regarding alternative uses did not permit judgment as a matter

of law in the Division’s favor. Specifically, the Court pointed out:

[the Division] emphasizes that AWMS could use the [Site] to (1) conduct saltwater-injection operations at well #1, (2) store, recycle, and treat wastewater, and (3) sell byproducts of the wastewater. According to [the Division], nothing prevents AWMS from continuing those uses. Our concern here, however, is not whether AWMS’s property is capable of being used, but whether it is capable of being used in an ‘economically beneficial or productive’ manner.

Id. at ¶47

Case No. 2016-T-0085 {¶63} Furthermore, the Supreme Court rejected this court’s analysis that AWMS

could sublet the property to recoup its losses. Id. at ¶ 48-49. Still, the Court observed

that Mr. Adgate’s report, while not dispositive as a matter of law, is probative of issues of

consequence; namely, whether AWMS experienced a total, categorical taking. (“Adgate

suggested alternative ways in which AWMS could use the property. But because we

conclude that Dr. Wade’s opinions[, AWMS’ expert in the early stages of litigation,] in his

report are enough to create a genuine issue of material fact regarding whether AWMS

suffered a total taking, we need not consider the substance of Adgate’s report.” Id. at ¶

50).

{¶64} Accordingly, Mr. Adgate’s opinions and testimony are competent evidence

of whether AWMS suffered a categorical taking. With this in mind, we proceed to assess

the credibility and weight of Mr. Adgate’s report, testimony, and recommendations in

relation to AWMS’ experts’ assessments.

{¶65} Mr. Adgate noted that the Division possesses primary enforcement

authority relating to Class II injection wells. In this regard, Mr. Adgate emphasized that

the Division, in its review of permits, is not concerned with the commercial viability of any

given site. Instead, such viability is the sole concern of the applicant. Accordingly, the

permittee, in relation to its speculation for an injection-well site, must evaluate whether its

assessment of a particular property will redound to its economic benefit.

{¶66} Mr. Adgate was asked by the Division to provide a report regarding potential

alternative activities that could be conducted at the Site. He submitted his report in 2017

and testified at trial that his recommendations and conclusions had not changed as of

2021.

Case No. 2016-T-0085 {¶67} With respect to AWMS #1 Well, which Dr. Roach (and his predecessor Dr.

William Wade) asserted had no economic viability, Mr. Adgate testified AWMS could

apply to obtain a permit to drill deeper. In doing so, AWMS Well #1 would reach into a

deeper formation for injection. In particular, he testified that AWMS could seek a permit

to inject into the deeper Clinton Sandstone formation and such a process does not, in the

instant case, prevent such drilling and injection.

{¶68} Moreover, Mr. Adgate testified that, in addition to seeking an additional

permit to drill AWMS #1 Well into a deeper rock stratum, AWMS could also seek to modify

AWMS #2 Well by “plugging back the existing open hole section and injecting into a

shallower injection zone.”

{¶69} Further, Mr. Adgate testified AWMS could use a combination of the two

(non-exhaustive) scenarios to operate and move forward with injections.

{¶70} Finally, Mr. Adgate observed that AWMS could apply for completely new

permits with the option of drilling new wells. Given the size of the Site, slightly over five

acres, Mr. Adgate stated the Site was large enough to obtain adequate spacing for

additional wells.

{¶71} Dr. Roach assessed the economic viability of the Site in relation to the

Suspension Order. His testimony reflected the economic gains (without the Suspension

Order) in relation to the losses, in light of the order. Alternatively, Mr. Adgate’s testimony

did not focus on economic profits and losses, but the availability of reasonable, alternative

uses of the property considering the parameters of AWMS’ leasehold. And Mr. Adgate

emphasized that the Division’s concerns in issuing permits focuses upon an applicant’s

compliance with the statutory and administrative process, not potential economic benefits

or banes – such considerations are solely within the bailiwick of the applicant. 21

Case No. 2016-T-0085 {¶72} AWMS did not specifically refute any of Mr. Adgate’s non-exhaustive

options for utilizing the leasehold in the manners he suggested.

{¶73} With these points in mind, we conclude the Suspension Order did not

fundamentally deprive AWMS of all economically viable use of its leasehold rights. In

other words, the order did not completely eliminate the leasehold’s value.

{¶74} While AWMS would have to modify its approach for injecting brine in view

of the Suspension Order, it was not precluded from seeking different avenues for utilizing

its leasehold in a manner consistent with its exclusive purpose. We find Mr. Adgate’s

testimony credible. Weighing Mr. Adgate’s testimony in relation to AWMS’ evidence, Mr.

Adgate’s alternative, reasonable options for use of the property militate against AWMS’

contrary claims which primarily rely on alleged damages.

{¶75} AWMS cannot, therefore, sustain its heightened burden to establish, by

clear and convincing evidence, that it suffered a categorical taking. The Division’s

evidence on this issue is compelling, persuasive, and is sufficient to overcome AWMS’

categorical regulatory takings claim. Judgment on this claim is granted in favor of the

Division and against AWMS.

B. PARTIAL REGULATORY TAKING

{¶76} As set forth above, even if a party does not suffer a categorical taking, that

party may still experience a partial taking if, in balancing the three factors set forth in Penn

Cent., 438 U.S. 104, this court concludes AWMS has met its burdens of production and

persuasion. See Shelly Materials, 2007-Ohio-5022, at ¶ 19. We shall consider each

factor in turn.

Case No. 2016-T-0085 i. Economic Impact on the Claimant

{¶77} The Supreme Court of Ohio acknowledged that the instant matter is not a

typical land-appropriation/takings case where an appraiser provides an opinion on the

value of a fee-simple parcel by looking at comparable properties, sales, etc. The property

interest at issue is a prospective income-producing leasehold with one permissible use;

namely, the operation of Class II injection wells. The Court observed that “the lost-net-

income approach is a valid method for computing economic impact” in this matter, as is

the use of a “discounted cash-flow analysis.” Mertz, 2020-Ohio-5482, ¶ 59, 62. Neither

party objected to the use of these analyses.

{¶78} For AWMS, Dr. Roach created and compared discounted cash flows for two

projections: (1) an “actual” or “suspension” framework containing only AWMS’ real

revenue and cost data, reflecting the actual effect of the suspension order on the Site;

and (2) an “expected” or “no-suspension” framework containing both (a) real revenue and

cost data and (b) projected revenue and cost data as though the Suspension Order was

never issued. See AWMS Exhibit 90. Dr. Roach relied on Stephen Kilper and Mark

Cawthorne, each of whom are vice presidents of AWMS, for data and assumptions

utilized in his calculations and estimates.

{¶79} AWMS initially invested approximately $6.1 million capital into the property

and Site. From that original investment, due to the Suspension Order, it is uncontroverted

it has generated minimal revenue. According to Dr. Roach, the net present actual value

of AWMS investment (in light of the Suspension Order and the Restart Order in May 2021)

is $6,105,873. The operating revenue at the date of trial was $922,774; the operating

costs as of trial was $1,043,122. In total, therefore, AWMS had lost $6,226,221

($6,105,873 plus $1,043,122 minus $922,774). See Exhibit 90, Table 7. 23

Case No. 2016-T-0085 {¶80} Dr. Roach calculated the net present value of expected profits from the

Suspension Order to the Restart Order as well, i.e., the estimated profit amount AWMS

would have made had the Division never issued the suspension order. Specifically, he

acknowledged the initial capital costs of $6,105,873. And, based upon brine prices in the

regional market, as well as AWMS’ customer base, Dr. Roach estimated AWMS would

have enjoyed operating revenues of $17,636,293; had the Suspension Order not been

issued, he estimated the Site’s operating costs would be $4,494,861. Given these

figures, Dr. Roach concluded AWMS would have experienced a $7,035,559 profit

($17,636,293 minus $6,105,873 minus $4,494,861).2 Id.

{¶81} Comparing both the actual projection, wherein AWMS suffered a loss of

$6,226,221, and the expected projection, where AWMS could garner a profit of

$7,035,559, Dr. Roach concluded AWMS experienced an economic loss of $13,261,780

from September 2014 through May of 2021.

{¶82} Roland Blauer, a reservoir engineer whose expertise involves analyzing

injection-well reservoirs, their performance, production, and optimization, testified on

behalf of the Division. According to Mr. Blauer, after fluid is injected into a well, the

bottom-hole pressure will decrease as the fluid dissipates into the surrounding rock

formation. This allows additional fluid, in this case brine, to be injected.

