Archive for the ‘New York & South Dakota Law’ Category

Recent New York State Water Regulations

Posted on: November 24th, 2013
by David Ganje

Recent NY State Water Regulations Not Ready for Prime Time

In New York state, groundwater rights are based on landownership rights. A property owner can withdraw as much water for use provided the rights of other property owners are not adversely affected. Water systems in the state require Water Supply Permits issued by the state’s Department of Environmental Conservation (DEC) if they have the capacity to withdraw 100,000 gallons per day or more of ground or surface water and they do not qualify for an exemption under state regulations.

The state draws fresh water from three sources namely the Susquehanna River Basin, Delaware River Basin and the Great Lakes Basin.

Earlier this year, the DEC’s new water withdrawal regulations came into effect. These regulations are designed “to regulate the use of the water resources of the state… by implementing a water withdrawal permitting, registration and reporting program for water withdrawals equaling or exceeding a threshold volume.” Under the new regulations the threshold volume refers to the withdrawal of a volume of one hundred thousand gallons of water or more per day.

The new regulations do not affect those in possession of DEC issued water supply permits as of February 15, 2012 or those actions (e.g. withdrawals approved by the Delaware River Basin Commission or Susquehanna River Basin Commission, withdrawals of hydropower facilities under a valid Federal Energy Regulating Commission license, or withdrawals used for fire suppression or other public emergency purposes) which are exempt in accordance with 6 NYCRR 601.9. All other water withdrawal actions that meet or exceed the 100,000 gallons per day threshold will require a DEC permit. Power generating stations and municipal water systems are examples of operators that typically use more than 100,000 gallons of water per day.

Initial permits issued under the new regulations will be implemented using a staggered schedule that enables the largest water users to obtain permits with priority over small water users.

Areas of Concern

Efforts to preserve and manage an invaluable natural resource such as water are laudable. The regulations do however raise areas of concern including:

The proposed regulations have been placed on the table without a cumulative impact analysis of water usage in the state, including water usage for hydrofracking.
The new regulations are inherently unfair to small water users who are last in the pecking order when it comes to the issuance of withdrawal permits.

Discussion of Areas of Concern

Hydrofracking is a process that forces a mix of water, sand and chemicals down a gas or oil well under extremely high pressure with the goal of cracking previously impermeable rock (typically shale) to create fractures that will allow trapped oil and/or gas deposits to flow to the surface.

The Marcellus Shale, encompassing 104,000 square miles across Pennsylvania, West Virginia, Ohio, and parts of New York, is the largest source of natural gas in the United States. Since 2008, hydraulic fracturing has been used to release and capture the shale gas for energy consumption. However, New York does not permit the drilling of the Marcellus Shale formation. For the past five years, the DEC has had a ban on high volume hydrofracking. The moratorium was put in force during the Paterson administration by executive order that called for such revisions to the Draft Supplemental Generic Environmental Impact Statement to analyze comprehensively the environmental impacts associated with high-volume hydraulic fracturing combined with horizontal drilling. The DEC will not issue permits for hydrofracking until it obtains assurances from the NYDepartment of Health that the process would be safe.

Hydrofracking uses water, but the volume used should be put in the context of other water uses currently in place. In the U.S. more water is used to cool power plants than for any other use pursuant to the United States Geological Survey. Over 53.7 billion gallons per day of water was used to cool power plants in the Great Lake states in the year 2000. By comparison, hydrofracking of the Marcellus Shale formation throughout Pennsylvania requires a total of 3 to 5 million gallons of water over a 2 to 5 day period per well based on Susquehanna River Basin Commission data.
The EPA estimates a horizontal well in a shale formation can use between 2 million to 5 million gallons of water. It must be noted that depending on the geological formation, technology used and type of well being drilled, water usage varies.

Horizontal hydrofracking is estimated to use five to ten times as much water as vertical hydrofracking. As Monika Freyman notes, “the whole drilling and fracking process is a well-orchestrated, moment-by-moment process requiring that one million to five million gallons of water are available for a brief period ….. they need an intense amount of water for a few days, and that’s it.” The overall amount of water used for hydrofracking, even in states like Colorado and Texas that have been through severe droughts in recent years, is still small: in many cases 1 percent or even as little as a tenth of 1 percent of overall consumption, far less than agricultural or municipal uses.

