Call Our Firm:   605.385.0330

Commercial Transactions & Litigation, Environmental Law, Natural Resources Law, & Energy Law

Archive for the ‘North Dakota Law’ Category

SD weighs in on the dormant mineral laws

Posted on: February 19th, 2019
by David Ganje

A  recent South Dakota Supreme Court decision, Holsti v. Kimber, has shed light on two areas of the dormant mineral act, previously untouched by South Dakota’s highest court: first, what constitutes “use” and “nonuse” of a mineral interest in order for a claimant to keep ownership of the mineral interests, and second, who may exercise that “use” of mineral interests. Though other issues remain unanswered following the decision, the ruling suggests what a mineral interest owner may do to prevent lapse of one’s mineral interest and what a mineral interest owner may do to keep his interest in a mineral estate. This case is the first time the South Dakota Supreme Court has addressed head-on dormant mineral laws.

South Dakota defines a mineral interest as “any interest, in oil, gas, coal, clay, gravel, uranium, and all other minerals of any kind and nature, whether created by grant, assignment, exception, reservation, or otherwise, owned by a person other than the owner of the surface estate.” A mineral interest is considered abandoned if it is “unused” for 23 years (20 years in North Dakota), and a statement of claim is not recorded within that time. I call this the “Mineral Rights Grace Period.” Upon an abandonment, that is a non-use, the surface estate owner may succeed to the mineral interest of another claimant.

In order to maintain ownership of a mineral interest and avoid lapse, the mineral interest must be “used.” “Use” under the statute may include one of several statutorily defined “uses.” One such “use” relevant to this case is:

Any conveyance, valid lease, mortgage, assignment, order in an estate settlement proceeding, inheritance tax determination affidavit, termination of life estate affidavit, or any judgment or decree that makes specific reference to the mineral interest is recorded …

It is the burden of the mineral interest owner to maintain his interest. Upon lapse, the burden shifts to the surface estate owner (the landowner) to take steps to succeed in the mineral interest. In Holsti, the issue before the court was whether the mineral interest owners fulfilled their burden to maintain their interest in the mineral estate.

The facts of the case: in 1967, Severt Kvalhein conveyed real property to Holsti and recorded the deed. In the sale Kvalhein reserved 50 percent of the mineral rights for himself. Two years later, in 1969, Kvalhein died and his estate was devised to eight heirs, each heir taking a one-eighth interest in the minerals.

In 2007, Holsti conveyed his surface estate to his sons (“the Holstis”). In December 2011, the Holstis published a notice of lapse of mineral interest in the official county newspaper in according with the statutes to recover mineral interests. No one responded by recording a statement of claim asserting ownership of the mineral interest. The Holstis filed a quiet title action in May 2012 alleging abandonment of the mineral interest due to “nonuse.”

Kvalhein heirs answered and rejected the argument that the mineral interest was abandoned. In their defense, the heirs referenced several 1978 oil and gas leases, a 1994 statement of claim by one of the heirs, and two mineral deeds recorded by one of the heirs in 1998 and 2011.

The court looked to whether the Kvalheim heirs had a valid mineral interest at all. The trial court had decided they did not have a valid interest because no document was recorded evidencing transfer of the mineral interests to the heirs and reasoned that “use” of a mineral interest could only be done by a “record owner.” The Supreme Court rejected that reading of the statute and found that the heirs did not need a recorded written document conveying Kvalheim’s mineral interest to them. The court found the Kvalheim’s last will and testament, though unrecorded, was sufficient to convey the mineral interest to the heirs upon Kvalheim’s death.

Once the court determined the heirs had an interest in the mineral estate, it next turned to whether or not that interest had been abandoned due to “nonuse,” or if the heirs had satisfied “use” requirements. The circuit court found the 1978 oil and gas leases recorded by the heirs were insufficient because they did not make specific reference to the mineral deed recorded by Kvalheim in 1967. The Supreme Court disagreed. Because the language of the statute does not specifically use the words “record holder” or “original deed” the court held the only two requirements for a recorded oil and gas lease to satisfy “use” were: 1) a specific reference to the mineral interest in question and 2) recording in the county register of deeds office. Because the heirs’ oil and gas leases specifically referred to the legal description of the mineral and because the leases were recorded in the proper county’s register of deeds office, the Court found the leases to be sufficient as “use.” (In a similar 2013 case decided by the North Dakota Supreme Court, Estate of Christeson v. Gilstad, the court also found that a legal mineral interest owner by inheritance, but not a record owner, could record an oil and gas lease to preclude abandonment of the mineral interest).