2. It bears noting that Dr. Roach also calculated estimated operating revenues and operating costs beyond the May 2021 restart order through December 2034. These estimations were calculated based upon AWMS’ speculation that, without the suspension order, the Site would be fully operational and sustainable through 2027 (a total of 13 years of operation). Because the suspension order shut down the Site for six years, however, Dr. Roach engaged in a calculation that would allow for the Site to operate fully, given assumptions that temporary shutdowns would occur during this period, for 13 years after the restart order. Because our analysis will focus only on the time of the Suspension Order, see infra, ¶ 74, we need only be concerned with Dr. Roach’s estimations and calculations from the date of the Suspension Order to the date of the restart order. 24

Case No. 2016-T-0085 {¶83} Mr. Blauer testified the leak-off rate is the rate that fluids leave a reservoir

and permit additional fluid to be injected. If the leak-off is high, then an operator can

replace the fluid with additional fluid. If it is low, the operator must wait for pressure to

drop in order to inject more fluid into the reservoir. Under the latter circumstance, it may

take days or longer for the pressure to sufficiently drop to inject additional fluids. Where

the pressure fails to adequately drop, that is an indication that the well is having difficulty

accepting additional fluids going forward. By implication, a reservoir is essentially full

when an operator cannot inject any more fluid than can be received in light of its reservoir-

capacity restrictions. In this matter, the maximum pressure injection limit is 1,680 PSI.

{¶84} Mr. Blauer engaged in five different injectectivity tests of AWMS #2 Well at

different times. See AWMS Exhibit LLL, Report of Kenneth J. Malek, CPA, CFF, CIRA,

CDBV, CGMA and Roland Blauer PE., p. 44.3 Each successive test resulted in higher

bottom-hole pressure readings and the last tests resulted in the fluid pressure reaching

near maximum allowable injection pressure. Mr. Blauer testified:

In the world of reservoirs, this is [an] indication that you have a small reservoir, you have injected a small quantity of water, and you’re seeing a consistent fast rise in pressure . . . [T]hat is an indication, again, that the reservoir is filling up. . . The permeability has not changed; so, we’re looking at the reservoir is resisting the entry of new fluid more here because the pressure is higher than here [referring to “AWMS #2 Five Single Injection and Fall-Off Sequences” chart]; and it also gives us an indication of what the leakoff rate is. Not particularly important [that] we know what the leakoff rate is. What’s important is the pressure is telling us this reservoir is filling and filling very quickly.

3. Kenneth J. Malek, is an expert in, inter alia, evaluating business plans and assessed AWMS’ experts’ (Drs. Wade and Roach) valuations and damages estimations. He collaborated with Mr. Blauer in the report at issue. 25

Case No. 2016-T-0085 {¶85} Mr. Blauer created an additional chart entitled “AWMS #2 Daily Injection

Rate and Tubing Pressure Total Four Month Test May to August 2014.” Id. at p. 36. This

chart was a result of data that AWMS submitted which identified some 169,000 data

points. Based upon this data, Mr. Blauer testified that, at the outset, injection and shut-in

pressures in AWMS #2 Well were increasing. And, at the end of August 2014, the

reservoir did not leak off significantly. According to Mr. Blauer, the reservoir was filling

fast with leak off occurring very slowly.

{¶86} Mr. Blauer also created a “Hall-Plot” chart which traced the volume of fluid

versus the pressure in the reservoir. See AWMS’ Exhibit LLL, pp. 47-48. The Hall Plot,

while used in various circumstances by reservoir engineers, was used in this case to

determine “the cumulative amount of water injected and the pressure at which it was

injected.” And Mr. Blauer testified that a Hall Plot may be used to determine reservoir

capacity as a standard engineering practice.

{¶87} Mr. Blauer stated that higher and higher pressures were required to inject

fluid into AWMS #2 Well and that if injections continued the well would be unable to

receive more fluid without exceeding the maximum pressure. In light of the data received

by Mr. Blauer, as well as his assessment of AWMS #2 Well’s capacity (and AWMS #1

Well’s capacity), he determined:

[T]he two AWMS wells have severely limited capacity to accept additional brine at economic injection rates assuming the current regulatory maximum well-head pressures are honored.

Current bottom-hole reservoir pressure and pressure increases with injection in the AWMS #2 indicates the well can continue accepting water for less than a year depending on the injection rate.

Case No. 2016-T-0085 Estimated future injection volume ranges between approximately 90,000 and 160,000 barrels of water based on reservoir dynamics for AWMS #2. The range of potential volumes is a result of applying different predictive methods. However, the two estimates are confirmative and consistent with the limited injection potential of the well. These estimates are based on data as of August 31, 2014. Additional fluids injected into AWMS #2 through September 3, 2014 will not materially change the capacity remaining as of September 3, 2014. We treat 90,000 barrels as the expected (base) case additional injections into AWMS #2 and 160,000 barrels as the sensitivity test (upside) case additional injections.

The historic pressure and pressure transient behavior is so persuasive that the reservoir is nearly at capacity, little additional technical evaluation is required. ...

Although not as thoroughly investigated as the capacity of AWMS #2, the AWMS #1 well has remaining capacity between 20,000 and 40,000 barrels assuming injection rates do not exceed 100 barrels per day and well head pressures remain below allowable limits. During actual May – Aug 2014 injection periods the average daily injection rate was less than 100 barrels per day. At that rate, the well head pressure quickly reached the maximum allowable surface pressure during short injection cycles and leaked off slowly, similar to the performance of the AWMS #2. Based on this performance ultimate reservoir capacity will range between 20,000 and 40,000 barrels of brine. The range of ultimate reservoir capacity is within normal engineering variation. The important note is the range is small and clearly indicates the limited capacity of the reservoir associated with the AWMS #1 well.

See AWMS’ Exhibit LLL, p. 49.

{¶88} Extrapolating from Mr. Blauer’s testimony and his substantive conclusions

in AWMS’ Exhibit LLL, a report submitted into evidence, the ultimate remaining capacity

of the two wells on the Site range from 110,000 conservatively to 200,000 barrels in a

best-case-scenario for AWMS (90,000 barrels for AWMS #2 Well and 20,000 barrels for

AWMS #1 on the “low end” and 160,000 barrels for AWMS #2 and 40,000 barrels for

Case No. 2016-T-0085 AWMS #1 on the “high end”). The economic impact of these estimations range between

$201,150 (“low end”) to $359,373 (“high end”), depending on the ultimate capacity.

{¶89} With the foregoing in mind, AWMS submitted expert testimony from Tom

Tomastik, a certified petroleum geologist who formerly worked for the ODNR Division of

Oil and Gas. Mr. Tomastik testified he is not a petroleum engineer or a reservoir engineer.

He recognized that, in issuing permits, the Division does not, itself, estimate reservoir

capacity; instead, this task is the obligation of the operator or permittee. Mr. Tomastik

testified that Hall Plots are generally used in assessing water flooding and oil production,

but not typically seen in association with injection wells.

{¶90} Mr. Tomastik stated he did not estimate the reservoir capacity of the wells

on the Site and acknowledged he was not trained in the calculation of reservoir capacity.

He opined, however, that the problems experienced by AWMS #2 Well with increased

reservoir capacity may be from well-bore damage/buildup which could be treated with an

acid-wash treatment. Mr. Tomastik merely stated that this scenario “could be a

possibility.” Mr. Tomastik had no specific data and did not run an analysis to support his

opinion. And Mr. Tomastik acknowledged that despite recommendations that AWMS

engage in an acid-wash treatment to AWMS #2 Well, no such treatment was completed

as far as he was aware.

{¶91} Alternatively, Mr. Blauer opined that the treatment and filtration done by

AWMS should have addressed any build-up or contaminants that could have caused well-

bore damage. Additionally, he testified that even a very large acid-wash treatment might

only extend 10 or 20 feet from the wellbore and would not have significant impact on the

reservoir.

Case No. 2016-T-0085 {¶92} Mr. Tomastik also opined that the problems experienced by AWMS #2 Well

may have been partially due to the light water it was receiving; Mr. Blauer testified,

however, that when AWMS was able to inject heavier water (i.e., fluid with greater brine

content), the bottomhole pressure remained high, and the reservoir did not leak-off

significantly. As a result, Mr. Blauer concluded, irrespective of the weight of the injected

fluids, the reservoir was close to full.

