The state does not owe compensation to an oil and gas waste injection company for the temporary closure of two wells in Trumbull County suspected of causing earthquakes, the Supreme Court of Ohio ruled today.

In a unanimous decision, the Supreme Court reversed the Eleventh District Court of Appeals, which had found the Ohio Department of Natural Resources (ODNR) orders to suspend operation of AWMS Water Solutions’ wells in Weathersfield Township were a “partial taking” of the company’s property. The Eleventh District had ordered the Trumbull County Probate Court to determine the amount of damages owed to AWMS, which claimed it lost $13.2 million due to the suspensions.

Writing for the Court, Justice R. Patrick DeWine explained that this is the third time the matter has reached the Supreme Court. Justice DeWine noted that AWMS warned initial investors of the risk of a shutdown if its operations caused an earthquake, and that ODNR suspended operations after determining that the wells caused two small earthquakes in 2014.

Under a test developed by the U.S. Supreme Court in its 1978 Penn Central Transp. Co. v. New York City decision, AWMS failed to prove that the state regulations unconstitutionally deprived the company of its property. ODNR maintained it suspended operations to protect the public from additional, and potentially catastrophic, earthquakes.

“Even though the evidence at trial showed that the earthquakes that had been experienced were of relatively small magnitude, they were still felt by people in the region, and the State did not have to wait to take action to protect the public until a larger, catastrophic seismic event,” Justice DeWine wrote.

Wells Opened as Earthquakes Increased in the Region
AWMS has been in the waste disposal business since 1988 and saw an opportunity to expand into oil-and-gas wastewater disposal for Ohio’s burgeoning fracking industry. It leased 5.2 acres in Weathersfield Township to construct saltwater injection wells to dispose of fluids needed to drill for oil and gas. The property is in an urban area near the city of Niles, is about 2,000 feet from a school, and is three miles from the Mineral Ridge Dam, which creates the Meander Creek Reservoir.

AWMS applied to ODNR for permits to operate two wells. AWMS acknowledged that before it leased the land, it was aware that saltwater injection wells had triggered seismic activities in Ohio. The day after it applied for its permits, a 2.7-magnitude earthquake was recorded near an injection well about 7 miles from AWMS’s site. About a week later, a 4.0-magnitude earthquake was recorded at the same well.

The second quake was felt by more than 4,000 people in parts of northeastern Ohio, western Pennsylvania, and Ontario, Canada. The event led the state of Ohio to impose a moratorium on well-injection facilities and delayed AWMS's ability to drill its two wells until July 2013.

Shortly after drilling started, AWMS prepared a confidential memorandum for potential investors as it sought to raise $3.5 million to operate the facility. The memo noted that a nearby injection well was the cause of the earthquakes, likely because of the presence of “a fault in the formation into which the saltwater brine was being injected.” It noted if any of its wells caused similar problems, ODNR may suspend or cease its operations, which could have an adverse impact on the company’s business.

AWMS cautioned investors that, despite being aware that injections into a rock formation could trigger earthquakes, it did not perform any tests for fault lines before drilling the two wells.  Ultimately, AWMS was able to raise the necessary capital to commence operations.

Quakes Near Well Lead to Suspension
ODNR authorized AWMS to begin injecting waste into both wells in March 2014. Most of the waste was sent to one of the two wells. By July 2014, a 1.7-magnitude earthquake was recorded near the wells, and a month later, a 2.1-magnitude earthquake happened in the same area. ODNR suspended AWMS operations, but soon after allowed the lesser used well to reopen in September 2014. ODNR would not allow the more heavily used well to reopen until 2021.

The suspension of the more heavily used well led to a long, legal dispute in which AWMS argued the suspension order was a regulatory taking of its property without just compensation. After being reversed and remanded twice by the Supreme Court, the Eleventh District determined in 2024 that under the Penn Central test, the state partially took AWMS’s property and must compensate the company. While AWMS maintained the loss cost it $13.2 million, the Eleventh District estimated the company’s damages from the suspension at about $360,000.

Both ODNR and AWMS appealed the decision to the Supreme Court. AWMS maintained that the action was a total taking, and the probate court should consider how much the state owed it. ODNR claimed the property is a public nuisance, and that the Eleventh District erred in its application of the Penn Central test.

Supreme Court Analyzed Compensation Dispute
Justice DeWine explained the takings clause of the Fifth Amendment to the U.S. Constitution provides that private property shall not be taken for public use without just compensation. The clause applies to both the physical acquisition of private property and to any government regulation of property if the “regulation goes too far.”

If a regulation “deprives land of all economically beneficial use” and is not a nuisance under state law, then the restriction is deemed a total taking by the government, and the government must compensate the landowner, the opinion explained. If there is no complete deprivation, regulatory takings are evaluated under the Penn Central test, the Court stated.

The Supreme Court first rejected AWMS’s total-takings claim, upholding the Eleventh District’s finding that AWMS could modify both wells to make them economically viable and that ODNR’s suspension order was only temporary, not permanent.

Next, the Supreme Court considered AWMS’s partial-taking claim under the Penn Central test. Under Penn Central, the Court considers the economic impact of the regulation, the extent to which the regulation interfered with the “distinct investment-backed expectations,” and the character of the government action. The opinion noted the Eleventh District found the first of the three factors weighed in AWMS’s favor as the company lost money because of the suspension order. The Eleventh District found the third factor weighed in the state’s favor, as the state had a genuine interest in protecting the community against potentially catastrophic earthquakes if they grew in size.

The Supreme Court, however, disagreed with the Eleventh District’s conclusion that the second factor favored AWMS, entitling it to compensation. The Supreme Court explained the interference with investment-backed expectations factor is designed to account for a property owner’s expectation that land restrictions imposed at the time the property was acquired will remain in place and new, more restrictive regulations will not be imposed.

One way the Court determines the property owners’ expectations is by determining whether the owner would have “reasonably anticipated” the possibility of additional regulations based on those in place at the time of purchase.

In determining whether AWMS could have reasonably anticipated ODNR’s suspension order, the Supreme Court considered what AWMS knew when it leased the land. The memo to potential investors indicated AWMS anticipated risks when it decided to enter the injection-well business. AWMS also recognized it was entering into a highly regulated industry and that the risks of saltwater disposal could lead to an “increase in scope and complexity” of government regulation. The memo cautioned that if its wells caused earthquakes, ODNR may suspend or shut down well operations.

“Thus, AWMS anticipated the very occurrence that happened here: a shutdown of its operations because of one of its wells caused an earthquake,” the opinion stated.

AWMS admitted it did not perform subsurface testing because it believed that there were no faults under the well sites. It made the calculated risk to move forward with the investment without testing for the existence of a possible fault line, the opinion stated. The Court stated that these considerations should have led the Eleventh District to have found the investment-backed expectations factor weighed against AWMS, but instead it found AWMS could not have reasonably anticipated the state would not be more cooperative in allowing the company to restart the wells.
The Eleventh District thus improperly focused on evaluating the particulars of the state’s response rather than AWMS’s expectations, the opinion stated.

The Supreme Court found AWMS was aware its activity could lead to suspension or termination. Because the company could reasonably expect that its acts would terminate its operations, then its investment-backed expectations were not harmed by ONDR’s less severe orders just to suspend operations, the Court concluded.

Since the Penn Central factors weighed against AWMS, the state’s actions were not a partial taking, and the company is not owed any compensation, the Court held.

2024-1433. State ex rel. AWMS Water Solutions LLC v. Mertz, Slip Opinion No. 2026-Ohio-1487.

View oral argument video of this case.

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