An Expert Perspective:
The Present and Future of Energy, Land-Use and Mineral Legal Practice in California
Vol. 11
February 2012
Page
What are the most common legal issues you address on behalf of your clients in the field of environmental compliance and land-use permitting?
The most common legal issues are those associated with the California Environmental Quality Act (CEQA). It provides a resource-by-resource look at the environmental impact of the project and how to mitigate those effects to the greatest extent feasible. One of the biggest issues is determining what mitigation is actually feasible or not. The resource agencies — whether it is the county you’re permitting with, the California Department of Fish and Game, U.S. Fish and Wildlife, or the Army Corps of Engineers — all have different views of what mitigation is feasible. Usually, my clients have a different view of what’s realistic and economically feasible for them. So, taking the administrative agency’s view and my client’s view, meshing them together, and then hashing out what a feasible mitigation for a project is going to be is one of the major issues.
The other issues I encounter frequently are land-use conflicts with neighboring property owners and environmental groups. It’s very difficult sometimes to reconcile the very different worldviews different groups have. My clients usually purchase a large tract of property looking to develop it in some way; and sometimes, for example, an environmental group might have the idea that this property doesn’t belong to my client at all, but that it belongs to the people as a whole or something similar. This is something my client doesn’t understand because they paid millions of dollars for this property. So, conflicting views as to land uses and what’s a reasonable or needed development is going to be a prominent issue that I’ll have to deal with in the future.
Do you think the environmental pressure of Northern California is greater than Southern California?
I think, in large part, it’s often less down in Southern California. It’s already highly industrialized. I deal with mining, oil, and gas projects in Southern California all of the time. If you’re in Los Angeles County and doing work in the concrete jungle, there’s not going to be much impact on the environment. In contrast, there’s a housing development of about 12,000 acres down near Santa Clarita that was recently approved by the Department of Fish and Game, and that is all a green field development. There, . . . you’re going to have a lot more controversy about the environmental impacts. In contrast, if you go down to San Bernardino County, they are extremely friendly to development, especially mining projects. It’s a highly mineralized county, and there is a lot of value placed on those kinds of developments: bringing revenue and new jobs to the county. When you are dealing with mineral resources, it’s not like a strip mall because you can’t just move it anywhere you want. You have to mine where the resource is. So, instead of looking at Southern vs. Northern California, I think it is more appropriate to look county by county. How developed that county is and what you’re proposing will be major factors in determining how controversial a project will be and what issues you will be facing.
Who are the typical clients you work with in this field?
I often deal with multinational mining companies, mostly sand and gravel, though there are other mining companies— gold is making a comeback in California, for example. Back in 1992, if you look at some regulations that were imposed by the State Mines and Geology Board at the time, they essentially made it uneconomical to participate in large-scale gold projects, and it chased the industry out. But, with gold prices at $1700 an ounce that changes the economic factor substantially. So I am working on more gold projects. I do a lot of sand and gravel projects, obviously, because that’s always needed for roads, buildings, and houses. I do a lot of oil and gas work as well— on the permitting side of the actual developments, environmental impact reviews, and also title work for the oil and gas companies. Because of different accounting laws, they have to make sure that when they are paying royalties, “a” they are paying the right people, and “b” they know who actually owns the surface as well as the subsurface of property when they go drill into it. So, title work is a big issue with oil and gas companies. Also, I work with ski resorts and residential developers, though there is not much going on there. But I expect that to make a comeback.
When you do title work, do you find it to be pretty messy and confusing?
Yeah, it’s not a straightforward analysis. How it works is there is a type of quasi-professional called a landman. Landmen are essentially title experts. Their whole job is to go to the Bureau of Land Management (BLM) or county to research the property and pull all the records of private ownership from the past. For example, they start from the Mexican government’s ownership here in California and go all of the way to today’s date. They then analyze the records and give a preliminary report as to who they think owns the title. In California, you can’t get a title insurance policy for mineral rights like you can get for a house. So the landmen go out and do all of the dirty work, and then they turn all of that over to me. I review all of those documents and trace the ownership going all of the way back, and then I render an opinion as to who owns the mineral estate and in what percentages. Then, the company uses that to figure out who gets royalties and from whom to get a lease so they can get permission to be on the property and pay royalties to the right person.
