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A Whole New Rodeo – The Economy

Posted on: May 8th, 2020
by David Ganje

I provide the reader with an opinion piece discussing legal problems the business and ag world now face. I have seen this rodeo before. I have ridden the bronco. It hurts when you fall. (I prefer falling off of a motorcycle — the drop is less severe).

Don’t kid yourself. Don’t act like the coronavirus effect on the region’s economy is something that will just pass. Yes, it will pass. But it will take a damn long time to pass. Further, this will be a depression, and one not known by history because of the intricate modern phenomenon of government regulations which are indelibly integrated into every aspect of the business and agricultural world.

Those of you old enough will remember how long it took to get out of the 1980s ag recession. I have seen and worked in two recessions in my career — and this one is bigger and quite distinct from either of those. Start now to plan. Start now to deal with the complicated financial problems in the ag and ranch world. They are here.

A modern economy is not simple. It is an admixture of market stupidity, unresponsive government programs, bad banking regulations and management, and overall misjudgments by most everyone. Government won’t bail out the problem. Government might help some, but it is not the remedy. Government can’t foresee, can’t plan, can’t address and can’t correctly manage.

I know, I have also worked for government.

So let’s start our review. Consider that when I use the term ‘business’ it means those in business whether ranchers, farmers, suppliers, service providers, manufacturers, banks and financial institutions. All of these I have represented in my career. When I taught bankruptcy law, I used a medical analogy: I told the aspiring legal scholars that a bankruptcy filing is akin to surgery. Surgery should always be treated as the last option.

In the medical field, a reasonable first option might be 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” 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 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.

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

Commercial law issues in times of a financial crisis

Posted on: April 14th, 2020
by David Ganje

I present the reader with a short discussion on legal problems the business and ag world now faces. I have seen this rodeo before. I have ridden the bronco. It hurts when you fall. (I prefer falling off of a motorcycle – the drop is less severe) Don’t kid yourself. Don’t act like the coronavirus effect on the region’s economy is something that will just pass. Yes, it will pass. But it will take a damn long time to pass. Further, this will be a depression, and one not known by history because of the intricate modern phenomenon of government regulations which are indelibly integrated into every aspect of the business and agricultural world. Those of you old enough will remember how long it took to get out of the 80s ag recession. I have seen and worked in two recessions in my career. And this one is bigger and quite distinct from either of those. Start now to plan. Start now to deal with the complicated financial problems in the ag and ranch world. They are here. A modern economy is not simple. It is an admixture of market stupidity, unresponsive government programs, bad banking regulations and management, and overall misjudgments by most everyone. Government won’t bail out the problem. Government might help some, but it is not the remedy. Government can’t foresee, can’t plan, can’t address and can’t correctly manage. I know, I have also worked for government.

So let’s start our review. Consider that when I use the term business it means those in business whether ranchers, farmers, suppliers, manufacturers, the oil and gas industry, service providers and financial institutions. All of whom I have represented in my career. When I taught bankruptcy law I used a medical analogy: I told the young legal scholars that a bankruptcy filing is akin to surgery. 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.

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.

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

Property Rights and Water Rights

Posted on: April 9th, 2020
by David Ganje

Website: lexenergy.net
Phone: 605-385-0330
Fax: 605-385-0330
davidganje@ganjelaw.com

DAVID L. GANJE
ATTORNEY AT LAW
GANJE LAW OFFICES
17220 N Boswell Blvd
Suite 130L
Sun City, AZ 85372

______________________________________________________________________________

March 27^th, 2020

Via Mail and Email

Chairperson
Davison County Drainage Board
200 E. 4th Ave.
Mitchell, SD 57301-2631

Davison County Planning and Zoning Administrator (via email)

Davison County Auditor (via email for distribution to parties in interest)

RE: John Millan Permit (Parcel) Number: 03000-10361-301-00, 03000-10361-292-00, 03000-10361-303-00, and 03000-10361-304-00

Dear Chairperson, members of the Davison County Drainage Board and other interested parties:

By way of introduction I represent Kenneth Hostler of 39872 252nd St, Mt. Vernon, SD 57363 with regard to a pending drain tile permit application filed with Davison County by an applicant described in the permit application as follows “Name: Millan, John Address: 25563 406^th Ave. Mitchell, SD 57301” with a date of February 27^th, 2020. My client owns affected land described as the southeast Quarter of Section 19 Range 61 West in Davison County South Dakota. The Drainage Board held a hearing on the application on March 17th, 2020. Upon information received, the Board made a tentative, non-final decision to grant the permit. As of now, the Board’s informal decision to grant the permit has not been formalized.
My client’s property and legal rights are prejudiced by the described drainage project application. I respectfully report to the Drainage Board and Davison County that the formal granting of this drain tile permit application would be an error of law. The permit should not be granted.
The Board and interested parties should be aware of legal problems and issues with the permit application and the Board’s process regarding the application and hearing, even though I have yet to be favored with information that I requested from the county on this matter. This letter is not intended as an exhaustive discussion of the problems and legal issues.
The hearing on the Millan drainage project, including its process, denied my client due process under the South Dakota and United States Constitutions.
The applicant did not provide information, data, analysis and facts on the matters listed below, which are all legally required by both due process of law and by the plain language of the Davison County Drainage Ordinance.
The below requirements at a. through h. were not in the application and were not discussed at the hearing by the applicant and the Board. Further, the Board’s findings and decision did not consider the following relevant, required information, analysis, data and facts:

a. Flood hazard zones
b. Erosion potential
c. Water quality and supply
d. Agricultural production
e. Environmental quality
f. Aesthetics
g. Fish and Wildlife values
h. Considerations of downstream landowners and the potential for adverse effect thereon including consideration of the following criteria:

i. Uncontrolled drainage into receiving watercourses which do not have sufficient capacity to handle the additional flow and quantity of water shall be considered to have an adverse effect.
ii. Whether drainage is accomplished by reasonably improving and aiding the normal and natural system of drainage according to its reasonable carrying capacity, or in the absence of a practical natural drain, a reasonable artificial drain system is adopted.
iii. The amount of water proposed to be drained.
iv. The design and other physical aspects of the drain.
v. The impact of sustained flows.

The project, as planned, will cause surface water to flow in unnatural quantities over and onto my client’s property to reach Dry Run Creek. The application states the outlet distributes collected water from lengthy drain tile, which then “flows into Dry Run Creek.” The proposal is to have the water flow over and onto my client’s property and then into the described creek, Dry Run Creek, which is on my client’s real property.
The location of the outlet just south of my client’s real property will result in excessive and unnatural distributions of surface water onto my client’s agricultural lands, which are used for crop production, given the total linear feet of drain tile proposed in the application.
The application provides the following representations regarding the project: Length of Solid Drain (Feet) is I5,000; the Length of Perforated Drain (Feet) is 300,000 and with a Total Length of all Drain (Feet) of 315,000. The application contains no adequate disclosure of the amount of water to be drained. The applicant’s response to the county’s required “Explanation of Drain Design” states that it is to “Improve farm ground to increase yields.” These limited representations do not provide enough information from which a reasonable person could make a decision concerning the drain tile permit application. And among other deficiencies, the application does not explain how the applicant’s project would comply with drain tile industry standards.
County officials considering granting a permit for land-use under the Davison County Comprehensive Plan are to rely upon scientific and technical sources in evaluating the proposed use. That was not done in this matter.
The ambiguity of the project as described by the applicant prevented the Board from analyzing its potential impact. For example, the project has an “outlet into [1] unnamed intermittent stream which goes into SD DOT ROW and north across interstate into [2] unnamed intermittent stream which outlets in NE ¼ of Sec 30[.]” This can be read as to mean the first unnamed intermittent stream carries surface water directly into the second intermittent stream. Or it can be read to mean the first intermittent stream goes through the interstate and into the SD ROW, which then channelizes water towards and into the second intermittent stream. A reasonable person cannot make an informed decision from this information.
Upon information and belief the named applicant, John Millan, is not the legal owner of the real properties proposed to be tiled in the application. An approval of a permit under these circumstances indicates a failure of due diligence in analyzing the tile drainage project and the pending application. It also indicates that an incomplete and inadequate application has been submitted the Board.
The Board acted arbitrarily in preliminarily granting the permit before considering the factors it was required by law to review. The project if approved will cast unreasonable quantities of water onto my client’s property.
The comments and discussion contained in this letter should not be construed as a waiver of any additional claims or issues of my client not stated. Nothing in this letter operates as a waiver or release of my client’s legal rights, remedies, powers or privileges including the right to assert other claims. My client reserves all legal and equitable rights in full with respect to this matter.

Sincerely,

David L Ganje

Cc: to applicant

A Court Looks At Problematic Leases

Posted on: March 19th, 2020
by David Ganje

A well-known lyricist wrote these words: “When logic and proportion have fallen sloppy dead and the white knight is talking backwards.”

I suspect the lyricist did not have leases in mind as she wrote the words. But I take her advice as spot-on when you consider the subject of leases discussed in this opinion piece.

The South Dakota Supreme Court recently decided a quite messy ranch lease case. A ranch lease is a commercial lease. A commercial lease is a ranch lease. The two are one animal, one species and one thing inseparable.

Those writing and negotiating a ranch lease tend to disregard the wisdom found in the language of a commercial lease. There is little ingenuity and care practiced in the leasing business.

For me the court’s ranch lease decision was deja vu all over again. I’ve seen too many problematic agriculture, farm and commercial leases in my two or three years on this good earth. History repeats itself. It’s easier to follow a pattern from the past when writing and negotiating a lease rather than spending the time and money to get it right.

My comments in this column affect commercial leases, agricultural leases and ranch leases all the same.

Matters related to how a lease will succeed or fail were one of the weaknesses of the written leases in the ranch lease case. As the court discussed the background, it was clear the leases in question did not fully address the lessors and lessees anticipated relationship with a grazing association and with a potential grazing permit.

No written guidelines were provided in the leases for navigating with a grazing association, or for how a party might obtain a grazing permit. Fraud and deceit claims were also asserted in the litigation.

