Penn Central “Investment-Backed Expectations” Must Track Known Regulatory Risk—Agency “Stonewalling” Does Not Create a Taking

1. Introduction

This long-running regulatory-takings dispute arises from the State of Ohio’s response to induced seismicity linked to saltwater-injection operations. AWMS Water Solutions, L.L.C. and related entities (“AWMS”) leased 5.2 acres in Trumbull County to drill and operate two Class II saltwater-injection wells used to dispose of oil-and-gas wastewater. After earthquakes were recorded near the site in 2014, the Ohio Department of Natural Resources (“ODNR”), through its Division of Oil and Gas Resources Management (“the division”), issued an order suspending operations at both wells, later allowing well #1 to restart while keeping well #2 suspended until May 2021.

AWMS sought a writ of mandamus compelling the State to institute eminent-domain (appropriation) proceedings, alleging that the suspension order effected a compensable regulatory taking of AWMS’s leasehold interest. The case reached the Ohio Supreme Court for a third time after two prior remands (AWMS I and AWMS II) directing the court of appeals to decide whether the suspension produced (a) a categorical “total” taking under Lucas or (b) a “partial” taking under Penn Central.

The key issues before the court were: (1) whether AWMS proved it was deprived of all economically beneficial use (a Lucas total taking); and (2) if not, whether the suspension nevertheless amounted to a compensable partial regulatory taking under the balancing test of Penn Central Transp. Co. v. New York City.

2. Summary of the Opinion

The Ohio Supreme Court affirmed the court of appeals’ rejection of AWMS’s Lucas total-takings claim, holding that competent, credible evidence supported the finding that AWMS was not deprived of all economically beneficial use of its leasehold. The court emphasized that the State presented evidence of alternative potentially revenue-generating uses and that, by the time of trial, the suspension had been terminated (in May 2021), reinforcing that the dispute fit within Penn Central rather than Lucas.

But the court reversed the court of appeals’ grant of mandamus on the partial-takings theory. It held that the Eleventh District misapplied the “distinct investment-backed expectations” factor by focusing on the division’s alleged lack of cooperation with restart proposals rather than on what AWMS reasonably expected when it entered the investment in a highly regulated industry amid known seismicity risks. Properly balanced, the Penn Central factors weighed against a taking, especially given the safety-driven character of the State’s action and AWMS’s awareness that seismicity could trigger a shutdown.

Result: judgment affirmed in part (no total taking), reversed in part (no partial taking), and the writ denied.

3. Analysis

3.1 Precedents Cited

The opinion situates Ohio’s takings analysis within federal Fifth Amendment doctrine and applies the familiar framework distinguishing per se takings from ad hoc regulatory takings.

