Corporate & Business Law Archive - Attorney Blog | Natural Resources, Commercial Law

Archive for the ‘Corporate & Business Law’ Category

South Dakota’s Approach To Condemnation

Posted on: December 2nd, 2016
by David Ganje

The use of eminent domain (condemnation) is a modern legal problem. Condemnation is the taking of property for a public and in some cases a private interest. Condemnation is a legally sanctioned sword. My argument in this article is not that eminent domain as a concept is wrong. My argument is that in its present state, as a legal vehicle attempting to provide fairness, eminent domain is a lemon in need of repair on both sides. This law allows a governmental body – and a private business – to convert privately owned land to another use, often over the objections of the landowner. Traditionally in a legal taking a landowner receives “market value” for the land taken. This often includes money for reduction in agriculture output or for the loss of other productive use of the land.

While eminent domain makes sense under a public utility easement paradigm, how does this process apply when a pipeline easement on a landowner’s property is the “transportation vehicle” for a commodity? How does one calculate “fair market value” when millions of dollars’ worth of product are flowing across privately-held land? Candidate Trump said, “I want the Keystone pipeline, but the people of the United States should be given a piece, a significant piece of the profits.” South Dakota law does not take this into consideration. Condemnation of one’s land involves forced negotiation required by law, and sometimes involuntary litigation. Is a one-time payment for an easement fair compensation? Is the condemnor (developer or government agency) required to provide its plan of work and operations to the condemnee (property owner) so the owner can evaluate this information? This would create a fairer playing field in negotiations. South Dakota law does not provide for this. Should the landowner be granted his expenses and attorney’s fees in a trial and for an appeal if the final award given is greater than the last ‘offer’ made by the condemnor? Or if a mistrial is called which is not the fault of the landowner? South Dakota law does not provide for this. Is the condemnor required to provide written disclosure of its calculations and basis for a proposed offer for the property? South Dakota law does not provide for this. In a federal condemnation, even if a landowner does not formally answer the condemnation lawsuit the landowner may still present evidence of the value of his land and may participate in the distribution of awarded monies. South Dakota law does not provide for this.

The law of condemnation brings out a curious inconsistency in the character of the state. South Dakota is a strong property-rights and individual-rights state. Aside from the important and unique relationships of Indian reservations to the state and to the federal government, private property in South Dakota is a hallowed right. State laws are vigilant in protecting one’s real estate and other property from intrusion, reduction in value as well as protecting the right to use the property for any lawful purposes. The state Constitution, like the federal, directs that, “Private property shall not be taken for public use, or damaged, without just compensation. . .”

Thus we get to my puzzlement. South Dakota has done very little to modernize eminent domain laws. This is not a case of the emperor having no clothes. This is a case of the emperor having no vision. The takeaway is that state leaders have no appetite for changing the status quo.

In modern vernacular ‘trending’ means that which is currently popular in social media, however in common English it means that which is changing or developing in a certain direction. The word ‘trending’ applies to the painfully slow but observable changes in the law of eminent domain. Unfortunately these changes are not coming from South Dakota political leaders. The state’s recent passage of a voluntary mediation statute for condemnation cases does nothing to address the substantive changes needed.A national trend has started toward balancing the sacrifices a property owner makes when business or government does its eminent domain dance. Courts, and over time other state legislatures, will continue to correct the ills of eminent domain when it is used as a legal sword. South Dakota must cultivate a fairer system for the taking of property.

Brownfields: A Calculated Risk Missed by Tribes and South Dakota

Posted on: December 2nd, 2016
by David Ganje

The EPA defines a brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.” The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) mandated that the purchasers of property are liable for any contamination on this property regardless of when they acquired a site. However, CERCLA also created a defense known as the “innocent landowner defense” that can only be used if “appropriate due diligence” was conducted prior to the acquisition of the property. Appropriate due diligence has been exercised if an environmental site assessment (ESA), a thorough investigation of a site’s current and previous owners, has been prepared.

ESA’s have an average cost of about $4,000 for a small business acquisition and can vary depending on variety of factors specific to the job. The typical businesses that leave behind brownfields include gas stations, dry cleaners, railroads, oil refineries, liquid / chemical storage facilities, and steel / heavy manufacturing plants. Typical hazardous materials they leave behind include hydrocarbons, solvents, pesticides, heavy metals such as lead, and asbestos.

What is so dangerous about leaving these brownfields alone? Many of these brownfields are abandoned commercial properties and tend to be an eyesore in the community. Not only can this lead to decreased property values in surrounding neighborhoods, but the property can also pose serious health risks for new tenants and their neighbors.