The water used in the hydrofracking process in Pennsylvania comes primarily from fresh water obtained from surface sources such as rivers or recycled water from previous hydrofracking operations. Withdrawal of surface water should be undertaken when assurances are provided, supported by scientific evidence, that downstream water quality and quantity is sufficient to meet existing and anticipated needs of people, wildlife and ecosystems in the affected area.

The DEC initiated an environmental study on hydrofracking almost five years ago subject to a well known longstanding moratorium. Governor Cuomo anticipates making a final decision on hydrofracking in the state before the 2014 elections. Business groups have expressed their frustration with the unresolved moratoriums; the NY chapter of the National Federation of Independent Business has called for an end to “paralysis by analysis”. The Federation has also advocated the enactment of stringent standards to protect the environment and health while permitting the extraction of natural gas by hydrofracking.

The New York Farm Bureau is a non-governmental organization representing the agricultural sector. The Bureau takes the position that hydrofracking, with certain rules in place can protect the environment and would provide an economic benefit for the state enabling farms to not only continue to operate but expand. The NY Farm Bureau supports rules that would require gas drilling companies to disclose the composition of their hydrofracking mixture as a condition to obtaining DEC permits in addition to strict measures that would prevent methane migration into wells and aquifers.. The Farm Bureau advocates payments on a per unit basis for right-of-way agreements with oil and gas companies. These are but a sample of the four dozen policy statements the Farm Bureau advocates in its support of natural gas drilling in the state.

Conversely studies by academics including Professor Vengosh of Duke University indicate that hydrofracking produces high concentrations of metals, salts and radioactivity downstream from a wastewater treatment facility in Pennsylvania.

It is surprising that the DEC has proceeded to promulgate water withdrawal regulations that do not address hydrofracking. Regulations were scheduled to be issued earlier this year, but the DEC continues to await the report of the New York State Commissioner of Health. It is hoped that the Health Commissioner’s report will soon address hydrofracking and horizontal drilling practices and their impacts.

Effective June 1, 2013 large water users (100 million gallons or more per day) were required to submit applications for DEC withdrawal permits. Each year thereafter, other users will be required to apply for DEC permits until all users withdrawing 100,000 gallons or more per day submit applications by February 2017.

While water availability in New York is sufficient to meet domestic and commercial requirements, concerns have been raised that large water users with permits may not be eager to adjust their withdrawals in times of scarcity to meet the needs of small users. Given the anticipated increase in human population, large volume water use if hydro fracturing moratorium is lifted and the effects of global climate change the availability of water in this stare should not be taken for granted.

Recommendations

The DEC upon digesting the long awaited and yet to be published environmental report on hydrofracking should draft revised water withdrawal regulations that address the needs of all stakeholders. The economic opportunities and benefits of hydrofracking on the Marcellus Shale should of course be balanced against the health and environmental concerns of state residents and the wildlife with whom they share the land, air and water of the Empire State but eight years of indecision is long enough.

As Cornell University researchers Rahm and Riha noted, rules and regulations are needed to ensure that water withdrawals are performed in a way that is considerate of natural conditions and existing withdrawals for other purposes.

Dealing with Environmentally Challenged Property

Posted on: September 27th, 2013
by David Ganje

Buying and Selling Dirty Property

Experienced attorney in the Dakotas & New York Practicing in Commercial Transactions & Litigation, Environmental Law, Natural Resources Law, & Energy Law

The below information links to workshop information on doing a business transaction on environmentally damaged property though planning, insurance and proper strategy.

