Perhaps you welcomed Governor Engler's "State of the State" announcement (early this year) that he intends to see that the Jordan Valley, the Pigeon River Country State Forest, the Mason Tract, and the Sand Lakes Quiet Area will be protected from the oil and gas industry. After nearly a half-dozen years of seeing conservationism sniped at, undercut, and generally subverted by the present administration, it almost sounded like he'd undergone a "born again" conversion of some sort. But prefaced as it was by his assurances that he also intended to see that the rights of private property owners be protected, with a follow-up announcement that he had given the DEQ the task of drawing some kind of buy-out plan by which the mineral rights owners would be compensated for their loss, we can only wonder what the governor has up his sleeve next. Another fiasco like the Nordhouse Dunes settlement, this time at the expense of the state's Land Trust Fund?
Not that mineral rights owners shouldn't be paid for what they've lost. And buying out privately owned mineral rights under state land certainly sounds like a reasonable use of Land Trust Fund reserves. But considering what happened in the Nordhouse settlement, one can only brace oneself for a feeding-frenzy at the public's expense.
Ideally, the principle that was supposed to have guided the court is (to quote from the court's decision): "The public must not be enriched at the property owner's expense . . . but neither should property owners be enriched at the public's expense." Then the court went on to do exactly the latter, awarding the mineral owners and those who leased the minerals (the leaseholders), not just $70 million for oil and gas that geologists guessed (but no one could conclusively prove) was there but an additional $20 million or so in "interest."
The DNR offered to allow a couple of test wells to be drilled from an angle to find out just what was in fact there. But the owners and prospective producers persuaded the court that because all the oil and gas could not be retrieved that way then they should not be required to prove their claim of any of it being there. (Now just try that kind of argument on your insurance company when your barn burns down!)
But let's suppose that there really was $70 million worth of oil and gas under those dunes. Who does it actually belong to? The mineral owners. But, its actual worth to them is only what they can get for it, which at the leasing rates would be between $8.75 million and $13.13 million all told (an owner's royalty of 1/8 percent to 3/16 percent). And as for leaseholders, their lease gives them the right to produce; it does not give them the ownership of the gas or oil as it may exist underground. It only becomes their oil or gas when it reaches the surface--in other words, once it is "produced."
This point seems to have been lost somehow in the whole discussion.
Then, as if to further confuse the issue, the appellate court characterized the whole situation as that of a "rental" of mineral rights by the state, overturning the lower court's demand that the state, in exchange for some $71.5 million, had acquired ownership of the mineral rights outright. So does this now mean that if the state changes its mind about Nordhouse, the $70 million in "rent" will be paid back but the other $20 million kept as interest?
But the really curious thing about all this is the idea that a denial of the permit to produce oil and gas for which one has a lease (and which is being "rented" at the same time) still somehow amounts to a "confiscation" of property.
That it crimps one's possibility of realizing a big profit, there is no doubt. But here the court argued that the purpose of just compensation is to put property owners in as good a position as they would be had their property not been taken. But since when is it either the government's or the court's responsibility to pay back citizens for missed opportunities? What actual money was lost other than that spent on lease purchases and preliminary surveys? Maybe they should be compensated some way, but for unrealized, possibly purely speculative, "profits"--you've got to be kidding!
No, they're not kidding. In fact, a lawyer friend told me that there are all kinds of cases analogous to this in the courts every day. He enumerated several examples. Among them are people who sue doctors or hospitals not just for pain and suffering and extra expenses but for the money they might have made if some operation hadn't gone wrong, with a modest amount going to some people and a huge amount to others (probably those with the sharpest lawyers).
OK, I said, I get the point, but for speculative profits? If people can get money for not drilling in areas where it is illegal to do so, then why can't a moonshiner sue the government for outlawing his trade? Or shouldn't the promoters of the newly legalized casinos in Detroit be recompensed for all the profits lost to the Windsor and upstate tribal casinos over the past few years while the governor and his supporters did all they could to prevent these new casinos from being legalized? If so, where does the governor propose to find the funds to compensate for all these "takings"?
Something has gone wrong with our system when people not only get compensation for "taken" property, but can actually make a living off court settlements based on speculative amounts of lost profits. Maybe it's because we've inherited a rather quaint legal system (English style "Common Law") that is driven more by precedents than common sense.
If some court decides, as did the lower court in the Nordhouse Dunes case, that the worth of a piece of property was not just its market sale value, but also all the profits that might be realized from its use, then this is the kind of inflated settlement you can end up with. Then, if you don't like the result, you appeal to a higher court, to repeat the same process all over again, hopefully with a little more logic at work the second time around.
Unfortunately, in this case, it didn't work out that way, and the last state of the affair ended up even worse for the public than the first.
Maybe it is high time that the whole mess comes before the State Supreme Court to see if this time a bit more foresight might prevail. Otherwise, based on the inflated cost of the Nordhouse Dunes settlement, just securing the mineral rights to properties within the boundaries of the Pigeon River Country State Forest could end up costing the public about a quarter billion. Faced with that kind of prospect, certainly the State of Michigan should be able to pay its own legal costs to avoid being taken to the cleaners again and again. RWOL
This was first published in the North Woods Call early this year, and used with permission. Copyright © 1997 by Richard Kropf.
© Copyright 1997 - , Anglers of the Au Sable, Inc. All rights reserved. Last modified: February 20, 2002
