SB 181 – WHAT DOES IT MEAN FOR MINERAL OWNERS

By: James Godbold – Published in the BizWest Thought Leaders column in April 2019

Senate Bill 19-181, the proposed comprehensive overhaul of oil and gas regulation in Colorado, has sparked widespread controversy and debate.  The bill is now headed to Gov. Polis’ desk for signature.  Industry groups strongly opposed the bill, while proponents say it is a logical step in ensuring the safety of Colorado’s communities and the environment.  But what do the changes under SB-181 mean for mineral owners?

From the perspective of a mineral owner, the most significant change has to do with what is called “forced pooling.”  In order to drill a well, oil and gas operators need to acquire the right to extract the oil and gas from that well.  Operators can do this by purchasing the oil and gas rights or by leasing those rights.  Under Colorado’s force pooling laws, operators can also force pool the interests of owners from whom it was not able to acquire a lease.

Colorado’s current force pooling laws allow the operator to force pool unleased interests even if it owns or has leased only a small percentage of the oil and gas interests.  Landmen for the oil and gas operators will sometimes use the threat of forced pooling to persuade reluctant mineral owners to enter an oil and gas lease.

From the perspective of the mineral owner, SB 181 makes two significant changes to Colorado’s force pooling laws.  First, operators will not be permitted to force pool interests unless they own, or have acquired leases from, more than 50% of the mineral interests to be pooled.  Second, the royalty rate for mineral owners who are force pooled changes from 12.5% to 15%.  These changes provide protections to mineral owners.  The threat of being force pooled will be less effective against reluctant mineral owners and, where an owner is force pooled, they will be entitled to a higher percentage of the revenue from a well.  Given the complexity of oil and gas leases and Colorado’s forced pooling, it is always best to seek the advice of an experienced oil and gas attorney in responding to proposed development of your mineral interests.

ESTATE PLANNING FOR ALL AGES

By: Corey Moore – Published in the BizWest Thought Leaders column in March 2019

Statistics show that the average American waits until the latter stages of life to obtain an estate plan, and while we all hope to live long and healthy lives, many people are leaving themselves in less than ideal circumstances should tragedy strike. In fact, a staggering 78 percent of millennials (ages 18-36) and 64 percent of Generation X (ages 37 to 52) do not have an estate plan, many of whom have minor children.

While the main component of a complete estate plan, a well drafted will or trust, will effectively and efficiently distribute your assets upon death, it is also a vital instrument to name guardians for minor children.  Should someone pass away with minor children and without a well-drafted will appointing a guardian, a judge will decide who will fill this role.  The process of appointing a guardian can be extremely difficult for children and can lead to tension and emotional turmoil.

In addition to a will or trust, it is important to have general and medical powers of attorney.  A general power of attorney appoints an individual to make financial decisions on behalf of the principal.  This includes paying rent or a mortgage, depositing paychecks, and paying routine bills.  Further, a medical power of attorney appoints an individual to make medical decisions when the principal is incapable of doing so.  Without this position designated, loved ones will be unable to make medical decisions for the principal in urgent situations. Both powers of attorney are necessary for any legal adult since an individual’s parents or spouse do not have the authority to make legal decisions for the incapacitated person.  Overall, a thoughtful and thorough estate plan is necessary for every adult regardless of individual circumstances.

Covenants Not to Compete in Colorado

By: Tim Brynteson – Published in the BizWest Thought Leaders column in February 2019

Whether you are an executive, top salesperson, professional employee, or business owner; it is likely you have been confronted with a covenant not to compete.   These are common agreements which are used in the sale of a business and when hiring top executives, salespeople and professionals such as physicians.   A lot of our clients are surprised to discover the truth about these agreements in Colorado.  With some exceptions, covenants not to compete are NOT enforceable in Colorado unless they fit into one of four specified categories; and even then, they must be “reasonable in time and geographic scope.”   Colorado statute favors the idea that all people should be free to work and any “restraint of trade” is presumptively invalid.  However, there are four categories provided by statute in which such covenant will be enforceable in court.  They will be enforced when the covenant applies to: 1) the sale of a business; 2) the protection of trade secrets; 3) recovery of expenses for training when the employee has been employed for less than two years; and 4) executive and management personnel.   Covenants are also applicable to physicians when the agreement fits certain criteria.