Once a brownfield has been identified, the EPA provides two options for cleanup, revolving loan fund grants and cleanup grants. The purpose of revolving loan fund grants is to enable states, political subdivisions, and Native American tribes to make low interest loans to carryout cleanup activities at brownfields properties. Cleanup grants provide funding for a grant recipient to carry out cleanup activities at brownfields sites.

Since the cost of cleanup is considerable, the grants may provide several hundred thousand dollars towards the cost of cleanup. This money comes with strings attached, of course. Among other things, the costs are shared with the property owner, by at least 20 percent, and the brownfield site must be cleaned up within a three-year period.

Entities eligible for the EPA’s brownfield grants and loans include state, local and tribal governments; general purpose units of local government, land clearance authorities or other quasi-governmental entities; regional council or redevelopment agencies; states or legislatures; or nonprofit organizations. If you are not an eligible entity, you may still be able to receive assistance through your state or city.

In South Dakota, the agency that provides statewide brownfield assistance is the Department of Environment & Natural Resources (DENR). DENR receives funding from the EPA for assessments and cleanup and have discretion in how to allocate those funds. For example, a national hotel chain looking to redevelop a brownfield site in South Dakota would not be eligible to apply for assistance through the EPA directly. However, the hotel chain could contact DENR for assistance and DENR could use their funds to perform an ESA or help with the cleanup.

In 2015, Sioux Falls received an assessment grant for $400,000 from the EPA. In addition to performing site assessments, they plan to use the money to update the city’s brownfields site inventory, prioritize sites, plan for cleanups at priority sites, and perform community outreach activities. They, like DENR, also have discretion in performing assessments and have made assessments available to entities who would not be eligible to apply for grants from the EPA.

With these options available to assist with brownfield redevelopment, why do so many brownfields remain untouched in South Dakota? In the last 5 years the EPA only awarded four grants in South Dakota. They gave an assessment grant to Sioux Falls and cleanup grants to Standing Rock Sioux Tribe, Cheyenne River Sioux Tribe, and Lower Brule Sioux Tribe. This suggests that other entities are not aware of the grants available to them, they are dissuaded from applying, or they do not have the structure to run a brownfields program.

Since South Dakota is not small Rhode Island, which is about the size of Brown County, businesses and other eligible entities find it is more economical to buy available land than it is to redevelop a brownfield site. This misses the mark. A brownfield site is many times in an attractive location. A brownfield site is often close to business activity and transportation or the prior owner would not have developed it.

Although the grants and other forms of assistance are “competitive,” grants are awarded based on guidelines. The deadlines for applying for assessment and cleanup grants from the EPA is December 20, 2016, so it’s not too late.

View the original article at FarmForum.net

Brownfield Due Diligence – Don’t Get Married, Get Engaged

Posted on: October 22nd, 2016
by David Ganje

Let’s not pretend. We have messed up parts of mother earth. Now let’s use the tools at hand to undo the mess and be good stewards again. Brownfield recycling, that is the brownfields program is one means to that end. If you are looking to start a new redevelopment project don’t get married, get engaged. Do your due diligence and explore the possibilities from exposing a brownfield.

The EPA defines a brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant”. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) mandated that the purchasers of property are liable for any contamination on this property regardless of when they acquired a site. However, CERCLA also created a defense known as the “innocent landowner defense” that can only be used if “appropriate due diligence” was conducted prior to the acquisition of the property. Appropriate due diligence has been exercised if an environmental site assessment (ESA), a thorough investigation of a sites current and previous owners, has been prepared.

What is so dangerous about leaving these brownfields alone? Many of these brownfields are abandon commercial properties and tend to be an eyesore in the community. Not only can this lead to decreased property values in surrounding neighborhoods but the property can also pose serious health risks for new tenant and their neighbors. For example, the Love Canal disaster in Niagara Falls, in the late 70’s. Hooker Chemical Co. dumped over 20,000 tons of chemical waste in the unfinished and abandoned Love Canal. The canal was later paved over and sold to the city. The city then developed residential neighborhoods and schools on top of the contaminated land. About 25 years later, after an unusual amount of rain, a large amount water absorbed by the land upwelled the “entombed” chemical waste. Residents complained of chemical burns, organ failures, mental disabilities, and congenital birth defects. Eventually local families were relocated and the land was cleaned up. However, in recent years, residents on the rebuilt lands have complained of health issues similar to the ones originally reported 35 years earlier and have filed lawsuits against Hooker Chemical Co.’s parent company.