So are you contracting out the landmen separately?
Usually, I will hire them independently myself, but a lot of the oil and gas companies have them on staff. And, quite a few of them are attorneys. It’s a very big growth industry. It’s a highly specialized field and can be pretty lucrative.
I am glad I don’t do it all of the time, but it’s kind of interesting, like a murder mystery . . . like who owns what? This guy died, this guy disinherited his kid, and so you can follow the trail and all of these different stories back more than a hundred years.
What do you think has been the impact of the increasing environmental policies since the 1970s on your industry? Especially in California, as it is one of the world’s leaders in this area?
From an objective standpoint, I think there is a reason that California is viewed as being hostile in a lot of cases to businesses that extract resources or are in any development. And not just general business laws and taxes and things. But from an environmental standpoint, I think California prides itself on being a leader in environmental regulation. As to the effect on industry, it’s twofold: it chases a lot of businesses out of the state. I’ve seen it happen. One of the third largest construction materials companies in the country ended up selling all of their mines here in California and just left because regulation and the cost of doing business.
Does that make you nervous?
It does, because there’s a balance that’s struck. On the one hand, each new regulation is like a version of an employment act for lawyers in some sense because the more complex the environmental laws get, the more demanding they are to understand for industry and the more they need legal and consulting services. On the other hand, you end up killing the golden goose at some point, and chasing business out of here. The real people who end up paying for this are the consumers. The suppliers pass their costs to their consumers, and the consumers are you and I. And so construction costs for roadways in California and for houses or for any type of infrastructure is compounded by the cost of actually permitting and extracting the resources; whether it’s oil and gas or whether it’s sand and gravel, if you’re dealing with extractive resources, the permitting costs of doing business get passed on to the consumer. That’s why a $400,000 house here in California is equivalent to a $150,000 house in Nevada. Location counts for a lot, I’m not saying I want to live in Nevada or anything, but these things make it hard on the industry. Especially, industrial uses are viewed as the nemesis of the environmental movement, but almost no weight is given to the sand and gravel industry for example where all they are doing is supplying a demand for roads, houses, and infrastructure. And you need to permit a mine to make sure you have those things. The California regulatory environment is getting increasingly complex and I expect it to continue the pace.
Does that equate to more billing hours for yours and other firms?
Absolutely.
So if there is not a shift in the balance, do you foresee more of your clients leaving California?
Not necessarily leaving California, but I can’t imagine a viable business atmosphere where one can live and thrive at this pace. As tone deaf as the legislature of California appears to be to these issues, it seems things are changing a bit given the situation with the economy.
Is there any particular issue regarding CEQA that is more commonly faced among your clients?
The bulwark of CEQA is to disclose impacts: so here’s the project and the impacts. The idea is that decision makers make any decision they want, but at least they are informed as to what their decision is going to be as far as the environment is concerned. The bigger issue my clients are facing is this conflict between 5th Amendment property issues and whether those projects are allowed to go forward, and, sometimes, regulatory takings.
I’m reviewing an environmental impact report right now, and one of the comment letters from a state agency is saying that they want us to shut this project down and not allow any other project.
Which essentially brings its value to zero?
Right, which means it’s a taking. The state agency doesn’t realize what it is saying. I think there is an issue of conflicting constitutional values: what it means to own property and what that means as far as the potential to use it, versus the environmental impacts of the project and whether that project is allowed to go forward by the decision makers. I think there is a big disconnect there as to what that means. In California, we have a lot of zoning that requires conditional use permits, saying, “I will let you do x, but you’re going to have to comply with all of these conditions, and we don’t have to tell you yes or no on the project.” I think that gets confused with the decision makers sometimes where they think that they can just say, “No,” no matter what. If I don’t like the project, I can just tell you no, and it’s really not like that. That’s why organizations like Pacific Legal Foundation exist; to further define what that means. You have Nolan and Dolan, the two seminal cases. I use them all of the time . . . . So I think that’s the issue- that constitutional tension between property rights and development versus allowed development.
