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Minnesota Sands, LLC v. County of Winona

Court of Appeals of Minnesota

July 30, 2018

Minnesota Sands, LLC, Appellant,
v.
County of Winona, Minnesota, Respondent.

          Winona County District Court File Nos. 85-CV-17-771; 85-CV-17-516

          Bethany M. Gullman, Faegre Baker Daniels, L.L.P., Washington, D.C., and Christopher H. Dolan, Nicholas J. Nelson, Delmar R. Ehrich, Faegre Baker Daniels, L.L.P., Minneapolis, Minnesota (for appellant)

          Jay T. Squires, Elizabeth J. Vieira, Kristin C. Nierengarten, Rupp, Anderson, Squires & Waldspurger, PA, Minneapolis, Minnesota (for respondent)

          Considered and decided by Johnson, Presiding Judge; Worke, Judge; and Jesson, Judge.

         SYLLABUS

         A county ordinance that even-handedly bans all industrial-mineral mining, including silica-sand mining, within the county does not discriminate against interstate commerce in violation of the dormant Commerce Clause.

         A party must have a compensable property interest to assert a viable regulatory-takings claim.

          OPINION

          WORKE, JUDGE

         In this appeal from the district court's dismissal of its declaratory-judgment action challenging a land-use ordinance prohibiting all mining of industrial minerals, including silica sand, appellant argues that the district court erred in concluding that the ordinance does not violate the dormant Commerce Clause and does not constitute a regulatory taking. We affirm.

         FACTS

         Between 2011 and 2012, Richard Frick, president of appellant Minnesota Sands, LLC (Minnesota Sands), entered into several leases with various landowners in Winona County to use the properties to mine silica sand to be processed and used in hydraulic fracturing for oil and natural gas (fracking). Frick then assigned the leases to Minnesota Sands. At that time, this type of industrial mining was a conditional use requiring a conditional use permit (CUP) prior to excavation. In 2011, respondent Winona County (the county) received three applications for CUPs to engage in industrial mining for silica sand. None of the applications were for the parcels leased by Minnesota Sands.

         On January 10, 2012, the county denied the pending applications and enacted a three-month moratorium to allow its board of commissioners to study the issue more closely. After the moratorium expired, a company that is not a party in this litigation, Nisbit operation, submitted a second CUP application to engage in silica-sand mining, which the county granted.

         In 2016, a local non-profit asked the county to renew discussions about amending the county's zoning ordinance governing sand mining. The county engaged in an eight-month-long process, during which it investigated the environmental concerns related to industrial mineral operations in particular, and received comments from over 200 county residents through public hearings and written submissions. On November 22, 2016, the county board formally adopted an amendment to the zoning ordinance.

         The amendment prohibits all industrial mineral operations within the county and permits construction mineral operations, which remains a conditional use. Winona County, Minn., Zoning Ordinance (WCZO), Ch. 10, § 11 (2016). It defines and distinguishes two groups of minerals:

Construction Minerals: The term "construction minerals" includes natural common rock, stone, aggregate, gravel and sand that is produced and used for local construction purposes, including road pavement, unpaved road gravel or cover, concrete, asphalt, building and dimension stone, railroad ballast, decorative stone, retaining walls, revetment stone, riprap, mortar sand, construction lime, agricultural lime and bedding sand for livestock operations, sewer and septic systems, landfills, and sand blasting. The term "construction minerals" does not include "industrial minerals" as defined below.
Industrial Minerals: The term "industrial minerals" includes naturally existing high quartz level stone, silica sand, quartz, graphite, diamonds, gemstones, kaolin, and other similar materials used in industrial applications, but excluding construction minerals as defined above.
Silica sand is categorized as an industrial mineral by the Minnesota Department of Natural Resources and the North American Classification System under classification no. 212322.
"Silica sand" has the meaning given in Minnesota Statutes, section 116C.99, subd. 1(d): "'Silica sand' means well-rounded, sand-sized grains of quartz (silicon dioxide), with very little impurities in terms of other minerals. Specifically, the silica sand for the purposes of this section is commercially valuable for use in the hydraulic fracturing of shale to obtain oil and natural gas. Silica sand does not include common rock, stone, aggregate, gravel, sand with a low quartz level, or silica compounds recovered as a by-product of metallic mining." Minn. Stat. Section 116C.99, subd. 1(d).

