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South Dakota Paralegal Association talk

Posted on: October 3rd, 2020
by David Ganje

I’ve been asked to speak at the meeting of the South Dakota Paralegal Association in October. The Association official asked me to speak about environmental and natural resource issues affecting real estate transfers. I am honored to speak at the upcoming virtual meeting of the Association. The topic presents contemporary issues and is worthy of the readers consideration. I will here provide some of my talk on this subject.

Purchasing title insurance on a land deal gives specialized protection to the policy holder. However, title insurance does not cover mineral interest ownership and does not provide protection on environmental problems that exist or may arise from ownership of the purchased land.

In practice real estate sales and transfers do not often follow a careful procedure, and do not use careful language when environmental and natural resource issues are involved. I have observed this in both East River and West River transactions. The standard sales agreement (the suggested official contract) provided by the South Dakota Real Estate Commission is not helpful. Language in the agreement disregards the party’s ownership rights because mineral interests are not addressed. And the matter of reserving or selling mineral rights reflects even more mistakes. The wording in this standard state commercial and agricultural agreement leaves the grantor at risk because mineral interests are not described in the transfer sections of the agreement. When one gives a warranty deed to land in South Dakota he gives a ‘warranty’ of his ownership of the surface and all that lies below it. That’s a pretty powerful warranty. Homework should be done before giving such a warranty. This is further compounded by the fact that title insurance does not cover mineral interests, and indeed some title companies will not search or report mineral interests on a written title policy. Wyoming, Colorado and Montana have addressed the issue of mineral interests in official forms. South Dakota has not. I have publicly advocated for such a change in the state’s standard agreement for some time now. The reader will observe that my influence over state issues is quite underwhelming.

The purpose of Wyoming’s mineral disclosure law, according to the President of the Wyoming Realtor’s Association, was to avoid the unpleasant surprise encountered by buyers thinking they owned mineral rights 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 possible severance of mineral rights, Wyoming’s disclosure law allows a prospective purchaser to make a more informed decision when purchasing real estate whether commercial, agricultural or residential.

Underground trespass. What is it? Not easily defined, the law came into existence before air travel and fracking for minerals. It is discussed arcanely in this manner: The Second Restatement of Torts follows old English law and states, “a trespass may be committed on, beneath, or above the surface of the earth.”

How does underground trespass occur on the plains? Without belaboring a lot of examples, underground trespass might occur from underground pipeline leaks, leaking or corroded underground storage tanks, active oil operators infringing a bit too far under unleased property, a so-called disposal well’s ‘waste fluids’ migrating beyond its permissible subsurface boundaries, and so forth.

Is a man’s subsurface his castle? Maybe. A Nebraska Court addressed the issue of underground trespass. The court held that the operator of an injection well could be liable if the damaged party could show that fluid migration harmed the damaged party’s ability to produce oil. The North Dakota Supreme Court separately ruled that a claim in underground trespass may be trumped by a properly obtained force-pooling order from the state authority which oversees gas and oil operations. In the North Dakota case it must be noted that the claimant property owner did not allege any actual damage to his interests. And a West Virginia court, in a case that was finally settled and dismissed, ruled that subsurface horizontal fracturing for minerals very close to a Plaintiff’s property line was to be considered underground trespass. The lesson is that modern society and the laws that follow will consider the issue of trespass on more than just the surface of property.

Caveat Emptor is for fools. When buying and selling real estate, the buyer and seller must over disclose and over investigate the property. For example, I require that a buyer of property, which includes mineral interests, state in writing that he researched the value of any mineral interests. This forces the parties to investigate the matter. When selling real estate do not allow for laziness to become a deal breaker. Over-disclose. In fact: Disclose. Disclose. Surface water rights (and landowner obligations) are another illustration. A new landowner may be obligated as a so-called downstream landowner to accept an existing drainage project from an upper landowner. But actual surface water drainage may not currently run on the land, and in doing a sale of the land the parties may be blissfully ignorant of the water rights of an upper landowner who is allowed by law to run water onto a lower landowner. Surface water drainage issues are also not disclosed in the standard South Dakota residential sale disclosure form. Doing a real estate deal is not a time for puffery. A real estate transaction is not the same as a first date when one suggests to the new date that he is “a professional baseball player.” Disclose and be truthful. The world will work better.