How does zoning affect the industry?
You have the state planning laws which are very general; you have the county general plan which is more specific (generally identifying what goes on in big chunks of land), and you have the overarching policies that are generally a part of that plan (policies for mineral extraction, for housing, etc.); and then, below that, you have the zoning that supplements the general plan to even more specific areas. Usually, I am dealing with green field sites where I either have to change the zoning or move a county line to include a project.
And spot zoning, too?
Spot zoning isn’t really much a problem because where I am at is more out away from residential developments. Mostly, what I’m dealing with are locations that are zoned agriculture, and I either want to mine it or be able to put houses on it. If I want the houses on it, I have to change not only the zoning, but the general plan, too. The general plan and zoning have to be consistent with each other.
So how do you do that exactly?
That’s part of your permit process. You have to go to the county and say, “I want a conditional use permit, and I also want a zone change, and I also want a change to the general plan—” which is a big deal. And, if it’s not already a part of the city you’re in, sometimes you have to go and loop it into the city; or, as I said, a few years ago, I had to actually go and move a county line to make sure it encompassed the project.
Are counties pretty receptive because they want the industry and revenue?
Again, it’s a county-by-county thing. There are counties that are friendly to development and there are counties that are not. It’s a big difference from Placer County to Napa County.
What are the good things that are in the works or that you can see happening in the next decade or so that will benefit business for your type of lawyering? And what are the concerns?
Speaking with some of my remaining homebuilder clients and the building industry association, it seems the tenor is that residential development, especially in Northern California, is really on a hard track. And a full comeback is anywhere from five to seven to ten years down the road. The good thing is that my group, which is energy, land-use, and minerals, is one of the busiest in my firm. California has an insatiable appetite for these types of resources, whether it is entertainment, like ski resorts, or extracted resources and energy, like natural gas, oil, sand, and gravel. It’s almost as if California is such a robust state as far as economic growth that these types of projects don’t go away. When the disintegration of the market happened a few years ago, I was actually nervous initially. Because, if you’re not building houses and you’re not building roads, do you need sand and gravel? I guess that’s a good thing about the California regulatory scheme because the permitting timeline arc is so long that companies can’t afford to stop permitting these resources. And so I am constantly extremely busy, even during the downturn. We’ve continued to hire people into my group all of the time and our clients’ demands are such that I foresee that continuing in the future as well.
I guess the only other thing I would say is that it seems that when one industry is down, such as housing, then another industry is coming up. And I will point to oil, gas, and gold . . . another one that’s huge right now. You saw gold go from $500 to $1700 dollars an ounce— to record highs. And that’s not going away any time soon with the inflationary adjustment that’s coming. And the last thing for California is going to be renewables. I am working on two very large solar projects that are going to take several years to develop and permit. California recently jumped to a 33% renewable energy portfolio for all utilities, and so that’s going to drive that type of development, whether it’s down in the deserts, the valley, or here in Northern California. I am also working on a wind project. That, at least in California, is going to be a big part of the future also because the law demands it. And, just like anything else, it has to go through the CEQA process.
So the good news is that there are plenty of other directions for land-use, and certainly, I have not seen a slowdown in the overall workload in my group. My group continues to grow with new lawyers all of the time, and the California regulatory scheme being what it is, means that it won’t be stopping any time soon.
About the Interviewee:
G. Braiden Chadwick is a partner in Downey Brand's Energy, Land-Use and Minerals Group. His statewide practice focuses on representing commercial, residential and industrial project proponents before local, regional, state and federal administrative agencies in connection with use permits and other entitlements. He handles all aspects of environmental compliance, land-use permitting and any resulting litigation. His primary clients include ski resorts, wineries, residential developers, and mining, oil, gas and other energy companies.
Interview with G. Braiden Chadwick, partner, Downey Brand, LLP (November 15, 2011).
