Vol. 29, No. 5 #2 (October 2006). Could Coalbed Methane Be the Death of Conservation Easements?.

• Author: By Nancy A. McLaughlin

Wyoming Bar Journal

2006.

Vol. 29, No. 5 #2 (October 2006).

Could Coalbed Methane Be the Death of Conservation Easements?

WYOMING LAWYEROctober 2006/Vol. 29, No. 5Could Coalbed Methane Be the Death of Conservation Easements?By Nancy A. McLaughlin

Perpetual conservation easements have become the most popular private land protection tool in this country. The government at all levels, the nonprofit sector, and private landowners have embraced conservation easements as a way to achieve private land protection goals without the perceived unfairness associated with regulation. All fifty states and the District of Columbia have enacted easement enabling legislation, and since 1976 Congress has played a central role in encouraging private landowners to donate perpetual conservation easements by offering federal charitable income, gift, and estate tax deductions based on the value of the easements. Conservation easements now protect over 275,000 acres of privately-owned farm and ranchlands, open space, and wildlife habitat in Wyoming, and over 7.7 million acres (an area more than three times the size of Yellowstone National Park) nationwide. On June 27, 2006, the Wyoming Supreme Court heard oral arguments in a dispute over Johnson County's termination of a perpetual conservation easement due to coalbed methane development on the encumbered land. A decision permitting the County to simply agree with the owner of the 1,043 acre ranch to terminate the easement would have significant adverse ramifications for conservation easements as a land protection tool, both in Wyoming and nationwide. This article explains that a charitable gift of a perpetual conservation easement should be treated like any other gift of property made for a specific charitable purpose - i.e., the holder of the easement should not be permitted to terminate the easement without court approval in a cy pres proceeding, where appropriate consideration would be accorded to both the intent of the donor and the public interest in the continued enforcement of the easement.(fn1)

The Facts

In 1993, Mr. and Mrs. Lowham made a charitable gift of the conservation easement to the County for the purpose of "preserving and protecting in perpetuity the natural, agricultural, ecological, wildlife habitat, open space, scenic and aesthetic features and values of the Ranch." The easement prohibits subdivision and other inconsistent uses of the ranch, and was estimated to have reduced the ranch's value by $1.2 million. The Lowhams claimed a federal charitable income tax deduction based on that amount.

In 1999, Mr. and Mrs. Dowd purchased the ranch from the Lowhams. The Dowds were aware that they were purchasing the ranch subject to the conservation easement, and the purchase price presumably reflected the perpetual restrictions on the ranch's development and use. The

Dowds also were aware that a third party not subject to the easement owned the subsurface mineral estate.

Two years later, an energy company informed the Dowds that it was going to commence coalbed methane drilling on the ranch. Aware that the energy company had the legal right to access the surface estate to extract minerals, but concerned that mineral development would reduce the property's value and might expose them and the County to potential liability under the easement, the Dowds requested that the County terminate the easement.

The County had expressly agreed in the deed of easement "...forever to honor the intentions of the Grantor...to preserve and protect in perpetuity the natural elements and ecological and aesthetic values of the Ranch..." Nonetheless, in August 2002, in response to the Dowd's request, the County adopted a resolution terminating the easement. The County received no compensation in exchange for the termination, and the development and use rights formerly restricted by the easement (estimated to be worth $1.2 million in 1993, but likely worth considerably more now) passed to the Dowds. The Dowds then began to market the ranch as two subdivided lots.

In July 2003, Robert Hicks, a resident and landowner in Johnson County, filed suit in District Court objecting to the termination of the easement. Hicks argued, in part, that the County held the easement as a charitable trust for the benefit of the public, and thus did not have the legal right to terminate the easement without receiving court approval in a cy pres proceeding, where it would have to be shown that the charitable purpose of the easement has become "impossible or impractical." Hicks asserted that the limited mineral development that has occurred on the ranch (a few drilling structures impacting 0.1% of the land) has not rendered the purpose of the easement impossible or impractical.

In April 2004, the District Court denied summary judgment motions filed by the Dowds and the County, finding that: (i) the conservation easement was transferred to a charitable trust; (ii) Hicks, as a County resident and Wyoming citizen, was a beneficiary of the trust and had standing; and (iii) District Courts have exclusive jurisdiction concerning the administration of charitable trusts, and an appeal under the Wyoming Administrative Procedure Act (WAPA) is not required before requesting the court to adjudicate controversies concerning charitable trusts.

After being notified of the action by the District Court, the Wyoming Attorney General declined to intervene, stating:

"...at this time... [t]he issues are squarely before the Court and the interests of the public, as beneficiaries of the...