Once you suspect that the land you are planning to purchase could be a brownfield in need of cleanup what can you do? If you have not purchased the land yet you could include provisions in the purchase agreement that can indemnify you from liability for claims associated with existing contamination.

If you have done your due diligence and you know what you are getting into then you should already know that the Environmental Protection Agency (EPA) has set up the Brownfield Cleanup Program (BCP) “to encourage private-sector cleanups of brownfields and to promote their redevelopment as a means to revitalize economically blighted communities.” The BCP provides incentives through, grants, loans, training, and tax benefits to aid with the cleanup. Since the cost of cleanup is considerable the BCP may provide several hundred thousand dollars towards the cost of cleanup. This money comes with strings attached of course. Among other things, the costs are shared with the property owner, up to 20%, and the brownfield site must be cleaned up within a three-year period. In addition to tax incentives and financial assistance provided through the various governmental programs the land developer should be comforted by the fact that his contributions have also helped the environment. Furthermore, awards are given out by the NYC Brownfield Partnership providing public recognition for the most successful brownfield redevelopment projects.

Additionally, taking on a new brownfield project in NYC grants access to special municipal assistance programs through the NYC Office of Environmental Remediation (OER). The OER was established in 2009 to “design, build, and operate a set of world class municipal programs to advance cleanup and redevelopment of brownfield sites.” Since then they have developed over thirty new programs that take some of the most blighted properties in some of the most disadvantaged neighborhoods, cleans them up, makes them safer, and enables new development that brings new jobs and affordable housing.

The OER also distributes a variety of letters to aid sellers, lenders, and prospective buyers of brownfield properties. An “environmental review and assessment letter” is issued after the OER conducts an ESA on the property in question. It is used to provide assurances against liability. A “standstill letter” contains a preapproved remedy plan developed by a seller and the OER. The letter can be used to enroll the property in a brownfield cleanup program so that a prospective purchaser might receive financial assistance. This letter is intended to provide comfort to a prospective purchaser and its lender since the purchaser will be able to better estimate the cleanup costs.

If you have already started a construction on a new project and just learned of contamination, you may still be able to request a “look back letter” from the OER which would grant liability protection. Although a developer can gain liability protection after a project has started, they will not be eligible for brownfield funding incentives.

Many prime redevelopment sites are located on brownfields, don’t get married. Get engaged first and do your due diligence.

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

Free Land — If You Can Keep It

Posted on: October 12th, 2016
by David Ganje

Free Land – If You Can Keep It

It seems everyone is looking for newfound money whether in the form of land or the lottery. Let us look at the miracle of “new land” obtained by accretion along a riverbank as a phenomena of newfound money. Property boundaries matter when your land is next to a river. If the river deposits land onto your riverfront by “accretion”, then who owns it? Accretion is the gradual increase to land, notably riparian land, stemming from the movement of water. A meandering river has no master. Certainly man-made law has not corralled a meandering river with anything close to perfection, or to some landowners, with any degree of satisfaction. Questions come up when riverfront boundaries naturally shift due to erosion or accretion.

In Norby v. Estate of Kuykendall, 2015 ND 232, 869 N.W.2d 405, Norby owned land adjacent to the Kuykendalls along the North Dakota-Montana border. Norby’s land was on the eastern Montana side and Kuykendal was on the western North Dakota side, with the Yellowstone River separating the properties. But, importantly, neither party’s deed history described the legal boundaries by reference to the Yellowstone River. Gradually the Yellowstone River moved eastward, eroding land from its eastern bank and accreting it on to the western bank. This “new land” on the North Dakota side made up 96 acres.

Norby brought suit to eject the Kuykendalls from the disputed property and to quiet title on the theory that the disputed land were his “riparian accretions.”

Typically riparian and ownership rights of a riverbank shift as the river moves without considering other fixed boundaries. Nevertheless, since Norby’s deed never mentioned the Yellowstone River as the property line, his argument sank.

Perhaps an even more relevant case is the older case of Perry v. Erling, 132 N.W.2d 889 (N.D. 1965). Mrs. Perry argued that she was entitled to “new land” formed by accretion. She owned land directly east of the Big Muddy originally as a non-riparian owner (i.e. landlocked). Since the original land survey in 1872, the river had shifted eastward eroding other intervening riparian lots and eventually turning Mrs. Perry’s lot into riparian land. Over time the river built up “new land” by accretion over the intervening lots. The Court rejected Mrs. Perry’s arguments by making clear that non-riparian owners, such as Mrs. Perry, are only entitled to the land that falls within their original property lines when their property boundaries were not set with reference to a body of water. The original riparian lot owners however would be entitled to the accreted lands.

