New York State Bar Association Journal

Re: Land Banking, TIF Amendments and the Tax Cap, May 2012 Journal

Tucked among the endnotes in my article in the May issue, on Land Banking, Tax Increment Financing (TIF), and the Tax Cap, was the important news that, as part of this year's Budget amendments, the Governor and legislative leaders amended the TIF law to correct its most glaring defect--by authorizing school districts to opt-into and participate in TIF-funded redevelopment plans. It is now up to the municipalities, developers, and attorneys who spent many years fighting for this change to make sure that this newly invigorated law is put to good use. TIF financing is especially useful to pay for infrastructure improvements and site preparation costs on blighted properties--including brownfield sites (and Brownfield Opportunity Areas), land bank holdings, and flood-damaged infrastructure.

Kenneth S. Kamlet
Hinman, Howard & Kattell, LLP
Binghamton, NY

This month's poll question is excerpted from the Attorney Professionalism Forum's question for the next Journal. The question raised several sticky issues that we'd like our readers to weigh in on. We'd also like our readers to submit their own ideas of "sticky" situations, for future Forums. The Forum will publish its answer in June.

When we decline a representation, do we have a duty to provide a no-engagement letter or to warn the person about statutes of limitations that may apply to his or her case?

What if that party provided me with confidential information during that initial consultation?

Can information acquired that way create a conflict that would prohibit me from taking some future litigation?

Do I risk malpractice exposure, if I decline a representation although the person did have a viable claim and, if the person later pursues it on his or her own, finds that the claim is time-barred?

One of my partners met someone at a party who talked with her about a potential litigation. By coincidence, I had met the opposing party and had set up a meeting in our office to take the case. What do we do?

The President's Message in this issue outlines the current discussion on non-lawyer ownership of law firms and touches on the differences between the ABA's current movement toward allowing "NLOs" and the NYSBA's long-held position against non-lawyer ownership. Are the ethical potholes too numerous to consider such a change? What are your thoughts?

My sister, Kay Landon, and I read the article concerning my father, Eugene C. Gerhart's, role in forming and sustaining the Scribes organization with great interest. We know that he would be honored by Mr. Spivey's kind remarks concerning his efforts throughout his career to "raise the bar" of legal writing through greater clarity.
Dad loved words, used precisely. At Harvard Law, he coined the phrase, "Erudite neologism and the employment of sesquipedalian nomenclature tend more to the obfuscation, than the elucidation, of the law's conundrums." That issue persists today.
We thank you for the tribute to his efforts, and Robert Landon II for sending it to us.
Virginia G. Mason

Brian--

Thanks for your comments. I appreciate your observations on the existence of "ageism" in the marketplace. I also think that many traditional legal employers have difficulty appreciating the value of multi-credentialed individuals like you. My point was that the JD is a versatile field, and that over time legally-trained individuals fare well in the job market. I didn't mean to suggest that the current market for lawyers, but that when the legal job market dries up, lawyers often find jobs in other fields. I would think that your background as a CPA combined with legal training would help you, if not in large firms, then in other work settings. The economic pressures on individuals are very real, and I did not mean to minimize their significance, but rather to offer readers a ray of hope. I hope things work out for you.

Gary Munneke

Dear Professor Munneke: I read your above noted Article with great interest. As a Pace Alum, not the law school but undergraduate & grad school, I am always interested in writings by Pace Professors.

To that end, I am a non-traditional law grad, having gone to Law School (NY Law School) at the age of 60. To some, not too bright a choice but my goal in attending law school was aspirational. I wanted to practice Elder law. Unfortunately to date, I have been unsuccessful in finding employment (welcome to the club).

You discuss about finding a job with Big Law (for me any law firm would be great) and the future marketplace. I cannot be as optimistic as you since my time line going forward is shorter than most other law grads. And in my case, I suspect AGEISM is alive and well in the legal community. I would be more than willing to accept a position (any position!!!), at much less salary than other attorneys, forgo benefits, etc. Is anybody listening??

