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Archive for the ‘Lost Mineral Interests’ Category

DON’T LOOK FOR THE GOLD, LOOK FOR THE GRAVEL

Posted on: March 9th, 2016
by David Ganje

In the natural resources, mining and geological fields, the ‘experts’ are reluctant to call gravel a mineral.  It matters not whether they are a lawyer, judge or geologist.  But I set aside this ridiculous game of semantics.  I deal with reality.  My clients deal with reality.  So we start with the wisdom of my grandfather who was a farmer.  He said, “Don’t look for the gold, look for the gravel.”  What mineral has an immediate, practical and economic benefit regardless of where used, how used, or where located?  Gravel.

Gravel is everywhere – in South Dakota alone, there are more than 1,800 permits for gravel mining on file with the Department of Mining and Natural Resources. States have inconsistent histories with regard to whether or not gravel should be considered a ‘mineral’ requiring mining permits. As a result, the term ‘mineral’ will sometimes be construed so as to include gravel, and other times to exclude gravel. For this reason, those interested in gravel in South Dakota should be aware of the inconsistent legal nature of the commodity.

On private land, gravel rights are managed by the state. The SD legislature has passed statutes defining the term ‘mineral’ broadly when dealing with situations such as damages from mining, oil, and gas development, mineral exploration (but not mining), and abandoned mineral interests. In these statutes, gravel is included within the term ‘mineral’ – in fact, often ‘mineral’ is defined as expansively as “any substance with economic value, whether organic or inorganic, that can be extracted from the earth, including oil and gas, but excluding water” and in some cases, uranium. In these situations, then, there is no question that gravel is included. For example, like oil and gas, mineral interests in gravel are only abandoned if left unused for a period of twenty-three years, unless a statement of claim is made according to SD law.

Unfortunately, the South Dakota Supreme Court has implied that these definitions only fit the situations that their respective statutes dictate and, cannot always help define ‘mineral’ at other times. It would be easy if rights holders could look at these statutory definitions of the term ‘mineral’ universally. In South Dakota no statute provides a definition for ‘mineral’ or ‘mineral interest’ with the purpose of explaining existing mineral interests or leases. For example, North Dakota law states that “conveyances of mineral rights…in real property in this state…shall not be construed to grant or convey to the grantee any interest in any gravel…unless specifically included by name in the deed, grant, or conveyance.” South Dakota has nothing so specific, so the matter must fall to the courts.

As a result, the SD Supreme Court has instead chosen to handle the matter on a case-by-case basis. Those wishing to claim that gravel is included under their mineral interest or mineral right must show the court that gravel’s inclusion in a warranty deed was intended by all parties at the time the interest or right was created; if not, taking gravel from land on which you have mineral rights may well be prohibited, as the interest in the gravel remains with the surface estate. The SD Supreme Court has expressed concern about possible damage to the surface estate by removing subsurface or surface objects that the grantor did not intend to be removed – like gravel. When surface damage is likely to occur from deeding to the grantee an interest in gravel, courts will demand even a stringent showing of the grantor’s “intent.”

On federal land, where the federal government has reserved mineral interests, the analysis is similarly convoluted. The Supreme Court of the United States has held gravel to be included in a federal reservation of “all the coal and other minerals in the lands so entered” under the Stock-Raising Homestead Act of 1916, but more recently held gravel to not be included with the federal reservation of “all the coal and other valuable minerals” under the Pittman Act of 1918. Lest we feel comfortable that all federal reservations of regular minerals will include gravel, and all federal reservations of valuable minerals will exclude gravel, a two-justice concurrence in the Pittman Act case disparaged the “faulty reasoning” of the SRHA case, and implied that they might consider overturning that holding at some point in the future. This may indicate that whether or not a specific federal mineral reservation includes gravel can depend heavily on the composition of the court at the time of the case.

For those who are interested not in interpretation of current mineral interests, but rather the creation of future mineral interests, the key is clear and careful writing. When mineral reservations and interests are written so as to explicitly include gravel as a mineral, or there is some compelling evidence that the grantor intended to include gravel within the grant, then courts will uphold the granting deed as including gravel. Sadly, the issue can become a grantee interpretation versus grantor interpretation, with the grantor likely to win. This is largely because SD law states that “a reservation in any grant. . . is to be interpreted in favor of the grantor.” This road is a little rocky.

