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Civil Water Wars On The Prairie

Posted on: August 19th, 2016
by David Ganje

A couple of years ago I was invited to speak at the annual Eastern South Dakota Water Conference. I told the audience that when one reviews natural resources oil is fashionable and gold is sexy but the essential natural resource is water.

This article discusses a very recent South Dakota case involving water rights and injunctions. Water disputes can be resolved by the legal remedy of injunction. South Dakota law allows courts to grant a standing and continuous injunction, permanently ordering a party to stop an activity. An injunction is usually used where money won’t do the trick. The harmed or affected party in a water dispute is usually the property owner filing the lawsuit. It is his/her decision to request a particular legal remedy which then sets the legal stage. A claim in water disputes is often in trespass or in nuisance. The requested remedy may be for money damages or for an injunction. Some parties seek both an injunction and money damages – that’s what the party did in the new South Dakota case discussed in this article. It should be stated that an ‘injunction’ is a legal remedy. It is not the legal basis for a claim. The South Dakota Supreme Court politely calls these water dispute incidents drainage events.

The law has requirements in order to obtain a permanent injunction. Certain tests apply. Money must not be sufficient as a remedy, or it must be too difficult to determine how much money would be proper. The case under discussion held that permanent injunctions may only be given if one or more of certain specified conditions exist. If it is possible that a harmed party could calculate relief by the payment of money or that the party could prevent future judicial proceedings without the use of an injunction, a permanent injunction cannot be granted.

The South Dakota case arises out of a dispute between two neighbors over surface water flow. Mr. Magner alleged that the Brinkmans were altering their land in such a way that caused water to flow and pool onto Magner’s land. Magner brought suit, requesting money to repair the damages caused by the water flow as well as an injunction forcing the Brinkmans to reverse changes made that led to the water pooling. In the first part of the trial, the jury awarded Magner money to cover damages that already happened. During the lawsuit, Magner revised his claim to request an injunction ordering the Brinkmans to pay for preventative landscaping on Magner’s land. This landscaping was intended to prevent future damages. After considering this new request, the trial court granted Magner’s late request for an injunction, ordering the Brinkmans to pay money to cover the costs of a landscaping plan.

The Brinkmans appealed this decision, arguing that the lower court erred in granting Magner’s revised injunction. The Supreme Court reversed the trial court. The Court reasoned that the injunction was not statutorily authorized – therefore it could not be granted. Magner said that he could use a specific amount of money to prevent future damages. The Court found this to be a case where money relief would be sufficient both to prevent future lawsuits and to make Magner whole. In addition the amount of money was easily determined in the case – the harmed party had proposed a specific dollar amount. The fact that Magner could request an amount of money that would solve the problem and prevent future injury defeated the request for an injunction. The Court said that the Plaintiff’s money damage request as a part of its future damages claim shows that harm to the property could be “easily measured in (money) damages.” In other words, if the harmed party shows his loss in terms of dollars, he is stuck with ‘dollars’ as his remedy.

The American court system, reflecting society, has a predilection for using money damages as a preferred remedy for resolving legal disputes. The preference for requesting money damages is a mistake when a party is considering his legal options in efforts to protect the integrity and value of property while that property sits in harm’s way. How can one translate into ‘money damages’ a future harm to one’s real estate that is imminent and immediate but that has not yet occurred? Further, how can one accurately predict a ‘dollar equivalent’ to property damaged by water flow? The takeaway: if you are the harmed party in a water dispute, think carefully of the remedy you request. Money is fleeting.

David Ganje practices law in the area of natural resources, environmental and commercial law.

Nuisance as a legal concept is not foreign to the oil patch

Posted on: August 12th, 2016
by David Ganje

Nuisance as a legal concept is not foreign to the oil patch as well as farm country in North Dakota. Producers and property owners should be cognizant of a possible nuisance claim concerning production and development issues. Nuisance is an interference with one’s right to own, possess, or enjoy their land. The law maintains two kinds of nuisances: private and public nuisances. A public nuisance is one that affects the community, neighborhood, or a considerable number of people in an area. A private nuisance is one that affects an individual or group of people from enjoying a right not common to the public.

In a recent decision by Texas Supreme Court, a landowner was found to have grounds to bring a civil claim for nuisance against an owner and operator of a natural gas company. The landowner sold small piece of land adjoining their ranch to the natural gas company. The gas company then built a gas compressor station. Shortly after construction, the landowner complained of loud noise and vibrations coming from the gas compressor station. Even though the natural gas company built walls and took steps to muffle the noise, the landowners brought a lawsuit for nuisance against the gas company.