A Poorly Filled Vacuum | NY Oil and Gas Laws and Hydrofracking

Posted on: September 21st, 2013
by David Ganje

Hydrofracking and New York Oil and Gas Law

A Poorly Filled Vacuum

Persistent institutional indecisiveness by elected officials in New York State has placed the state in the position of not having a statewide policy addressing the issue of energy development, as it relates to hydrofracking in the oil and gas industry. Beginning in 2008, the state-imposed moratorium on fracking established a policy vacuum lasting five years and running. Filling the vacuum are a myriad of town and city home rule ordinances meant to control the fracking industry by prohibition through recent, local zoning ordinances and planning law. Approximately 150 different municipalities have passed such local legislation. Thus the vacuum is now filled with a patchwork of local laws, ironically void of any ‘center’, and all in effect designed to independently regulate the same area. These types of disparate local legislative acts neither encourage development in the energy industry, as proponents of the energy industry have recommended, nor do they create a cohesive state policy prohibiting such development. Nobody wins. By permitting a checkerboard of local laws, what is ostensibly legislative chaos, bad policy has been created. Other states facing a similar issue provide guidance. Ohio completed its fracking study in 8 months. Illinois completed its study this year and subsequently created regulations after a 17-month study. California announced new regulations on the subject this year after a 2-year study. New York has failed to yet step in—even with the benefit of 5 years to study the issue.

Alexander Hamilton argued that a centralized form of government avoided faction of just the type New York now faces. Local participation in the policy and rule making process is perhaps understandable where the state has failed to act and manage. On oil and gas development, however, New York’s existing law reflects a desire for state uniformity and addresses the problem of enforcement by local law. The New York statute in question states, “The provisions of this article shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law.” The statute reflects a desire for state uniformity, consistent with the New York Environmental Conservation Commission’s jurisdiction to regulate well drilling, under the Oil, Gas and Solution Mining Law. Yet, in early May, a New York Appellate Court decision effectively authorized municipalities in New York State to ban oil and gas development by use of these local laws. The New York Court of Appeals has agreed to take up the case on appeal, to decide whether state law preempts local, municipal authority.

Oil and gas is not found beneath the earth arranged in tidy blocks within existing legal boundaries, but is rather found in pools; spread throughout veins of irregularly-shaped shale deposits. The shale deposits’ geological formation does not fit neatly within a city or town’s boundaries, but may well run through several towns—and thus, is unable to heed the legalese of man’s concept of legal borders. New York’s existing law declares a policy of not permitting waste of natural resources by inefficient withdrawal of oil, and holds paramount the principle that a greater ultimate recovery of oil and gas may be had, and the correlative rights of all landowners and the general public may be fully protected.

The Court of Appeals will need to decide whether the Oil, Gas and Solution Mining Law are intended to create a statewide energy policy. It is. Permitting a patchwork of incongruous local policies is an unnecessary bureaucratic nightmare; especially when one has a state agency such as the New York DEC, which is fully equipped and professionally staffed to uniformly manage oil and gas development throughout the state. Western states having faced this problem before— and concluded, when necessary, through their courts—that whole cloth prohibitions created by local laws are preempted by state oil and gas statutes. Several courts have held that a state’s interest in efficient oil and gas development, as well as production throughout the state, is sufficiently important to override a home-rule city’s imposition of a total ban on the drilling of any oil, gas, or hydrocarbon wells.

Both local interests and a statewide development policy can co-exist. Uniform statewide administration of oil and gas development by the New York Department of Environmental Conservation and local control of land use laws through zoning policies are not mutually exclusive. “Predictability” is what the industry seeks before it takes an economic risk. Security of property from environmental hazards and nuisances are the issues that local ordinances are intended to protect. Predictability is not obtained by patchwork of oil and gas law varying from town to town. New York’s DEC Mineral Resources staff was created to deal with this issue. The staff has an average work experience of 22 years in this field. A full DEC permit application, wherein a proposed operator identifies and addresses issues found in reasonable zoning ordinances or local comprehensive plan, would allow for a public debate on a project’s affect on local issues and property through a DEC managed environmental review.

David Ganje is a natural resources and commercial lawyer with Ganje Law Offices of Albany, New York and Rapid City, South Dakota.

Army Corps of Engineers Wrong on Missouri River Water Plan

Posted on: August 28th, 2013
by David Ganje

Army Corps of Engineers Wrong on Missouri River Water Plan

As Mark Twain said, whiskey is for drinking and water is for fighting.

The Army Corps of Engineers (Corps) recently started a rule making process in an effort to manage and ‘sell’ surplus water from the Missouri River reservoirs. The process is an attempt to quantify so called surplus river water. The Corps’ initial report states, “some amount of surplus water can be made available for a period of up to 10 years for municipal and industrial use without adversely affecting existing lawful uses of the water.” This effort to define, quantify and sell surplus water is unprecedented. The proposed action by the Corps would both restrict access and charge a fee for access to surplus river water. The method used by the Corps to define surplus water is arbitrary. Two important developments have occurred concerning this project: 1) the Corps has extended the public comment period on the project; 2) and Congress has started to act.

