Cloud over claims: Lax filing and recording laws call for concern
Land and mineral right owners may not know that another party has placed interest on those assets. Officials are concerned that recording laws allow incorrect claims to be filed which leads to a convoluted legal haze for owners, investors and attorneys.
"The way our system works, it is assumed that if you own real estate that you will check the records at the courthouse from time to time," Hettinger County States Attorney Jim Gion said. "A lot of people don't even know where to go."
Gion's clients have recently been affected by legal squabbles of oil companies with interest in Hettinger County, including all of the land in nine townships.
A contractual dispute between IDEA Energy Co. and C.A. Crouch Cos. has caused a legal spiderweb that has become a headache.
North Dakota State Land Minerals Management Director Drew Combs said the filings were a problem because tracts were not specified, but rather a "blanket" claim was made on the lands.
Gion said the claim was legal because it was discernable what land was being claimed, but invalid because leases were not held by the companies in all the lands defined.
"The problem is that North Dakota recording law essentially says if you have a legitimate legal description, the document is properly executed and notarized and is not obviously a nuisance, it can be recorded," Gion said.
The conflict originated when IDEA and Crouch planned to enter a joint powers agreement, but the contract obligations were not fulfilled, owner C.A. "Chuck" Crouch said.
Crouch and Larry G. Cox are on opposing sides of the table.
"The difficulty is a gentleman that lives in Chicago had been trying to raise money to drill wells in North Dakota and I had put together a lease package," Crouch said Friday. "He never raised the money, but somehow in his mind he figured he was part owner of the leases."
Crouch sold the leases to Romac Energy LLC, according to information from the Hettinger State's Attorney office. Later, Cox filed an affidavit claiming the leases were to be transferred to IDEA but were mismanaged.
"He is CEO of the company and he started disposing of properties that he had promised through his own company, C.A. Crouch, to give to IDEA Energy Co.," Cox said.
The filing by Cox created a cloud of doubt about the rightful owner.
Romac filed legal action concerning the rights to the real estate because the company had the understanding the leases were cleared before they came into their control.
Crouch broker Neil Pender said North Dakota filing laws are too lax.
"The way the law is set up, I could walk in the courthouse without any proof whatsoever and I could file claim on anybody's property and they would file it of record," he said.
However, Gion said it is more complicated than that.
Filings can be refused if it is obviously a nuisance and all claims are liable for legal action, he said. Those making claims can be sued for slander of title and just because something is recorded does not make it valid, he added.
Owners are not notified if a claim is made on their properties, but would be notified if action was taken on the land. Before action can be taken a judge must dictate that a lien is valid and legal determination requires notifying all parties involved.
Combs said undue claims are a common occurrence.
"Normally this is not a big issue," Combs said. "It happens every day; we just have to go through the process of clearing it up. It's an annoyance if anything."
He added that it is the locals who suffer.
"The sad thing is (the companies) are arguing amongst themselves on who is getting paid while a farmer in Hettinger County gets a lis pendens (legal action pending on the title to real estate) on his property," he said. "I would say that is almost criminal."
Drilling companies are less likely to buy leases with lis pendens because there is doubt of the rightful owners and they may find they have paid the improper party. In the instance a lis pendens is filed after drilling, royalty payment will not be dispersed. The funds will be placed in a trust until the doubt is cleared up.
In the case with Crouch properties, private owners were paid by a third party who may require the owners to return monies paid because they were given under false pretenses, Pender said. This could cause hundreds of thousands of dollars in private lawsuits, he added.
Pender said making false claims was a common occurrence in Oklahoma and Texas in the infancy of the oil industry. However, laws have been passed to make it a requirement to show proof of ownership when filing records.