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But I Got The Permit

Posted on: August 29th, 2016
by David Ganje

Nuisance at law is a legal principal. It describes a wrong committed, and, in modern law, includes a remedy for the wrong. Nuisance is not what we think of when we describe what my Central High School principal expressed in describing my general deportment and behavior. The old English legal commentator Blackstone held that nuisance was an injury to one’ s lands. This is not accurate. A nuisance is not an injury to the land itself. Nuisance is an interference with one’s right to own or possess the land.

As Supreme Court Mr. 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.” 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. All other nuisances are private. Nuisance law and Zoning law both protect property. Each principle relates to the use and enjoyment of property. No one may use his property in such a way as to injure the person or property of another. This is the underlying principle of the law of nuisance.

Now comes the rub for a perpetrator of a nuisance. A perpetrator of a nuisance cannot hide behind an existing zoning law or ordinance. “But I got the permit” won’t work. A property use which complies with a zoning ordinance or controlling statute may still be enjoined as a nuisance. The New York Court of Appeals, in a divided decision, made an important ruling on the matter of nuisance vs. an approved legal activity under the law. The right to sue in nuisance prevailed. Because an activity is an authorized use does not mean it may not also be a nuisance.

The Court stated,

“It is the contention of defendants that the [complained of activity] complies with the Building Code of the city, that the zoning regulations do not forbid the location on and use of the premises. . . , that defendants have procured a permit from the proper authorities for such location and use which constitutes a conclusive adjudication that neither is prohibited by the zoning law, that the issuance thereof is reviewable only by the Board of Standards and Appeals, and that [the relevant statute] makes the permit, subject only to such review, a conclusive adjudication that the erection of the building is in accordance with all provisions of the rules, regulations, ordinances and statutes applicable thereto. . . . Nevertheless, even so, the right of plaintiffs to challenge, in an action in equity, the location . . . and proposed use of the property on the ground that it constitutes a nuisance still remains.”

A use, although authorized by an approved permit or license, may thus be the basis of a suit to enjoin a private nuisance. A city, county or legislative body cannot legalize, that is, immunize, a use from a successful charge in court that the ‘use’ is a public or private nuisance to a harmed party. A court will admit evidence of relevant ordinances or law and will take their language into consideration in a nuisance case. But that information will not be controlling or determinative by the court in its decision. No perfectly drafted or administered zoning law or similar statute can create a bureaucratic environment in which a proper claim of nuisance could not be lodged. Nuisance versus authorized use of property is an area law that will always be in conflict. If one eliminated uncertainty in the law as written, think of all the unemployment that would occur among the bar. Property rights and the use of property are not absolute.

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

Workouts and Turnarounds before Bankruptcies – 2016

Posted on: August 24th, 2016
by David Ganje

Current bankruptcies are not foreign to the oil patch when the inevitable economic cycles in oil and gas show bankruptcy numbers increasing in the Bakken. There have been two significant prior economic down-cycles in my career that have caused a spike in bankruptcy filings. When I taught bankruptcy law I used a medical analogy: I told the young scholars that bankruptcy filing is akin to surgery, and surgery should always be treated as the last option. In the medical field, a reasonable first option is an antibiotic. Here, the antibiotic is a ‘workout’ or a ‘turnaround,’ each of which are bankruptcy alternatives. These alternatives have value and should be attempted by both creditors and debtors as a viable option, not just a throwaway line. I have successfully represented debtors and creditors in turnarounds and workouts. Resolving “stressed-business” issues out of court makes sense when the option is there.

Financial restructuring and workouts involve working closely with a business’s creditors to create, or ‘workout,’ a plan (often a written contract) to restructure business debts while allowing the business to remain viable. This process allows the business entity to negotiate its debts in a way that retains profitability without involving the court system. This is not as difficult as it might sound – creditors often share the same objective of returning a financially stressed business to good financial health in order to ensure their debts are paid.

A ‘turnaround’ is a separate process from a workout. It may also use the availability of restructuring and workouts, but a turnaround has several other components. A turnaround will generally restructure operational aspects of the business. This may be the solution when the problem lies deeper in the company than lack of cash flow. Where a creditor will not restructure the debts owed to it, a turnaround will be utilized to find alternative financing or new ownership. Another possibility in a turnaround is the sale of ownership or a portion of ownership, which can provide liquidity at the expense of a change of control of the business.

If the company’s goal is to continue in business, particularly under current ownership, then a creditor or a lender workout should be considered. If new ownership, or a sale of the business in whole or in part, is an acceptable outcome so long as the business is preserved as a going concern, a turnaround can be considered as well.

The process of financial restructuring and negotiating a workout with business creditors is something that should be considered to avoid the expenses and bureaucracy related to a bankruptcy proceeding. The chapter 11 bankruptcy reorganization process is expensive and time consuming. The goal of business turnarounds or financial restructuring is to provide a cost effective approach by way of a ‘non judicial/non bankruptcy’ business reorganization, to restructure business debts.
Courtship and finances have something closely in common: timing is everything. When a business is in a stressed situation, neither the business nor its creditors should go in stand-by mode. Negotiations should begin immediately. In both the workout and turnaround, all parties must agree to the terms; both are matters of serious negotiation to be done with all deliberate speed. Bankruptcy proceedings are not the only way to save a business – sometimes a well-prescribed antibiotic can halt the damage and let the healing begin.

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.

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

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