David Ganje practices law in the area of natural resources, environmental and commercial law with Ganje Law Office. His website is Lexenergy.net.

David L Ganje
Ganje Law Offices
Web: lexenergy.net
605 385 0330

davidganje@ganjelaw.com

Battle Over Drainage Permit Heats Up

Posted on: September 16th, 2020
by David Ganje

Mount Vernon farmer files second lawsuit to stop drainage project, while first permit could go to South Dakota’s high court

Written By: Marcus Traxler | Sep 14th 2020 – 6pm.

The matters of a Davison County drainage permit have become more entangled in the court system, with the results of the first decision being appealed to the South Dakota Supreme Court and a second permit for the same landowner drawing a new lawsuit.

John Millan filed a second permit for a drainage permit in Beulah Township on Aug. 6, which was shortly after his first permit was voided by a First Circuit Court ruling. That permit has drawn a second lawsuit from neighbor Kenneth Hostler, who filed a new suit on Aug. 31 against Millan and Davison County asking for a permanent injunction and declaratory judgment to void the new permit.

In the first court matter over the drainage permit that was initially approved in March, Judge Patrick Smith sided Hostler, writing in his decision that Millan’s initial application was missing key information in order for the Davison County Drainage Commission to make a decision. Millan and the county have appealed the first decision to the South Dakota Supreme Court, according to court documents filed Sept. 4.

In the appeal, Millan’s attorney, Gary Lestico, of the Rinke Noonan law firm in St. Cloud, Minnesota, claims among other items, that the trial court improperly considered matters outside of applicable South Dakota state law for permissible drainage of water and had erred in deciding that Millan didn’t meet his burden of proof in the permit application and erred deciding that the Davison County Drainage Commission had abused its discretion in initially granting the permit in March.

When Millan applied for another permit in early August, he sought administrative approval through Davison County Planning and Zoning Administrator Jeff Bathke, who oversees the county’s drainage processes. Bathke approved the permit on Aug. 10.

Drainage permits in Davison County can be approved by the administrator without going to the county’s Drainage Commission if they meet specific criteria. That criteria includes drainage projects that involve the county’s major creeks and rivers, such as Firesteel Creek, Enemy Creek, the James River or Dry Run Creek. The criteria also allows for approval if signed waivers are received for upstream landowners within a half-mile, downstream landowners within 1 mile and landowners within a quarter-mile of the center of the drain area. Six signed waivers, including one from Millan, were included with the permit, and based on the county’s criteria and mapping, Hostler was not a landowner who had to sign a waiver to allow the permit to proceed.

In his most recently filed lawsuit, Hostler alleges the new project application was “illegally approved.” He says the project will drain water onto his property in southeast corner of Section 19 in Beulah Township, which is located immediately to the north of Section 30, where Millan’s drainage project is planned in the southern half of the section.

“The method and place for discharging surface waters onto Plaintiff’s land in the new project is the same method and place for discharging surface waters onto Plaintiff’s land under a drainage permit voided by the Circuit Court in related litigation,” wrote Hostler’s attorney, David Ganje, of Sun City, Arizona.

The land in question is about 5 miles east of Mount Vernon and about 8 miles west of Mitchell near Interstate 90. Millan’s permit calls for 157,277 feet of drainage tile on his land, draining 320 acres of property, with the water eventually draining into Dry Run Creek.

The Davison County Commissioners decided earlier this month to retain James Davies, of Alexandria, as the county’s attorney in the matter due to conflicts involving Davison County’s staff attorneys.

Pennington County has a Missing Link

Posted on: June 11th, 2020
by David Ganje

Pennington County has no surface water drainage ordinance. Land-use experts tell you that zoning law is created to protect the health, safety and welfare of the citizens of the county or community. I look at water surface water drainage law as protecting the health, safety and welfare of the land and the people who own and use the land. Good surface drainage rules will also preserve the value of the land if properly employed. What is man-made surface drainage? Man-made surface drainage is a drainage project done by digging ditches, dredging, creating channels or using drain tile.

