Does the Fifth Amendment Apply to Lessee Property Interests?

The case of State ex rel. Awms Water Sols., LLC v. Mertz involved a legal dispute between AWMS Water Solutions, LLC (AWMS) and the Ohio Department of Natural Resources, et al. (Division) over the suspension of an injection permit and whether it constituted an unconstitutional regulatory taking under the Fifth Amendment.[1]

The following is a review of the significant notes from this case:[2]

AWMS had obtained a lease and had gone through the proper permitting process to construct and operate salt-water injection wells. However, the Division issued a Suspension Order after seismic activity, suspending the permit for one well while allowing operations to continue for the other, more profitable well.

In their litigation, AWMS argued that the Suspension Order substantially interfered with their property rights, causing economic deprivation. They claimed that the order violated the federal Takings Clause, which applies not only to physical property but also to cases where government regulations impose such burdens that they result in an economic taking.

The court applied a two-part test to determine whether the Suspension Order constituted an economic taking. The first hurdle was to establish whether AWMS possessed a cognizable property interest. The court acknowledged AWMS’ property right in the lease but questioned whether this right was cognizable enough to warrant a just compensation analysis. The distinction was made between AWMS’ right to seek a permit and their right actually to receive one. The court held that while AWMS had the right to pursue a permit, they did not have a right to receive it. The permitting process was subject to the Division’s approval in the interest of public safety.

Based on this analysis, the court concluded that AWMS’ argument was not persuasive, and there was no need to proceed to the second part of the test. Ultimately, the court found that AWMS did not possess a cognizable property interest that would entitle them to a just compensation analysis under the Takings Clause.

In summary, the court’s decision in State ex rel. Awms Water Sols., LLC v. Mertz determined that AWMS did not have a valid claim of an economic taking due to suspending their injection permit. The court held that AWMS had a right to seek a permit but not an entitlement to receive one, as the permitting process was subject to the Division’s approval for public safety reasons.

Sources:

[1] 2022-Ohio-4571, 2022 Ohio App. LEXIS 4274, 2022 WL 17752252.

[2]Does the Fifth Amendment Apply to Lessee Property Interests? Oliva Gibbs. May 9, 2023