David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in New York. The website is Lexenergy.net

Is the Trump Option Available In SD For Condemnation?

Posted on: February 13th, 2016
by David Ganje

Is the Trump Option Available In SD For Condemnation?

Eminent domain is one of the toughest and most controversial legal powers available to a government, but the South Dakota legislature has so far failed to manage it properly. Eminent domain allows a governmental body to convert privately owned land to another use, often over the objections of the current landowner. The Donald Trump Option is the right of a private party to use eminent domain.  This is done by developers, pipeline companies and hotel builders alike. This process is commonly known as a ‘taking’ or ‘condemning the land.’ There are rules, of course. A landowner must be paid “just compensation” for the condemnation of his land. Further, the land that is to be taken may only be taken to further a beneficial public use.

The ability to exercise eminent domain is so powerful that it almost always remains the final legal option. The use of eminent domain is not solely limited to governments. Private parties as well as corporations may exercise the immense power of eminent domain. For example, South Dakota law states that “Any person may exercise the right of eminent domain…to acquire as a public use any property or other rights necessary for application of water to beneficial uses.” Private parties as well as corporations may exercise the immense power of eminent domain.

The law allows a private party to manage water rights by a taking. The statute states, “except as otherwise provided…no person may appropriate the waters of this state for any purpose without first obtaining a permit to do so.” The power of eminent domain may used if the taker puts water to a beneficial use. For this reason, a party may not successfully exercise eminent domain without first having a water permit.

This right to take comes into play when a party seeks access to land he doesn’t own in order to access water. What is a beneficial use? South Dakota law is intentionally vague on this subject. It says beneficial use is the use of water “that is reasonable and useful and beneficial to the appropriator, and at the same time is consistent with the interests of the public.” For courts, this is a balancing test, as opposed to a concrete definition. The question in eminent domain cases, then, is whether or not a proposed use of water fits this vague legislative definition of ‘beneficial use.’ The Supreme Court has implied that it can. As a result, eminent domain cases involving water can span an enormous berth of cases, with those claiming eminent domain seeking water for everything from irrigation to oil extraction.

There is irony in too much of what the South Dakota legislature does. Counties and municipalities are forbidden from using eminent domain for the benefit of a private party. Yet the field is wide open for private parties to use eminent domain for a private party’s benefit.

Whether it is a taking to obtain water rights or land for a pipeline, the matter of ‘just compensation’ to be given to the landowner is paramount. I have advocated in prior blog articles the need to revisit the matter of just compensation. This issue applies to a government or private taking.  The ‘valuation process’ should be changed.  The SD Supreme Court has stated that the state legislature has the authority to create the method of compensation in a condemnation proceeding.  The State Constitution is interestingly stronger from a landowner’s perspective than is the US Constitution on the issue of eminent domain.

State Senator Monroe, or his speechwriter, state that that my argument (and that of 5 states and counting as of 2012) is wrongheaded. He has stated, “We have well established legal mechanisms to compensate property owners and treat them fairly.”  Good negotiations by a landowner may result in more favorable compensation. But the playing field should be level between the land taker, who has the power of the law to take, and the landowner.  Senator Monroe’s refusal to look at the issue is a belittlement of efforts to protect property rights.

I do not know whether the Senator has had a pipeline run through his property under an eminent domain proceeding. A taking is not a normal market transaction because the landowner has no choice.  A landowner can’t walk away from the table. The legal process of taking private property is just as important as the right to free speech, freedom of religion and the protection against unreasonable search and seizures.