• State ex rel. AWMS Water Solutions, L.L.C. v. Mertz, 2020-Ohio-5482 (“AWMS I”) and State ex rel. AWMS Water Solutions, L.L.C. v. Mertz, 2024-Ohio-200 (“AWMS II”): These decisions are treated as binding guideposts. AWMS I required the Eleventh District to weigh evidence on both Lucas and Penn Central. AWMS II enforced the law-of-the-case doctrine and held it was already established that AWMS had a cognizable property interest in its leasehold right to operate Class II injection wells. The 2026 opinion leverages those remands to evaluate whether the Eleventh District correctly executed the ordered balancing.
• Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978): The backbone of the partial-takings analysis. The court reiterates the three factors: economic impact, interference with distinct investment-backed expectations, and character of the governmental action.
• Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992): Provides the categorical-takings rule (“all economically beneficial use”), while recognizing “background principles” of property and nuisance law as potential limits. The court agrees with the Eleventh District that AWMS did not prove a Lucas deprivation.
• Lingle v. Chevron U.S.A., Inc., 544 U.S. 528 (2005), Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922), and Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982): Used to frame regulatory takings doctrine: physical invasions (Loretto), categorical total takings (Lucas), and the general principle that regulation can “go too far” (Mahon), with Lingle synthesizing the modern categories.
• Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002): Central to the opinion’s treatment of temporality: temporary restrictions generally fall under Penn Central rather than Lucas. The court distinguishes its earlier rejection of the State’s “temporary” framing in AWMS I by noting that, after AWMS I, the suspension in fact ended in May 2021.
• State ex rel. Shelly Materials, Inc. v. Clark Cty. Bd. of Commrs., 2007-Ohio-5022, State ex rel. Wasserman v. Fremont, 2014-Ohio-2962, and State ex rel. BSW Dev. Group. v. Dayton, 1998-Ohio-287: These Ohio decisions supply mandamus standards and reinforce that takings questions are legal conclusions grounded in factual determinations, with deference to competent, credible evidence.
• Chicago, Burlington & Quincy RR. Co. v. Chicago, 166 U.S. 226 (1897): Cited for incorporation of the Takings Clause against the states through the Fourteenth Amendment.
• Monterey v. Del Monte Dunes at Monterey, Ltd., 526 U.S. 687 (1999): Supports the proposition that whether all economically viable use has been denied is predominantly factual.
• Federal Circuit line on investment-backed expectations: Love Terminal Partners, L.P. v. United States, 889 F.3d 1331 (Fed.Cir. 2018); Loveladies Harbor, Inc. v. United States, 28 F.3d 1171 (Fed.Cir. 1994) (abrogation noted as recognized by Anaheim Gardens, L.P. v. United States, 953 F.3d 1344 (Fed.Cir. 2020)); Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984); and the structured subfactor approach from Appolo Fuels, Inc. v. United States, 381 F.3d 1338 (Fed.Cir. 2004), quoting Commonwealth Edison Co. v. United States, 271 F.3d 1327 (Fed.Cir. 2001). The court uses these authorities (and notes it had quoted Appolo Fuels approvingly in AWMS I) to define what the expectations inquiry is—and what it is not.
• Character-of-government-action authorities: Rose Acre Farms, Inc. v. United States, 559 F.3d 1260 (Fed.Cir. 2009) and Loveladies Harbor, Inc. v. United States: Support giving weight to the harm-preventing purpose of regulation under the “character” prong.
• Overall takings-as-legal-conclusion framing: Maritrans Inc. v. United States, 342 F.3d 1344 (Fed.Cir. 2003): Cited for the proposition that whether a compensable taking occurred is a legal question based on factual underpinnings.
• Successor-judge/credibility line (distinguished): Yurkowski v. Univ. of Cincinnati, 2015-Ohio-1511; Vergon v. Vergon, 87 Ohio App.3d 639 (8th Dist. 1993); Welsh v. Brown-Graves Lumber Co., 58 Ohio App.2d 49 (9th Dist. 1978); Arthur Young & Co. v. Kelly, 68 Ohio App.3d 287 (10th Dist. 1990). The court distinguishes these because they involve a single successor trial judge who heard none of the testimony, unlike a three-judge appellate panel where two judges presided over trial.
• Related administrative appeal background: Am. Water Mgt. Servs., L.L.C. v. Div. of Oil & Gas Resources Mgt., 2018-Ohio-3028 (commission appeal of suspension order upheld); and later litigation concerning the May 2021 restart order is recounted but not dispositive.

3.2 Legal Reasoning

3.2.1 No Total Taking under Lucas

The court treats the “all economically beneficial use” inquiry as fact-driven and defers to the court of appeals when supported by competent, credible evidence. It highlights testimony from the State’s expert (a geologist with Class II injection well compliance experience) proposing non-exhaustive alternative revenue-generating paths: modifying well completions (deeper completion, shallower “plug-back” completions) and seeking permits to drill additional wells on the leasehold. The court notes that AWMS “did not specifically refute” those alternatives at the level necessary to carry its burden.

The opinion also stresses the practical consequence of the May 2021 order terminating the suspension: once the restriction is not permanent, the claim is less apt for Lucas categorical treatment and more apt for Penn Central, consistent with Tahoe-Sierra.

3.2.2 Partial Taking Rejected under a Correct Penn Central Balance

The court’s central doctrinal move is to tighten the second factor—“distinct investment-backed expectations”—around the investor’s reasonable expectations about the regulatory regime and the known risk profile at acquisition/investment, rather than the government’s alleged responsiveness in applying that regime. It faults the Eleventh District majority for converting an expectations inquiry into an evaluation of whether ODNR engaged in sufficient “meaningful dialogue” or moved quickly enough on restart proposals.

Applying the Appolo Fuels subfactors (highly regulated industry; awareness of the problem; reasonable anticipation in light of the regulatory environment), the court finds the record cuts against AWMS. AWMS stipulated it knew injection wells could trigger induced seismicity; it marketed shares using a memorandum expressly warning investors that induced seismicity could lead ODNR to “order a suspension or cessation of operations”; and it nevertheless did not conduct subsurface fault testing before drilling. On these facts, the court holds AWMS assumed a foreseeable regulatory risk and thus lacked the type of thwarted, reasonable, investment-backed expectations that support compensation.

The court then re-weights the remaining factors:

• Character of the governmental action: Under AWMS I, it was settled that the suspension order’s character was to protect public health and safety. The court emphasizes the State’s interest in preventing potentially larger seismic events near residences and infrastructure, and states the Eleventh District gave this factor too little weight.
• Economic impact: Although some economic impact was undisputed, the Eleventh District’s own factual findings pegged loss far below AWMS’s claimed $13.2 million: approximately $201,150 to $359,573 based on testimony it credited. Given that finding, the Ohio Supreme Court concludes the court of appeals inconsistently treated the economic-impact factor as weighing “heavily” for AWMS.