And the additional burden, as you mentioned is the ever present loans that I have to pay back-- yet no source of revenue. I have a family to support, household, etc. Given the present economic outlook in general I am fearful by the time things start to improve, I will be a "statistic" if you get my meaning. Is this what they meant when they say become an Attorney and help the underserved--which I would gladly do--but not as a pure volunteer. That does not pay the bills, or put bread on the table, etc.

Not a whiner, but do you have any magic elixir, etc. I am a former financial executive, have a CPA and an MBA in Finance, would love to use all these tools plus my law degree to help--truly help and get some compensation in return. Answers, recommendations, etc.????

Sincerely,

Brian Gorman, Esq., CPA
Bar certified --NY and NJ

When you decided to go to law school and thought about what being an attorney would be like, did you think that marketing, promotion and sales would be part of the deal? How has that affected your practice?

Re: "The Marcellus Shale; A Game Changer for New York Economy?" by
Scott R. Kurkoski, NYSBA Journal January 2012 (the "Article")

I am the vice president of residential lending at Tompkins Trust Company. I have been in this field for over 40 years and have written extensively on the potential impact of gas leases on residential mortgages. No opinion is being expressed or implied on the practice of leasing mineral rights, environmental impact or regulations surrounding gas and/or oil leases. The issues noted are summarized to highlight potential conflicts for residential mortgage lending in an effort to facilitate meaningful consideration of ways to address these conflicts.

I read the article noted above in a recent NYSBA Journal. While I recognize that the article would have some opinions expressed, I was distressed to see so many errors of fact or misstatement of facts advanced as factual data.

Several items are presented as factual in nature that I feel I must bring to your attention as in error since they are the basis for my further comments on lending conflicts.

(1) The statement that hydro-fracking has been done for 60 years is a misleading statement. While hydro fracking has been utilized for many years, the type in use has commonly. been "vertical, low volume" hydro­fracking and some "directional hydro-fracking". Ms. Radow's article was not addressing those methods but rather. a newer method referred to as "high volume, horizontal hydro-fracking". This newer method has been developed and utilized within the last 10 or so years and has limited historical experience and data. The old method of "vertical or directional hydro-fracking" would ordinarily impact the subject site where the well is located. This newer "high volume horizontal" method causes more concern because it can impact hundreds of sites up to 1 mile away in every direction from the drill site. It is a far different process, has far less historical basis to draw an educated conclusion on use and may impact many other parties in addition to the land owner where the drill head is located.

(2) The comments that claim natural gas is considered personal property is another misleading statement that cause the reader confusion. To extract the gas from the sub-surface, fee simple real property rights must be encumbered in some fashion. That is the true issue at stake. In discussions with many experienced real estate professionals, there is a unanimous consensus that the personal property statement serves no purpose in the article and would lead a consumer to an incorrect conclusion. The entire personal property concept has no basis in meaningful consideration since there would be no way to extract the gas without encumbering fee simple real property rights.

(3) Comments made by parties that are not lenders mislead the reader to believe that there are not any conflicts with gas leases and residential mortgages. There are many areas of conflicts that must be addressed when considering traditional residential mortgage lending and gas leases. The following are some of the key areas that responsible and informed lenders have concluded create an inability for mortgage lenders to provide the required "representations and warrants" to secondary market investors like Fannie Mae, Freddie Mac and FHA when a standard gas lease exists.

(a) Appraisal issues that would not meet minimum standards:
(i) An acceptable appraisal must identify properties with gas leases to utilize as comparable sales. There is not an effective method to determine if the subject property or any comparable properties have leases, short of a title review. Appraisers are not trained to review title searches and even if that practice was implemented, the cost increases for each property sale and time delays to buy and sell real estate would be enormous.
(ii) Each comparable sale must consider the specific terms of the gas lease for that property. Access to the terms of a gas lease, not just a memorandum of lease that is commonly recorded by gas companies, are not readily available and some leases actually prohibit sharing the terms of the individual lease with any other party.
(iii) The practice of separating surface and subsurface rights may be done in some market areas, but it has never been common in NYS. The historical impact on value and marketability can not be established, reviewed or determined by an appraiser.

