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

Posted on: October 22nd, 2016
by David Ganje

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

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

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. Much of the information about previous and past owners is public.

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

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

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

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

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

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

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

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

Free Land – South Dakota Style

Posted on: October 22nd, 2016
by David Ganje

Water and land do not mix well in South Dakota. In the last few days South Dakota gave up on its disputed claim to a 500 acre three-mile-long island known as Goat Island located in the Missouri River.  The state conceded jurisdiction over the claimed island giving control to the federal government. The lack of media coverage analyzing the pros and cons of this recent withdrawal of South Dakota’s disputed Goat Island land claim is disappointing. The state had argued that Goat Island was on the South Dakota side of the river when Lewis and Clark mapped the river in 1804. This is a public matter involving a state claim to land on the Missouri River. What were the reasons for the settlement of the claim? How is it good for South Dakota? The media did not ask. The government press releases did not say. Now the island is in the hands of the feds. The hand of government did this deal, but we know not the reasons for the decision.

Property boundaries matter when your land is next to a river or a body of water.  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.

South Dakota has enacted several laws regarding accretion rights.  The first important section states that when land forms from natural causes gradually over time next to a stream or river such land belongs to the owner of the bank, and it does not matter whether the water is navigable or not.  The second concerns avulsion, or the violent or sudden carrying away of land by a river or stream to another part of the river or opposite bank. Under the statute the owner of the original land may reclaim the land within one year of the new owner taking possession.  And the US Supreme Court has gotten into the act by ruling in the 1970s that the doctrine of accretion applies to changes in the river caused by both artificial as well as natural causes.

One lesson to learn from old man river is:  Don’t use fuzzy boundaries for the legal description in your deeds and contracts.  That is, do not let your lawyer describe the boundaries of your land by reference to a body of water. 

It must be wonderful to be the state.  South Dakota can give land away, and it can receive control of newly formed lakes for free. In a recent law case involving a dispute over the ownership of three newly-formed lakes in the state, the state Supreme Court ruled that effective ownership of these three newly formed lakes, all on privately owned land, should be held in the name of the state.  The Parks case ruling stated the lakebeds would continue to be owned by the private landowners but the lakes and water of the lakes are to be controlled by the state for the benefit of the people of the state.  The result:  more than two thousand surface acres of land, now in the form of lakes, would be controlled and supervised by the state and not the landowners.  Surprisingly, no mention of compensation to the landowners was made for this taking. The state taketh and the state giveth away. It is wonderful to be the state.

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

Free Land — If You Can Keep It

Posted on: October 12th, 2016
by David Ganje

Free Land – If You Can Keep It

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

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

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

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

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

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

Article Also Available at Bismark Tribute

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

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

Posted on: September 19th, 2016
by David Ganje

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

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

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

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

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

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

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

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

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

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

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