Applying these covenants to the sale of business makes sense in that part of what most buyers of a business are purchasing is the ability to operate the business without having to compete with a former owner.   This seems “fair” in that a former owner should not be allowed to compete with the new owner who just paid for the business.   Agreements to protect trade secrets are enforceable, but only if the business is protecting “real” trade secrets and not just preventing competition in the name of protecting trade secrets.   These kinds of agreements are frequently used and often litigated.  Whether you are an employee or a business owner, get some advice before using or agreeing to a covenant not to compete.

 

Backyard Chickens: Complying with Municipal Requirements for Suburban Poultry

By: Lia Szasz- Published in the BizWest Thought Leaders column in January 2019

In recent years, growing popularity for keeping chickens in urban and suburban areas has caused many municipalities to adopt ordinances governing backyard chicken operations. While homegrown eggs delight many, the noise and smell of poultry can be a nuisance to nearby neighbors.

Did you know that many municipalities in Colorado require a permit or license for a resident to keep chickens in their backyard? Without one, you could be subject to fines and other penalties. Some municipalities don’t allow backyard chickens at all.

In Greeley, a resident must have a minimum lot size to have chickens, and many residential lots do not meet this requirement. Fort Collins, however, allows up to eight chickens on lots smaller than ½ an acre, but requires the Humane Society to issue a permit before the resident can have any chickens. Fort Collins does not allow roosters, which likely makes those who like to sleep in on the weekends grateful. The City of Loveland has much less restrictive requirements, does not limit the number of chickens a resident can own, and does not require a permit or license. Windsor allows up to six hens per lot, requires that the chicken coop be at the back of the lot, and requires chickens to be locked in the coop from dusk to dawn.

The differences in chicken ordinances vary greatly in Weld and Larimer Counties. Before starting a backyard chicken operation, check with your local municipality to make sure you comply with all ordinances concerning poultry. Most towns and cities have their code available online. If you live in a neighborhood, you should also check the county property records to see if there are any restrictive covenants concerning chickens. By properly consulting your municipality, you’ll make sure your backyard chicken operation is positively egg-cellent.

 

The Use of Buy-Sell Agreements in Succession Planning

By: Corey Moore – Published in the BizWest Thought Leaders column in October 2018

If you are a business owner, do you know what will happen to your business in the event you pass away or become permanently disabled? Every business has its own complexities, but let’s say, for example, ownership is divided equally between you and a business partner. If you pass away without a plan in place, how well would the business run if your dependents suddenly became partners with the authority to make important decisions? On another note, what would happen if your child who has been working in the business suddenly becomes partners with siblings that have no knowledge of daily operations? Without a proper plan for the succession of your business, conflict is a real possibility. In some situations, these conflicts can be easily resolved. However, in other circumstances it can result in costly litigation and the deterioration of family relationships. One option to avoid these conflicts is to incorporate a buy-sell agreement into your business as well as your overall estate plan.

A buy-sell agreement can provide a clear path for the succession of a business should certain events occur such as death or permanent disability. The benefits of a buy-sell do not only benefit those retaining the business but can also provide necessary liquidity for your loved ones. By using a buy-sell agreement you can ensure the continuation of the business you toiled over for years while avoiding the conflict that so often arises upon someone’s death.

Amendment 74

By: Tim Brynteson- Published in the BizWest Thought Leaders column on November 29th, 2018

It may seem like common-sense that the Government is required to compensate land owners when it “takes” or “damages” private property. In fact, this has been part of both State and Federal law since 1787 and 1876 when both the U.S. and Colorado Constitutions required that the government must provide “just compensation” whenever it took private property for public use.  So what is the proposed by Amendment 74 changing in the Colorado Constitution? How will the law be different?   Amendment 74 changes the State Constitution by adding the requirement that the Government compensate property owners not only when it “takes” or “damages” private property, but when Government action may have affected the property by “. . . reduc[ing] in fair market value by government law or regulation . . . “.