The Supreme Court of Texas found that even though the landowners had legal sufficiency to make their claim, they did not have enough evidence for the court to rule in their favor. The court mentioned that although the landowners claimed that there was other technology available that could further reduce the noise, the landowners did not provide such evidence. Furthermore, no evidence was presented showing that the gas company operated its equipment negligently, that the efforts the gas company did make to reduce the noise took too long, or that enclosing the generator in a building would actually reduce the noise. So, if you think you have a nuisance on your hands, make sure you have more than enough evidence to support your claims before you do battle.

Although that grain elevator that sits next to your land may be kicking up a lot of dust and creating a racket, there may not be much you could do about it. North Dakota protects its agricultural operations from claims of nuisance once they have been in operation for more than one year. The state defines agricultural operations as the “science and art of producing plants and animals useful to people, by a corporation or a limited liability company.”

The one weakness to the agricultural defence is if the operation is run “negligently.” For example, let’s say a self-employed farmer had issues keeping his hogs to stay in their pens. Over a six-month period, there were 20 reports of his hogs leaving their pens. One incident included a hog that wandered onto the highway and was hit by a car causing several hundred dollars in damage. The court determined that the farmer willfully maintained a public nuisance. As Supreme Court Justice Sutherland once said, “A nuisance may be merely a right thing in the wrong place — like a pig in the parlor instead of the barnyard.”

Once a nuisance is identified, there are a few actions that can be taken to resolve the nuisance. The injured party can bring a civil action. The civil action may result in a court order to stop the actions creating the nuisance or an order to take actions to lessen the nuisance. The injured party may also recover monetary damages.

Have you ever seen those turbines spinning peacefully in the distance as you drive by? Well, they may not be so peaceful if you live next to one. A family bought land adjoining a wind turbine and moved a mobile home onto the lot. After two years of living there, the family complained that the wind turbine was a private nuisance because it created loud noise, violated residential covenants, and supposedly threw chunks of ice into their yard. However, the court determined that the wind generator was not a nuisance. No other neighbors complained about the noise, the noise did not violate any noise ordinances, the wind generator was engineered specifically so that it would not throw ice from its blades, and the developer and residents of the subdivision had abandon the supposed covenants.

An interesting intricacy to North Dakota’s nuisance law has to do with how the state interprets the “coming to the nuisance” doctrine. In some states the doctrine prevents a person from bringing a case against a public or private nuisance if that person moved to an area where a nuisance already existed. In other states, such as North Dakota, it does not prevent the person from bringing a nuisance action but it does serve as a factor for consideration. North Dakota will also consider “what role the alleged nuisance activity has with the general business activities of the community and state,” and whether the activity is aligned with the state’s economic goals. Additionally, North Dakota considers whether the activity is regulated by the government or not. Although these factors can make a case for nuisance uncertain, if you are moving to a nuisance, you have heavy burden of proof to overcome.

North Dakota follows a strict statutory application, but when it comes to determining whether or not a nuisance interfered with your right to possess, use, or enjoy your land, a jury of your peers (including your neighbors) make that determination. So, if you have an issue with one of your neighbors, try to work it out peacefully first. You never know when you may need their help to tackle a nuisance.

Landfill liability re: Contamination

Posted on: July 3rd, 2016
by David Ganje

The operation of a municipal landfill, also known as a solid waste facility, involves significant legal risks, such as damage caused from a landfill leaking or contamination of groundwater.

Modern landfills are created with liners and other collection systems designed to prevent contamination of the ground, groundwater and the air. Despite this protection, in 2003 the U.S. Geological Survey (citing the EPA) opined that “all landfills eventually will leak into the environment.” Many landfills in South Dakota are not insured for pollution losses that may occur while the landfill is operating. Rapid City carries landfill pollution insurance. By way of example, Belle Fourche, Sioux Falls, Brookings and Brown County do not have landfill pollution insurance. The state is currently monitoring a situation at the Brown County landfill related to a ground water underdrain collection system.

A state system of financial planning is in place for current operating contingencies, as well as closure and post-closure costs of landfills. Municipalities by rule are required to show their financial ability to take any corrective action. North Dakota has similar rules. These are the so-called unexpected contingencies, such as a leak into an aquifer.

