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In Chevron U.S.A. Inc. v. County of Monterey (2023) 15 Cal.5th 135, the California Supreme Court held that Measure Z, a local ordinance banning certain oil production methods, was preempted by state law governing the regulation of oil wells.  

Measure Z was sponsored by Protect Monterey County (PMC) and passed by Monterey County (“County”) voters in 2016. Measure Z contained three prohibitions restricting oil and gas operations in the County:

  • LU-1.21 – ban on well stimulation treatments like hydraulic fracturing (“fracking”);
  • LU-1.22 – prohibition on development, construction, installation, or use of any facility in support of oil and gas wastewater injection and/or impoundment;
  • LU-1.23 – prohibition on drilling of new oil and gas wells.

Plaintiffs—Chevron, other oil producers, and mineral rights holders—filed suit against the County, claiming, among other things, state preemption under Public Resources Code section 3106 (“Section 3106”) and federal preemption under the Safe Water Drinking Act (42 U.S.C. § 300f et seq.). PMC later intervened in the actions (together with the County, “Defendants”).

The trial court held LU-1.22 and LU-1.23 were preempted, and dismissed the claims against LU-1.21. The California Court of Appeal affirmed, solely on state preemption grounds. PMC filed a Petition for Review with the California Supreme Court, who granted review on the question of whether Section 3106 impliedly preempted the two provisions.

California Supreme Court Opinion

A local law is contradictory when it is “inimical,” or “cannot be reconciled with” the state law. In those cases, the local regulation “must yield to supreme state law.”

Section 3106(b) provides the State Oil and Gas Supervisor “shall . . . supervise” oil production in a way that permits well owners and operators to “utilize all methods and practices” that, in the supervisor’s opinion, are “suitable for the purpose” of “increasing the ultimate recovery of underground hydrocarbons . . . in each proposed case.” If an oil lease or contract is silent about oil production methods or practices, it is deemed to allow all practices approved by the supervisor.  Section 3106(b) addresses, and permits the supervisor to authorize, the water and steam injection methods prohibited by Measure Z.

The trial and appellate courts found that these state law provisions preempted Measure Z’s efforts to prohibit construction of new wells and the methods by which existing wells could operate. Defendants offered three arguments to support their claims that the lower courts had erred.

They first argued that Measure Z was a permissible restriction on whether and where oil extraction could occur, describing it as a locational restriction different from the issues addressed in Section 3106. The Court disagreed, finding that Measure Z was concerned with methods and practices of oil extraction, not the location of such extraction. Because both Measure Z and Section 3106 governed how oil producers and well operators should be permitted to extract oil, the Court found them not to govern different subjects at all.

Defendants next argued that a local law is not preempted unless it prohibits what the state law demands, and that Measure Z only prohibited methods the supervisor “may” permit or authorize. The Court found this to be a misinterpretation of the case Defendants relied on. The Court clarified that state laws may preempt local laws when the local laws prohibit what the state law permits or authorizes, not just demands. As such, it found the lack of a demand in state law to not preclude a finding of implied preemption.

Finally, Defendants argued that the ability to comply with both local and state regulation meant that no inimical conflict could be found. Specifically, they argued that well operators could not use the methods banned by Measure Z, or if they ceased oil production entirely in the County, they would be in compliance with both laws. The Court again found this to be inconsistent with case law, explaining that compliance must be reasonably possible, not just theoretically possible. As the Court noted, in almost every preemption case, it is theoretically possible for a party to comply with both standards by simply not engaging in the conduct prohibited by local law. The Court therefore found Measure Z to be in conflict with state law, noting that it nullified and contradicted the supervisor’s authority to supervise oil production in the manner stated in Section 3106. As such, it found Measure Z to be preempted.   

Key Takeaways

  • Local regulation of oil and gas production, and the methods employed may be preempted by Section 3106.
  • Where state law gives the state sole supervisory and approval authority for certain methods and practices, a local law banning a subset of those methods or practices is preempted.
  • To overcome preemption, it must be reasonably possible to comply with both laws, not just theoretically possible.