Id., Ch. 4, § 2. Industrial mineral operations include the following activities: (1) acquiring industrial minerals through all digging, excavating, and mining of any sort; (2) processing, filtering, cleaning, and refining industrial minerals; (3) storing or stockpiling said industrial minerals; and (4) hauling or transporting any industrial minerals mined in the county. Id.

         Southeast Minnesota Property Owners (SMPO) sued the county in March 2017, alleging that the ordinance is arbitrary and capricious; violates the Due Process, Equal Protection, and Takings Clauses of the Minnesota and United States Constitutions; and violates the Interstate Commerce Clause of the United States Constitution. In April 2017, Minnesota Sands sued and alleged the same.

         After the district court consolidated the two actions, Minnesota Sands and SMPO each filed a motion for summary judgment on all claims against the county. Specifically, each requested declaratory and injunctive relief to invalidate the amendment and enjoin its enforcement, as well as summary judgment as to all other claims set forth in the complaints. The county filed a motion to dismiss, or in the alternative, for summary judgment. The district court granted the county's summary judgment motion, affirming the validity of the ordinance. This appeal by Minnesota Sands follows.

         ISSUES

         I. Does the zoning ordinance violate the dormant Commerce Clause?

         II. Is the zoning ordinance a regulatory taking of Minnesota Sands' compensable property interest?

         ANALYSIS

         Minnesota Sands challenges the district court's grant of summary judgment in favor of the county. On appeal from summary judgment, we determine whether there are any genuine issues of material fact and whether a party is entitled to judgment as a matter of law. Laymon v. Minnesota Premier Properties, LLC, 913 N.W.2d 449, 452 (Minn. 2018). Where the material facts are not in dispute, as in this case, we review the district court's application of the law de novo. Wensmann Realty, Inc. v. City of Eagan, 734 N.W.2d 623, 630 (Minn. 2007).

         This appeal presents two issues. The first is whether the county may ban all silica-sand mining within its boundaries without transgressing Congress' authority under the Commerce Clause of the United States Constitution. The second is whether the ordinance prohibiting all silica-sand mining constitutes a regulatory taking of Minnesota Sands' compensable property interest for which it is owed just compensation pursuant to Article I, Section 13 of the Minnesota Constitution and the Takings Clause of the United States Constitution. We address each argument in turn.

         I. Dormant Commerce Clause

         The Commerce Clause of the United States Constitution grants Congress the power to regulate commerce among the states. U.S. Const. art I, § 8, cl. 3. The Commerce Clause refers to an affirmative grant of power to Congress, but it has long been interpreted to contain an implied negative command, the dormant Commerce Clause, that states may not unduly burden or discriminate against interstate commerce. Chapman v. Comm'r of Revenue, 651 N.W.2d 825, 832 (Minn. 2002). The dormant Commerce Clause "is driven by a concern about 'economic protectionism-that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors." Swanson v. Integrity Advance, LLC, 870 N.W.2d 90, 93 (Minn. 2015) (quoting McBurney v. Young, 569 U.S. 221, 235, 133 S.Ct. 1709, 1719 (2013)).

         Our precedent prescribes that we first determine whether the challenged law implicates the Commerce Clause. Chapman, 651 N.W.2d at 832. Congressional Commerce-Clause authority extends to three broad categories of activity: "(1) the use of the channels of interstate commerce, (2) the instrumentalities of interstate commerce, or persons or things in interstate commerce, and (3) activities having a substantial effect on interstate commerce." Id. at 832-33 (citing United States v. Lopez, 514 U.S. 549, 558-59, 115 S.Ct. 1624, 1629-30 (1995)) (noting types of interstate commerce that the dormant Commerce Clause may implicate).

         Next, if the challenged law implicates commerce, we evaluate whether the government action violates the Commerce Clause. Id. at 832. This may occur in two ways. Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 99, 114 S.Ct. 1345, 1350 (1994).

         First, a law may violate the Commerce Clause by discriminating against interstate commerce, either on its face or in its effect. Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 99, 114 S.Ct. 1345, 1350 (1994); Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 350-51, 97 S.Ct. 2434, 2446 (1977).

