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What Happened in the Nordhouse Case

April 19, 1997 | By Keith Schneider
Great Lakes Bulletin News Service

In 1987, when former DNR director Gordon E. Guyer prohibited oil drilling in the magnificent Nordhouse Dunes Wilderness north of Ludington, he was applauded for adding to Michigan's reputation as a trend setter in natural resource policy.

In the years since, Mr. Guyer's ruling has been transformed into a $94 million taxpayer-funded payout to oil interests, with ominous consequences for the public trust. Mindful of the settlement's exorbitant cost, state regulators have become increasingly reluctant to enforce environmental and public health laws.

How this happened, according to some who played instrumental roles, is a case of administrative overreaching and legal blundering. Other astute observers say it is an ideologically-motivated tale of economic and political opportunism.

First, a few facts to establish the background:

• In 1983, Miller Brothers Oil, a Traverse City-based company, leased the rights to the privately-owned minerals lying below much of the 4,500-acre Nordhouse Dunes Wilderness.

• In 1986, Miller Brothers submitted to the DNR a plan to drill for oil from five sites within the protected area.

• In 1987, after determining that drilling in the Nordhouse Dunes would violate both the Oil and Gas Act and the state Environmental Protection Act, Mr. Guyer issued an order that prohibited "any and all" energy development there.

• In 1988, Miller Brothers and the mineral owners sued for damages, asserting that the state was "taking" private property for public purposes.

According to lawyers from the Attorney General's office and former DNR officials, the state's response to the lawsuit was marked by consistently missed opportunities.

The first problem was that the lawsuit was a surprise. DNR officials said they wanted to compel Miller Brothers to use directional drilling technology to tap the oil from sites outside the protected area. Mr. Guyer said he expected the company to react to his 1987 order by filing an amended development plan using directional drilling.

Instead, the company's lawyers took advantage of an opportunity to reap a windfall without a single turn of the drillbit. How? Because Mr. Guyer's order was unusually specific. It banned "any and all" energy development within the Nordhouse Dunes. The lawyers decided they could convince a judge that even if the company used directional drilling, Mr. Guyer's order still prohibited actually pumping out the oil.

The Miller Brothers legal team also predicted that if they sued the DNR, the Attorney General would focus not on the ramifications of the iron-clad order, but on Mr. Guyer's authority to issue it.

The lawyers were right on both counts. In 1989, Circuit Court Judge Peter D. Houk ruled that Mr. Guyer's order was a taking of private property. But in his ruling, the Judge also provided the state with an out. He urged the government to modify the order to allow directional drilling.

The Attorney General's office declined the opportunity. In 1991, the Engler Administration took over management of the case from the Blanchard Administration, and did not alter the strategy.

After a trial in 1991, in which he called into question the competence of the state's expert witnesses, Judge Houk awarded the plaintiffs $71.5 million. In 1995, the judge increased the takings award to $120.8 million, with interest accruing at about $35,000 a day.

"Judge Houk sent messages to the Attorney General in open court that he would strongly encourage the state to reconsider its strategy and issue some sort of permit," said an Assistant Attorney General. "At one point he demanded assurances from the lawyers working the case that they had conveyed the message. I don't know why, but the strategy never changed."

The Engler Administration has cast itself as a victim of its predecessor's mistakes, and as a savior for negotiating a settlement that cost taxpayers $94 million. "Given how we kept losing in court," said John Truscott, the governor's chief spokesman, "and our attorneys said we didn't have much chance of winning, we just figured we would cut our losses."

Environmental advocates, however, point out that the Engler Administration managed the case for six of its eight years. In settling, the Administration prevented a full review by the Michigan Supreme Court, and conveniently set in place a powerful legal precedent that provides a launching pad for the revolutionary property rights agenda. G

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