Pennington County does have floodplain ordinances, storm water ordinances and special construction rules affecting drainage on or in designated floodplain areas. These rules also deal with construction and relocation of roadways. These are specialized rules. And the rules do not cover the whole of the county. Pennington County is 2700 mi.² That’s half the size of the state of Connecticut, but most of the people in Pennington County are more pleasing than a good number of people I have met from Connecticut. In mixed rural and urban counties, including Pennington County, landowners sometimes employ water retention techniques to minimize runoff.

When considering surface water drainage law I recognize that South Dakota has established state statutes and well respected case law which addresses some of the principles of surface drainage rights, duties and responsibilities. This state- wide law however does not have the beneficial effect of home rule. And the state-wide law does not come close to perfection. No set of laws do.

What’s the missing link in Pennington County? No home rule overseeing surface drainage issues. I will list advantages of a home rule meaning an ordinance dealing with countywide drainage. Most county drainage ordinances in South Dakota include the obligation of the party who wishes to create a new drainage system project to advise the affected landowners downstream. In other words, before a drainage permit is considered by the county, the affected landowners are notified of the possibility of more water coming down the pike. That advance notification requirement is not found, by way of example, in state law. County drainage ordinances also often provide for written consent agreements. These are so-called written waivers given in writing by landowners who may be servient landowners or who are otherwise affected by a new drainage project. A provision in an ordinance encouraging cooperation among landowners before a drainage project is started encourages peace. That’s a good thing – I have handled water disputes in which the sheriff was involved. This consent provision is also not found in state law. I also find typical South Dakota surface drainage ordinance requirements include notification in advance to affected landowners. And not just to the immediate neighbor who may be the adjoining neighbor but to those who may be affected for a distance of 1/2 to 1 mile. This makes sense. This allows an effected landowner to participate in a public permit application process. Advanced notice and participation provides a more balanced picture to a board deciding a surface drainage permit application. Another advantage of a local ordinance is the requirement that the project design and other physical characteristics of the drainage proposal be disclosed to the county. This is a missing link in a reasonable chain. A surface drainage ordinance gives a good amount of environmental project decision making to local government. If the ideal is to allow more local control of decisions affecting local property a missing link can be added.

In surface water there are two categories of landowners or so called two categories of land. Land is put in classes. This is a legal form of profiling. There are them what gives and them what gets. Them what gives: Dominant estate – Any parcel of real property, usually at a higher elevation, which holds a common law or statutory legal right to drain water onto other real property. Them what gets: Servient estate – Any parcel of real property, usually at a lower elevation, which is subject to a legal right allowing a dominant estate to drain water onto the lower parcel, that is the so-called servient estate.

David Ganje practices law in the area of natural resources, environmental and commercial law with Ganje Law Office. His website is Lexenergy.net.

David L Ganje
Ganje Law Offices
Web: lexenergy.net

605 385 0330

davidganje@ganjelaw.com

A Wildcatter’s Collapsed Dream is Now the State’s Problem

Posted on: March 31st, 2019
by David Ganje

In this opinion piece I write about public waters and a wildcatter’s abandoned oil well. The matter did not pan out well for the wildcatter or the state.

South Dakota relies on groundwater as one of its main sources of freshwater for domestic, municipal and agricultural purposes. Groundwater is found in porous subsurface rocks called aquifers. Aquifers are usually close to the surface. In contrast, oil and gas deposits are usually deeper and are often found several thousand feet below the earth’s surface. Because of this difference in location, oil and gas exploration and production can involve drilling through aquifers to access potential oil and gas production zones.

Oil and gas wells might contaminate groundwater in different ways. One is an event in which an exploration or production well causes separate aquifers to connect; this is particularly challenging where one aquifer may contain useable, potable water and the other contains bad water. An improperly plugged and non-operating oil and gas well could act as a pathway. A connection between different aquifers is sometimes called communication in hydrological terms. A well borehole drilled through a layer separating two confined aquifers represents a possible conduit for the migration of contaminants between the aquifers – if that borehole is not properly plugged.