{¶93} Although we are an appellate court, in this original action we sit as the trier

of fact. As such, we must weigh and determine the credibility of each witness. In this

capacity, we must reconcile competing testimony of the respective parties’ experts on

matters bearing on the ultimate issues before us. Indeed, it is axiomatic that such

credibility evaluations and the weight, if any, to be accorded the evidence is within our

sole province. With these guiding points in mind, we conclude:

(1) AWMS did suffer specific economic impact as a result of the suspension order.

(2) The evidence submitted by Mr. Blauer, via testimony or report, regarding the Site’s reservoir capacity has greater credibility than the evidence to the contrary submitted by AWMS.

(3) Neither Dr. Roach nor Mr. Tomastik actively tested or fully considered the capacity of the reservoirs on the Site.

(4) Mr. Blauer’s testimony was thorough and convincing such that this court concludes, while AWMS experienced some economic impact, it was not to the extent that Dr. Roach estimated and neither Dr. Roach nor Mr. Tomastik in any way refuted Mr. Blauer’s testimony.

(5) Accordingly, with respect to the economic impact on AWMS, we conclude the Site, conservatively will accept 110,000 remaining barrels and, at best, will accept 200,000 remaining barrels.

Case No. 2016-T-0085 ii. The Extent to which the Regulation has Interfered with Reasonable and Distinct Investment-Backed Expectations (“DIBE”)

{¶94} “The reasonable, investment-backed expectation analysis is designed to

account for property owners’ expectation that the regulatory regime in existence at the

time of their acquisition will remain in place, and that new, more restrictive legislation or

regulations will not be adopted.” Love Terminal Partners, L.P. v. United States, 889 F.3d

1331, 1345 (Fed.Cir.2018). As the Supreme Court of Ohio observed in Mertz, 2020-Ohio-

5482, “[t]he Federal Circuit has developed three factors to guide a court when conducting

that inquiry: ‘(1) whether the plaintiff operated in a “highly regulated industry”; (2) whether

the plaintiff was aware of the problem that spawned the regulation at the time it purchased

the allegedly taken property; and (3) whether the plaintiff could have “reasonably

anticipated” the possibility of such regulation in light of the “regulatory environment” at the

time of purchase.’” Id. at ¶ 64, quoting Appolo Fuels, Inc. v. United States, 381 F.3d 1338,

1349 (Fed.Cir.2004), quoting Commonwealth Edison Co. v. United States, 271 F.3d

1327, 1348 (Fed.Cir.2001).

{¶95} Regarding the first factor, whether AWMS operated in a highly regulated

industry – AWMS does not deny that it entered a highly regulated industry in this state,

i.e., the oil and gas industry. This is apparent by AWMS’ compliance with the multi-step

permit process required by Ohio law, which involves significant administrative oversight.

The Supreme Court, again in Mertz, recognized this point, id. at ¶ 65, and the evidence

adduced at trial did not change this conclusion. Indeed, Stephen Kilper, Executive Vice

President of AWMS Holdings, Inc., testified to AWMS’ recognition that injection-well

facilities are regulated by the Division as well as the Ohio Environmental Protection

Agency.

Case No. 2016-T-0085 {¶96} According to Mr. Kilper, all regulations are reviewed every five years and,

as such, there is an acknowledgement that regulatory changes may be made in the State.

He noted specific risks attendant to operating injection wells (which are the basis for the

regulations) such as spill or contamination and geologic risks, in particular induced

seismicity. Thus, there is no credible question that AWMS was not aware of the inherent

and significant regulation of the industry into which it was embarking at the time it acquired

its leasehold.

{¶97} Still, testimony from AWMS’ witnesses clearly established the company had

a subjective expectation that their operations at the Site would generate a profit; in light

of the surrounding circumstances of the venture, however, we cannot unequivocally

conclude this subjective expectation was objectively reasonable. We shall address this

latter point under the next DIBE factor.

{¶98} Under the second factor of the DIBE analysis, we must consider whether

AWMS was aware of the problem that caused the suspension order when it leased the

property on which the Site was constructed.

{¶99} In September 2013, AWMS issued a Confidential Offering Memorandum to

prospective investors. See Joint Stipulation No. 54. In the Memorandum, AWMS

identified certain “risk factors” and it emphasized that the securities at issue “involve a

high degree of risk” and prospective investors should be aware of these risks. The

Memorandum highlights the “continuing risk” of “seismic events similar to the one that

occurred in the Youngstown, Ohio area.” (Referencing 4.1.M event). AWMS was

consequently not only aware that, even though the Site was not adjacent to the

Youngstown-event site, there were dangers posed by the operations and, significantly,

that such dangers were sufficiently foreseeable such that they must be disclosed. 31

Case No. 2016-T-0085 {¶100} The Memorandum also noted that, due to the inherent risks of operating an

injection well site, there is a possibility that well operations could be suspended and/or

terminated by the OEPA and/or the ODNR. AWMS was thus aware that its business

investment was subject to noteworthy oversight and regulation. And, by investing in the

business, investors were assuming a potentially foreseeable and significant risk.

{¶101} Furthermore, the Memorandum also outlined certain geologic risks. It

stated that AWMS had performed no “subsurface testing.” As a result, the Memorandum

disclosed that the adequacy of the geology and the suitability of the wells “will only be

known upon drilling, completion, and operation of the wells.”

{¶102} These points indicate that AWMS had no ability to predict that the Site would

be viable; in effect, investors must “take a chance,” in light of the significant risks, that

after construction and commencement of operations, the wells would perform without

potential environmental problems or a catastrophic (or even a minor, but meaningful)

seismic incident.

{¶103} Importantly, AWMS leased the property for the limited purpose of drilling

Class II injection wells and it drilled into the area assuming there would not be a fault line.

A fault existed and Mr. Kilper admitted that the company “got that wrong.”

{¶104} Although Mr. Kilper’s testimony reflects a potential change in DIBEs after

AWMS acquired its interest (and after commencement of drilling), the weight of the

advisements and caveats in the Memorandum clearly and convincingly demonstrate that

AWMS’ DIBEs at the time it acquired the leasehold were fundamentally tempered by its

express awareness of the serious risks of a shutdown. In this respect, we conclude the

weight of the evidence supports the conclusion that AWMS was aware of the problem

Case No. 2016-T-0085 that “spawned the regulation” at the time it obtained its leasehold for the exclusive

purpose of injecting brine.

{¶105} Notwithstanding, this analysis is not dispositive of whether AWMS’ DIBEs

were reasonable or unreasonable. In evaluating this question, we move to the third

inquiry into AWMS’ DIBEs, i.e., whether AWMS could have “reasonably anticipated” the

possibility of the nature and extent of the Suspension Order in the face of Ohio’s injection-

well regulatory scheme when it secured its leasehold.

{¶106} When AWMS acquired the lease, it did not (nor could it) anticipate that the

Division would effectively “stonewall” its efforts to comply with the Division in interest of

either lifting or modifying the suspension order. We recognize that the Supreme Court of

Ohio has previously held in Mertz, 2020-Ohio-5482, that the Division neither engaged in

extraordinary delay nor bad faith in its failure to implement a state-wide policy regarding

regulation of injection wells such as those at issue. Id. at ¶ 82-86. This does not,

however, imply that the Division’s acts or omissions in rebuffing AWMS’ attempts to

submit a restart plan were reasonable.

{¶107} As late as March 2020 (when former Chief Richard Simmers retired), it was

the Division’s position that AWMS could not resume operations because “the Division had

[not] received supportive scientific data to address the concerns that the Division had to

allow reoperation.” The former Chief testified that a core component of AWMS’ restart

plan – reducing volumes injected or pressures at the wellhead for a period of time after a

certain level of seismic activity occurs and then allowing volumes or pressures to increase

at a percentage-based increment after certain periods of time – is an “inappropriate” risk

mitigation tool for which there is “no scientific basis.”

Case No. 2016-T-0085 {¶108} Current Chief Eric Vendel’s Restart Order removed various provisions from

former Chief Simmers’ plan, including a risk assessment, a principal stress determination,

a geology review, a seismic survey, a plug back, and well-construction-design

modifications. Despite testimony regarding the former Chief’s position on risk

assessments, the Division ultimately determined many of the criteria were “too

conservative.” Indeed, Ivan Wong, a seismologist testifying as an expert on behalf of the

Division, expressly rendered this opinion.