(b) Homeowners insurance issues that would not meet minimum standards
(i) Homeowner insurance policies commonly have exclusions of coverage for many of the very acts that a gas lease allows. In a poll of national and regional insurance companies (not local agents that may be unaware of the company exclusions) these exclusions fall under the "business use" exclusion common in most policies.
(ii) In this same poll, the companies indicated they would exclude coverage for any environmental claim to the subject property as well as any surrounding properties under the terms of a standard homeowner's policy.
(iii) The companies indicated that the premiums collected on traditional homeowners policies are not adequate to cover the risks involved and they would commonly not write a homeowners policy if they were aware a gas lease existed unless the gas company fully indemnified against loss for any gas drilling activities.
(iv) While more recent gas leases negotiated by land owner
groups may offer some form of indemnification, the vast majority of leases currently in effect that were executed in the recent past do not offer any owner
indemnification.

(c) Conflicts with the terms of the mortgage document
(i) Section 18 of a standard Fannie/Freddie residential mortgage document prohibits the sale of rights that a standard gas lease grants, unless the owner received prior written consent from the lender. It is unlikely that lender consent is or was secured prior to a gas lease being executed by the owner and written consent from a lender would likely only be granted after the fact if all the requirements of set back, appraised value, marketability and insurance are met, as highlighted in this letter and the Radow article previously published.
(ii) Section 21 of a standard Fannie/Freddie residential mortgage document prohibits release, discharge or storage of any environmentally dangerous substance (specifically naming gas) on the mortgaged property and the owner agrees to not allow any other party to do any of these activities.

(d) Conflicts with set back provisions and title insurance:
(i) Fannie Mae and Freddie Mac have written set back provisions in their guidelines that require no surface or subsurface activity within 200 feet of residential improvements.
(ii) HUD (FHA) has written provisions in their guidelines
that require no surface or subsurface activity within 300 feet of residential improvements or residential property boundaries.
(iii) While secondary market requirements may allow some
exceptions to set back, those are only authorized if the practice is commonly accepted by local lenders and with the addition of "affirmative title insurance coverage". Use of an Alta 9 endorsement, by design established primarily to provide coverage for tree, shrub and minor surface disruption, is not uniformly considered "affirmative title insurance coverage" to provide insurance against any and all types of loss as a result of gas drilling operations. While there may be a few scattered lenders that do not follow secondary market requirements for residential mortgage lending, it is commonly accepted that the vast majority, (figures are estimated at up to 90% of total loans made in the US), of residential mortgage loans made are sold into the secondary market in some fashion and follow those requirements. Therefore it could not be considered "commonly accepted" that lenders would allow gas leases unless all the provisions noted in this letter and the Radow article are satisfied.
(iv) Of special note is that there is a bill pending in Texas, (H.R. No. 2408) to modify title insurance regulations to expressly eliminate title insurance coverage for use of the surface of the land to extract coal, lignite, oil, gas, or another mineral. It would appear that title insurance coverage, at least in Texas, will expressly avoid providing "affirmative coverage" in situations where gas drilling activities exist.

(e) Conflicts with the lenders' ability to confirm compliance with secondary market guidelines:
(i) The Federal Housing Finance Agency (FHFA - regulator for Fannie Mae and Freddie Mac) has stated that they hold the lender responsible to comply with Fannie/Freddie guidelines. Based on the numerous issues noted above, it would appear to be impossible for a residential lender to confidently "represent and warrant" to these secondary market agencies that all these conflicts are addressed in a proper manner.

In sum, a reader of the January article may incorrectly conclude that a borrower under a residential mortgage loan does not need lender consent in connection with signing a gas lease. As explained in this letter and the Elisabeth Radow article, this would be an incorrect conclusion. As a service to your members it seems important that this particular point be corrected in a future publication.

