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South Dakota Paralegal Association talk

Posted by David Ganje - October 3rd, 2020

I’ve been asked to speak at the meeting of the South Dakota Paralegal Association in October. The Association official asked me to speak about environmental and natural resource issues affecting real estate transfers.  I am honored to speak at the upcoming virtual meeting of the Association. The topic presents contemporary issues and is worthy of the readers consideration.  I will here provide some of my talk on this subject.

Purchasing title insurance on a land deal gives specialized protection to the policy holder.  However, title insurance does not cover mineral interest ownership and does not provide protection on environmental problems that exist or may arise from ownership of the purchased land.

In practice real estate sales and transfers do not often follow a careful procedure, and do not use careful language when environmental and natural resource issues are involved.  I have observed this in both East River and West River transactions.  The standard sales agreement (the suggested official contract) provided by the South Dakota Real Estate Commission is not helpful.  Language in the agreement disregards the party’s ownership rights because mineral interests are not addressed.  And the matter of reserving or selling mineral rights reflects even more mistakes.  The wording in this standard state commercial and agricultural agreement leaves the grantor at risk because mineral interests are not described in the transfer sections of the agreement.  When one gives a warranty deed to land in South Dakota he gives a ‘warranty’ of his ownership of the surface and all that lies below it. That’s a pretty powerful warranty.  Homework should be done before giving such a warranty.  This is further compounded by the fact that title insurance does not cover mineral interests, and indeed some title companies will not search or report mineral interests on a written title policy.  Wyoming, Colorado and Montana have addressed the issue of mineral interests in official forms.  South Dakota has not. I have publicly advocated for such a change in the state’s standard agreement for some time now.  The reader will observe that my influence over state issues is quite underwhelming.

The purpose of Wyoming’s mineral disclosure law, according to the President of the Wyoming Realtor’s Association, was to avoid the unpleasant surprise encountered by buyers thinking they owned mineral rights only to find that a third party would appear on their land, and start digging on the property. By making the buyer aware of the possible severance of mineral rights, Wyoming’s disclosure law allows a prospective purchaser to make a more informed decision when purchasing real estate whether commercial, agricultural or residential.

Underground trespass.  What is it?  Not easily defined, the law came into existence before air travel and fracking for minerals.  It is discussed arcanely in this manner:  The Second Restatement of Torts follows old English law and states, “a trespass may be committed on, beneath, or above the surface of the earth.”

How does underground trespass occur on the plains?  Without belaboring a lot of examples, underground trespass might occur from underground pipeline leaks, leaking or corroded underground storage tanks, active oil operators infringing a bit too far under unleased property, a so-called disposal well’s ‘waste fluids’ migrating beyond its permissible subsurface boundaries, and so forth.

Is a man’s subsurface his castle?  Maybe.  A Nebraska Court addressed the issue of underground trespass.  The court held that the operator of an injection well could be liable if the damaged party could show that fluid migration harmed the damaged party’s ability to produce oil.  The North Dakota Supreme Court separately ruled that a claim in underground trespass may be trumped by a properly obtained force-pooling order from the state authority which oversees gas and oil operations.  In the North Dakota case it must be noted that the claimant property owner did not allege any actual damage to his interests.  And a West Virginia court, in a case that was finally settled and dismissed, ruled that subsurface horizontal fracturing for minerals very close to a Plaintiff’s property line was to be considered underground trespass.  The lesson is that modern society and the laws that follow will consider the issue of trespass on more than just the surface of property.

Caveat Emptor is for fools. When buying and selling real estate, the buyer and seller must over disclose and over investigate the property.  For example, I require that a buyer of property, which includes mineral interests, state in writing that he researched the value of any mineral interests. This forces the parties to investigate the matter.   When selling real estate do not allow for laziness to become a deal breaker.  Over-disclose.  In fact: Disclose. Disclose.  Surface water rights (and landowner obligations) are another illustration.  A new landowner may be obligated as a so-called downstream landowner to accept an existing drainage project from an upper landowner.  But actual surface water drainage may not currently run on the land, and in doing a sale of the land the parties may be blissfully ignorant of the water rights of an upper landowner who is allowed by law to run water onto a lower landowner.  Surface water drainage issues are also not disclosed in the standard South Dakota residential sale disclosure form.  Doing a real estate deal is not a time for puffery.  A real estate transaction is not the same as a first date when one suggests to the new date that he is “a professional baseball player.”   Disclose and be truthful.  The world will work better.