{¶109} As such, Chief Vendel was not of the ostensible opinion that the former

Chief’s risk assessments were, in part, necessary for AWMS to restart operations. In

effect, pursuant to the May 2021 Restart Order, AWMS was not required to submit any

additional information or scientific support for its plan before the Suspension Order was

lifted in May 2021. The Division’s Restart Order essentially relaxed the burden(s) on

AWMS to recommence operations. This evidence demonstrates a lack of consistency

and weighs strongly in favor of AWMS’ position.

{¶110} Moreover, the evidence indicates there was little to no meaningful dialogue

between the Division and AWMS regarding the company’s plans to resume operations

once AWMS submitted its plans to restart operations. Mr. Kilper testified that, on

September 3, 2014, after the second seismic event (the 2.1M event), he and other officers

of AWMS engaged the Division via phone. According to Mr. Kilper, Ron Klingle, Chairman

and CEO of AWMS’ parent company, offered to voluntarily suspend operation or reduce

injection if the Division could provide terms of restarting or resuming operations. The

Division, however, simply issued the Suspension Order. As part of the Order, the Division

required AWMS to provide a plan “for evaluating the operation of the AWMS #2 saltwater

injection well.” See AWMS’ Exhibit HH. 34

Case No. 2016-T-0085 {¶111} Two weeks later, on September 14, 2014, AWMS submitted its restart plan

to the Division. At an October 31, 2014 meeting with the Division, Mr. Kilper testified that

operatives for the Division were “not prepared to give any feedback” on a restart of

operations. The Division simply indicated AWMS’ appeal of the Suspension Order was

“the right thing to do.”

{¶112} Moreover, at the October 2014 meeting, Mr. Kilper testified that Division

officials stated that the standard for restarting was “zero seismicity.” In response to this,

Mr. Kilper rejoined that if “zero” is the standard, then every injection well in the State

should be shut down because the Division has no formal standard based upon “zero risk.”

Mr. Kilper testified that Division officials had no express response to his observation. At

the conclusion of the meeting, former Chief Simmers stated he would review AWMS’ plan

for restart “in the next two weeks and get back to you.” Mr. Kilper testified AWMS did not

receive a response.

{¶113} On February 24, 2015, the parties again met. During this meeting, former

Chief Simmers provided AWMS with 14 criteria to assist the company in creating a more

comprehensive restart plan. AWMS officers asked if AWMS met the 14-point criteria,

would it be permitted to move forward with a restart. Division officials responded in the

negative.

{¶114} Several days after this meeting, AWMS emailed the Division seeking

clarification of the Division’s proposed criteria. Robert Warstall, Deputy Chief of the

Division, responded that AWMS should propose whatever it deemed appropriate.

Accordingly, in March 2015, AWMS submitted a plan to the Division addressing its

proposed criteria. Nothing in the record indicates the Division responded to the plan. See

also Mertz, 2020-Ohio-5482, ¶ 15. 35

Case No. 2016-T-0085 {¶115} Considering the evidence, we conclude that even though AWMS was aware

it was operating in a highly regulated industry and it was additionally aware of the problem

that generated the Suspension Order at the time it acquired its property interest, AWMS

could not have reasonably anticipated the manner in which the Division addressed its

repeated proposals in light of the regulatory environment at the time it acquired its

leasehold. The last point is critical because the Division’s acts or omissions, in the face

of AWMS’ apparent cooperation with the Division’s orders and requests were not only

unhelpful, but arguably obstructive.

{¶116} The Supreme Court of Ohio in Mertz, 2020-Ohio-5482, at ¶ 69 stated,

“AWMS could not have reasonably anticipated when it acquired its leasehold interest that

the state’s inconsistent regulatory approach or its lack of responsiveness to AWMS’s

attempts at remediation would leave AWMS in limbo for years with an indefinite

suspension of its operations.” Thus, the court concluded that “AWMS has demonstrated

a material issue of fact that the division’s suspension of operations at well #2 interfered

with AWMS’s reasonable investment-backed expectations” and it reversed this court’s

granting of summary judgment on this factor. Id. at ¶ 70.

{¶117} Moreover, in Mertz, the Supreme Court also highlighted the Division’s lack

of direction and decisiveness in its management of the injection-well industry irrespective

of the predictable and consistent nature of the regulatory scheme to which AWMS

adhered. The Court observed:

At the time AWMS acquired its leasehold interest, AWMS could not have anticipated that the state would waver between a case-by-case approach and a statewide approach to addressing induced seismicity while rebuffing AWMS’s attempts to meet the state’s inchoate regulatory expectations. The parties do not dispute that at the time AWMS obtained its leasehold in December 2011, the division had not established 36

Case No. 2016-T-0085 its approach to managing induced seismicity. When the division first issued its suspension orders in September 2014, it put the onus on AWMS to “submit a written plan to the Division for evaluating the seismic concerns associated with the operation of” well #2. Although AWMS had not received direction from the division about what to include in the plan, AWMS nevertheless submitted a plan that included several proposals to establish certain controls over injections at well #2. The division rejected the plan as “generic and inadequate.”

Id. at ¶ 67.

{¶118} The foregoing highlights the ambiguity of the Division’s regulatory decision-

making process. While the Division is entitled to engage in a dynamic or reactive way of

managing the regulation of the injection-well industry (including recommending a

moratorium on all activities), it bears emphasis that this management is fundamentally

part of the administrative oversight process. And it is this very process that informs and

animates the regulatory scheme to which injection-well speculators are subject.

{¶119} The dissent focuses, not inappropriately, on the Federal Circuit Court of

Appeals’ opinion in Love Terminal Partners, 889 F.3d at 1345 for the proposition that a

litigant’s reasonable DIBEs must be principally and inherently premised upon the

expectation that the regulatory regime existing at the time the litigant acquired its interest

would remain in place. Here, the regulatory regime did not fundamentally or meaningfully

change. Still, simply because the regulatory scheme did not change, this does not imply

the Division’s management of its regulatory scheme was effective, fair, and reasonable.

The Supreme Court’s observation in Mertz, 2020-Ohio-5482, at ¶ 67, supports this point.

{¶120} The dissent seems to assert that the enforcement policies of the Division

are unrelated to AWMS’ DIBEs because its DIBEs relate only to the expectation that the

Case No. 2016-T-0085 “regulatory regime” (qua regulations or statues) would remain in place at the time it

acquired its interest. We take issue with this construction.

{¶121} While the expectation that the regulations in place at the time AWMS

acquired its interest would remain in place is a necessary component to the DIBEs

analysis, the phrase “regulatory regime” envelops more than just the regulations or

statutes governing the industry. A “regulatory regime” also contemplates the system or

plans which give effect and meaning to the regulations under consideration. See

Merriam-Webster Online, https://www.meriam-webster.com/dictionary/regime (accessed

Aug.14, 2024) (Regime: “A mode or rule of management.”) Thus, it follows that a

“regulatory regime” involves the regulations, statutes, as well as the actual process of

“regulating.”

{¶122} Even though the bones of the regulatory scheme did not change and

remained in place throughout the parties’ lengthy and sometimes tumultuous association,

AWMS was placed in a position where it had little, if any, direction. The Division provided

no indication it would ever approve AWMS’ proposals because the Division, itself, could

not determine what it wanted to do in its management of the industry. This is problematic

because there was no formal moratorium on injection-well drilling/use at the time the

shutdown occurred and the Division repeatedly advised AWMS to continue to submit

proposals (which were either rebuffed or ignored).

{¶123} We recognize that, as the dissent emphasizes, reasonable expectations

must be measured in relationship to the time AWMS acquired its interest. We also

recognize that the regulatory regime did not really change from the time AWMS acquired

its interest and the time it filed suit and beyond. We also, however, maintain that the

dynamic nature of the process and management of the regulatory scheme cannot be 38

Case No. 2016-T-0085 separated from the static scheme which exists “on paper.” It is this point that we differ

with and depart from the dissent’s position.

{¶124} Given the particularities of the testimony and the evidence adduced at trial,

as well as the Supreme Court’s observations in Mertz, the Division clearly and

convincingly interfered with AWMS’ DIBEs.

{¶125} The evidence demonstrates that AWMS submitted two plans; the first was

deemed generic and insufficient (even though the May 2021 restart order reflects the

Division’s change of position on this dismissive response). And the second plan was

essentially ignored. Weighing the factors at issue, we find the third factor strongly

militates in favor of the conclusion that the Division did interfere with AWMS’ DIBEs.

iii. The Character of the Regulation

{¶126} In Mertz, 2020-Ohio-5482, the Supreme Court of Ohio focused on three

factors emphasized by the parties in its analysis of the character of the suspension order.