These cases raise several important points for landowners who hold title to land near bodies of water. For instance, if your land now has additional riverbank or land because of how the river shifted over time, you may still not have ownership over any of the “new land” if your property description was not acquired with legal reference to a river. Laws that normally give rights to riverbank landowners will not help you in this case. However, if your original property boundary was set by descriptive reference to a river, then you may be able to claim the newly formed land as your own. The law of man does not direct the flow of a river. So be specific in your land deed descriptions or be at the mercy of the river. A good scrivener (lawyer) is worth a thousand words.

Article Also Available at Bismark Tribute

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

North Dakota is what I tongue-in-cheek call a nuisance friendly state

Posted on: September 19th, 2016
by David Ganje

Because of unique nuisance statutes and case law, North Dakota is what I tongue-in-cheek call a nuisance friendly state. For background on this interesting topic, please see my article in the Bakken Weekly, “Nuisance Laws on the Bakken.” The present article discusses a common defense simply stated as, ‘But I got the permit. Why am I a nuisance?’

North Dakota statutes protect one from a lawsuit in nuisance if another statute grants authority to act in a particular manner. Those statutes are strictly applied to preserve the meaning legislature gave to them. However, in extreme cases the party may yet be subject to a suit in nuisance if the act allowed by statute is performed in a negligent or unreasonable manner. For example, a statute granted the City of Dickinson the authority to operate a sewage system as part of its governmental function. The statute even allowed the city to discharge sewage into any river.

“The offense was so great that a chemist who was called as a witness for the plaintiff testified, without objection, that the hydrogen-sulphide gas, which the city engineer said was the source of the noxious odor, is about 17% heavier than air; that in water it has a disagreeable taste, and that when inhaled it causes nausea; that it is poisonous and will cause headaches if inhaled in sufficient quantities.”

That said, a nuisance claim was successfully brought against the city because the amount was so excessive that it was deemed unreasonable. The court said that “by casting its sewage into the river with improper and insufficient treatment for a long period of time, the city was remiss in its duty and it may not now rely upon its legislative immunity to protect it from responding in damages.”

Let us look at a nuisance lawsuit further. North Dakota derived the statute N.D. Cent. Code Ann. § 42-01-12 that states “Nothing which is done or maintained under the express authority of a statute shall be deemed a nuisance,” from California, and in doing so, North Dakota has determined that if you are conducting business in a district zoned for that type of activity, you are not completely immune from a nuisance lawsuit. Take the famous grain terminal case for example,

“Harmon Motors is located in an area zoned C-2 “a general commercial district,” and GTA was located in an area zoned N-1 “a light industrial district.” No evidence was introduced that GTA was operating in violation of any city zoning ordinance or that GTA was in violation of any health ordinances. For that matter, the Williston zoning ordinance passed in 1970 provides for an exception for those businesses which were in operation when the zoning ordinance was adopted and GTA was in operation when that zoning ordinance was adopted. This, however, is not per se conclusive of the issues.”

The court indicated that even though the ‘offending party’ had been both grandfathered in as well as in compliance with city zoning ordinances, all this did not mean that the offending party was in the clear. In this case North Dakota also considered whether the party making the complaint has “come to the nuisance,” that is, moved into an area where a nuisance-like activity already existed. North Dakota courts gave less favorability to the complaining party and indicated that the burden of proof required to defeat the “coming to the nuisance” doctrine is very high.

The defense of ‘I got the permit. Why am I a nuisance?’ nevertheless goes even further in North Dakota than other jurisdictions. An oil drilling operation had been flaring the excess gas it produced. This caused diminished air quality and excessive odors. But the court in Kartch v. EOG Res., Inc., determined that the drilling operation was not a nuisance because the operators acted within the guidelines set forth in the applicable statute and their practices were customary in the oil industry in North Dakota.
Special consideration is also given to agricultural operations. If the agricultural operation has been in operation for more than one year and was not a nuisance at the time it began it shall not become a nuisance. Additionally, North Dakota recently passed a law that bars other laws from limiting farmer’s rights to “employ agricultural technology, modern livestock production and ranching practices.” This was a necessary modernization to current statutes protecting farmers from surrounding urban developments.

Now to be sure, no legal system would be in proper order without some ambiguity, and as evidenced above there are exceptions to every rule. The takeaway: Just having the permit is not enough. And just being in statutory compliance is not enough. A claim in nuisance could still be successful in court.

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.