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

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Battle Over Drainage Permit Heats Up

Posted by David Ganje - September 16th, 2020

Mount Vernon farmer files second lawsuit to stop drainage project, while first permit could go to South Dakota’s high court

Written By: Marcus Traxler | Sep 14th 2020 – 6pm.

The matters of a Davison County drainage permit have become more entangled in the court system, with the results of the first decision being appealed to the South Dakota Supreme Court and a second permit for the same landowner drawing a new lawsuit.

John Millan filed a second permit for a drainage permit in Beulah Township on Aug. 6, which was shortly after his first permit was voided by a First Circuit Court ruling. That permit has drawn a second lawsuit from neighbor Kenneth Hostler, who filed a new suit on Aug. 31 against Millan and Davison County asking for a permanent injunction and declaratory judgment to void the new permit.

In the first court matter over the drainage permit that was initially approved in March, Judge Patrick Smith sided Hostler, writing in his decision that Millan’s initial application was missing key information in order for the Davison County Drainage Commission to make a decision. Millan and the county have appealed the first decision to the South Dakota Supreme Court, according to court documents filed Sept. 4.

In the appeal, Millan’s attorney, Gary Lestico, of the Rinke Noonan law firm in St. Cloud, Minnesota, claims among other items, that the trial court improperly considered matters outside of applicable South Dakota state law for permissible drainage of water and had erred in deciding that Millan didn’t meet his burden of proof in the permit application and erred deciding that the Davison County Drainage Commission had abused its discretion in initially granting the permit in March.

When Millan applied for another permit in early August, he sought administrative approval through Davison County Planning and Zoning Administrator Jeff Bathke, who oversees the county’s drainage processes. Bathke approved the permit on Aug. 10.

Drainage permits in Davison County can be approved by the administrator without going to the county’s Drainage Commission if they meet specific criteria. That criteria includes drainage projects that involve the county’s major creeks and rivers, such as Firesteel Creek, Enemy Creek, the James River or Dry Run Creek. The criteria also allows for approval if signed waivers are received for upstream landowners within a half-mile, downstream landowners within 1 mile and landowners within a quarter-mile of the center of the drain area. Six signed waivers, including one from Millan, were included with the permit, and based on the county’s criteria and mapping, Hostler was not a landowner who had to sign a waiver to allow the permit to proceed.

In his most recently filed lawsuit, Hostler alleges the new project application was “illegally approved.” He says the project will drain water onto his property in southeast corner of Section 19 in Beulah Township, which is located immediately to the north of Section 30, where Millan’s drainage project is planned in the southern half of the section.

“The method and place for discharging surface waters onto Plaintiff’s land in the new project is the same method and place for discharging surface waters onto Plaintiff’s land under a drainage permit voided by the Circuit Court in related litigation,” wrote Hostler’s attorney, David Ganje, of Sun City, Arizona.

The land in question is about 5 miles east of Mount Vernon and about 8 miles west of Mitchell near Interstate 90. Millan’s permit calls for 157,277 feet of drainage tile on his land, draining 320 acres of property, with the water eventually draining into Dry Run Creek.

The Davison County Commissioners decided earlier this month to retain James Davies, of Alexandria, as the county’s attorney in the matter due to conflicts involving Davison County’s staff attorneys.

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Dewey Burdock: Will South Dakota relinquish its responsibility?

Posted by David Ganje - August 24th, 2020

Powertech (USA), Inc., a wholly owned subsidiary of Azarga Uranium Corp., is a uranium mining company with pending applications to several state and federal boards and agencies for the development of an in situ uranium mine operation in Custer and Fall River Counties. This project, known commonly as the Dewey Burdock project, would be the most significant mining operation in the state in the last twenty years.  The project is an in situ uranium mining operation which would use local groundwater aquifers for uranium extraction, and for the subsequent disposal of process-related liquid waste. 


The mining project has been in the application stage since 2009. No final mining authorization has been granted by the various government agencies with jurisdiction over licensing, mining and water permits.  Important issues remain outstanding and undecided.  The wheels of justice, it is said, grind slowly but grind exceedingly fine.  Let us see.