First, whether AWMS was impermissibly “singled out” by the government for unfavorable

treatment or, instead, was permissibly included within a governmental program aimed at

“adjusting the benefits and burdens of economic life to promote the common good.” Id.

at ¶ 72. Second, whether the suspension order bears a “harm-preventing purpose.” Id.

And the third factor centers on the extent to which the suspension order’s delay related

to or accompanied the Division’s decision-making process. Id.

{¶127} With respect to the first factor, the Court concluded that “AWMS fails to

identify anything in the record that affirmatively negates the State’s emphasis on the wells’

proximity to population centers. And even if it had done so, there are still enough

differences between well #2 and the Long Run well [in Washington County] to persuade

us that the state did not unfairly single out #2.” Id. at ¶ 76. 39

Case No. 2016-T-0085 {¶128} Accordingly, the Court determined there was no genuine issue of material

fact on the first factor and therefore the Division was entitled to judgment as a matter of

law.

{¶129} Regarding the second factor, the Court determined “AWMS identifies no

authority that requires a governmental actor to establish there is an imminent threat of

harm before the government implements a regulatory action to protect public health and

safety.” Id. at ¶ 79. Accordingly, the Court, once again, concluded AWMS failed to create

a material issue of fact on the second factor. Thus, it determined the Division was entitled

to judgment as a matter of law on the “harm-preventing purpose” factor.

{¶130} Finally, the Court construed “the filing of AWMS’s mandamus petition as

setting the date upon which AWMS regarded the division as having effected a

constructive denial of its plans.” Id. at ¶ 85. The Court pointed out that “AWMS cites no

authority supporting its argument that delays of the lengths that occurred in this case are

extraordinary under the circumstances.” Id. The Court consequently concluded that no

genuine issue of material fact remained for trial on the third factor and the Division was

entitled to judgment as a matter of law on this point.

{¶131} In sum, the Supreme Court held that there was no factual issue for trial on

whether the character of the Division’s suspension order was reasonable and designed

to protect the public’s health and safety. Id. at ¶ 86. In light of this conclusion, that issue

was not a salient subject of litigation at trial.

iv. Balancing the Factors

{¶132} In balancing the Penn Cent. factors, we must “ascertain whether, in light of

those factors, it is unfair to force the property owner to bear the cost of the regulatory

action.” Rose Acre Farms, 559 F.3d 1260, 1282 (Fed.Cir.2009). 40

Case No. 2016-T-0085 {¶133} As discussed above, AWMS was economically impacted by the Suspension

Order, although not to the extent its experts suggested. On this point, we find Mr. Blauer’s

testimony more credible than the evidence advanced by AWMS. This factor, to the extent

limited in our analysis under subsection VII(B)(i) of this opinion, weighs heavily in AWMS’

favor.

{¶134} Similarly, in weighing the three factors emphasized by the Supreme Court

of Ohio in Mertz, 2020-Ohio-5482, we find AWMS presented strong evidence that, at the

time it obtained its leasehold, it could not have reasonably anticipated the manner in which

the Division addressed the Suspension Order in relation to its business enterprise and

especially in relation to Ohio’s regulatory environment. Although we recognize AWMS

was aware it operated in a highly regulated industry and was aware of the problems that

generated the Suspension Order and that such suspension was likely given these

problems, these factors do not militate strongly for the Division and are less significant in

relation to what AWMS reasonably anticipated upon obtaining the leasehold. In this

respect, we conclude AWMS presented persuasive and tenable evidence that the

Suspension Order interfered with its DIBEs.

{¶135} Finally, the character of the Suspension Order was previously deemed

reasonable, as a matter of law, by the Supreme Court of Ohio. Id. at ¶ 86. The reasonable

character of the action does not, however, weigh heavily against AWMS’ taking claim.

But despite the Supreme Court’s conclusion that the character of the regulation was, in

effect, reasonable, we emphasize that the Division’s orders and administrative decisions

must be fundamentally consistent. It is at this point that we think the Penn Central factors

relating to the character of the regulation and the reasonable DIBEs that AWMS was

required to establish intertwine. 41

Case No. 2016-T-0085 {¶136} The dissent points out that our observation relating to “consistency” is

somewhat opaque and is unsupported by legal authority. We appreciate the dissent’s

point, but “consistency,” as it pertains to our analysis, does not necessarily derive from a

point of “black-letter” law. Instead, it is derived from the factually-driven nature of any

partial-regulatory takings case. This fact-finding and weighing exercise is fundamental to

the mandate we were expressly given by the Supreme Court of Ohio.

{¶137} We acknowledge that the dissent’s focus on the Federal Circuit Court’s

teleological expression of the DIBE analysis expressed in Love Terminal, 889 F.3d at

1345 is accurate. We nevertheless maintain that this expression is more nuanced than

simply accounting for whether the regulatory regime at the time the interest was acquired

changed or remained the same. In our view, it requires an analysis of the management

as well as the purported and actual decision-making strategies employed by the State in

light of the backdrop of the regulatory regime.

{¶138} Although the character of the regulation was reasonable (and this

conclusion was buttressed by the Supreme Court’s rationale that the delay was not

excessive and the Division did not act in bad faith), we still maintain AWMS, as would any

speculator in the industry, had a reasonable expectation, at the time it acquired its

interest, that the management of the industry would be reasonably predictable and foster

predictability to the extent a permit-holder complied with the Division’s recommendations.

In this case, given the evidence adduced at trial, we narrowly conclude that the Division

did not meet this relatively low bar.

{¶139} That said, consistency does not imply overall similarity of treatment among

those who inject brine into the earth with permits. Administrative permits are issued

without regard to a leaseholder’s interest as long as the administrative criteria are met. 42

Case No. 2016-T-0085 In short, we do not hold all speculative interest-holders are entitled to redress in

appropriation.

{¶140} While the Division emphasizes, and we acknowledge, that the State,

whether in practice or law, is not obligated to usher any private interest holder through

the obstacles of the administrative process, our record demonstrates AWMS was

“blocked” in its attempts to remediate the problems the Division identified. Of course,

neither the Division nor the State at large is obligated to “hold the hand” of permittees as

they go forth in their injection enterprises. Nevertheless, AWMS offered restart plans that

were neither addressed nor, in our record, given effective consideration. This is

especially important considering the “loosened” nature of the Restart Order in relation to

AWMS’ proposals.

{¶141} Further, the Division vacillated between employing a case-by-case

regulatory regime versus a state-wide and more objective regulatory management of the

industry. This is not to say the Division acted improperly in determining which regulatory

method was more effective. We simply maintain that, in this case, AWMS reasonably

could not expect the vacillation; its expectations when it obtained its interest were

consequently interfered with and, in this respect, undermined. Simply put, it was

reasonable for AWMS to expect to be regulated in the same fashion as other injection-

well operators in the State of Ohio.

{¶142} Again, we recognize, especially given the Supreme Court’s holding, that the

regulation was reasonable and that the Division did not act in bad faith. Still, AWMS

offered two restart plans that were essentially disregarded. Although this disregard may

have been a function of the Division’s purported interest in developing a state-wide policy

on injection wells, we find the Division’s lack of attention to AWMS’ efforts dismaying. 43

Case No. 2016-T-0085 {¶143} The matter went to trial. Both parties provided testimony of experts and

general witnesses. The hazards of trial require a trier-of-fact to assess the weight of the

evidence. Under the circumstances, and despite the reasonable character of the

regulation, we conclude AWMS presented clear and convincing evidence that it was

unreasonably deprived of meaningful consideration of its restart proposals. This

consideration is the foundation for our observation relating to consistency in treatment.

We therefore decline to conclude that AWMS was afforded adequate attention in light of

its efforts to comply with the Division’s requests and recommendations.

{¶144} Although AWMS did not establish a strong and cogent analogy between the

Site and the Washington County site, see Mertz, 2020-Ohio-5482, ¶ 73-76, the Division’s

“management” of AWMS’ attempts to comply were less than adequate.

{¶145} We do not know why communications failed between the parties or why the

Division all but ignored AWMS’ entreaties to consider its restart plans. In any event, our

evaluation of the evidence demonstrates that, despite the Suspension Order’s inherent

reasonableness, the Division “dragged its heels” even after AWMS attempted to

ameliorate the issues identified by the Division.