The Present and Future of Energy, Land-Use and Mineral Legal Practice in California
Vol. 11
February 2012
Page
What are the most common legal issues you address on behalf of your clients in the field of environmental compliance and land-use permitting?
The most common legal issues are those associated with the California Environmental Quality Act (CEQA). It provides a resource-by-resource look at the environmental impact of the project and how to mitigate those effects to the greatest extent feasible. One of the biggest issues is determining what mitigation is actually feasible or not. The resource agencies — whether it is the county you’re permitting with, the California Department of Fish and Game, U.S. Fish and Wildlife, or the Army Corps of Engineers — all have different views of what mitigation is feasible. Usually, my clients have a different view of what’s realistic and economically feasible for them. So, taking the administrative agency’s view and my client’s view, meshing them together, and then hashing out what a feasible mitigation for a project is going to be is one of the major issues.
The other issues I encounter frequently are land-use conflicts with neighboring property owners and environmental groups. It’s very difficult sometimes to reconcile the very different worldviews different groups have. My clients usually purchase a large tract of property looking to develop it in some way; and sometimes, for example, an environmental group might have the idea that this property doesn’t belong to my client at all, but that it belongs to the people as a whole or something similar. This is something my client doesn’t understand because they paid millions of dollars for this property. So, conflicting views as to land uses and what’s a reasonable or needed development is going to be a prominent issue that I’ll have to deal with in the future.
Do you think the environmental pressure of Northern California is greater than Southern California?
I think, in large part, it’s often less down in Southern California. It’s already highly industrialized. I deal with mining, oil, and gas projects in Southern California all of the time. If you’re in Los Angeles County and doing work in the concrete jungle, there’s not going to be much impact on the environment. In contrast, there’s a housing development of about 12,000 acres down near Santa Clarita that was recently approved by the Department of Fish and Game, and that is all a green field development. There, . . . you’re going to have a lot more controversy about the environmental impacts. In contrast, if you go down to San Bernardino County, they are extremely friendly to development, especially mining projects. It’s a highly mineralized county, and there is a lot of value placed on those kinds of developments: bringing revenue and new jobs to the county. When you are dealing with mineral resources, it’s not like a strip mall because you can’t just move it anywhere you want. You have to mine where the resource is. So, instead of looking at Southern vs. Northern California, I think it is more appropriate to look county by county. How developed that county is and what you’re proposing will be major factors in determining how controversial a project will be and what issues you will be facing.
Who are the typical clients you work with in this field?
I often deal with multinational mining companies, mostly sand and gravel, though there are other mining companies— gold is making a comeback in California, for example. Back in 1992, if you look at some regulations that were imposed by the State Mines and Geology Board at the time, they essentially made it uneconomical to participate in large-scale gold projects, and it chased the industry out. But, with gold prices at $1700 an ounce that changes the economic factor substantially. So I am working on more gold projects. I do a lot of sand and gravel projects, obviously, because that’s always needed for roads, buildings, and houses. I do a lot of oil and gas work as well— on the permitting side of the actual developments, environmental impact reviews, and also title work for the oil and gas companies. Because of different accounting laws, they have to make sure that when they are paying royalties, “a” they are paying the right people, and “b” they know who actually owns the surface as well as the subsurface of property when they go drill into it. So, title work is a big issue with oil and gas companies. Also, I work with ski resorts and residential developers, though there is not much going on there. But I expect that to make a comeback.
When you do title work, do you find it to be pretty messy and confusing?
Yeah, it’s not a straightforward analysis. How it works is there is a type of quasi-professional called a landman. Landmen are essentially title experts. Their whole job is to go to the Bureau of Land Management (BLM) or county to research the property and pull all the records of private ownership from the past. For example, they start from the Mexican government’s ownership here in California and go all of the way to today’s date. They then analyze the records and give a preliminary report as to who they think owns the title. In California, you can’t get a title insurance policy for mineral rights like you can get for a house. So the landmen go out and do all of the dirty work, and then they turn all of that over to me. I review all of those documents and trace the ownership going all of the way back, and then I render an opinion as to who owns the mineral estate and in what percentages. Then, the company uses that to figure out who gets royalties and from whom to get a lease so they can get permission to be on the property and pay royalties to the right person.