Some of the government agencies with authority to issue major regulatory permit approvals necessary for this project include the Nuclear Regulatory Commission,  the Environmental Protection Agency, the Bureau of Land Management, the SD DENR,  the SD Board of Minerals and Environment, and the SD Water Management Board.  In this opinion piece I limit my comments to only part of this complicated dance of the multitudes.  This piece discusses state protection of water sources.  I treated financial and decommissioning issues and background questions regarding water resources in other opinion pieces.

When several agencies are involved in approval of a single project, a board might relinquish its responsibilities by narrowly interpreting the scope of its authority or by deciding not to exercise authority as a matter of discretion.  Complex and fragmented multiple-agency oversight of a big project runs the risk of a board’s over-reliance on the authority or expertise of different government agencies.  This is a dangerous form of decision-making.  For South Dakota boards to defer their legal obligations on significant natural resource issues to other government agency’s inclinations is an ill-advised undertaking.  He who sups with the devil must bring a long spoon.

As a result of the fragmented multiple-agency oversight, I am concerned South Dakota’s boards may limit their existing and established authority.  It is an established principal that state laws which do not directly interfere with (read preempt) the operation of federal programs or federal laws continue to be valid and enforceable by the state.

In the Powertech uranium mining procedure the SD Board of Minerals and Environment stated it has a “limited jurisdictional role in this matter especially where the principle of “dual regulation” would prevent the Board from acting.”  Powertech has argued in favor of such Board deference to other non-state agencies.  Powertech asserted the Board should consider the EPA’s actions as strong evidence that the proposed project water use is beneficial and in the public interest; and also argued the NRC’s license to Powertech is “compelling evidence” that Powertech’s proposed use of state waters is beneficial and in the public interest.  Nevertheless, South Dakota boards are required by established state policy and by statute to conserve groundwaters of the state and maintain the quality of groundwaters for present and future beneficial uses through the prevention of pollution and the control of water degradation.  These are considerations within the clear jurisdiction of South Dakota, its agencies and boards.

Let us look at some steps taken, or not taken, to protect groundwater in the area of the project.  First consider these comments by staff members of the U S Geological Survey given in 2009 paper at an international uranium symposium, “To date, no remediation of an ISR [in situ uranium mining] operation in the United States has successfully returned the aquifer to baseline conditions.”

Regionally, near the project site, four principal aquifers are used as major sources of water supply.  Several permits for use of water are pending before different agencies.  Two requested water-rights-withdrawal permits are pending before state boards.  The two water permit applications request the right to withdraw 8,500 and 551 gallons per minute. The Powertech application indicates most of the water withdrawn will be continuously reinjected as part of the mining process.  Shouldn’t the water quality of reinjected water be tested before it is reinjected?  It is unclear how much water is to be reinjected.  Should not such requirements be included before granting a permit approval? 

In its June 2012 Water Permit Application, Powertech acknowledged there are no aquifer baseline tests completed by the applicant at the project site.  Powertech argued that pre-licensing monitoring wells are not permitted until after a license is issued.  However, the NRC Licensing Board in 2012 in a separate mining application ruled that wells intended to collect background data or for background aquifer testing are permissible and are not considered the construction phase of a project.  Why should water and mining permits be granted without the benefit of the results of such tests?  As the reader will learn, South Dakota also has the authority to require this type of baseline aquifer testing before a permit is considered or granted.

The DENR recommended approval of Powertech’s general mining permit to the SD Board of Minerals and Environment.  As a part of its recommendations and conditions the DENR suggests that in the event there is a violation of ‘water quality standards’ Powertech should then be required to develop and submit a site-specific mitigation plan.  A contingency mitigation plan for possible water quality events should be a precondition to filing any large mining permit application. 

The filed Powertech water applications report that groundwater restoration or aquifer restoration will be performed under any NRC requirements.   Powertech will be required by its NRC license and federal regulations to restore groundwater quality to a) pre-operational baseline water quality, b) federal drinking water standards, or c) an alternate concentration limit approved by the NRC as protective of human health or the environment.  The NRC concluded, apparently without any baseline testing by Powertech on aquifers at the site, that the applicant’s proposed groundwater restoration methods will restore groundwater to ‘federal’ standards.  This is an indirect assurance concerning the protection of state waters.  Trusting too much to Big Brother invites one to become an agent of Big Brother.   At a minimum South Dakota should have requested baseline testing.  In addition, a legal mechanism known as an MOU (Memorandum of Understanding) allows a state such as South Dakota to take responsibility for regulation concerning groundwater protections. 

