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South Dakota’s Approach To Condemnation

Posted on: December 2nd, 2016
by David Ganje

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

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? Candidate 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.” South Dakota law does not take this into consideration. Condemnation of one’s land involves forced negotiation required by law, and sometimes involuntary litigation. Is a one-time payment for an easement fair compensation? Is the condemnor (developer or government agency) required to provide its plan of work and operations to the condemnee (property owner) so the owner can evaluate this information? This would create a fairer playing field in negotiations. South Dakota law does not provide for this. Should the landowner be granted his expenses and attorney’s fees in a trial and for an appeal if the final award given is greater than the last ‘offer’ made by the condemnor? Or if a mistrial is called which is not the fault of the landowner? South Dakota law does not provide for this. Is the condemnor required to provide written disclosure of its calculations and basis for a proposed offer for the property? South Dakota law does not provide for this. 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. South Dakota law does not provide for this.

The law of condemnation brings out a curious inconsistency in the character of the state. South Dakota is a strong property-rights and individual-rights state. Aside from the important and unique relationships of Indian reservations to the state and to the federal government, private property in South Dakota is a hallowed right. State laws are vigilant in protecting one’s real estate and other property from intrusion, reduction in value as well as protecting the right to use the property for any lawful purposes. The state Constitution, like the federal, directs that, “Private property shall not be taken for public use, or damaged, without just compensation. . .”

Thus we get to my puzzlement. South Dakota has done very little to modernize eminent domain laws. This is not a case of the emperor having no clothes. This is a case of the emperor having no vision. The takeaway is that state leaders have no appetite for changing the status quo.

In modern vernacular ‘trending’ means that which is currently popular in social media, however in common English it means that which is changing or developing in a certain direction. The word ‘trending’ applies to the painfully slow but observable changes in the law of eminent domain. Unfortunately these changes are not coming from South Dakota political leaders. The state’s recent passage of a voluntary mediation statute for condemnation cases does nothing to address the substantive changes needed.A national trend has started toward balancing the sacrifices a property owner makes when business or government does its eminent domain dance. Courts, and over time other state legislatures, will continue to correct the ills of eminent domain when it is used as a legal sword. South Dakota must cultivate a fairer system for the taking of property.

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

Leaky Laws – The Keystone 1 Leak and Oil Spill Liability in South Dakota

Posted on: April 29th, 2016
by David Ganje

Pipelines, even privately owned, are a publically regulated transportation and operating system. The question is not whether pipelines are “essential to our society.” Pipelines are already integral to the country. The US had over 1,700,000 miles of oil and gas pipelines in 2014. The fairness of pipeline easements to landowners is a separate matter. I have addressed that in blog articles on my website. When a pipeline leak occurs, it only deflects from the problem at hand to discuss a pipeline’s place in modern society. The media puts its attention on the statements of politicians after a pipeline leak has occurred. Such media attention does address the question of how to manage the risk. Operating systems will malfunction. The process for legally authorizing operating systems should not. To paraphrase Norman Vincent Peale, the problem with most publically regulated systems is that they would rather be ruined by praise than saved by criticism.

On April 2nd, 2016 TransCanada announced that its Keystone 1 pipeline was leaking crude oil. Whatever leak detection system was in place on the pipeline failed, as the leak was discovered and reported by a local South Dakota landowner. On April 5th the operator shut down the pipeline. TransCanada initially reported that 187 gallons had been spilled. Days later they reported that over 18,600 gallons of oil had already leaked from the pipeline. This leak is one of the largest in the history of the State. The relevant question should be how regulated pipeline leaks will be cleaned up, and who will pay for them.

Under both Federal and state laws, the party responsible for a leak is the one responsible for cleanup. Usually a company like TransCanada prefers to take care of the cleanup itself. Not only does this help soothe public relations problems resulting from a leak, but it helps the operator control the costs. While South Dakota’s Department of Environmental and Natural Resources is supervising of the cleanup, TransCanada is currently managing the cleanup and hiring the contractors for the job. But a pipeline operator causing a spill may not always be willing or able to clean up a spill. The liable operator could be bankrupt, dissolved, or perhaps not have the money. In these cases, clean up cannot wait for years of court cases or bureaucratic lethargy. The money for a cleanup needs to be there, ready to be used.

The state tells us that ‘them what operates a car must financially assure the public against the risk of its operation.’ Thus, the state has mandatory car insurance. Alas, no such state mandatory insurance law protects the public against the risk of a pipeline spill. The last time a bill was introduced to create financial assurances like this was 2008 (Senate Bill 138 from the 2008 session). This proposed law was a good start. The bill stated in part:

“…financial assurance, in a reasonable and proper amount for the remediation of potential damage to the environment that could be caused by the activity . . . may include insurance, a surety bond, escrow account, letter of credit, trust, guarantee, or cash deposit.”

Of course, special interest killed this bill.

South Dakota has in place a trust fund, created through taxes, which is available to pay for emergency response to spills, and ideally to cover for situations where the operator does not or cannot pay. According to the state, these would be the funds used for cleanup operations if TransCanada was not paying.