There are several problems with South Dakotan condemnation law. The law should be revised to include written disclosures following the requirements of Wyoming law. Wyoming law provides new rights for landowners in all condemnation proceedings, whether initiated by the government or private parties. SD law should require that the taker show the details of the proposed project plan and the written basis behind any compensation offer. An additional provision that should be changed is the legal taking procedure. Currently the procedure does not allow the landowner the recovery of all of his court costs, appraisal costs, expert witness fees and attorney’s fees even in the event he should prevail in the case. This forces landowners to fear spending money defending their own land, something that a citizen should never have to do. SD law should provide that a landowner is entitled to an award of all court costs, appraisal costs, expert witness fees and attorney’s fees if the taker failed to negotiate in good faith, or if the compensation awarded by the court or jury exceeds the amount of money offered by the taker to the landowner. Until then, the playing field will remain skewed in favor of takers.

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

In North Dakota you can talk to the dead

Posted on: January 27th, 2016
by David Ganje

In North Dakota one can give legal notice by mail to a deceased individual, even though he long ago went to that great oil patch in the sky. It is something out of a Charles Dicken’s novel. You can communicate and give notice to the dead. A landowner seeking to claim mineral interests may recover the deceased’s mineral interests by giving notice by US mail to an address long ago abandoned — and legally so, according to the Dormant Mineral Act.

The North Dakota Supreme Court, in ruling on the Dormant Mineral Act, stated that “…no reasonable inquiry was required where the surface owner mailed the notice of lapse to the mineral interest owners’ address which was of record in 2007, even though the mineral interest owners had died in 1980 and 1999, respectively.” When an individual who owned mineral interests in North Dakota dies, they and their heirs may be out of luck if death never kept up the “current address” in the county recorder’s office.

The Supreme Court in an important recent case called Capps also stated, “…the address of record need not be the mineral interest owner’s correct address for the mailing of the notice of lapse to satisfy the statutory requirement.” In other words, a landowner may serve a notice to recover mineral interests by US mail when mailed to the deceased’s last address in the records and thereby obtain minerals formerly owned by the deceased.

Both the legislature and the courts are attempting to make it easier for surface owners to clear title and reclaim lost mineral rights. The Supreme Court in Capps held that “this Court made it clear that when the mineral interest owners of record are deceased, the notice must still be mailed to the address of the deceased owners of record.” In my practice I have done this. The postman must think I am nuts. This rule derives from the intent to encourage mineral development and extraction.

The Court ruled that the surface owner was not required to conduct a reasonable inquiry into an actual address of a mineral owner even when the owner knew they were deceased. The Court determined that it was immaterial whether the surface owner had actual knowledge of the death of the party notified by mail the party who was the record owner of the mineral interests and the person to whom the statutory notices had been mailed. The Court stated that any heirs of the deceased would have received notice if the deceased had recorded notice of their current addresses. The Court also held that the constitutional safeguards of due process and adequate notice do not apply to the non-litigation Dormant Mineral Act used by the landowners in the Capps case.

The Capps case illustrates the growing body of law that makes it easier to develop and reclaim mineral rights.

David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in South Dakota and North Dakota. View the original article at the Bismarck Tribune – Brakken Breakout

Disclosure of Mineral Interests in North Dakota

Posted on: October 2nd, 2014
by David Ganje

Full property disclosure laws are needed in North Dakota.  Current law does not require that the seller disclose information regarding mineral rights ownership at the time of a closing when selling real property.

Mineral rights affect the sale of real estate and affect its value.  These often go unaddressed when selling property.  The consequences of a failure to address these rights are not pretty. Surprises when doing a real estate deal should not occur.  The era of “let the buyer beware” is long gone. I suggest that putting everything material on the table when doing a real estate sale is the best policy.

The need to protect purchasers through honest and full disclosure of mineral rights has also been borne out in the experiences of other states.  Four years ago, Wyoming adopted a statute which requires sellers of property to disclose whether any mineral rights have been severed prior to a sale.  The reason for the new law, according to the President of the Wyoming Realtor’s Association, was to avoid the unpleasant surprise encountered by people who bought property thinking that they owned the rights to minerals only to find that a third party would appear on their land, and start digging on the property.  By making the buyer aware of the severance of mineral rights, Wyoming’s new disclosure law allows a prospective purchaser to make a more informed decision when purchasing. Recently in Florida a large home builder announced that it will stop severing mineral rights when selling property – after a local newspaper wrote a series of articles investigating the practice of selling property to people who learned of the practice only at the closing table where they felt pressured to consent.