South Dakota’s rules allow a municipality to keep a separate fund (money deposited in a bank account) to protect against the costs of a leaking landfill, or alternatively for coverage of such a leak by purchasing pollution insurance. To maintain a separate fund large enough to cover a landfill leak is beyond the financial capability of municipalities. Brown County, the third largest county in the state, maintains this separate fund in the amount of $240,000. That is not enough money to cover a possible leak. Brown County is one of the municipalities that does not carry landfill pollution insurance. To put this in financial perspective, the cost to clean up a leaking 150-acre landfill next to a drinking water supply in Burnsville, Minn., was recently estimated by the state at $64 million. These clean up events are the type addressed by landfill pollution insurance – yet few municipalities seem inclined to carry the insurance. This is akin to riding a motorcycle without a helmet. Landfills in the state are, in most cases, owned and run by cities and counties. These municipalities hold title to their landfills. Understand that municipal landfills are dutiful in complying with state and federal environmental regulations. State regulators and municipalities are following relevant statutes and rules. That is not the issue. The challenge is the risk of pollution liability, also called environmental liability – no small matter in today’s world, with costs that can reach into the millions.

The state is required by law to maintain a program of technical and financial assistance to encourage solid waste management. But the legislature has in reality foisted legal responsibly onto municipalities, and in doing so has eliminated any possible governmental immunity for local municipalities. The statutory language of this ‘dodge’ is extraordinary and absolute: “The owner or operator of a solid waste disposal facility … is responsible in perpetuity for the solid waste and liable in perpetuity for any pollution or other detrimental effect caused by the solid waste.” The state permit application for a party operating a landfill also requires the applicant acknowledge that the applicant (usually a city or county) is “liable in perpetuity.” Legal responsibility in perpetuity leaves no room for doubt. For a municipality it’s forever.

Despite the clarity of the law, and the significant costs that could come from an environmental cleanup, many municipalities remain unprotected against the kind of damages that could result from a leaking landfill.

David Ganje practices law in the area of natural resources, environmental and commercial law in South Dakota and North Dakota. His website is Lexenergy.net

Original Article at Argus Leader – My Voice

Financial assurances by operators

Posted on: June 14th, 2016
by David Ganje

Business projects involving some type of government oversight are usually regulated because of a project’s significant environmental or property rights impact. The purpose of regulation is to safeguard the public in the event of a problem arising from such a project. End-of life decommissioning, reclamation, contamination are all typical contingency events. Proper planning, evolving around the full life of a proposed project, is key. But government is not always well endowed with the skills of planning and foresight.

No owner, officer or director of a business likes to consider the mortality of a business project. Even more challenging are government regulators who oversee a project. Regulators do not always require good exit planning or end-of-business planning for regulated projects. This shortcoming is shown when one considers a government agency’s duty to require a financially viable exit plan. It might be a mining project, a wind farm or a pipeline. One need only look at existing requirements for decommissioning a project, or for reclaiming the property at the end of the life of a project. By way of example, in four different General Accountability Office public reports over the years, the GAO was critical of several federal agencies ability to set or determine such things as the costs of reclamation for a project.

Bonds, deposit accounts and self-funding are some of the ways that an operator provides its legal obligation for end-of-life financial assurances. These financial submissions are, in my view, often inadequate.

A couple of recent experiences in South Dakota spotlight this problem. A few years back a state-licensed grain warehouse (in the old days we called them grain elevators) by the name of Anderson Seed Company went belly up. Authority for setting bonds was then and is now given to the SD PUC. The bond for Anderson had been set at $100,000. However, $2.6 million in claims were lost. The insolvency of the company resulted in a little over 4 cents on the dollar paid back to those South Dakota parties who lost money in the insolvency. The setting of the bond was inadequate. The payout to the innocent grain sellers/producers was inadequate. The end-of-life planning was not well done. This experience resulted in a change in the law, but that change is itself an incomplete effort at planning project end-of-life contingencies. The second example is the very recent oil well breakdown near the town of Wasta. A drill bit broke part way down an oil well. This break necessitates the plugging of the well to protect aquifers. But the operator has run out of money. The operator was required by the state to put up a nominal bond of $120,000 for each well for which it had obtained a permit. According to a recent news article, the state DENR reported that the bond money was not enough to address this problem. The official stated that the cost could be $2 million because of the broken bit and the 150 feet of drill pipe that remain in the hole about a mile into the earth.

Board members and agency staff are often appointed to their positions because of their expertise and training in geology, law, hydrology, engineering and the like. Agency staff and appointed board members often have expertise dealing with normal board matters including mining permit applications, water rights disputes and similar issues. It is unusual however for even a large agency to have expertise on financial qualification matters that must be designated by the agency and directed to the operator who is then obligated to provide the agency with end-of-project planning or safety assurances. Further, a regulatory system that sets a ‘statutory amount’ for this type of bonding may be too simple a solution.