By exercising their rights as mineral interest holders and recording oil and gas leases in 1978, the Kvalheim heirs reset the clock back to zero on the 23-year test for abandonment. Therefore, from the last recorded lease in 1978, the heirs had 23 years in which the surface estate owners could not claim abandonment. Before the expiration of the 23 years (1978-2001), two Kvalheim heirs recorded documents sufficient to toll the clock back to zero again: in 1994, one heir recorded a valid statement of claim; and in 1998 and 2011 two valid deeds were recorded conveying the mineral interest between heirs. The court found both the statement of claim and mineral deeds constituted a “use” under the law and precluded abandonment. The court did not decide and instead remanded to the circuit court an additional issue: whether these two “uses” by Kvalhein heirs were sufficient to preserve the other six heir’s mineral interests.

In their holding, the court has clarified who may be a mineral interest holder and what they must do to satisfy the burden of “using” their mineral estate. This clarification is to the benefit of mineral interest holders because non-record holders may still protect their interests (though, it would be better practice to record an interest). Interestingly, in this case the mineral interest claimants were able to keep their claims even though the claims came through a will that was never probated.

David Ganje of Ganje Law Offices practices natural resources, environmental and commercial law.

 

 

David L Ganje
Ganje Law Offices
Web: lexenergy.net

605 385 0330

davidganje@ganjelaw.com

A closer look at North Dakota’s condemnation law

Posted on: December 27th, 2016
by David Ganje

A closer look at North Dakota’s condemnation law

This is the second of two articles discussing eminent domain law in both South Dakota and North Dakota. This article will address several problems with North Dakota condemnation law.

The use of eminent domain (condemnation) is a modern legal problem. Condemnation is the taking of property for a public or, in some cases, private interest. Condemnation is a legally sanctioned sword. My argument is not that eminent domain as a concept is wrong, but that in its present state as a legal vehicle attempting to provide fairness, eminent domain is 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.

Justice Sandra Day O’Connor famously said in her dissent to a private taking condemnation case, “The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.” One local North Dakota government official said it aptly regarding action to condemn property: it is better to look at condemnation through our local eyes rather than through the developers’ egos.

In my opinion, there are four notable problems with current North Dakota law:

1. 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? President elect Donald 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.” North Dakota law does not take this into consideration. In fact, state law prohibits this. The law states that no benefit from the proposed improvement may be allowed in calculating a landowner’s compensation.

2. A land owner is not allowed to recover reasonable attorney’s fees if he appeals and does not prevail or if he applies for a new trial and does not receive greater compensation than awarded in the first trial. Why should the land owner be penalized for exercising his right to an appeal or to a new trial when the whole process of condemnation is involuntary in the first place? This lawsuit and claim is not “elective surgery” to the landowner. He is forced into the circumstances of condemnation.

3. 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. North Dakota law does not provide for this.

4. Eminent Domain law is old law — too old. About half of the states still maintain that the property owner has the burden of proving value and proving the amount of compensation; this is ridiculous. Condemnation is not private litigation. It is a special legal right given to the condemnor to take land from another party. But North Dakota law requires that the burden of proof rests with the landowner to prove entitlement to compensation. This is also ridiculous. Rather than placing the burden of proof on the landowner who would often not prefer the forced taking, the law and the legal burden of proof should hold responsible the government or private party trying to take the land.

I am reminded of one of my tutors during my legal internship, who said something very memorable about the law while instructing me: “David, the law is a strange thing to citizens. They don’t pay much attention to it until it affects their property or their daughters.” The North Dakota Supreme Court acknowledges the dilemma in our society concerning the taking of someone else’s property. The Court stated that condemnation is, “Clear in theory but often cloudy in application.” A landowner in a condemnation case is not a party choosing elective surgery. Although the state has made progress in addressing fairness for surface owner’s, equity demands that more work be done.

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

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

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.

Solid Waste Management In The Dakotas

Posted on: September 26th, 2016
by David Ganje

Municipal Landfills in North Dakota

The operation of a municipal landfill, also known as a solid waste facility, involves legal risk, such as damage caused from a landfill leaking or by landfill contamination of groundwater. Modern landfills are created with liners and other collection systems designed to prevent contamination of the ground, groundwater and the air. Despite good practices, in 2003 the U.S. Geological Survey (citing the EPA) opined that “all landfills eventually will leak into the environment.”