In a well-written legal brief by its attorneys, Powertech argued in 2013 that South Dakota does not have authority to regulate most aspects of uranium mining.  That position was not correct law then and is certainly in error today.  In 2019 the U S Supreme Court in a uranium mining case upheld a state mining law and ruled that federal law does not preempt state mining law.  Justice Gorsuch stated, “But Congress conspicuously chose to leave untouched the States’ historic authority over the regulation of mining activities on private lands within their borders.”  This places all the more focus on South Dakota to do the right thing. 

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

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Final Judgement Drainage Dispute

Posted by David Ganje - August 12th, 2020
17CIV20-000087_FINAL-JUDGMENT-ON-DECISION-BY-COURT.pdf-Hostler

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Kenneth Hostler vs Davison County Drainage Commission

Posted by David Ganje - July 28th, 2020

This matter came before the court following plaintiff Kenneth Hostler’s motion for summary judgment filed through his attorney David Ganje.  A hearing was held on June 16, 2020, in the Davison County Courthouse and supplemental briefing was ordered and said briefs due on July 2, 2020. The attorney for the Davison County Drainage Commission, Jim Davies, appeared in person while attorney for Defendant John Millan, Gary Leistico and plaintiff’s attorney David Ganje appeared telephonically.  The court having now received and reviewed all briefs and heard the parties’ arguments now issues this memorandum decision.

FACTS AND ANALYSIS

Plaintiff brought this suit under SDCL § 46A-1 0A-35, alleging the Davison County Drainage Commission abused its discretion in granting a drainage permit to John Millan. The plan approved by the Commission would drain water onto plaintiff’s property through drain tile on Millan’s property. Plaintiff alleges the Commission received inadequate evidence to grant Millan the drainage permit and failed to make the proper findings prior to granting the permit.

The South Dakota Supreme Court has given the following standard for summary judgment:

Summary judgment is authorized “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law.” We will affirm only when there are no genuine issues of material fact and the legal questions have been correctly decided. All reasonable inferences drawn from the facts must be viewed in favor of the non-moving party. The burden is on the moving party to clearly show an absence of any genuine issue of material fact and an entitlement to judgment as a matter of law.

Discover Bank v. Stanley, 2008 SD 111,  · 16, 757 N. W.2d 756, 761 (internal citations omitted).

Unless an action by the Commission is quasi-judicial in nature, the standard of review of the Commission’s decision is an abuse of discretion standard. Carmody v. Lake County Board of Commissioners, 2020 SD 3, 16, 938 N.W .2d 433, 438. This case arises from the Commission ‘s granting of a drainage permit to Millan, which is not a quasi-judicial administrative action, meaning the court reviews the Commission’s decision to grant the permit under an abuse of discretion standard. See Carmody , 2020 SD 3,    29, 938 N .W.2d at 442 . Under this standard, the court ‘s “review is limited to ‘whether the [Board] acted unreasonably, arbitrarily, or … manifestly abused its discretion.” Carmody, 2020 SD 3,     30, 938 N.W.2d at 442 (quoting State o/ South Dakota, Dep ‘t of Game, Fish and Parks v. Troy Twp., 2017 SD 50, ii 17, 900 N.W.2d 840, 848). “The arbitrariness standard is narrow, and under that standard, a court is not to substitute its judgment for that of an agency.” Carmody, 2020 SD 3,    30, 938 N.W.2d at 442 (quoting Troy Twp., 2017 SD 50,  33, 900 N.W.2d at 852-53).

