Aug 17 2009

Lawyers, Guns & Money 1

What to Expect:  Lawyers & “Just Compensation”

“Send lawyers, guns and money
Dad, get me out of this, ha”

Lyrics by Warren Zevon, Lawyers, Guns & Money

This is Part 1 of a two-part collaborative blog on the subject of property rights and eminent domain, particularly as it applies to energy and utility companies.  Projects most likely to involve eminent domain with energy and utility companies are underground natural gas storage fields and pipelines, electric transmission lines and wind farms.

What makes this conversation different is that it will balance the experience of a property owner with the experience of an attorney who also works with energy companies.

Part 1 covers two primary issues:  What should you expect from your lawyer; and how can you level the playing field particularly in the area of “just compensation.”

As a property owner, my experience includes a transformative two-year eminent domain fight with Houston-based Spectra Energy, backed by the power of the Federal Energy Regulatory Commission.  This website was motivated by that event; and it focuses specifically on property rights that come under pressure from energy and utility companies.

Matt Jarrell is a Shareholder and Director at Sherrard German & Kelly, P.C., a law firm headquartered in Pittsburgh, PA.  Matt is a member of his firm’s Financial Services, Corporate and Litigation Groups.  In addition, he counsels energy companies involved in the transmission and distribution of oil and gas.  This includes exploration and production companies.  Matt served as our attorney during our two-year fight with Spectra Energy over property rights in Bedford County, associated with the Steckman Ridge Project.

Matt’s experience is in the court of law.  My experience is in the court of public opinion.  For example, I held the top communications job at Kodak as VP and Director of Communications & Public Affairs for more than a dozen years before retiring in 2006.

Legal Care is like Health Care

Property Owner Mike Benard: A good lawyer is to be prized in the same manner as a good doctor.  Always remember, however, that you are the single best advocate for your own legal care, just as you are for your own health care.  As they say out west, you have to saddle your own horse.  You cannot outsource your involvement and responsibility.  That responsibility means being actively involved, doing your homework on the issues, and researching websites on the issue, such as this one which deals specifically with energy companies, or the Castle Coalition which deals broadly with eminent domain at: http://www.castlecoalition.org/

Tenacity, assertiveness, urgency and stamina are four character traits that stand you well in the defense of your property rights.  If you are the kind of person who avoids conflict, this is not the battlefield for you.

Lawyer Matt Jarrell advises: Property owners should expect to make their own decisions – from hiring a lawyer to dealing with litigation, if it comes to that.  I agree that the property owner is the best advocate for his or her rights.  Your responsibility is to understand the facts, the risks, the strengths and weaknesses of your situation, the technical issues, as well as the legal issues involved in negotiating or, if necessary, trying the case based on the value of your property.

If you hire an attorney, make sure that he or she can explain those issues to you and can offer understandable recommendations about how to proceed.  If you do not understand your lawyer, chances are it is his fault, not yours.

Level the Playing Field

Property Owner Mike Benard: Private property rights are so fundamental that founding fathers such as Samuel Adams described it as an “essential” right, and wrote, “that no man can justly take the property of another without his consent.”  [Samuel Adams – A Life, by Ira Stoll, © 2008, p. 48]

That said, it is not a level playing field legally, economically or ethically for private property owners.  Eminent domain is about the use of power over the individual.  Ultimately, power corrupts; and the power of eminent domain in the hands of government – which is transferred to a business – creates a sense of entitlement; and it creates an atmosphere ripe for abuse.

Your objective is to level that playing field as much as you can.

A specific example is the constitutional protection regarding just compensation. The quiet secret of the energy industry is that it has sweetheart lease deals with government entities that are very different from the just – or unjust — compensation it offers private property owners next door.  In plain words, to the energy companies, state governments are big and scary.  Property owners are not.  There is nothing like power to get respect. This must change.

How different are such leases?  In the case of underground natural gas storage leases, private property owners usually receive a “one-time payment.”

In contrast, lease agreements with state governments often include a bonus payment, plus a “withdrawal royalty payment.”  In other words, every time an energy company withdraws gas from the underground storage field in order to send it through a pipeline, the state gets paid.  This is often calculated in the form of a 25-year annuity stream back to the state.  In some contracts, a royalty is also paid on the volume of gas injected in addition to the volume of gas withdrawn for transmission through pipelines.

In our case in Bedford County, PA, our neighbor is the Pennsylvania Game Commission.  Refer to the following link for the Game Commission’s announcement of its gas storage lease amendment with Spectra Energy as part of the Steckman Ridge Project:
http://www.pgc.state.pa.us/pgc/cwp/view.asp?A=11&Q=175346&pp=12&n=1

Scroll down the page till you see the bold headline:  BOARD APPROVES GAS STORAGE LEASE AMENDMENT.

If energy companies pursuing your property rights are also dealing with government entities – whether state or local – you can shine a bright light on any lease agreements with those government entities.  There are a number of actions you can take:

  1. Find out if the energy project encompasses public lands – whether at the township, state or federal level.
  2. Make government officials and the energy companies aware of the fact that you want to know the terms and amount of their lease agreements.
  3. Use internet search engines to track information on government lease agreements in your state or elsewhere in order to compare terms and amounts.  This is known as benchmarking to evaluate comparable reference points.

Our website can help because it focuses specifically on energy company “takings” under the power of eminent domain.

The current practice of determining “just compensation” by energy companies constructs what I view as a theoretical formula using paid “expert witnesses,” who proudly announce the value of your property or property rights using various techniques.

In the real world, however, true value is determined by what someone actually pays for something – not what an expert tells you that someone should pay.  If you go on Antiques Roadshow, for example, an expert tells you that grandma’s rocking chair is worth $1,000; but if you sell it for $1,500 – that is the true value of the rocking chair.

Comparable value should be based on reality not theory.  In other words, what did the energy company pay to the government for its lease agreement?  Obviously, it considered that amount to be “just compensation.”

Lawyer Matt Jarrell: Eminent domain is offensive to many people; and there is a lot of play in the “just” of “just compensation.”  The tradition of energy companies paying state governments more money than they pay private property owners is unlikely to continue unchallenged in today’s more transparent world.  We are going to see more property owners arguing for compensation that is comparable in value to what the energy companies are paying the government for its lease.

Whatever distaste you might have for the principle of eminent domain or how it is implemented in the court system, the relationship between you and the company does not automatically have to be adversarial.  From a legal perspective, this is a business transaction and, whether you like it or not, you are the “seller” – recognizing that you are “selling” property and/or property rights against your will because of the taking power of eminent domain which government has given to an energy company.

For a window of time, you are in a position to negotiate with the gas company.  Some right-of-way agents will be aggressive and some will be polite, but they all want to get the deal done without going to court.

Expect to feel pressured into making a fast decision – either by the circumstances, or by the statements or insinuations of the landman or right-of-way agents.

Don’t let this put you on the defensive or cause you to have an emotional response.  The landman will often feel some urgency to avoid an impasse.  It is always better to use that sense of urgency to actively explore, and perhaps increase, common ground than to react negatively and allow barriers to further discussions take you closer to litigation that might be unnecessary.

Ask questions.  If something doesn’t seem right or doesn’t fit, say so.  The more you know about the facts and the market, the more seriously the landman is going to take you.  You cannot be the advocate for yourself that you need to be if you do not understand how the company is making the economic argument it makes with respect to the value of your property.  Though the threat of eminent domain is real and weighs against you, the company does not want to employ it, and that fact weighs against the company.

In Part 2 of this conversation, we’ll talk about using the power of numbers to strengthen your position and review the upside and the downside of group dynamics.

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