Historically, the Courts have generally ruled that regulations or laws restricting the use of property to further legitimate public ends is not a “taking” of property requiring compensation (there are exceptions).   It has long been considered an appropriate and traditional use of the police power of a government to do what is necessary to promote and protect public health, safety and welfare by regulating land use and zoning.   State Supreme Courts have largely followed this precedent.  Amendment 74 changes the current law in Colorado by specifically requiring governments to pay property owners if their land is arguably diminished in value by a zoning change or regulatory change. An example is if you live next door to a small apartment building – two stories with 8 units. The city passes an ordinance to limit the height restrictions to 3 stories, but the owner had wanted to build a 10-story apartment building.   The owner could sue the city alleging the new ordinance reduced the value of his property.   Conversely, if the City passed an ordinance allowing 10 stories apartment buildings anywhere, you could sue alleging that by allowing construction of a 10-story building next to your house diminished your value.  I hope this helps illuminate what might happen in the event Amendment 74 passes.

Environmental Policy Change has Major Implications for Colorado

By: John Kolanz

A version of this article was published in BizWest in November 2018.

The Trump Administration’s emphasis on state empowerment has garnered significant attention, particularly in the environmental arena. So it is somewhat surprising that a recent change in policy having major implications for state permitting authority under the Clean Water Act has gone relatively unnoticed. The process that precipitated this change actually began under the Obama Administration.

The CWA establishes two permitting programs: one that addresses effluent discharges, such as those from municipal or industrial wastewater-treatment plants (Section 402); and one that addresses the use of “fill” material to construct things such as dams or bridges, or to otherwise enable development in areas containing wetlands, streams, or other waters (Section 404). Section 404 permitting (often called “wetland permitting”) frequently presents issues for those in land or water development, agriculture, and extractive industries.

Congress initially placed both CWA permitting programs in the hands of federal agencies (the Environmental Protection Agency for Section 402 and the Army Corps of Engineers and EPA for Section 404), but included specific provisions in the Act to allow states to take over, or “assume,” these programs. Regulated interests, such as businesses, farms, and municipalities, typically favor state-run programs over federally run programs. Currently, 47 states (including Colorado) implement their own Section 402 permitting programs, but only two states — Michigan and New Jersey — implement their own Section 404 permitting programs.

While various obstacles account for this discrepancy, one of the biggest is the difficulty in identifying those waters a state can regulate when it assumes Section 404 permitting authority (known as “assumable waters”). This is because the CWA requires the Corps to retain authority over certain waters, but does not clearly identify those waters (known as “retained waters”).

Traditionally, when a state wanted to pursue Section 404 program assumption, it negotiated with the Corps over how to divide permitting authority. Regulations grant the Corps final say on the matter, so, as one might expect, the Corps has interpreted retained waters broadly. In fact, Minnesota recently evaluated potential Section 404 program assumption and estimated that the Corps would retain jurisdiction over 92 percent of total wetland acreage and 99 percent of total lake acreage in the state.

Creating and implementing a complicated permitting program requires a significant investment of time, money, and political capital. Given the Corps’ traditional interpretation of retained waters, it is not surprising that most states have concluded that the return on Section 404 program assumption is insufficient to justify the investment.

In 2015, EPA assembled a group of stakeholders to recommend a way of identifying assumable waters that would remove this barrier to state Section 404 program assumption. In June 2017, this group, known as the Assumable Waters Subcommittee, provided its final recommendations to EPA. While EPA has announced its intent to propose regulations in 2019 to address the subcommittee’s recommendations, the Corps decided not to wait. It recently issued a policy memorandum adopting the subcommittee’s recommendations.

These recommendations have profound implications for assumption of Section 404 permitting authority by Colorado. Under the previous approach, the Corps would retain jurisdiction over hundreds, if not thousands, of miles of streams in Colorado, along with wetlands adjacent to these streams, which can extend for miles.

In contrast, under the new approach, the Corps would retain jurisdiction over approximately 39 miles of the Colorado River from Grand Junction downstream to the state line and the portion of Navajo Reservoir lying within Colorado, along with adjacent wetlands out to a distance of 300 feet. In other words, under the new approach, Colorado could assume Section 404 permitting authority over virtually all waters in the state. This places Colorado in an almost unique position among all states in this regard.