In enacting SDCL § 46A- I OA-20, the legislature gave the individual counties the power to enact ordinances and regulate drainage within their respective boundaries. That section states:

Official controls instituted by a board may include specific ordinances, resolutions, orders, regulations, or other such legal controls pertaining to other elements incorporated in a drainage plan, project, or area or establishing standards and procedures to be employed toward drainage management.  Any such ordinances, resolutions, regulations, or controls shall embody the basic principle that any rural land which drains onto other rural land has a right to continue such drainage if:

  1. The land receiving the drainage remains rural in character;
  2. The land being drained is used in a reasonable manner;
  3. The drainage creates no unreasonable hardship or injury to the owner of the land receiving the drainage;
  4. The drainage is natural and occurs by means of a natural water course or established water course;
  5. The owner of the land being drained does not substantially alter on a permanent basis the course of flow, the amount of flow, or the time of flow from that which would occur; and
  6. No other feasible alternative drainage system is available that will produce less harm without substantially greater cost to the owner of the land being drained.

Such provisions do not necessarily apply within municipalities, but if a municipality drains water onto rural lands lying outside the boundaries of the municipality, the municipality is subject to the above provisions, if adopted by the board.

S.D. Codified Laws § 46A-1 0A-20. In accordance with this statute, Davison County has enacted its own drainage ordinance. Section 2.03 of the Drainage Ordinance of Davison County states:

Prior to the commencement of work, drainage permits are required for, but not l limited to the following:

  1. Construction or installation of a new surface (open ditch) or closed drain (tile).
  2. Any draining or filling, in whole or in part, of a pond, wetland, or lake.
  3. Construction of any lateral drain to a current legal drain.
  4. Modification of any permitted drainage with the intent of deepening or widening any drainage channel, increasing the size of any drainage tile, or extending, altering, or rerouting the drainage work in any way.
  5. Improvements to a drainage district or a coordinated drainage area which were not included in the original plans.
  6. Any drainage work completed inside municipality boundaries which will drain into the county.

Davison County Drainage Ordinance § 2.03. Section 2.05 of the Draining Ordinance of Davison County states:

At a minimum, the following factors shall be considered in evaluating the impact of a proposed drainage project:

  1. Flood hazard zones.
  2. Erosion potential.
  3. Water quality and supply.
  4. Agricultural production.
  5. Environmental quality.
  6. Aesthetics.
  7. Fish and wildlife values.
  8. Considerations of downstream landowners and the potential adverse effect thereon including consideration of the following criteria:
    • Uncontrolled drainage into receiving watercourses which do not have sufficient capacity to handle the adverse effect.
    • 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.
    • The amount of water proposed to be drained.
    • The design and other physical aspects of the drain.
    • The impact of sustained flows.

Davison County Drainage Ordinance § 2.05.

In this case, while § 2.05 of the Davison County Drainage Ordinance requires the Commission to evaluate the plan ‘s impact on “Fish and wildlife values, “there is no evidence in the record to indicate the Commission considered such values prior to granting the permit. In fact, the presence of a federal wildlife easement on Millan’s land was not made part of the permit application and was not presented to the Commission at the hearing.

Millan argues that the presence of the federal wildlife easement on one of his properties does not render his permit for the proposed plan invalid because its presence simply means he will be placing less drain tile than what was approved by the Commission. However, this argument overlooks the Davison County ordinance which requires a permit for “Modification of any permitted drainage with the intent of deepening or widening any drainage channel, increasing the size of any drainage tile, or extending, altering, or rerouting the drainage work in any way.” Davison County Drainage Ordinance § 2.03(4). There is no language the court can find which states the Commission approves a maximum amount of drain tile and the laying of any amount of tile fewer than the maxim um does not require a new permit. Certainly, placing less drain tile than outlined on the plan approved by the Commission would constitute a modification of the pem1itted drainage by “altering…the drainage work in any way.”

Millan presented an application that lacked called-for information regarding the standards and conditions required to be considered by the Commission in evaluating a drain tile project.

Millan did not include the elevations of the inlet and outlet locations in his application, nor was this information presented at the hearing or incorporated in the Commission’s findings or decision. The application is silent where it requests “Elevation change from the inlet to the outlet (feet).” (Certified Application, Exhibit A at pgs. 4-5). The application did not show the destination for the water up to one mile, nor did it depict all of the inlet locations.