Your fine publication has provided many years of concise, accurate and meaningful information to the readers. Unfortunately, this recent article draws a less informed reader to conclusions that are not accurate. The article does not further public debate on the topic, but appears to be drafted purely to mask the issues raised in the recent Elisabeth Radow article.

Sincerely,
Gregory H. May
VP - Residential Mortgage Lending
Tompkins Trust Company
Ithaca, NY

Re: Article in NYSBA Journal by S. Kurkoski
I am writing in response to the article by Scott Kurkoski that you published in your recent journal. I am surprised that the NYSBA allows such biased and self-serving writing in their journal.
The author is an attorney for the gas industry and for landowner coalitions, all hoping to benefit financially from shale gas drilling.
I am attaching links to several unbiased pieces on the impacts of shale gas development. I recommend that after you read these you publish multiple corrections in the next issue of your journal.
The first links are to documents containing the comments submitted by the Environmental Protection Agency to the New York State Department of Environmental Conservation (DEC). http://catskillcitizens.org/learnmore/EPAR2ReviseddSGEISCommentscoverletter.pdf
Here is a link to the EPA comments: http://catskillcitizens.org/learnmore/EPAR2CommentsReviseddSGEISEnclosure.pdf

The second is to a document containing comments submitted to the DEC by a preeminent engineer and expert in hydraulic fracturing. Here is a link to Dr. Ingraffea's comments: http://catskillcitizens.org/learnmore/IngraffeaDECCommentsJan2012.pdf

The third link consists of my comments to the DEC regarding the economic impacts. http://catskillcitizens.org/learnmore/JMBCommentstoDECJan92012(1).pdf
And finally, here is a link to a short video of a woman describing her actual experience with shale gas drilling.http://www.youtube.com/watch?v=6hB33D105ak&feature=mfu_in_order&list=UL.
Please let me know if you would like me to send you additional studies and papers written by independent experts, not funded by the gas industry.
Best regards,
Jannette M. Barth, Ph.D.

Re: The Marcellus Shale: A Game Changer for the New York Economy?

As a member of the New York State Bar for over 30 years, I rarely can recall a case of the State Bar Journal lowering its standards of publishing rigorous and sound legal articles. Unfortunately, those standards have been ignored with the publication of the Marcellus Shale article by Scott Kurkoski in the January 2012 issue. That this was ghost written by the oil and gas industry is evident. That it does nothing to educate the profession as to a current legal issue makes it unworthy of your publication. Mr. Kurkoski burnishes his credentials by reference to the Joint Landowners Coalitions of New York, Inc., a supposed coalition of landowners. Spend a few minutes on its website and one quickly realizes that it is nothing more than a clearinghouse for anti-environmental articles. The oil and gas industry has done enough damage "debunking" climate change, and is now attempting the same obfuscation on the debate over hydro-fracturing.

Mr. Kurkoski informs us that 90% of the existing wells in New York have been hydraulically fractured. He undoubtedly will defend this statement with some specious definition of the term. But since commercial horizontal hydraulic fracturing was only begun a couple of decades ago, and has not been widely used in New York, the statement is clearly meant to mislead the uninformed.

Ms. Radow's article the prior month raised some interesting issues concerning land use. These issues are added to a longer list of concerns that must be addressed before hydraulic fracturing is permitted, and before decisions are made on appropriate restrictions and limitations on its use.

Ultimately, we have to determine whether the environmental costs of this method of drilling will be paid by the oil and gas companies who benefit, or the taxpayers of New York who will not be adequately compensated. Your publication of Mr. Kurkoski's article does a disservice to the legal profession and the people of New York.

Peter Porcino,
Mayor, Village of Ardsley

Peter R. Porcino, Esq.
Cowan, Liebowitz & Latman, P.C.
1133 Avenue of the Americas
New York, New York 10036-6799
t: (212) 790-9208 | f: (212) 575-0671
www.cll.com | prp@cll.com

Re: The Marcellus Shale: A Game Changer for the New York Economy?:

Read with interest and some amusement Mr. Kurkoski's panegyric to shale gas in New York.