The public trust doctrine holds that groundwater and surface water within the state’s jurisdiction must be preserved in perpetuity for the public. The government of South Dakota through its various departments and boards serves as the trustee of this natural resource to maintain waters for the benefit of current and future generations. Neither public nor private interests are allowed to harm waters held in public trust.

The South Dakota Supreme Court in 1964 held that legislation was justified in determining that the public welfare requires protection of the state’s water supply. In a 2004 decision the Supreme Court found the public trust doctrine manifested in the state’s Environmental Protection Act authorizes the state to protect the air, water and other natural resources from pollution impairment or destruction. In that 2004 case the Court ruled, “In conclusion, the public trust doctrine imposes an obligation on the State to preserve water for public use. It provides that the people of the State own the waters themselves, and that the State, not as a proprietor, but as a trustee, controls the water for the benefit of the public.”

A public trustee is not a business ‘proprietor.’ The public trustee is required to manage, oversee, preserve and protect a natural resource put under its control. The public trustee may be any of several different state departments or boards concerning a range of situations. In a public trust the government’s obligation is protecting waters for the benefit and use of the public. A trustee’s duty is to preserve and to not abdicate or delegate legal responsibilities. A public trustee may delegate certain tasks, but not its obligation to protect the resource. I define a public trustee as a natural resource manager exercising a public conscience guided by equity and the law. Equity as a principle will not suffer a wrong to be without a remedy.

I present here background in order to discuss the Wasta well issue. The first matter was described: the state is trustee of the waters held under the public trust doctrine. What are relevant supporting statutes and rules which provide a public trustee with remedies? I will list. These remedies place financial responsibility on the permit holder, not the state. The state’s Environmental Protection Act is discussed in my prior comments. In addition the Board of Minerals and Environment (Board) may enforce violations of state oil and gas law, of state oil and gas rules and of its own issued orders. On the issue of plugging unused or abandoned wells, the operator of a well is civilly liable, if in violation, and is further responsible for plugging a well. The Board also sets certain statutory performance bonds required of a permit holder. And by statute “The Board may require additional bond [sic] if the circumstances require.” The Board has further authority to declare penalties, as well as civilly prosecute a party for money damages and for harm caused to the environment. This authority is broad and covers all persons and property whether public or private. And in addition state government, through the DENR, can prosecute an oil and gas permit holder for public nuisance. The remedies available for a public nuisance are a 1.) a civil money judgment; 2.) a judgment requiring an abatement of the nuisance; 3.) and a criminal prosecution. The reader will please observe which remedies the state used (and did not use) in addressing the problem under discussion.

A few years ago a wildcatter received its oil and gas exploratory permit. The company started drilling the exploratory well near Wasta. The target was the Precambrian formation which lies about 9700 feet below where the deer and antelope play. In this piece I also refer to the permitted well as the Wasta well. The DENR and the Board were required to scrutinize the applicant’s papers and its background information before considering approval of the permit. A permit applicant’s competency and the bonding amount are factors the state is obliged to consider. From the beginning of the process there are questions about the trustee’s due diligence and the applicant’s qualifications. Two bonds were required for the Wasta well all totaling $130,000. In early papers considering permit approval the DENR stated 1.) the wildcatter submitted no documentation or information substantiating that oil or gas was likely to exist in economic quantities in the locations proposed; 2.) the applicant submitted invalid mineral leases and incomplete application paperwork; 3.) the applicant had no experience drilling oil and gas wells; 4.) the applicant had no experience producing oil or gas; 5.) the applicant did not disclose the identity of a well drilling contractor; 6.) the applicant refused to disclose that oil or gas exists in its target area; 7.) and the state determined the Precambrian formation is a formation from which neither oil nor gas has been found in economic quantities. This wildcatter was walking on a thin line from the get-go.