No data was presented at the hearing about the capacity of plaintiff s land or Dry Run Creek to handle the flow of the proposed water drainage. The application did not provide evidence concerning the volume of water the project drains. While this court makes no finding as to whether the permit should be granted upon reapplication, it is instructive for the Commission  in so determining, that according to the Supreme Court, “it is impermissible  for a dominant landowner to collect surface waters, and then cast them upon the servient estate in ‘unusual or unnatural quantities.”‘ Rumpzav. Zubke, 2017 SD 49,  12, 900 N.W.2d 601, 605 (quoting Winter/on v. Elverson, 389 N.W.2d 633, 635 (S.D. 1986)). “This is true even if the total volume of water remains the same.” Id. “Surface water cannot be gathered together and cast in a body on the property of the lower owner as to affect that neighbor ‘s land in some other way than the way in which it has been affected.” Id. (quoting Feistner v. Swenson, 368 N.W .2d 621, 623 (S.D. 1985)).

Missing from the application and not presented at the hearing in front of the Commission were those requirements designed to protect the interests of the surrounding landowners. If it is Millan’s intention to install 315,000 feet of drain tile intended solely to remove surface water onto servient lands, the application should provide all the hydrological evidence called for in the application, which must be presented to the Commission for its consideration. to protect the interests of all property owners in the area.

Therefore, because the Commission did not consider evidence on all the factors which the Davison County Drainage Ordinance requires be considered prior to granting a drainage pennit, the Commission abused its discretion in granting the permit. Also, Millan has not submitted a new application for a drainage permit and this is required under § 2.03 because placing less drain tile would not be in conformity with the plan the Commission approved.

Upon the filing of a new application for a drainage permit by Millan, the Commission should now have notice of the presence of the federal wildlife easement and should also consider all other factors which it is required to consider under its own drainage ordinance and state law.

CONCLUSION

Plaintiffs motion for summary judgment is granted. Parties are invited to submit any findings they determine necessary under the rules of procedure, and the prevailing party shall submit an order incorporating this opinion and granting the motion.

Dated this 28th day of July 2020.

By the COURT: Hon. Patrick T. Smith, First Circuit Court Judge, State of South Dakota

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Bankruptcy in the Bakken

Posted by David Ganje - July 21st, 2020

Oil and gas producers and suppliers hit with lower prices, oversupply of their product and the pandemic have been filing bankruptcy petitions at historically high levels. The filing numbers for April through June of this year are almost twice the fling numbers of the first quarter of 2020.

Whiting Petroleum, a big producer in the Bakken, filed for Chapter 11 in April and Chesapeake in June. They will not be alone on the bankruptcy docket. A bankruptcy filing, however, is not the same as a “funeral.” People believe what they want to believe. When I taught bankruptcy law, one of the harder things to get across to the students was the fact that a bankruptcy filing is not automatically “the end.” Nevertheless, several of the students came into the class carrying that attitude. One should keep in mind even if a liquidation bankruptcy case is filed, unless there is an abandonment of the wells, oil and gas production often continues. The particular chapter of the bankruptcy code filing, state property law, as well as state and federal regulations all affect a bankruptcy case. You have as many facets to a bankruptcy case as there are facets on a movie star’s wedding ring.

In this piece I discuss the impact of a bankruptcy filing on the typical lessor (usually property owner) and royalty holder. First let us review a couple of things to watch for. If you are the lessor or royalty holder and think a producer may be a bankruptcy candidate, there are steps that can be taken. Your attorney can access the so-called watch list as well as access public records for delisted public companies. And a slow or nonpayment of royalties is also a red flag. Do not panic if a bankruptcy filing occurs. A lessor and royalty holder should put his energy into keeping good paperwork and records. This will make a bankruptcy experience somewhat more tolerable.

Property rights created by an oil and gas lease are treated differently in the various states. In North Dakota the oil and gas lease give the lessor a real property interest with real property rights. According to the 1986 North Dakota Supreme Court case Nantt v. Puckett Energy Company, “[o]il and gas leases are interests in real property” and have been considered such since 1951. Although an oil and gas lease is not a lease in a typical landlord and tenant sense, in North Dakota, an oil and gas lease is treated under bankruptcy law as an “unexpired lease.”

Many operators who file for bankruptcy are in arrears on royalty payments. A recent North Dakota law allows a royalty holder to file a security lien when the royalty has not been paid when due. The royalty owner must file the lien with the state and record the lien in the county where the well is located within 90 days of production to claim the lien. With good records and timely filing and recording, mineral interest owners can gain a secured position in a bankruptcy proceeding. This increases a royalty holder’s chances of a recovery because secured creditors are paid before unsecured creditors.