This trouble could have been avoided by the writing of what I call a legal road map with a legend to the legal map. In legal parlance the leases should have included complete representations and warranties. These are also called “reps and warranties” to insiders in the legal industry.

A representation is a statement in a lease about particular facts, given by the party as true and correct, and given to induce the other party to enter into a lease. A warranty is a promise to legally back up the harmed party if the representation presented in a lease fails or is false.

Representations and warranties allow the parties to allocate responsibility for risks between the lessor and lessee. Typical representations might be a promise that there is no legal condemnation of the property pending, or that there are no disputes or litigation pending or threatened concerning the use and operations of or on the property. Representations and warranties can act in conjunction with due diligence by the prospective lessee.

Don’t lease property or buy property in the dark. You might run into something you can’t handle.

What do reps and warranties do? They put on the table the legal authority of the lessor to lease the property and importantly these terms govern the use and maintenance of the property during the lease.

A lessor usually wants to lease the property on an “as-is” basis or with limited representations and warranties. This approach eliminates promises about the condition of the property and about the uses to which the lessee may use the property.

The as-is approach lets the lessor minimize its risk, and reduce any claims in litigation. A lessee on the other hand should want a complete a set of representations and warranties in order to avoid risk, ensure certainty of the nature of the property, and reduce any need for clarifying or enforcing litigation.

No one should rely completely on reps and warranties. Due diligence is still in order. Use your head, not your eagerness to do a deal. It easier to get to a destination with a road map than with my inscrutable intuition.

The lyrics of Grace Slick again provide us with a lesson: “Remember what the dormouse said; feed your head, feed your head.”

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

Some water law for landowners and trespassers

Posted on: March 14th, 2020
by David Ganje

Most things in life are not free, but use and enjoyment of lakes, rivers, and streams in South Dakota often are. In South Dakota, water resources are held in trust by the state for all its citizenry. The SD Department of Environment and Natural Resources regulates water use and makes sure that uses conform to the public interest.

Stemming from South Dakota’s sovereign authority and codified by statute, the public has a right to recreationally use water (like the kayakers pictured above on Split Rock Creek, pictured in SimplySouthDakota.com) when that use conforms to “public purposes.” Public purposes are defined as boating, fishing, swimming, hunting, skating, picnicking, and similar activities.

Free use of public bodies is extended to the underlying bed (including dry bed) between the Ordinary High Water Mark and the Ordinary Low Water Mark, so long as the overlying water body is capable of recreational use. For navigable rivers and lakes, free use extends 50 feet landward from the Low Water Mark, so long as the distance does not extend past the High Water Mark.

The unique space between the High Water Mark and Low Water Mark also serves as a “right-of-way” when a publically managed water body is used for public purposes. It is prudent for those using the water to have an understanding of the law to avoid trespassing on private land.

The ownership of land grants the owner a bundle of rights, which include the right to defend privately owned property from trespassers. But even private land may be encumbered for the use of “public rights.” For instance, South Dakotans have a right to travel on public highways, including section lines that divide plats of land. Section lines are an example of a public right-of-way which the public is free to use without the permission of a private landowner.

Similarly, navigable and other non-navigable waters are considered public highways under South Dakota law. Rivers that are described as navigable under federal law are considered the same under South Dakota law. Federal law defines navigable waters as waters of the United States that were historically used to facilitate interstate commerce.

Yet the state holds all waters, outside of Indian Country, in trust for the benefit of the public but not as an owner or proprietor. The people of the State own the waters but not in the exclusive or absolute sense.

This water right-of-way is not limitless. In South Dakota, riparian (adjacent) landowners own the land down to the Low Water Mark. Recreational users of water for public purposes however can use land located between the High and Low Water Mark via this right-of-way. It is unlawful for a riparian owner to interfere with the water right-of-way between the High and Low Water Mark, even if the landowner is under the false-but-reasonable belief that the public is trespassing.

This prohibition includes the use of livestock fences that keep non-owners off the waterway. Fences across navigable streams must have a 6 foot high by 6 foot wide gate or they are unlawful. Federal navigable waters like the Missouri River are not allowed to be fenced off, regardless of the presence of a gate.

How do recreational users access public water when a landowner owns the submerged land up to the low water mark? Public ownership of the water body and the accompanying right-of-way does not create an automatic easement to access the public water. The water right-of-way only applies to the space between the High and Low Mark.

However, a limited right to portage exists in South Dakota. Portage refers to the carrying of boats and supplies overland between two waterways or around an obstacle to navigation. The term can also refer to the route by which a user of the waterway accomplishes this task.

We will here not talk about how I might have accessed water during my youth. The “statute of limitations” immunizes any conceivable transgression on that score. A fellow can never be clever enough to buy back his past. When public water has no access point, the state of the law can make access functionally impossible because there is no law that gives universal access “down to the water” if this entails trespass over private land.

The law is not like a snowplow on a truck. The snowplow on the highway department truck is supposed to be proactive and in front of a problem trying to make things right. The law is an after-the-fact remedy which sometimes fixes the issue at hand.

Water law is like the Missouri River before the dams were put in. It meanders all over the place over time.

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