So are you contracting out the landmen separately?
Usually, I will hire them independently myself, but a lot of the oil and gas companies have them on staff. And, quite a few of them are attorneys. It’s a very big growth industry. It’s a highly specialized field and can be pretty lucrative.
I am glad I don’t do it all of the time, but it’s kind of interesting, like a murder mystery . . . like who owns what? This guy died, this guy disinherited his kid, and so you can follow the trail and all of these different stories back more than a hundred years.
What do you think has been the impact of the increasing environmental policies since the 1970s on your industry? Especially in California, as it is one of the world’s leaders in this area?
From an objective standpoint, I think there is a reason that California is viewed as being hostile in a lot of cases to businesses that extract resources or are in any development. And not just general business laws and taxes and things. But from an environmental standpoint, I think California prides itself on being a leader in environmental regulation. As to the effect on industry, it’s twofold: it chases a lot of businesses out of the state. I’ve seen it happen. One of the third largest construction materials companies in the country ended up selling all of their mines here in California and just left because regulation and the cost of doing business.
Does that make you nervous?
It does, because there’s a balance that’s struck. On the one hand, each new regulation is like a version of an employment act for lawyers in some sense because the more complex the environmental laws get, the more demanding they are to understand for industry and the more they need legal and consulting services. On the other hand, you end up killing the golden goose at some point, and chasing business out of here. The real people who end up paying for this are the consumers. The suppliers pass their costs to their consumers, and the consumers are you and I. And so construction costs for roadways in California and for houses or for any type of infrastructure is compounded by the cost of actually permitting and extracting the resources; whether it’s oil and gas or whether it’s sand and gravel, if you’re dealing with extractive resources, the permitting costs of doing business get passed on to the consumer. That’s why a $400,000 house here in California is equivalent to a $150,000 house in Nevada. Location counts for a lot, I’m not saying I want to live in Nevada or anything, but these things make it hard on the industry. Especially, industrial uses are viewed as the nemesis of the environmental movement, but almost no weight is given to the sand and gravel industry for example where all they are doing is supplying a demand for roads, houses, and infrastructure. And you need to permit a mine to make sure you have those things. The California regulatory environment is getting increasingly complex and I expect it to continue the pace.
Does that equate to more billing hours for yours and other firms?
Absolutely.
So if there is not a shift in the balance, do you foresee more of your clients leaving California?
Not necessarily leaving California, but I can’t imagine a viable business atmosphere where one can live and thrive at this pace. As tone deaf as the legislature of California appears to be to these issues, it seems things are changing a bit given the situation with the economy.
Is there any particular issue regarding CEQA that is more commonly faced among your clients?
The bulwark of CEQA is to disclose impacts: so here’s the project and the impacts. The idea is that decision makers make any decision they want, but at least they are informed as to what their decision is going to be as far as the environment is concerned. The bigger issue my clients are facing is this conflict between 5th Amendment property issues and whether those projects are allowed to go forward, and, sometimes, regulatory takings.
I’m reviewing an environmental impact report right now, and one of the comment letters from a state agency is saying that they want us to shut this project down and not allow any other project.
Which essentially brings its value to zero?
Right, which means it’s a taking. The state agency doesn’t realize what it is saying. I think there is an issue of conflicting constitutional values: what it means to own property and what that means as far as the potential to use it, versus the environmental impacts of the project and whether that project is allowed to go forward by the decision makers. I think there is a big disconnect there as to what that means. In California, we have a lot of zoning that requires conditional use permits, saying, “I will let you do x, but you’re going to have to comply with all of these conditions, and we don’t have to tell you yes or no on the project.” I think that gets confused with the decision makers sometimes where they think that they can just say, “No,” no matter what. If I don’t like the project, I can just tell you no, and it’s really not like that. That’s why organizations like Pacific Legal Foundation exist; to further define what that means. You have Nolan and Dolan, the two seminal cases. I use them all of the time . . . . So I think that’s the issue- that constitutional tension between property rights and development versus allowed development.