         Wyoming v. Oklahoma, 502 U.S. 437, 455, 112 S.Ct. 789, 800 (1992). Discrimination occurs if a law prescribes "differential treatment of in-state and out-of-state interests that benefits the former and burdens the latter." Oregon Waste Sys., 511 U.S. at 99, 114 S.Ct. at 1350. A law that discriminates against interstate commerce in its purpose or effect is a virtually per se rule of invalidity subject to "the strictest scrutiny." Id. at 101, 114 S.Ct. at 1351 (quoting Hughes v. Oklahoma, 441 U.S. 322, 337, 99 S.Ct. 1727, 1737 (1979)).

         Second, a law that is non-discriminatory, regulates even-handedly to effectuate a legitimate local purpose, and has only an incidental effect on interstate commerce, may violate the Commerce Clause if "the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847 (1970). We analyze the Pike balancing test by using "a less strict scrutiny." Wyoming v. Oklahoma, 502 U.S. 437, 455 n.12, 112 S.Ct. 789, 800 n.12 (1992).

         A. The ordinance does not discriminate against interstate commerce on its face by banning all silica-sand mining.

         Minnesota Sands argues that the ordinance is a per se violation of the dormant Commerce Clause because it is facially discriminatory against out-of-state interests and is a ban on the exportation of industrial minerals mined in the county. We disagree.

         Assuming that the ordinance implicates commerce, it nonetheless does not discriminate against interstate commerce on its face because it does not favor in-state interests over out-of-state interests. On the contrary, it even-handedly bans all industrial-mineral mining, which includes silica-sand mining, within the county. Indeed, the company challenging the county's ban in this litigation is a Minnesota company with a registered address in Winona County. See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 473, 101 S.Ct. 715, 728 (1981) ("[T]here is no reason to suspect that the gainers will be Minnesota firms, or the losers out-of-state firms. Indeed, two of the three dairies, the sole milk retailer, and the sole milk container producer challenging the statute in this litigation are Minnesota firms.").[1] "The existence of major in-state interests adversely affected by the [ordinance] is a powerful safeguard against legislative abuse." Id. at 473 n.17, 101 S.Ct. at 728 n.17. We have no reason to believe that the ordinance benefits instate interests and burdens those out-of-state. The across-the-board application of the ordinance is detrimental to both in-state interests, such as those of Minnesota Sands, as well as out-of-state interests, which indicates that the ordinance does not discriminate on its face.

         Minnesota Sands also argues that the ordinance is facially discriminatory because it singles out the end-use of the industrial minerals; specifically, silica sand to be processed and used in fracking. In 2014, the Minnesota Environmental Quality Board (EQB) set forth model standards and criteria for local government use in developing local ordinances regarding the mining, processing, and transporting of silica sand. Minn. Envtl. Quality Bd., Tools to Assist Local Governments in Planning for and Regulating Silica Sand Projects (2014). The report noted that "silica sand is highly desirable because it can be processed into a product called frac sand, which is used in [the] hydraulic fracturing method of producing oil and gas." Id. at 13 (emphasis added). It is evident that not all silica sand is frac sand. Rather, mined silica sand becomes frac sand after it undergoes a specific process of crushing, cleaning, screening, washing, filtering, drying, sorting, and refining. But the ordinance outlaws all silica-sand mining-not just silica sand to be processed and used in fracking.

         The ordinance amendment defines silica sand as that which "is commercially valuable for use in the hydraulic fracturing of shale to obtain oil and natural gas." WCZO, Ch. 4, § 2. Minnesota Sands argues that this amounts to facial discrimination against interstate commerce because Minnesota has no oil or natural gas reserves, and any silica sand processed into frac sand would be transported interstate and used elsewhere. But the ordinance does not discriminate against interstate commerce on its face by merely stating that silica sand is commercially valuable for use in fracking. Nor does it mean that silica sand has no other commercial uses; it simply describes one commercially valuable use.

         This reasoning is consistent with the affidavit of a registered professional geologist retained by Minnesota Sands as an expert, certifying that silica sand may be used for fracking operations, as well as in the manufacture of glass, filter media, and as a construction material or animal bedding. We do note, however, that the expert's comment about the use of silica sand as a construction material does not alter our conclusion that the ordinance does not discriminate against interstate commerce on its face. The use of silica sand as a construction material in other counties has no bearing on the plain language of the ordinance itself, which specifies that silica sand is an industrial mineral and bans all industrial-mineral mining regardless of its end use. Additionally, the ordinance's definition of "construction minerals" specifies that ...


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