With expectations and character both against AWMS, and economic impact comparatively limited on the credited evidence, the court holds that the Penn Central balance does not make it “unfair to force the property owner to bear the cost of the regulatory action,” quoting Rose Acre Farms, Inc. v. United States. As in Appolo Fuels, Inc. v. United States, a lack of reasonable investment-backed expectations plus health-and-safety-driven regulation can outweigh economic injury.

3.2.3 Procedural/Remedial Holdings

Because no taking occurred, the court declines to reach arguments about the damages framework that would have applied in a probate-court appropriation proceeding, and it likewise declines to reach the State’s nuisance-defense arguments (citing Appolo Fuels, Inc. v. United States for the proposition that a nuisance defense need not be decided absent a taking under Penn Central).

3.2.4 Successor Judge Challenge Rejected

AWMS argued the Eleventh District erred because one judge on the remand panel had not heard live testimony. The Ohio Supreme Court rejects the claim: (1) the cited successor-judge cases involved a single judge hearing none of the evidence, unlike a three-judge panel with two trial-participating judges; and (2) AWMS could not show prejudice—AWMS lost unanimously on the total-takings claim and won (before reversal here) on partial taking with the successor judge joining the majority.

3.3 Impact

• Narrows “investment-backed expectations” to ex ante regulatory risk: Ohio courts are instructed to evaluate expectations based on the regulatory regime and known risks at acquisition/investment—particularly in highly regulated sectors— not based on later dissatisfaction with agency engagement, speed, or perceived “stonewalling” within that regime.
• Elevates health-and-safety character in the Penn Central balance: The opinion signals that when the government’s action is aimed at preventing harm (here, earthquake risk), the “character” factor can carry substantial weight, and courts should not minimize it merely because the harm has not yet reached catastrophic magnitude.
• Economic impact must be weighted consistently with factfinding: If the trier of fact credits evidence showing limited loss, it is harder to treat the economic-impact factor as “heavy” enough to drive a taking finding. This may deter regulatory-takings claims where damages are speculative or where plaintiffs’ claimed losses exceed what the evidence supports.
• Temporary restrictions trend toward Penn Central (especially once lifted): By emphasizing that the suspension was terminated and citing Tahoe-Sierra, the decision reinforces that time-limited restrictions are generally not Lucas categorical takings, steering litigants toward Penn Central.
• Practical signal for regulated industries: Documented recognition of regulatory risk (e.g., offering memoranda and risk disclosures) can be used against the claimant on the expectations factor, especially where the claimant proceeds without available risk-reduction steps (here, subsurface fault testing).

4. Complex Concepts Simplified

• Regulatory taking: A claim that regulation (not a physical seizure) has restricted property so severely that the Constitution treats it like a taking requiring compensation.
• Total (categorical) taking under Lucas v. South Carolina Coastal Council: A per se taking occurs if regulation deprives property of all economically beneficial use (subject to “background principles” like nuisance/property limits). It is hard to prove because any viable economic use can defeat the claim.
• Partial taking under Penn Central Transp. Co. v. New York City: A balancing test for most regulatory-takings claims. Courts look at (1) economic impact, (2) interference with distinct investment-backed expectations, and (3) character of the government action (e.g., harm prevention versus targeted appropriation).
• “Distinct investment-backed expectations”: Not a general sense of disappointment. It is a legally relevant expectation—reasonable and tied to the investment— that the regulatory regime at acquisition would remain and that materially more restrictive constraints would not be imposed.
• Mandamus in the takings context: In Ohio, a property owner may seek a writ of mandamus to force the government to begin appropriation proceedings if a taking occurred. If no taking is found, the writ is denied.
• Law-of-the-case doctrine: Once an appellate court settles an issue (here, that AWMS had a cognizable property interest), lower courts must follow that ruling on remand.

5. Conclusion

State ex rel. AWMS Water Solutions, L.L.C. v. Mertz (2026-Ohio-1487) clarifies Ohio’s application of federal regulatory-takings doctrine in a high-stakes, safety-driven oil-and-gas regulatory setting. The court affirms that AWMS did not prove a Lucas total taking because competent evidence supported the existence of alternative economic uses and because the suspension ultimately ended. More importantly, it reverses the finding of a compensable partial taking, holding that Penn Central’s “investment-backed expectations” must be assessed by the claimant’s ex ante awareness of regulatory risk—not by critique of the agency’s alleged lack of engagement in restarting operations. When the claimant knowingly enters a highly regulated field, anticipates shutdown risk, and the State acts to prevent public harm, the Penn Central balance can decisively favor the government even if the regulation causes real financial loss.