The Corps’ action should be of great concern to the state of South Dakota, its people, businesses and the Indian tribes all of whom have vested legal rights to Missouri River water as a natural resource. The natural flows of water are not subject to the Corps’ control. The natural flow of a river refers to the flow of water in the river absent the reservoirs.

South Dakota and North Dakota have a legally established right to manage Missouri River water. The Corps’ action does not correctly address the distinction between water supply that is available to the states (natural flow) and water supply from storage, nor does it adequately address South Dakota Tribes’ rights to water. A state’s management of natural flows is exempted by the Flood Control Act. Indian Tribes and the state of South Dakota have the right to use Missouri River water for various purposes even though it may not now be so used.

The Missouri River flows through or is adjacent to several Indian reservations and also supplies water to several Tribes in the region such as the Oglala Sioux Tribe and the Rosebud Sioux Tribe through water projects. The various South Dakota Indian Tribes’ water rights have also not been properly taken into account. The Tribes have long established “reserved water rights.” The Tribes’ reserved rights predate the Flood Control Act but were not addressed in the Flood Control Act. The effort by the Corps to create a new definition of ‘surplus water’ arguably amounts to a wrongful taking, as well as a misunderstanding of Tribal and State’s rights to river water.

In justifying its proposed action, the Corps relies on the Flood Control Act. The Corps fails to take into account both the legislative intent and the language of the Flood Control Act. The Act authorizes the Corps to make contracts with parties for domestic and industrial uses of “surplus water” at reservoirs, Provided, that no contracts for such water shall adversely affect then existing lawful uses of such water.

The Flood Control Act states “… it is hereby declared to be policy of the Congress to recognize the interests and rights of the States in determining the development of the watersheds within their borders and likewise their interests and rights in water utilization and control ….” The Corps is not following this policy.

Another important issue in the surplus water project is not addressed by the Corps. The authority under which the Corps proceeds does not include “irrigation uses” of the so called surplus water. The Corps ‘surplus water’ project if adopted would allow the Corps to manage the designated water for domestic and industrial purposes, but the Corps would have no legal authority to ‘manage’ the surplus water for irrigation purposes. This is a bureaucratic nightmare.

The Corps should be mindful of the Tenth Amendment to the US Constitution which states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.” The state constitutions of both North Dakota and South Dakota provide that water streams, natural watercourses, groundwater and surface water are forever property of the people of the state. There can be no restriction of access to the States’ water rights from natural flows.

Efforts are underway in Congress to prevent the Corps from completing this unwise endeavor. The US Senate passed the Water Resources Development Act of 2013 (WDRA) in May of this year. This legislation as amended specifically addresses the concerns of states that fear an infringement of state water rights by the Corps. The amendment states that “No fee for surplus water shall be charged under a contract for surplus water if the contract is for surplus water stored on the Missouri River.”

Congresswoman Noem supports the reigning in of the Corps on this project. It is not certain however that the House will adopt the same position as the Senate on the protection of state water rights. That is a disappointment. I support the Senate bill and urge the House to adopt it as part of its version of the WDRA.

Drafting a Choice of Law Provision

Posted on: August 28th, 2013
by David Ganje

Drafting A Choice of Law Provision

Consider All Aspects & State Revisions

Annual Funding Source Issue

Drafting a choice of law provision is not as easy as it seems if you assume the Uniform Universal Code (UCC) is ‘universal’ in all states. But it isn’t. Therefore, one needs to be extra vigilant in writing these provisions to ensure the outcome isn’t different from what was intended.

A choice of law provision is used in a lease or contract to determine the state or jurisdiction whose laws will govern if litigation arises between the lease parties. At first glance, when drafting or administering a commercial lease, it is easy to ask, “What is the real value of a ‘choice of law’ provision” if contractual rules are to be uniform under the “universal” Uniform Commercial Code (UCC)? A lessor should be able to achieve the same result in a contractual dispute regardless of the state in which litigation may be filed.