{¶146} To be sure, public safety is a preeminent concern of any regulatory body.

These bodies, however, cannot leave a party in regulatory purgatory when that party

seeks to cooperate in good faith with state decisionmakers.

{¶147} The Supreme Court has explained that “the Penn Central inquiry turns in

large part, albeit not exclusively, upon the magnitude of a regulation’s economic impact

and the degree to which it interferes with legitimate property interests.” Lingle, 544 U.S.

at 540. After weighing the Penn Central factors, we conclude that AWMS has established

Case No. 2016-T-0085 a compensable partial, regulatory taking claim. As a result, and to the extent discussed

in this opinion, it is entitled to relief in mandamus on its partial taking claim.

VIII. CONCLUSION

{¶148} Based on our analysis and, in particular, our careful review of the evidence

presented, AWMS has failed to establish, by clear and convincing evidence a credible

claim for a categorical taking of its leasehold under the relevant dates identified in this

opinion.

{¶149} AWMS has, however, presented clear and convincing evidence that it is

entitled to relief in mandamus on its claim for a partial, regulatory taking. It is so entitled,

pursuant to our analysis from the date of the Suspension Order to the date of the Restart

Order, i.e., September 2014 through May 2021. Moreover, because this court finds the

Division’s testimony and evidence significantly credible as it relates to the capacity of the

reservoirs on the Site, just compensation must be assessed only and insofar as such it

may be established in relation to this conclusion.

{¶150} Therefore, we grant a writ of mandamus to compel the Division to

commence appropriation proceedings to determine just compensation to the limited

extent this court has determined, as outlined in this opinion, AWMS has suffered a partial

regulatory taking. See State ex rel. Donor v. Zody, 2011-Ohio-6117, at ¶ 86; see also

State ex rel. Shemo v. Mayfield Heights, 95 Ohio St.3d 59, 69 (2002).

{¶151} Because the Supreme Court remanded this matter for this court to weigh

the evidence and this court finds the Division’s expert testimony highly credible in relation

to AWMS’ expert testimony on the Site’s capacity, the Trumbull County Probate Court is

limited in determining just compensation and may so determine consistent with this

opinion and judgment. 45

Case No. 2016-T-0085 {¶152} For the reasons discussed in this opinion, AWMS’ petition for writ of

mandamus is denied in part, as it relates to its claim for a categorical taking; the petition,

however, is granted, to the extent outlined above, as it relates to AWMS’ partial regulatory

takings claim.

{¶153} It is so ordered.

EUGENE A. LUCCI, P.J., concurs,

JOHN J. EKLUND, J., dissents with a Dissenting Opinion.

____________________

{¶154} I respectfully dissent from the majority’s judgment because it is based on a

finding that AWMS suffered a partial taking under the balancing tests mandated in Penn

Central Transp. Co. v. City of New York, 438 U.S. 104 (1978). and State ex rel. AWMS

Water Sols., L.L.C. v. Mertz, 2020-Ohio-5482 (“Mertz [2020]”).

{¶155} Those decisions require that we review and weigh the parties’ evidence,

decide whether AWMS suffered a total taking and, if not, that we balance the factors set

forth in Penn Central to determine whether it suffered a partial taking.

{¶156} The majority opinion’s first 92 paragraphs conclude there was no total

taking. I agree with that analysis and conclusion.

{¶157} It also finds that AWMS suffered an adverse economic impact from the

suspension order at issue and defines its scope, thereby satisfying the first of Penn

Central’s three factors for analyzing whether a partial taking occurred. I agree with that

analysis and the conclusions drawn from it. 46

Case No. 2016-T-0085 {¶158} It is the majority’s analysis of, and conclusions on, Penn Central’s second

and third factors with which I disagree. Those factors are whether the State interfered

with reasonable, distinct investment-based expectations, and the “character” of the

regulation complained of.

Interference with reasonable, distinct investment-backed expectations

{¶159} In the words of the Federal Circuit Court of Appeals (embraced by the Ohio

Supreme Court in Mertz [2020]), analysis of this factor “is designed to account for property

owners’ expectation that the regulatory regime in existence at the time of its acquisition

will remain in place, and that new, more restrictive legislation or regulations will not be

adopted.” Love Terminal Partners, L.P. v. United States, 889 F.3d 1331, 1345 (Fed.Cir.

2018).

{¶160} In Mertz [2020], the Ohio Supreme Court used the three-part test the

Federal Circuit uses to guide that inquiry. Essentially, it is whether the property owner

who harbored such an expectation was reasonable in its expectation, and turns on at

least three issues: whether the property owner: 1) operated in a highly-regulated industry,

2) was aware, when it purchased the property interest, of the problem that “spawned” the

regulation, and 3) could have “reasonably anticipated the possibility of such regulation in

light of the regulatory environment at the time it acquired the property interest.”

(Emphasis added). Mertz [2020] at ¶ 64.

{¶161} I agree that the evidence in this case weighs heavily against AWMS on the

first two parts of the analysis.

{¶162} It weighs against AWMS on the third, too, for at least three reasons.

Case No. 2016-T-0085 Love Terminal

{¶163} First, the expectation that Love Terminal instructs us to account for was not

impaired in any way, i.e., the expectation that the regulatory regime existing at the time

AWMS acquired its interest would remain in place. Both the statutory and regulatory

aspects of that regime did so remain and did not change throughout AWMS’s dealings

with the Division.

{¶164} The majority views Love Terminal’s guidance as more “nuanced” than this.

The majority opinion suggests that the “nuance” in reviewing the regulatory regime in

place at the time a property interest was acquired “requires an analysis of the

management as well as the purported and actual decision-making strategies employed

by the State in light of the backdrop of the regulatory regime.” (Majority Opinion at ¶ 137).

{¶165} That expression of a court’s scope of review over administrative/executive

functions is dangerously overbroad and the majority opinion offers no legal authority for

such sweeping disregard for the principles of separation of powers. It also would handcuff

the government’s ability to react to, and act upon, developments in a regulated field that

may not have been contemplated when a regulatory scheme was first put in place.

{¶166} The majority’s formulation would result in the courts taking an improper role

in the administration of executive functions. We are not called to micromanage the

execution and enforcement of the laws of the State. Especially where there has been no

showing of any constitutional violation, any violation of law, or any bad faith. Instead, the

majority is effectively second guessing the executive branch decision making process

years after the fact because the Division “vacillated between employing a case-by-case

regulatory regime versus a state-wide and more objective management.” Id. at ¶ 141.

Case No. 2016-T-0085 Yet, the majority cannot say that the Division acted improperly in determining “which

regulatory method was more effective.” Id.

{¶167} AWMS signed its lease on December 19, 2011. The parties stipulated to

certain facts, including the following: seismic events were reported in the Mahoning Valley

for at least 9 months immediately before that, and on December 24 and 31, 2011 (after

the lease was signed) more were reported (and all these events were reported widely in

the media). After the lease was signed, two regulatory (and no relevant statutory)

changes occurred in Ohio. They both were based on those 2011 events: a moratorium

on issuing new injection well permits and emergency regulations mandating additional

seismic monitoring near injection wells.

{¶168} There was no evidence that these changes affected AWMS’s ability to

operate (it had only just applied for its first of two necessary permits and was months

away from raising the capital it needed to build its facilities). Indeed, these changes were

not the regulatory actions about which it has complained in this action.

{¶169} Preliminarily, it is axiomatic that “the law presumes that every man knows

the law [and] is bound by it whether he actually knows it or not[.]” Foster v. Scarff, 15

Ohio St. 532, 537 (1864). On this basis, we can and should presume that AWMS was

aware of the laws governing the industry into which it entered at the time it acquired its

interest. These laws and regulations did not meaningfully change throughout the course

of this case. AWMS could not reasonably expect to be treated differently than it was

actually treated by the Division.

{¶170} There was no evidence adduced at trial that Ohio’s laws, regulations, or

practices for suspending, revoking, reviving or renewing injection well permits changed

after AWMS signed its lease - not the substantive grounds for suspending or revoking 49

Case No. 2016-T-0085 and not the procedures used in doing so. The record therefore reflects that the legislative

and regulatory environment in place in December 2011 (insofar as it bore on AWMS’s

petition in mandamus, and whether we approve of it or not) was the same as the one

pursuant to which the Division later issued the suspension order. The only material thing

that changed was that more earthquakes occurred, and that AWMS Well #2 was causally

responsible for these seismic activities.