How does zoning affect the industry?
You have the state planning laws which are very general; you have the county general plan which is more specific (generally identifying what goes on in big chunks of land), and you have the overarching policies that are generally a part of that plan (policies for mineral extraction, for housing, etc.); and then, below that, you have the zoning that supplements the general plan to even more specific areas. Usually, I am dealing with green field sites where I either have to change the zoning or move a county line to include a project.
And spot zoning, too?
Spot zoning isn’t really much a problem because where I am at is more out away from residential developments. Mostly, what I’m dealing with are locations that are zoned agriculture, and I either want to mine it or be able to put houses on it. If I want the houses on it, I have to change not only the zoning, but the general plan, too. The general plan and zoning have to be consistent with each other.
So how do you do that exactly?
That’s part of your permit process. You have to go to the county and say, “I want a conditional use permit, and I also want a zone change, and I also want a change to the general plan—” which is a big deal. And, if it’s not already a part of the city you’re in, sometimes you have to go and loop it into the city; or, as I said, a few years ago, I had to actually go and move a county line to make sure it encompassed the project.
Are counties pretty receptive because they want the industry and revenue?
Again, it’s a county-by-county thing. There are counties that are friendly to development and there are counties that are not. It’s a big difference from Placer County to Napa County.
What are the good things that are in the works or that you can see happening in the next decade or so that will benefit business for your type of lawyering? And what are the concerns?
Speaking with some of my remaining homebuilder clients and the building industry association, it seems the tenor is that residential development, especially in Northern California, is really on a hard track. And a full comeback is anywhere from five to seven to ten years down the road. The good thing is that my group, which is energy, land-use, and minerals, is one of the busiest in my firm. California has an insatiable appetite for these types of resources, whether it is entertainment, like ski resorts, or extracted resources and energy, like natural gas, oil, sand, and gravel. It’s almost as if California is such a robust state as far as economic growth that these types of projects don’t go away. When the disintegration of the market happened a few years ago, I was actually nervous initially. Because, if you’re not building houses and you’re not building roads, do you need sand and gravel? I guess that’s a good thing about the California regulatory scheme because the permitting timeline arc is so long that companies can’t afford to stop permitting these resources. And so I am constantly extremely busy, even during the downturn. We’ve continued to hire people into my group all of the time and our clients’ demands are such that I foresee that continuing in the future as well.
I guess the only other thing I would say is that it seems that when one industry is down, such as housing, then another industry is coming up. And I will point to oil, gas, and gold . . . another one that’s huge right now. You saw gold go from $500 to $1700 dollars an ounce— to record highs. And that’s not going away any time soon with the inflationary adjustment that’s coming. And the last thing for California is going to be renewables. I am working on two very large solar projects that are going to take several years to develop and permit. California recently jumped to a 33% renewable energy portfolio for all utilities, and so that’s going to drive that type of development, whether it’s down in the deserts, the valley, or here in Northern California. I am also working on a wind project. That, at least in California, is going to be a big part of the future also because the law demands it. And, just like anything else, it has to go through the CEQA process.
So the good news is that there are plenty of other directions for land-use, and certainly, I have not seen a slowdown in the overall workload in my group. My group continues to grow with new lawyers all of the time, and the California regulatory scheme being what it is, means that it won’t be stopping any time soon.
About the Interviewee:
G. Braiden Chadwick is a partner in Downey Brand's Energy, Land-Use and Minerals Group. His statewide practice focuses on representing commercial, residential and industrial project proponents before local, regional, state and federal administrative agencies in connection with use permits and other entitlements. He handles all aspects of environmental compliance, land-use permitting and any resulting litigation. His primary clients include ski resorts, wineries, residential developers, and mining, oil, gas and other energy companies.
Interview with G. Braiden Chadwick, partner, Downey Brand, LLP (November 15, 2011).