By Eric Freedman
A federal judge in Ohio has derailed a suit accusing the Muskingum Watershed Conservancy District of defrauding the federal government by allowing hydraulic fracturing on land it acquired from the U.S. Army more than 65 years ago.
U.S. District Judge Sara Lioi of Akron ruled that the challengers failed to provide evidence that the conservancy district acted fraudulently when it leased natural gas, oil and mineral rights to energy businesses.
And she rejected the challengers’ argument that land transferred from the U.S. Army to the district should automatically revert to federal ownership because it’s no longer used exclusively for “recreation, conservation and reservoir development purposes” as the deed states.
An appeal is likely, according to the challengers’ lawyer, Thomas Connors of Akron.
The Muskingum Watershed covers about 8,000 square miles in 32 counties and is the largest watershed fully within the state.
At issue are four leases for oil and natural gas rights that the conservancy district awarded between 2011 and 2014. The leases with “horizontal drilling companies” are worth more than $173 million to the district, plus royalties, according to the court decision.
Barbara Bennett, the district’s director of administrative services, said, “This newfound revenue from the Utica Shale play has allowed the district to significantly augment water quality programs, testing and monitoring among many other benefits that the district is realizing.”
Fracking critics Leatra Harper and Steven Janso own property adjoining Senecaville Lake, a 5½-square-mile reservoir that the Army Corps of Engineers created in the 1930s in Guernsey and Noble counties, according to court documents.
Harper, Janso and a third challenger filed a False Claims Act suit accusing the district, which is a public agency, of knowingly defrauding the federal government. That law allows whistleblowers who uncover fraud and corruption to sue on behalf of the federal government.
Their suit seeks a court order returning ownership to the federal government of all land that was transferred in 1949 and is now leased for fracking. It also wants the district to pay damages and civil penalties to the government.
The suit alleges that the district invalidated the deed by violating the provision limiting use of the transferred land to recreation, the reservoir and conservation.
Connors, the challengers’ lawyer, said, “The deed says if you alienate any part of the land, you cause a reversion. It’s a part of the land, so it’s clearly not being used for conservation and recreation, which was a condition on which [the district] got the land in the first place.”
The suit also asserts that fracking threatens “to cause leakage of gas, fracking fluids, flowback and other toxic contaminants into the geological formations affecting Senecaville Lake and damaging downstream communities.”
The other leases are for drilling near Clendening, Leesville and Piedmont lakes.
In court papers, the district denied violating the deed.
“There is no dispute that the property is being used for recreational and reservoir development purposes,” it argued, and noted that under Ohio law, “conservation includes the reasonable exploration for oil and gas minerals.
“The reality is that this lawsuit is not at all about redress for a wrong. It is but another attempt to thwart hydraulic fracturing and oil and gas exploration on property that belongs to the district,” it argued.
The district has been involved with gas and oil production since its establishment in 1933, according to a district newsletter.
A lawyer for the district, James Pringle of New Philadelphia, Ohio, said, “Conservation includes management of natural resources. Conservation is not solely preservation.”
The U.S. Justice Department declined to join the suit, and the district asked Lioi to dismiss the case.
In siding with the district, the judge said the challengers offered no facts showing that the district knowingly concealed its legal duty to return the land to the federal government if it violated the deed.
Lioi also found sufficient public disclosure of the district’s intent to award the leases.
Before approval of each lease, the district posted the proposed contracts on its website and held public meetings for citizens to express their concerns. In addition, the district issued news releases before and after awarding each lease, and the leases received extensive press coverage, she said.
The challengers, she wrote in her decision, “are not the model whistleblowers contemplated by the False Claims Act — individuals who discover and expose hidden fraud.”
Pringle, the district’s lawyer, noted that the lease for fracking near Senecaville Lake involves only 150 acres covered by the deed.
The leases include requirements for pre-drilling and post-drilling testing that are stricter than what the Ohio Department of Natural Resources requires, Pringle said, as well as limiting light and sound pollution.
Bennett, the district official, said other safeguards include the authority of the district’s chief engineer to “shut down operations for any reason at any time.”
In addition, “we have augmented the standard of what the oil and gas companies have” in their standard leases, she said.
Bennett said she is unaware of any environmental problems caused by fracking there.