{¶171} Second, the only level of “investment-based expectations” that needs to be

analyzed here is the expectations of AWMS at the time it acquired its leasehold.

{¶172} There was no trial evidence that AWMS had any relevant expectations on

December 19, 2011, reasonable or otherwise, about whether the regulatory regime in

existence at the time of its acquisition regarding operating injection wells would remain in

place, or that new, more restrictive legislation or regulations to which it was subjecting

itself would not be adopted.

{¶173} Mr. Kilper testified that, based on his personal experience with

environmental authorities in the coal mining business, blasting, and operating landfills,

his expectation was that regulators would “work with” a regulated entity to develop and

implement risk-minimizing strategies. Tr. Vol. 2 at 196. That proves nothing, clearly and

convincingly, about AWMS’s expectations concerning changes or additions to, or

enforcement of, regulations or statutes in the world of brine-injection wells in December

2011, or any other expectations with which we are concerned here. On those, the record

is barren of evidence. Of course it is, AWMS had never drilled a well into which it would

inject brine waste.

{¶174} AWMS also introduced evidence that it expected to generate revenue and

profit from operating brine injection wells. The majority opinion foregoes any analysis of 50

Case No. 2016-T-0085 the reasonableness of those expectations. So do I, because as much as those

expectations might bear on AWMS’s damages if there was a taking, they have no bearing

on whether there was a taking. That issue turns not on expectations of profitability, but

on expectations regarding changes to, or new, more restrictive laws, regulations or their

enforcement. Of that, again, we have nothing relevant in the record.

{¶175} AWMS had the burden of proving, clearly and convincingly, that it had

expectations about regulatory and legislative interference with its use of its property, what

they were and their reasonableness. It did not offer clear and convincing evidence on

any of these issues.

{¶176} Without proof of what those expectations were, we should not rule that they

were reasonable or that the State interfered with them.

{¶177} In support of its conclusion that on December 11, 2011, AWMS did have

distinct, investment backed expectations worthy of considering, the majority opinion

contends and finds, without citing any evidence, that AWMS “did not (nor could it)

anticipate the Division would effectively ‘stonewall’ its efforts to comply with” the Division’s

interest in a safe re-start. In Mertz [2020], the Ohio Supreme Court put it slightly

differently: On December 19, 2011, “AWMS could not have anticipated that the State

would waver between a case-by-case approach to addressing induced seismicity while

rebuffing AWMS’s attempts to meet the State’s inchoate expectations.” Mertz [2020] at

¶ 67.

{¶178} There are several gaps in this logic, in my view. First, the majority opinion

cites no record evidence of what AWMS did not anticipate about anything, much less how

the State would react to events of induced seismicity from the AWMS wells. Of course

not; there was none. Second, it does not answer the critical question: what were AWMS’s 51

Case No. 2016-T-0085 expectations in December 2011? There was no clear and convincing proof at trial on that

issue either. Courts should not suppose what parties knew, anticipated, or expected (or

did not). The parties must prove it.

{¶179} Third, the Ohio Supreme Court already has held, in analyzing the “character

of the regulation” at issue, (see infra at ¶ 189) that as a matter of law, the State’s delay in

reviewing AWMS’s restart plans was not “extraordinary.” Mertz [2020], para. 85. How is

it that a business “could not” anticipate “ordinary” delays (whether born of “stonewalling”,

“rebuffing”, “red tape”, “overabundance of caution” or anything short of bad faith) in its

efforts to obtain or regain licensure? Again, nothing in the record suggests, much less

proves, much less clearly and convincingly so, that it did not, much less could not, so

anticipate.

{¶180} More fundamentally, the real threshold question before us is what AWMS

did expect when it acquired its leasehold interest, not what it could not anticipate. We

need to know what its expectations were and whether they were reasonable before we

can say whether the State interfered with them and whether any interference with them

entitles it to relief. It was AWMS’s burden to prove those things, and it failed to do so.

{¶181} Finally, the majority opinion’s finding proceeds from the proposition that the

Division did, indeed, “stonewall” AWMS. It was not proven clearly and convincingly that

the Division did, and no law cited by the majority supports such a conclusion.

{¶182} On September 3, 2014, prior to the suspension order, the parties met by

telephone at AWMS’s request. For what? To begin a negotiation. AWMS tried to avoid

the suspension order altogether by offering to reduce injection volumes or to suspend its

operations completely if the Division would forgo a suspension order and tell it what

modification(s) for injecting brine would be acceptable for re-starting full operations. Why 52

Case No. 2016-T-0085 would a business be willing, and voluntarily offer, to stop or curtail operations in exchange

for staving off a suspension order from the government? The question almost answers

itself: To avoid the administrative hassle of having one’s business under the thumb of a

government order. That strategy is a paradigm (and not a bad one) for anyone who knows

that government orders, once in place, create uncertainty over whether and on what terms

they might ever go away. Any business that has contrary expectations has unreasonable

expectations.

{¶183} The negotiation strategy went moderately well at first. Although the Division

declined the initial offer and issued the suspension order, within 15 days (and after AWMS

presented evidence that Well #1 was not the culprit inducing seismicity) it lifted the

suspension order as to that well. That is hardly “stonewalling” much less “bad faith.”

{¶184} AWMS submitted a proposed re-start plan for Well #2, but the Division

found it wanting. In response, the negotiations continued in a meeting on October 31,

2014. However, by then, AWMS had filed, on October 2, 2014, an administrative appeal

of the suspension order with Ohio’s Oil and Gas Commission. The gauntlet had been

thrown down; the fat was in the fire. AWMS had turned a negotiation into a battle over

whether and to what extent the State of Ohio could suspend the operation of brine-

injection facilities in the interest of preventing induced seismicity. That battle raged until

late December 2018, kept alive in no small measure by both parties’ refusal to accept

defeat at every turn (which was their right to do).

{¶185} I recognize, at the October 31, 2014 meeting, in response to AWMS’s

reiterated request for the Division to tell it what to do to get a preapproved re-start opinion,

the Division responded: a plan that assures zero seismicity. The majority accurately

reports AWMS’s response. Essentially: No, thank you. Who was stonewalling whom? 53

Case No. 2016-T-0085 Or was AWMS taking a chance that the appellate process it had just started would bail it

out? Either way, the evidence did not show clearly and convincingly that AWMS had any

expectation that a suspension order would not result in a potentially long, frustrating

process with attendant delays in its operations. To the contrary, the evidence showed

AWMS saw it coming, exacerbated it by its obstinance and took repeated steps (however

unavailing) to avoid it.

{¶186} And, I repeat, there was NO evidence adduced at trial to show what

AWMS’s “expectations” on this issue were on December 19, 2011. How could there be?

Nothing in our record suggests, much less proves by any standard, that either the State

or AWMS had ever been faced with such a record of induced seismicity caused by brine

injection wells.

Character of the regulation

{¶187} Our record on Penn Central’s third factor also weighs against finding a

partial taking, contrary to the majority opinion’s assertions.

{¶188} The inquiry here is, again, three-fold, at least: 1) was the relator singled out

for unfavorable treatment, 2) did the regulation have a harm-preventing purpose, and 3)

to what extent did a regulatory delay accompany the government’s decision-making

process.

{¶189} The Ohio Supreme Court already has held in Mertz [2020] that 1) AWMS

was not “singled out,” 2) that the Division’s actions had a valid harm-preventing purpose

even if there was no imminent threat to public safety, and 3) under any discernible theory,

the delay associated with the suspension order and the State’s non-responsiveness was

neither extraordinary nor in bad faith given the purpose of the regulatory regime.

Case No. 2016-T-0085 {¶190} Frankly, that should end the discussion of this factor. The Ohio Supreme

Court held the regulation was reasonable (or, at least, not unreasonable). But, it is not

the end, because the majority opinion nevertheless brushes it aside with the assertion

that the “Division’s orders and administrative decisions must be fundamentally

consistent.” (Majority Opinion at ¶ 135). I confess that I do not know what that means,

and the majority opinion does not help me much. It offers no legal authority that creates

such an obligation; nor should there be one since regulatory enforcement decisions are

inherently fact specific.

{¶191} Moreover, no evidence at trial added to or subtracted from the record on

which the Ohio Supreme Court reached its conclusion on the character of the regulation.