Most of it was lifted in whole cloth from industry propaganda and much of it was misleading.

1. Economics

Mr. Kurkoski grossly overstates the economic upside of shale gas industrialization in New York.

In his ad valorem tax estimates, he uses a gas price of $9.80 mcf which is $7 higher than the current prices. (3.7 times higher)

In fact, $9.80 is almost twice what the federal Energy Information Agency predicts gas prices will be by the end of the decade - 2020

http://www.scribd.com/doc/71446252/Voodoo-Frackonomics-3-0

This ad valorem tax hoax has been floating around for some time, it was first used in the Town of Worcester.

It makes the assumption that a shale gas well will be economical during exactly the 24 month window it produces.

http://www.scribd.com/doc/73207373/Voodoo-Frackonomics-4-0-The-Worcester-Gas-Tax-Hoax

At current and projected prices, no dry gas well would be economic in New York

http://www.scribd.com/doc/71446252/Voodoo-Frackonomics-3-0

There is no indication that Marcellus or Utica will be economic in New York north of the border counties.

http://www.scribd.com/doc/74614768/Norse-Energy-and-Gastem-USA-Voodoo-Frackonomics

So the ad valorem taxes, the employment estimates, etc. are premised on assumptions that have no economic substance.

As presented by Mr. Kurkoski, they are specious conjectures.

2. "Lots of wells have been drilled in New York" /"New York has the best regulations" etc.

Indeed, lots of wells have been drilled in New York for decades and the results bode ill for shale gas industrialization.

A. Many of the wells have been simply abandoned to pollute the groundwater.

http://www.scribd.com/doc/77582900/Orphaned-NY-Oil-and-Gas-Wells

B. The state has never had an adequate regulatory agency or even a full set of regulations for gas wells

When the Department of Mineral Resources was last audited, it was found deficient in all aspects.

Conditions have not improved at the DEC in this regard, they have recently gotten demonstrably worse due to staffing cuts.

http://www.scribd.com/doc/76085928/Worst-Practices-at-the-DEC

C. The few regulations the state has - as evidenced in the setbacks of a gas well from structures - are simply the worst in the US

http://www.scribd.com/doc/72545747/Worst-Fracking-Regs

100 feet from a residence. 150 feet from all other structures

No mortgage lender would lend on a property this close to a shale gas well.

D. After decades of drilling, NYS remains one of the few places on the planet where gas production is untaxed by the state

At best, this indicates a certain indolence on the part of previous administrations, and is the cause of the DEC's chronic under-staffing.

http://www.scribd.com/doc/63145742/New-York-State-Gas-Production-Tax

3. "Over 1 million wells fracked with no problems" Isn't it pretty to think so ?

Most gas wells leak methane. And the industry studies show it.

Over time, they all will leak. The metal will rust. The cement will spall., etc.

The industry knows this - but does not like to talk about it, much less admit it in public.

http://www.scribd.com/doc/65577477/How-Gas-Wells-Leak

4. Most major problems are ignored

Mr. Kurkoski is silent on most of the major negative impacts of shale gas industrialization.

For instance, he fails to mention the ruinous effect of heavy trucking on rural roads and villages.

http://www.scribd.com/doc/76437212/Frack-Truck-Impacts-on-Towns

He does not discuss the appallingly disparate treatment of water resources under the proposed regulations

http://www.scribd.com/doc/76434098/DEC-s-Disparate-Treatment-of-Water

And is silent on the most intractable problem of all - where to get rid of billions of gallons of fracking flowback

http://www.scribd.com/doc/65435029/SGEIS-Fracking-Flowback

To summarize Mr. Kurkoski's gaseous hagiography - 'What could possibly go wrong ?'

James "Chip" Northrup
Cooperstown, NY
northrup49@gmail.com