While states have adopted the UCC, they have not uniformly adopted all provisions of the UCC, nor do the various states uniformly interpret its terms. States tend to revise and edit sections and provisions of the UCC thus varying the outcome of any litigation. In drafting a choice of law provision in a lease one should consider a number of factors, including proximity to the court, the reputation of the judges in the particular legal area, the likely type of available jurors, and differences in the states governing leasing law and procedure.

Given the importance a choice of law provision will have on the outcome of possible litigation, it is surprising that the UCC provides, at best, minimal guidance on the subject. Case law over the years has developed the best guidance for drafting choice of law provisions in a commercial lease. The real source of direction in drafting a choice of law provision is, therefore, case law. Rules developed by case law have engendered a strong public policy in favor of allowing and enforcing choice of law provisions.

Case law provides our roadmap. This article will add comments on important rules of the road. If a choice of law provision is not procured by fraud and is not a violation of public policy, then courts will apply the law of the state designated in the lease if the selected forum bears sufficient contacts with the transaction. The law allows, in this instance, for contractual freedom. Three important aspects of a choice of law provisions are: the “reasonable relation” of the choice of law provision to the lease parties or to the state in which the suit is to be brought; the “conspicuousness” of the choice of law provision in the lease; and whether or not the provision places an inconvenience on the party seeking to avoid the provision.

Most of my “relations” are unreasonable. By that, I mean a good number of my cousins are a bunch of clowns. But the law is not referring to my kin when it talks about a “reasonable relationship.” The law of the state chosen in a choice of law provision must have some “business relation” to the lease parties or to the subject of the lease. The relationship need not be substantial or formal but requires some everyday relevance.

Accordingly, a choice of law provision will be deemed to have a reasonable relationship to the transaction if the headquarters of one party to the lease is within the state selected. In contrast, if the provision bears no relationship at all to the jurisdiction selected, such a choice of law provision will not be upheld.

Assume a choice of law provision requires that all lawsuits be brought in Utah, but Party A resides in New York City and Party B resides in Portland, OR, with the leased equipment to be manufactured and distributed from Denver. Courts likely will not uphold a choice of law provision of this nature (Utah), because of the lack of relationship with the forum selected. On the other hand, if the choice of law provision designated either, New York, Oregon or Colorado, then the provision would be deemed to have a reasonable relationship to the transaction— each of these states either has some connection to the lease parties or is connected to the subject of the lease.

The conspicuousness of a choice of law provision is another issue that will determine whether the provision will be upheld. The rationale behind making sure that a choice of law provision is conspicuous is to prevent fraud and to insure that a party to a lease agreement is not compelled to fight a lawsuit in a jurisdiction utterly unrelated to the lease. A choice of law provision that clearly indicates within the lease agreement which jurisdiction’s law is to be applied will be upheld.

Case law has provided an example of what would constitute “clearly indicated.” A choice of law printed in large cap letters has been deemed to be conspicuous, although it should also be noted that the court also mentioned that use of large cap letters was more than necessary. Parties entering into a commercial lease are considered to be more sophisticated than a consumer, thus, the steps to insure that a choice of law provision is sufficiently explicit for a consumer may not be needed when a businessperson is involved.

While the law allows for freedom of contract, and while lessors might want to gain any business advantage they can when drawing up a contract, courts will not validate a choice of law provision that would be manifestly inconvenient for the party seeking to avoid the provision. Finding that application of a choice of law provision would be unreasonable takes more than a mere claim of inconvenience by the party seeking to avoid the provision. Courts have ruled that the fact a litigation party has to travel will not, by itself, be deemed a legal inconvenience.

For example, Party A conducts business in North Carolina while Party B conducts business in New York. A choice of law provision, which requires that all lawsuits be brought in the state of New York included in the lease agreement will be upheld, because although Party A must travel to New York the fact that there is traveling involved does not bar the application of the choice of law provision.

As a final note, just because the drafters of the UCC effectively overlooked choice of law issues, does not mean you should or that a judge will. When drafting a choice of law provision in a commercial lease pay attention to the road map. Failure to follow the rules of the road could send you on a litigatious journey to Iowa, when you wanted to go to New York.