If (as the majority opinion at least suggests) “consistent” means that decisions regarding

permits should be made based on “the administrative criteria” (Id. at ¶ 139), then where

is the evidence that the Division’s actions in this case were not? There was none. Of

course there was none; the State of Ohio had not faced repeated incidents of induced

seismicity in densely populated areas from brine injection before, and so there were no

benchmarks, laws, regulations, administrative procedures or practices for issuing restart

orders for permit suspensions. Hence, no inconsistency.

{¶192} The majority discusses the Division’s changing enforcement practices

between Chief Simmers and Chief Vendel and finds that the Division’s decision to relax

the regulatory burdens on AWMS demonstrates a lack of consistency in enforcement.

However, such a conclusion is fallacious because it relies on post hoc ergo propter hoc

reasoning. That the Division’s ultimate restart order used a more relaxed enforcement

attitude does not mean that the Division’s first position was incorrect, too conservative, or

fundamentally inconsistent with enforcement practices and administrative criteria. 55

Case No. 2016-T-0085 {¶193} The majority opinion falls back on the assertion that the evidence showed

the Division “blocked” AWMS by not addressing or giving “effective consideration” to two

restart plans it offered.

{¶194} There are two fundamental problems with that assertion. First, it proves too

much. Every property interest holder is “blocked” by government action or inaction that

disappoints them. Under the majority opinion’s framework, all of them would be able to

claim that they were not given “effective consideration.” Do we want judges

micromanaging executive branch (or legislative branch) decisions for the “effectiveness”

of consideration?

{¶195} Second, the Ohio Supreme Court already has decided that the delays

asserted to have arisen from that inattention do not form the basis for a taking because

those delays were not “extraordinary.” In short, it is neither a foundation for asserting a

taking, nor a taking in and of itself.

{¶196} Third, it also ignores a finer point of the Penn Central analysis – the extent

to which delays were the result of the Relator’s own actions. Here, there was ample

evidence at trial that AWMS was equally dismissive of the Division’s proposals for an

acceptable restart order.

{¶197} On October 31, 2014, even after AWMS had ignited the administrative and

civil litigation pyres, the Division suggested a restart plan that assured zero seismicity

risk. AWMS categorically rejected it. In February 2015, the Division proposed a

Wilsonian “14 point Plan” for a restart. AWMS rebuffed it out-of-hand. In November and

December 2016, the Division told AWMS that it still was open to considering other

comprehensive restart plans. AWMS’s response? Crickets.

Case No. 2016-T-0085 {¶198} What is more, AWMS was afforded the full, due administrative process to

which every party is entitled throughout this dispute and used it. In early October 2014,

it filed a statutory administrative appeal of the suspension order. In 2015-2016, it filed

and successfully prosecuted an appeal from that proceeding to the Franklin County Court

of Common Pleas. In August 2016, it filed the mandamus petition before us. In 2017, it

defended itself (albeit unsuccessfully) in the Division’s appeal to the Tenth District from

the Franklin County Common Pleas Court’s 2016 decision and sought (again,

unsuccessfully) review (and reconsideration) in the Ohio Supreme Court from the Tenth

District’s decision.

{¶199} But, the majority opinion holds that AWMS was not “afforded adequate

attention” and declares this to be “dismaying.” (Id. at ¶ 142-143). I have little doubt that

AWMS was dismayed, too. But, I am not familiar with that concept as a standard upon

which to decide whether government’s law and regulation enforcement actions have

resulted in an unconstitutional partial taking, when the complainant had and exercised full

due process of law.

{¶200} There are cases that suggest, if not hold, that delays in governmental

administrative decision-making can form the foundation for a partial taking claim. See

First English Evangelical Lutheran Church of Glendale v. Los Angeles Cnty., Cal., 482

U.S. 304 (1987). In such cases, a taking only accrues when the delay becomes

unreasonable. Resource Investments, Inc. v. United States, 85 Fed.Cl. 447, 497 (2009).

{¶201} However, such delays are difficult to define, are fact-based inquiries, and

the length of the delay alone cannot establish that an extraordinary delay exists. Id. at

498. Indeed, extraordinary delay “rarely travels without bad faith.” Id. at 499.

Case No. 2016-T-0085 {¶202} In this case, the Ohio Supreme Court has found on review of our first grant

of summary judgment that there was no bad faith. Mertz [2020] at ¶ 83-84. The Court

also concluded that there was no extraordinary delay, saying that a delay of 45-months

is not on its face extraordinary, particularly in cases involving complex regulatory

schemes. Id. at ¶ 85; see also Williamson County Reg’l Planning Comm’n v. Hamilton

Bank of Johnson City, 473 U.S. 172, (1985) (eight years is insufficient delay to effect a

taking); Bass Enterprises Prod. Co. v. United States, 381 F.3d 1360, 1367 (Fed. Cir.

2004) (45 months’ delay is not extraordinary); Wyatt v. United States, 271 F.3d 1090,

1098 (Fed.Cir. 2001) (nearly ten-year permitting process including seven years’ delay is

not extraordinary); 1902 Atlantic Ltd. v. United States, 26 Cl.Ct. 575 (1992) (five years’

delay not extraordinary). There was no additional evidence of extraordinary delay or bad

faith presented at trial, and the majority, despite its references to “stonewalling,” does not

suggest any exists.

{¶203} The only evidence at trial on the issue already had been part of the record

at the summary judgment stage that the Ohio Supreme Court reviewed. In any event, the

cases in this line also hold that, absent a total taking, the plaintiff in a case asserting

extraordinary delay still must carry its burden under the Penn Central factors. Appolo

Fuels, Inc. v. United States, 381 F.3d 1338, 1352 (Fed.Cir. 2009) (“Even if the delay were

considered extraordinary, we have already determined that application of the Penn

Central factors here does not support a finding that there was a permanent regulatory

taking”). As discussed above, I would hold that AWMS did not carry its burden under

Penn Central. What the Division essentially did here was refuse to comply with AWMS’s

requests for an advanced statement of what the Division would approve as a restart plan.

That does not rise to the level of singling out AWMS, does not change the suspension 58

Case No. 2016-T-0085 order’s “harm-preventing purpose,” and does not delegitimize the relationship between

the Division’s actions and its legitimate regulatory decision-making process.

{¶204} Finally, let us remember that much of the delay complained of here was

based on the Division’s expressed desire to develop a state-wide plan for minimizing

induced seismicity risks from injection wells, which delay the Ohio Supreme Court already

has said was not “extraordinary[.]” Mertz [2020] at ¶ 85.

{¶205} I do not consider this delay to be in any way “extraordinary,” nor do I

consider the Division’s actions to have been in bad faith. Moreover, the evidence failed

to prove clearly and convincingly that AWMS had reasonable, distinctive, investment-

based expectations that new, more restrictive legislation or regulations would not be

adopted in this highly regulated, volatile industry. If they had them, the evidence failed to

prove clearly and convincingly what they were. There was no evidence that Ohio changed

its statutory or regulatory scheme or enforcement practices for suspending or restarting

brine injection activities under state-issued permits from December 2011 until trial.

Balancing the factors

{¶206} By my count, we have three factors to weigh under Penn Central. Two of

them are trifurcated. That makes 7 points of analysis:

{¶207} On the first, I acknowledge that AWMS has at least suffered some adverse

economic impact, thus satisfying the first Penn Central factor.

{¶208} On the second, the extent to which the regulation interfered with Distinct

Investment Backed Expectations, the majority finds, and I agree, that AWMS was aware

of the significant regulation involved in its operations, that AWMS was aware of the

dangers of seismicity involved in drilling and knew that its operations could be suspended

and/or terminated. Finally, I would find the evidence did not clearly and convincingly 59

Case No. 2016-T-0085 support a conclusion that the Division stonewalled AWMS or engaged in bad faith in

issuing its restart order. Therefore, AWMS failed to establish any of the subparts of the

second Penn Central factor.

{¶209} On the third, the character of the regulation, the Ohio Supreme Court said

in Mertz [2020] there was no material question of fact supporting this factor of the Penn

Central analysis. As a result, this issue was not salient at trial and AWMS certainly did

not establish any of the three subparts of this factor by clear and convincing evidence.

{¶210} Balancing each of the seven points of analysis leads ineluctably to the

conclusion that AWMS failed to establish by clear and convincing evidence a partial taking

under Penn Central.

{¶211} For the foregoing reasons, I would hold that there was no partial taking of a

property interest and respectfully dissent from the Court’s judgment.

Case No. 2016-T-0085