In a reorganization bankruptcy, the filing debtor must either assume (agree to be obligated under) or reject an unexpired oil and gas lease as is. A debtor may not accept only the favorable parts of a lease. If the oil and gas lease is assumed and not in default, the royalty holder in assured under the law that the terms of the lease are to be followed. If an oil and gas lease is in default, the debtor must cure the default in order to keep the lease. Therefore, if a bankrupt debtor is delinquent on royalty payments, the debtor must pay the back royalties if they want to assume the lease. However, the bankruptcy court must approve any assumption of a lease. A bankruptcy court will look to whether the lease is a valuable asset to the debtor and whether its preservation is sufficiently important. A royalty holder or lessor may also request that the court order the debtor to decide whether to accept or reject an oil and gas lease within a specified time.

If a debtor elects to reject an oil and gas lease, the lease is no longer valid, and the mineral interest is again available on the open market. Following a bankruptcy filing, a royalty holder or lessor may find themselves with the new option of leasing to a different producer who bought the assets of the bankrupt debtor. Sometimes good. Sometimes bad. Another way this could happen is if a producer is in default of the lease agreement. Under North Dakota law the obligation to pay royalties is “of the essence” in an oil and gas lease and that breach of the obligation “may constitute grounds for cancellation of the lease.” If a mineral owner shows a bankruptcy court that equity requires it, the court may cancel the contract and the mineral owner may then lease to another party. In addition to the statute, some lease agreements contain a provision allowing a landowner to terminate the lease under certain conditions. When I look at a good number of leases that owners, farmers and ranchers bring in I do not often find such a clause. But the clause gives the lessor more control regarding cancellation.

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

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Pennington County has a Missing Link

Posted by David Ganje - June 11th, 2020

Pennington County has no surface water drainage ordinance.  Land-use experts tell you that zoning law is created to protect the health, safety and welfare of the citizens of the county or community. I look at water surface water drainage law as protecting the health, safety and welfare of the land and the people who own and use the land.  Good surface drainage rules will also preserve the value of the land if properly employed.  What is man-made surface drainage?  Man-made surface drainage is a drainage project done by digging ditches, dredging, creating channels or using drain tile.

Pennington County does have floodplain ordinances, storm water ordinances and special construction rules affecting drainage on or in designated floodplain areas.  These rules also deal with construction and relocation of roadways. These are specialized rules.  And the rules do not cover the whole of the county. Pennington County is 2700 mi.²   That’s half the size of the state of Connecticut, but most of the people in Pennington County are more pleasing than a good number of people I have met from Connecticut. In mixed rural and urban counties, including Pennington County, landowners sometimes employ water retention techniques to minimize runoff.

When considering surface water drainage law I recognize that South Dakota has established state statutes and well respected case law which addresses some of the principles of surface drainage rights, duties and responsibilities.  This state- wide law however does not have the beneficial effect of home rule.  And the state-wide law does not come close to perfection. No set of laws do.

What’s the missing link in Pennington County?  No home rule overseeing surface drainage issues.  I will list advantages of a home rule meaning an ordinance dealing with countywide drainage.  Most county drainage ordinances in South Dakota include the obligation of the party who wishes to create a new drainage system project to advise the affected landowners downstream.  In other words, before a drainage permit is considered by the county, the affected landowners are notified of the possibility of more water coming down the pike.  That advance notification requirement is not found, by way of example, in state law.  County drainage ordinances also often provide for written consent agreements.  These are so-called written waivers given in writing by landowners who may be servient landowners or who are otherwise affected by a new drainage project.  A provision in an ordinance encouraging cooperation among landowners before a drainage project is started encourages peace.  That’s a good thing – I have handled water disputes in which the sheriff was involved.  This consent provision is also not found in state law.  I also find typical South Dakota surface drainage ordinance requirements include notification in advance to affected landowners.  And not just to the immediate neighbor who may be the adjoining neighbor but to those who may be affected for a distance of 1/2 to 1 mile. This makes sense. This allows an effected landowner to participate in a public permit application process. Advanced notice and participation provides a more balanced picture to a board deciding a surface drainage permit application. Another advantage of a local ordinance is the requirement that the project design and other physical characteristics of the drainage proposal be disclosed to the county.  This is a missing link in a reasonable chain.  A surface drainage ordinance gives a good amount of environmental project decision making to local government.  If the ideal is to allow more local control of decisions affecting local property a missing link can be added.