A state official has stated that we don’t have a “broken system” in South Dakota. That is not the issue. The issue is not whether lots of bonds are liquidated on a regular basis. The whole system is not broken. The issue at hand is, did the called-in bond do what it was supposed to do when an insolvency, bankruptcy or contamination occured?

I have previously put before the public a suggestion that will address some of these problems. This recommendation should be considered by the state legislature. My recommendation: an agency with authority over an operator’s financial assurance requirements shall evaluate in writing all financial assurance proposals using an agency-designated non-party (an outside consultant) with recognized experience on the matter of providing financial assurance. A completed report and recommendation by an outside consultant shall be a condition before granting or maintaining a permit or license. The costs incurred by the agency in contracting with the independent outside consultant shall be paid by the operator.

Op-ed available at the Argus Leader

David Ganje practices law in the area of natural resources, environmental and commercial law in South Dakota and North Dakota. His website is Lexenergy.net

Leaky Laws – Oil Spill Liability in New York

Posted on: May 26th, 2016
by David Ganje

Pipelines, even privately owned, are a publically regulated transportation and operating system. The question is not whether pipelines are “essential to our society.” Pipelines are already integral to the country: the US had over 1,700,000 miles of oil and gas pipelines in 2014. Operating systems will malfunction. The process for legally authorizing operating systems should not. To paraphrase Norman Vincent Peale, the problem with most publically regulated systems is that they would rather be ruined by praise than saved by criticism.

On September 2, 1978 the U.S. Coast Guard discovered evidence of an oil spill entering Newton Creek in Brooklyn. After launching an investigation, the government found over 17 million gallons of petroleum products that had leaked over a period of decades beneath the Greenpoint area, contaminating more than 50 acres of land. Today, new studies put the spill volume up to 30 million gallons. Cleanup began in 1979, but by 2006 only 9 million gallons had been cleaned up – less than a third of the known spill size. Cleanup continues today, with the aid of the federal government. The spill was designated a Superfund site. No one knows how long the leak existed before it was discovered
The relevant question should be how regulated pipeline leaks will be cleaned up, and who will pay for them. Under both Federal and state laws, the party responsible for a leak is the one responsible for cleanup. Usually the operator responsible prefers to take care of the cleanup themselves. Not only does this help soothe public relations problems resulting from a leak, but it helps the operator control the costs. However, a pipeline operator causing a spill may not always be willing or able to clean up a spill. The liable operator could be bankrupt, dissolved, or simply not have the money. The operator responsible for the Greenpoint spill was still in business and capable of footing the bill for their mistakes. This will not always be the case. Not all spills are flashy and obvious. Cleanup should not wait for years of court cases or bureaucratic lethargy. The money for a cleanup must be there, ready to be used.

New York has the NY Environmental Protection and Spill Compensation Fund (“Spill Fund”), established in 1977 to protect the state against petroleum spills. The fund is financed with a tax on petroleum products moving through the state, and any disbursements from the fund to pay for spill remediation is ideally recovered through penalties assigned to the responsible party. Third parties who are damaged by the spill can also file a claim with the Spill Fund and get their damages paid through the Fund, allowing the Fund to add those damages to the remediation it seeks from the responsible party.

This kind of fund is a good start. However, the fund is simply not large enough to handle the kind of oil spills that are possible in this era of pipelines and oil trains. For the 2014-2015 fiscal year, the Spill Fund spent over five million dollars more than it collected, bringing the fund’s total down to twenty-two million dollars. The fund spent thirty-two million that year. The 2015 state budget raised the cap on the Spill Fund from $25 million to $40 million. But even $40 million is not enough to handle the large spills when a company is not around to pay – in fact, $40 million is not even what the fund would be at if the cap had kept pace with inflation.

This is not to say that New York would be alone in a crisis. Both the Coast Guard and the EPA have trust funds in place to help states and the federal government. The Coast Guard’s fund only applies to spills into navigable waters, and cannot apply to cleaning up spills on land. But it would be there to help if the real disaster happened: a lengthy, voluminous spill into one of the many bodies of water in New York State, like the 2013 Enbridge spill in Michigan that cost more than a billion dollars to clean up. EPA maintains their Leaking Underground Storage Tank Fund for spills on land, but that fund is financed with a tax on motor fuel – a tax paid by private citizens, not the companies causing the damages in the first place.

Petroleum spills are not going away. The New York State Spill Hotline receives approximately 16,000 reports of spills each year, and the NY Dept. of Environmental Conservation estimates that approximately 90% of those reports involve petroleum products. Financial assurances for spills must be required before the damage happens, in amounts sufficient to cover the thousands of spills that happen every year. The legislature needs to create a modern statute addressing financial assurances by the operators for pipeline leaks.