Very shortly after drilling began the driller lost drilling fluid circulation in the well, and a drill stem got stuck in the borehole. In efforts to fix the problem the well borehole collapsed in on itself. The wildcatter was then unable to access the stuck drill stem. All efforts came to a standstill, but some surface reclamation was completed. The well was not plugged following permit requirements and no casing was in place protecting two major aquifers. Several years later the state began the process of revoking the permit and forfeiting the bonds which totaled $130,000. Just a few months after the state’s case closed, a remaining investor legally dissolved the wildcatter company. The original principal investors of the wildcatter company, after the project turned sour, vacated or chose not to appear in the jurisdiction. For those not familiar with legal terms – the original principal investors got the hell out of Dodge before the sheriff showed up.

In the state’s contested case hearing South Dakota presented two state employees as witnesses. One was a state hydrologist and the other the state geologist. No outside experts or specialists were called. The testimony showed that the Wasta well had not been plugged according to permit requirements, and that no casing was put in place protecting two major aquifers. The hydrologist testified that the upper of the two aquifer is good quality water currently used by well water permit holders. The hydrologist stated the potential impact of any pollutants or mineralized water going into the upper aquifer was limited. The witness forthrightly acknowledged that the department did not know exactly what was happening underground at the well site. The hydrologist also testified there was no baseline water quality data for the area near the well or specifically for the well itself.

The geologist testified that the state does not have any pre-drilling water quality information and does not have post-drilling water quality information for the well site. The geologist stated, “We have really no ability to make an opinion on pre-drilling versus post-drilling water quality at that site.” The witness testified the cost of a single new water monitoring well would be about $126,000. The geologist also indicated because of the slowness of water movement in the good aquifer and because of a dilution effect from any bad water which might be introduced into the good aquifer, the risk to the water-using public was minimal. And the geologist opined, “We would be ill-advised to spend the money to put in one well which is all the well we have the money for when we don’t know the best depth or best location to put that well.”

After the hearing the permit was revoked and the bond money forfeited. And the Board decided that: 1.) the cost of an operation to plug the penetrated aquifers would be in excess of 2 million dollars; 2.) the Board did not have sufficient data regarding the lower aquifer to make a precise estimation of water quality; 3.) the well borehole provides a potential pathway for upward flow of water to the good upper aquifer; 4.) it was unknown whether communication “is or may occur” between the two aquifers but that the flow of effected water would be minimal; 5.) and that failure to properly plug the well “still presents a danger of communication” between the aquifers.

Since the hearing the state has not used the bond money or taken other legal or administrative action. What other remedies listed above were available but not used? The obligation of the state as trustee is to protect public waters. Should a demand for perfection in science subvert the trustee’s obligation for oversight and resource preservation? Should a water monitoring well be drilled only if contamination has been proven? Should other DENR funds be used besides the forfeited bonds to protect and monitor public waters? Is a public trustee relieved of taking action – except when an established harm is proven? South Dakota, its leaders and courts over the years since statehood have each spent sweat equity creating a fair system for the use and protection of the waters of the state. In the Wasta well case the state is sacrificing the good for the perfect. A public trustee does not fulfill its job by acting only on mathematic principles, or by waiting for scientific guarantees before taking action to protect a natural resource.

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

Naked In The Wind

Posted on: March 12th, 2019
by David Ganje

Wind energy development is known as green energy. Green energy is sexy. Everybody wants to jump on the bandwagon but few want to pay for the ride. A wind farm produces green energy. A wind farm itself is not green. It is steel, wires, underground cabling, electrical components and concrete. This describes the infrastructure of a government-permitted wind farm. Larger wind farm projects in South Dakota are subject to PUC jurisdiction regarding the permit application process and wind farm project oversight. This opinion piece focuses on projects under the jurisdiction of the PUC. Discussion of projects under the jurisdiction of the various wayward counties is left for another day.

In the eyes of a lawyer, which is not very romantic, when a wind farm contains steel, wires, underground cabling, electrical components and concrete we have potential legal liability. Wind farm infrastructure is not owned by the landowner. It is owned by the wind farm operator. A landowner has no right to control or interfere with a wind farm. Who may be liable and to what extent is always an interesting legal question. A court calls this the allocation of liability. It is best not to become involved in a question on the allocation of liability. General liability insurance coverage is one way in which liability risks are reduced.