Mineral rights can be severed from surface property rights on the same piece of property in North Dakota and do not automatically pass with title to the land in a sale. A third party can own the mineral rights to land. Title insurance is not the answer to this issue. Title insurance does not insure mineral rights on a property, nor does title insurance cover such things as water permit rights. When doing a real estate deal a purchaser should not assume that the title insurance policy will offer coverage.

            “Full disclosure,” makes for a complete sale in a real estate deal.   Full disclosure is the act of a seller of providing all the facts which the other party should know before the other party decides to buy. Full disclosure is not something I would always do on a first date when I was a young man – but that is another matter.  Full disclosure is akin to the term used by contemporary politicians and pundits known as “transparency.” North Dakota’s property disclosure law should require a seller to disclose mineral associated with a piece of property. 

 

Foster Care for Unlocatable Mineral Interest Owners

Posted on: April 7th, 2014
by David Ganje

Foster Care for Unlocatable Mineral Interest Owners

 

Natural resources development and extraction is both cleaner and fairer if all the owners of mineral interests participate. This statement of preferred principal is not, however, reality. Many owners are missing or unlocatable.  Missing interest holders create legal ‘gaps’ in the oil and gas development picture. Gaps perpetuate problems. Problems—such as future claims by currently unlocatable mineral interest owners, and penalties against producers for failure to pay or timely pay interested parties are examples. Both South Dakota (as of 2013) and North Dakota (revised in 2007) have created statutory remedies addressing this conundrum. In North Dakota over 40% of royalty interest payments go out of state. The remedy is a statutory trust created to manage the interests of the unlocatable owners of mineral interests. A party wishing to develop a tract of land can petition the court for the creation of this trust. A petitioning party can be an individual, corporation, or limited liability company that owns a mineral, leasehold, or royalty interest in the relevant tract of land. The statute allows for the creation of a trust by any of the three main interests in oil and gas matters: a mineral interest, a leasehold interest, or a royalty interest. The trust can be used to participate in the leasing and production of the oil and gas interests. Nevertheless, such a trust can only be created if the place of residence and present whereabouts of the so-called unlocatable persons are unknown and cannot reasonably be found after due diligence following a search. In North Dakota, circumstances may arise that warrant a trust account to be set up for the benefit of an unlocatable mineral interest holder. The establishment of the trust has the effect of discharging the developer from further liability for legal or financial claims by unlocatable or unknown claimants to the interest when all payments are made to the trust. The county treasurer, where the interest is located, becomes the trustee and manager of the new trust. An oil and gas lease negotiated by the trustee is an enforceable binding agreement. When an unlocatable claimant comes forward to claim his ownership, he must obtain an order from the district court to receive the monies deposited in the trust account.

 

Any bonuses, royalties, lease payments, or other income owing to the unlocatable mineral interest owner are to be paid to the trustee after the trust is approved by the court. The trust must be kept in force until the unlocatable owners of the mineral interests have successfully claimed their share of the funds held in trust pursuant to the act. This special trust is in affect ‘taxed’. Fifty percent of the monies paid to the trustee, the county treasurer, must be credited to the general fund of the county in which the mineral interest is located. This assessment is stated to be ‘for the costs of administration’. In reality it is somewhat of a confiscatory tax for the benefit of using the law to protect such interests. After three years, if the trust is still open, it is considered abandoned property with the effect that the trust administration is taken over by the State Treasurer rather than the county treasurer. The trust will, however, continue in existence under this special statute. After the three year period mentioned, the State Treasurer takes over the management of the trust unless it is otherwise closed out because of ‘found claimants’. The North Dakota treasurer maintains a data base of unclaimed property, including mineral interests. This public data base however, does not guarantee successful access to the information by a claimant because the parties may not be properly named—the owner is indeed unlocatable, the state’s website data base does not give complete reference to the tract of land, that is, the location of the mineral interest, or a detailed description of the relationship of the petitioning party with the unlocatable mineral interest holder. With its challenges, the law is still a good vehicle for protecting interests while encouraging development of the state’s natural resources.