Real Estate & Property Law

Escheating Just Compensation

By Alan Ackerman

Tri Cities

Kilgore introduced the legislation as a means of prying the royalties out of escrow, he said, but the bill has been criticized by Phillips, Puckett and others who are concerned that corporations could haul landowners into binding arbitration against their will and leverage their legal muscle to prevail even when precedent tilts against them.

Kilgore's bill would require the Virginia Gas and Oil Board to ask a circuit court judge to appoint an arbitrator. The arbitrator would have to be a lawyer with substantial experience litigating mineral title cases, and could not have received more than 10 percent of his income in the past three years from one of the claimants in the arbitration. The parties would split the court and arbitration costs.

One idea circulating to amend the bill would cut out the circuit court's role in appointing arbitrators, and have the DMME contract them directly, Kilgore said Tuesday.

'Some of us have a little bit of concern. We're not so sure that citizens would want DMME to be the ones appointing arbitrators,' Kilgore said. 'I still say that a circuit court judge appointing an arbitrator gives more credence to the process.'

Phillips said last month he wants to amend Kilgore's bill to make the arbitration non-binding, and to impose the costs on the losing party – an effort to spare a landowner with little in escrow the risk of losing more than he started with.

    The attached article by Dan Gilbert is another brilliant recitation of what is occurring at the state level.  This blog has been covering the mineral issue in Virginia because it offers so many challenging questions.
    The article discusses many interesting issues.  The one being discussed in this blog posting relates to the escheating of funds.  Set forth in the earlier blog postings, the state has allowed producers to enter properties owned by citizens so  producers can extract the gas.  What was arguably the royalty interest was then placed in an escrow account, leaving it open for payment.  If not caught by Dan Gilbert, I wonder whether it would have ended up back in the hands of the gas company.  Of course, no one would expect the gas company to do something so dishonest, assuming that it properly provided a correct royalty interest.  Therefore, the state would have it available for unknown parties.  
    This brings up the issue of escheat, the process by which funds remain inactive and for the benefit of unknown beneficiaries.  Many states have a process whereby an inactive account escheats to the state after it is not requested by its rightful owner.  Escheats only apply to checks we receive from utilities or insurance companies are not cashed.  After a number of years, the checks are 'escheated' to the state, notices are presented, and the state is the beneficiary of an unknown but certain 'tax'.    It is frightening that the possibility of escheating any of these gas funds to the state would ever be considered.  
    The right result is to apportion the funds to those who already had their gas removed in the same pooling area. 
 

Full post as published by National Eminent Domain Blog on March 17, 2010 (boomark / email).