The problem is that this fund is not bottomless. DENR’s FY 2015 budget request reports that the 2013 end-of-year balance on the fund was $2.93 million. When a big spill happens, the fund could be strained. For example, the fund spent $1,750,000 in 2008. DENR estimates that the fund may have to manage as many as 200 to 250 spills every year, because this fund doesn’t just cover oil spills – it also has to cover spills of pesticides, fertilizers, and any other hazardous substances and pollutants. Bills have been introduced to create a special fund to cover just pipeline leaks in the SD legislature in 2009, 2010, and 2011. The proposals were shot down every time. It is only a matter of time before there is a large spill that does not have a company around to pay for the cleanup. And the damages from such a spill could be significant, especially if the leaked substance enters groundwater and spreads. When that happens, the remaining funds in the SDRSR are not going to make a dent. The legislature needs to create a modern statute addressing financial assurances for pipeline leaks.

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

Ganje Selected as Super Lawyer for 2014

Posted on: September 1st, 2014
by David Ganje

Ganje selected as Super Lawyer for 2014

David Ganje has been selected to the 2014 New York Super Lawyers list in the category of energy and natural resources. Each year no more than five percent of the lawyers in the state are selected by the research team at Super Lawyers to receive this honor. Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement

Landmen-Oil & Gas Lease Brokers

Posted on: August 22nd, 2014
by David Ganje

LANDMEN – OIL AND GAS LEASE BROKERS

By entering into an oil and gas lease, a landowner provides an oil and gas lessee, usually an oil company, with the right to explore for and produce oil and gas found under the landowner’s property. (In the article I will use the accepted term ‘oil and gas lease’, although an oil and gas lease is not in a correct legal context a real estate or commercial lease.) Both the oil company and the landowner enter into an oil and gas lease with the same goal: profit. However, the underlying interests of each party are very different. An oil company wants as much access to the surface and subsurface as possible. In contrast, a landowner desires to limit access and to limit any potential damage caused by drilling and recovery operations. An oil company also desires to keep a lease alive despite a lack of production or a failure to drill. A landowner desires, among other things, that the lease end quickly if the oil company fails to produce in well paying quantities. Some landowners enter into oil and gas negotiations with little experience or knowledge of oil and gas matters.

A “landman” is the usual point of contact between a landowner and an oil company or a so-called lease investor. The American Association of Professional Landmen (AAPL) reports that a landman’s services include: “negotiating for the acquisition or divestiture of mineral rights; negotiating business agreements that provide for the exploration for and/or development of minerals; determining ownership in minerals through the research of public and private records; reviewing the status of title, curing title defects and otherwise reducing title risk associated with ownership in minerals; managing rights and/or obligations derived from ownership of interests in minerals; and unitizing or pooling of interests in minerals.” Given these responsibilities, landmen have influence over oil and gas leases, and over the effect that leases will have on a landowner. One could say that landmen are the “real estate brokers” of the oil and gas industry. Despite this influence, landmen generally do not need to be licensed or even certified by a state in which they are making deals. The only national organization to implement ethical standards for landmen is the American Association of Professional Landmen. The AAPL is a nationwide organization with over 20,000 members. This organization offers various training programs, sets ethical standards for landmen and lobbies congress on behalf of its members.

Landmen are paid by the lessee. Landmen are for all intents and purposes agents of the oil and gas producers. This leads some landmen to resort to high-pressure sales tactics. A report by the AAPL Licensing Task Force in 2008 recommended that the organization support landmen licensing efforts. The report concluded that licensing requirements were most needed in Texas and other states where many landmen interact with residents, and where the areas are experiencing an oil and gas boom. Opponents of licensing argue that requiring a license or certification will not make landmen better. This argument fails to consider the true purpose behind man-made laws. Laws are created to encourage people not to act on their impulses, and also allow the state to take action if they do act on their impulses. Licensing requirements for landmen will not make all parties better, but regulations allow a state to step in if a landman’s practices are contrary to established legal standards.

Landmen in South Dakota must be licensed as real estate brokers and licensees. Landmen in North Dakota are not required to be licensed. Landmen in South Dakota come under the jurisdiction of the South Dakota Real Estate Commission. The South Dakota Codified Laws define “Real Estate” to include mineral rights. Because of South Dakota law, several disclosure requirements are mandated of landmen before they can close an oil and gas lease. South Dakota law also defines a “Real Estate Broker” as someone who “buys, rents, sells, manages, leases, etc., an interest or estate in Real Estate.” The South Dakota Attorney General has opined that landmen are “Real Estate Brokers.” Accordingly, landmen must be licensed as such. The Code provides that any landman operating without the requisite license is committing a Class 1 misdemeanor and is required to forfeit any compensation for the deal he brokers. A separate legal question may lie as to whether an oil and gas lease created by and negotiated by such a landman is enforceable as a contract.

David Ganje of Ganje Law Offices practices natural resources, environmental and commercial law in North Dakota and South Dakota. The website: lexenergy.net . The contents of this article are intended for general information purposes only and are not intended as legal advice.