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More Disclosures in the Nordhouse Dunes Case

Settlement wasted millions of taxpayer dollars, undercuts environmental laws

June 1, 1997 | By Keith Schneider
Great Lakes Bulletin News Service

Part of the Manistee National Forest, Nordhouse is the only federally designated wilderness in the Lower Peninsula. A recently released study from the Society of Petroleum Engineers suggests that the Engler Administration made an ominous mistake by paying $94 million to settle a 'takings' lawsuit over oil drilling here. A study by a team of prominent petroleum engineers and economists asserts that the Engler Administration wasted taxpayers' money in paying oil developers $94 million in 1995 to settle the Nordhouse Dunes "takings" lawsuit.

The study, published last March by the Society of Petroleum Engineers, said that the value of the oil beneath the dunes wilderness probably was no more than $10 million, and may have been less than $3 million.

The study was originally prepared for Attorney General Frank Kelley, who sought to introduce it as evidence in the case. It was disclosed to the public recently by the Michigan Chapter of the Sierra Club.

The Nordhouse Dunes near Ludington is the only federally-protected wilderness in the Lower Peninsula. In the late 1980s the Department of Natural Resources refused to allow the Traverse City-based Miller Brothers Co. to drill for oil there, citing the environmental harm it would cause.

The DNR expected that the company would re-apply for permits, using directional drilling technology, to tap the oil from outside the wilderness area. Instead, Miller Brothers and a group of mineral owners sued the state, claiming their property had been "taken" and that the government must pay just compensation.

Throughout the court proceedings, the Blanchard and Engler administrations passed up several opportunities to issue directional drilling permits to Miller Brothers, which would have resolved the matter. Judge Peter Houk of the state Court of Claims, and later a three-judge Appellate panel, ruled in favor of the plaintiffs, awarding more than $100 million in compensation.

Then, before the state Supreme Court could hear the case, the Engler Administration agreed to a monetary settlement that was the largest any state had ever awarded in a takings case. Miller Brothers netted nearly $60 million, and the mineral owners received more than $30 million. (See "What Happened in the Nordhouse Case" in the Spring 1997 issue of the Great Lakes Bulletin).

The authors of the Society of Petroleum Engineers study--Thomas Stauffer, John Gustavason, and M.R. Silverman--were among the expert witnesses hired by the Attorney General in 1995 to rebut the value that Miller Brothers had set for the oil beneath the dunes. The study concludes that the Nordhouse settlement was "a new dimension to the oil industry, a case where 'drilling in the courtroom' proved to be much more profitable than exploring in the oil patch itself." G

For more information, contact: Anne Woiwode, Sierra Club, 300 N. Washington Square, Room #411, Lansing, MI 48933; Tel. 517-484-2372.

Supreme Court To Hear Important "Property Rights" Case
Conservationists Anticipate Positive Outcome

The Michigan Supreme Court has agreed to hear arguments in a crucial Oakland County wetlands lawsuit that public interest groups hope will re-affirm the state's authority to enforce environmental laws.

The Institute was among dozens of organizations that appealed to the Supreme Court to take up the case, known as K&K Construction vs. Department of Natural Resources. The lawsuit stems from a DNR decision nine years ago to prohibit the filling of wetlands on an 81-acre parcel in Waterford Township for a new restaurant, parking lot, and sports complex.

In denying the permit, the DNR argued that since 1979 Michigan law has provided clear guidance to preserve wetlands, which are vital for preventing floods, for wildlife habitat, and for filtering pollutants before they reach streams and lakes.

The owners and developers of the property, Joseph and Elaine Kosik and their five children, protested the DNR decision and filed suit. The Kosiks asserted that by enforcing the wetland law and turning down the permit, the DNR had seized, or "taken," their property. Under the Fifth Amendment to the Constitution, they argued, the government must pay "just compensation."

In 1992,the Court of Claims in Lansing issued a surprising decision, ruling in favor of the Kosiks and awarding them $5.2 million. In June 1996, a three-judge Appellate panel affirmed the lower court ruling.

Amicus briefs in support of the appeal to the Supreme Court have been filed by the U.S. Department of Justice, environmental organizations, and many public interest groups. In general, the briefs assert that the Kosiks had no reasonable expectation of developing the property because of the wetlands restrictions.

In his motion to appeal the case, Attorney General Frank Kelley said that protecting wetlands is a legitimate exercise of the state's constitutional authority over natural resources.

Failing to overturn the lower court ruling, Mr. Kelley argues, would be "essentially an open invitation to land speculators to purchase otherwise undevelopable wetlands, apply for permits to fill them, and then secure compensation for 'takings' resulting from enforcement of the Wetlands Protection Act."G

For more information, contact: Keith Schneider at the Institute,231-882-4723; or Jim Olson, 161 E. Front St., P.O. Box 2358, Traverse City, MI 49685-2358, Tel. 231-946-0044.

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