Colorado’s booming growth and its need to secure water to supply such growth will raise countless challenges, including Section 404 permitting issues that require an enlightened balance between development needs and environmental protection. Section 404 Program assumption could provide the autonomy to address those challenges in a more efficient manner, and in a way that accounts more effectively for Colorado’s unique interests.

Colorado evaluated Section 404 program assumption in the early 1990s and concluded that it was not worth the investment. Given the new rules of the game, it is time to take another look.

John Kolanz is a partner with Otis, Bedingfield and Peters LLC in Loveland. He focuses on environmental and natural-resource law, including Section 404 matters, and can be reached at 970-663-7300 or JKolanz@nocoattorneys.com.

 

Simplest Estate Planning

By: Jeff Bedingfield – Published in the BizWest Thought Leaders column on September 27th, 2018

Have you ever wondered if there is a simple way to pass assets at death? Maybe for that elderly parent with few remaining assets? Well, there is. It certainly isn’t appropriate for all, but it can work well in the right situation.

First, assets that name beneficiaries (IRA’s, life insurance, annuities, etc.) avoid complexity at death because a will or trust has no effect on them. They are contracts that dictate who will receive the benefits when the owner dies regardless of what a will or trust provides.

Second, the way assets are titled can also simplify matters at death. Couples can title their residence as joint tenants with right of survivorship (not as tenants in common). When a joint tenant dies, the property automatically becomes the property of the survivor and only the recording of a death certificate is required to accomplish that.

Or, a single person, may sign and record a beneficiary deed that designates who gets the residence when the owner dies. Again, only the recording of a death certificate is required. What’s more, the owner can revoke or change the designated beneficiary at any time before death.

Bank accounts and brokerage accounts can be simplified as well. Again, for a couple, a joint account will automatically transfer to the other spouse when one dies. With a single individual, the account can be made a “transfer on death” account. When the account owner dies, the individual(s) named as beneficiary receive the cash, stock or bonds in the account.

None of the methods described in this article requires that a person have a will and all methods allow the assets to without probate proceedings.

These methods are not for everyone, but can be very effective if done thoughtfully and with the advice of professionals.

Lessons from Queen’s Bench Courtroom Number Seven

By: Nate Wallshein – Published in the BizWest Thought Leaders column in August 2018

Leon Uris was a prolific author, known for his focus on dramatic moments in contemporary history, including World War II and the Cold War. His best-selling, entertaining, and imaginative novel Exodus (1958) has been translated into over fifty languages and has helped shape our collective understanding of the birth of modern Israel. His novel also, rather unintentionally, gave rise to the seminal defamation case Dering v. Uris, which took place in London in 1964.

The defamation case was born from a throwaway line contained in the backstory of one of the main characters in Exodus, Holocaust survivor Dov Landau:

Here in block X, Dr. Wirths used women as guinea pigs and Dr. Schumann sterilized by castration and X-ray and Clauberg removed ovaries and Dr. Dehring [sic] performed 17,000 experiments in surgery without anesthetics.

After Dr. Wladislaw Dering read this passage, he sued Leon Uris, the publisher, and the printer for defamation. While Dr. Dering admitted that he had performed unspeakable operations on Holocaust victims in Auschwitz during World War II, he argued that he had performed nowhere near 17,000 and that he never did so without anesthetic.

At the end of the closely followed and highly politicized trial, the jury found for Dr. Dering, awarding him “the smallest coin of the realm,” or one-half penny, in damages.

The court later assessed $30,000 pounds against Dr. Dering for the costs of the trial. Leon Uris was so fascinated by his experience that he novelized it in the best-selling novel QB VII or Queen’s Bench Courtroom Number Seven. The media coverage and subsequent novelization of Dering v. Uris cemented Dr. Dering’s infamous reputation as a Nazi sympathizer and war criminal, which was exactly the outcome that Dr. Dering wanted to avoid.

Our courts have produced similar outcomes. Here, if a defendant is found liable, but there are no damages arising from that liability, the court will generally instruct the jury to award “Nominal Damages”, in the amount of one dollar, to the plaintiff.

The lesson? When considering whether to file a claim, both liability and damages must be taken into account to avoid having a similar tale unfold in your courtroom.