In surface water there are two categories of landowners or so called two categories of land.  Land is put in classes. This is a legal form of profiling. There are them what gives and them what gets.  Them what gives:  Dominant estate – Any parcel of real property, usually at a higher elevation, which holds a common law or statutory legal right to drain water onto other real property.   Them what gets:  Servient estate – Any parcel of real property, usually at a lower elevation, which is subject to a legal right allowing a dominant estate to drain water onto the lower parcel, that is the so-called servient estate.

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

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Is COVID-19 a legal defense?

Posted by David Ganje - May 27th, 2020

Man imposes his laws upon man. James Madison tells us that laws should not be overly voluminous or overly incoherent. Good luck on that score. I used to carry around the written U.S. tax code in law school for our tax class. I figured carrying around the tax code was good enough such that I did not feel compelled to take any other exercise. That was back before laptops when law codes were written on heavy papyrus rolls.

Under contract law an unplanned event is sometimes called an ‘act of God.’ An act of God or what is also called a ‘force majeure event’ is a situation beyond the control of the parties to a negotiated contract. The act of God may prevent completion of the contract. And importantly, an act of God may be grounds for cancellation of the contract. An act of God clause is the adult business version of the dog ate my homework.

How should an unplanned event be written into terms of the contract? In contract writing an event that is not a part of the contract obligation but affects the ability to complete the agreement is a so-called an act of God. Such clauses are a man-made road map showing what to do because of an unplanned event. This type of clause is a little bit like putting the genie back in the bottle after it has been out on the town partying too much. One can find act of God clauses in general sale contracts, livestock purchase agreements, wind energy agreements, right-of-way agreements, easements, oil and gas leases and general construction contracts.

What are these contract-written “events” which will excuse a party from completing a contact? There are as many possible act of God events as man can devise in his mischievous little mind. An act of God event is simply whatever the agreed upon contract says it is. This is man-made law. Here is an example of an actual act of God term in a contract: “The term ‘force majeure’ shall be Acts of God, strikes, lockouts, or other industrial disturbances, acts of the public enemy, wars, blockades, riots, epidemics, lightning, earthquakes, explosions, accidents or repairs to machinery or pipes, delays of carriers, inability to obtain materials or rights of way on reasonable terms, acts of public authorities, or any other causes. . . not within the control of the [contracting party] and which by the exercise of due diligence [the contracting party] is unable to overcome.” Looking at this long contract clause, I will provide the reader with a few comments. First, it is written by someone rushing a bunch of ideas into a single clause. It is too broad and shot-gunny. The clause is not clearly understandable and needs focus. And this contract clause was written by a lawyer who has not thought about or experienced a tornado, flood or a debilitating blizzard.

No question. An act of God clause is one of several underappreciated stepsisters (that’s an East River expression) when parties and their attorneys are drafting a contract. Usually contracting parties give attention to ‘The Money’ or to the conditions of contract performance, not realizing that an act of God event can cause equal if not greater trouble for the parties in the future. How quickly money throws one off the scent. It’s the old story of greed outstripping prudence. The scope of an act of God clause depends on the type of contact, so pay attention my honorable readers. Do not avoid common sense in the early stages when negotiating and drafting any agreement. Otherwise an uninsured accident is just over the next hill. An act of God is a peril outside of man’s control, so the extent to which it can be provided for in a contract, all the better.

An act of God has been defined in South Dakota as “any accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains, or care, reasonably to have been expected, could have been prevented” While the definition of act of God is broad enough to cover any number of events courts have developed patterns of rulings to establish what are not acts of God. Economic downturns have not recognized by courts in many states as acts of God. Determining whether a pandemic or viral outbreak may be an act of God may depend on defined ‘events’ which excuse obligations under the written terms of an agreement or contract. A meatpacking plant overrun by the virus may qualify as an act of God which excuses performance. An act of God is not defined in black and white law. Such is the existence of man.

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

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