The natural desire of a wind farm operator to protect its investment as well as a property owner’s natural desire to protect his land from liability are compatible ideas. Alas, the state of South Dakota is negligent; it does not require liability insurance coverage by wind farms. The conflicting and coexisting state policy of both encouraging green energy development and practicing laissez-faire wind farm oversight is dead wrong. A landowner, farmer or rancher on whose land a wind farm sits is the odd-man-out under the state’s current wind farm permitting process.

A government-permitted wind energy project creating electrical power is the definition of a wind farm. A wind farm is a public project permitted and overseen by the PUC because of its significant impact on the state and its people. Wind farm projects have a beginning, a middle and an end. The beginning is the development and construction stage, the middle is the operational phase and the end is the end. (The end of wind farm operations, whether by abandonment of the turbines, bankruptcy, or shut down by an operator is ‘The funeral’ of the operating project.) All three stages offer potential risks arising from claims or accidents related to wind turbines, wind farm operations and wind farm infrastructure. Importantly, these risks exist whether the wind farm is operating or not.

While I note the chief financial beneficiary of a newly written liability insurance policy is at first glance the insurance agent who wrote the policy, all the same – insurance should have an important role in PUC permitting and in the PUC’s project oversight. South Dakota law does not require that a wind farm carry general liability insurance. Wisconsin and North Dakota law require this. General liability insurance provides two areas of coverage for an insured party, that is, for the wind farm operator. A general liability policy covers bodily injury and property damage. Now to be clear, wind farm operators often have some insurance coverage. For example, a wind farm’s lender might require insurance. Yet when a loan is paid off such a lender’s insurance requirement would end.

I am now obliged to make my case for project-wide wind farm general liability insurance. If there are one or two sceptics out there among my numerous followers, my honorable readers should know I am not a lobbyist for and do not represent insurance companies. I propose a correction in the deficient and inequitable policy and practice of the PUC. The PUC should by law and or policy require project-wide general liability insurance. In my discussion in favor of insurance coverage I will: a.) first report the current lay of the land; b.) and then report the lay of the land as it should be.

The current lay of the land: Is an operator uninsured, underinsured or inadequately insured? Does the wind farm maintain a level of insurance providing for the type of loss or claims common to an operation? The PUC has no answer. South Dakota does not require that a wind farm maintain project-wide general liability insurance coverage. Both North Dakota and Wisconsin do. A recent wind farm permit approved in 2019 by the PUC will be used as an illustration. This wind farm development and operation was approved with 42 permit conditions to be met by the operator. These conditions were placed on it by the PUC. None of the 42 conditions required project-wide general liability insurance. The lengthy official application and approval file shows no indication of such insurance coverage. Naked in the wind.

The lay of the land as it should be: A wind farm operator should maintain general liability insurance relating to claims for property damage and/or bodily injury which may arise out of the development, construction, operation and closure of the wind energy project. A wind farm operator should maintain the required insurance coverage until such time as the PUC authorizes the termination of the coverage. The amount of coverage and required terms of the insurance should be set by the PUC in the course of its public process when considering a permit application. The amount of insurance coverage and required terms of insurance coverage should be described in an order granting a permit. Cancellation by an operator of the required insurance coverage should be prohibited. Property owners on whose land a permitted wind turbine or turbines are located should be named as additional insureds on the required insurance policy. The insurance policy should contain an endorsement obligating the insurance company to provide the PUC with at least 30 days prior written notice of any cancellation. No more than 15 days after the granting of a permit but before construction is started the permit holder should deliver a full and complete copy of the required insurance policy to the PUC. An insurance policy received by the PUC under these provisions should remain a part of the public record, not be sealed, and not be subject to proprietary or confidential claims by an operator.

Conclusion: The reasoning of government is a most uncertain thing. Will the state demonstrate leadership as well as equity and decide to change the law and its current practice of not requiring general liability insurance? Come see me in two years and we will cry together.