In North Dakota municipalities are required, in the event of a spill or leak, to show their financial ability to take corrective action, but only after the event has already occurred. North Dakota does not require municipal landfills to maintain environmental or pollution liability insurance. Consider a landfill just west of Watford City, which was recently found storing thousands of pounds of illegal radioactive material. The costs to clean up a landfill leak can be beyond the financial capability of a municipality if adequate preparations are not made. An operating landfill is not the only party who might be on the hook to pay for leaks. By way of illustration, Grand Forks has promised to indemnify the operator of their landfill from any and all claims, suits or causes of action that arise from the landfill.

To put this liability issue in financial perspective, the cost to clean up a leaking 150-acre landfill next to a drinking water supply in Burnsville, Minn., was recently estimated by the state at $64 million. These clean up events are the type addressed by landfill pollution insurance, but few municipalities seem inclined to carry the insurance. I am not aware of any North Dakota municipal landfill that carries pollution liability insurance. This is akin to riding a motorcycle without a helmet. Landfills in the state are, in many cases, owned and run by cities and counties. Understand that municipal landfills are dutiful in complying with state and federal environmental regulations. State regulators and municipalities are following relevant statutes and rules. That is not the issue. The challenge is the risk of pollution liability, also called environmental liability – no small matter in today’s world, with costs that can reach into the millions.

Municipalities in North Dakota are not necessarily alone when a leak occurs. North Dakota maintains the Municipal Waste Landfill Release Compensation Fund, which would reimburse municipalities for reasonable corrective costs, including labor, testing, machinery, and consulting fees. However, the owner or operator must pay the first $100,000 for corrective action. Moreover, the Fund will not protect owners and operators who are negligent, or who caused the leak through misconduct, at the sole determination of the State. The Fund will not even reimburse for costs incurred through bodily injury or property damage. It is not a catch-all for landfill environmental liability.

If the Municipal Waste Landfill Release Compensation Fund cannot handle the issue, the release might be enough to trigger the State Disaster Relief Fund, which is there to help deal with a variety of issues, including widespread and severe water or air contamination. A problem on the scale experienced in Burnsville could be met with this State fund to help. A $64 million cleanup would however reduce the Disaster Relief Fund to near-empty, as North Dakota has just over $70 million currently in the fund.

Unfortunately for municipalities, when a serious landfill leak that cannot be handled at the city level occurs, the Environmental Protection Agency may become involved, triggering a Federal cleanup. Once the EPA gets involved, costs can skyrocket for everyone, and the EPA will bring suit against every party, including a negligent municipality, involved in the leak to pay for the cleanup costs. Facing off against the EPA in a million-dollar suit is the last place a municipality wants to be. It would be better to be able to handle landfill leaks with insurance, rather than involving other bureaucratic organizations who will use money inefficiently and then demand repayment.

This fund or ‘security account’ held by the state is not a complete answer, but it is a good start.  Compare this with South Dakota which leaves municipalities buck naked to the law. South Dakota leaves municipalities at great legal risk.  The South Dakota delegating law states that owners or operators of landfills are forever responsible for any pollution or legal problems caused by stored solid waste. The state has no special fund to deal with this issue. South Dakota’s rules allow a municipality to keep a separate fund (money deposited in a bank account, for example) to protect against the costs of a leaking landfill, or alternatively for coverage of such a leak by purchasing pollution insurance. Nevertheless, to maintain a separate fund large enough to cover a landfill leak is beyond the financial capability of municipalities in both states. Brown County, the third largest county in South Dakota, maintains a separate fund in the amount of $240,000. That is not enough money to cover a possible leak. Brown County is one of the municipalities that does not carry landfill pollution liability insurance. This is a problem, especially considering that the Brown County landfill makes a profit for the county. Yet Brown County will not consider pollution liability insurance to protect the landfill.

Just because the North Dakota has some financial support for landfills does not mean that preventative measures should be ignored. Government operated enterprises should not be so callous.  The old concept of sovereign immunity (“the king can do no wrong”) is quickly becoming old law. The growing need for landfills is not going away. To the contrary, solid waste is increasing yearly. While North Dakota is more prepared than its neighbor to the south, there are still things that should be done. The State should protect municipal landfills by requiring landfills to hold insurance covering operating pollution events, and municipal landfills should choose to do so whenever possible.