VERY IMPORTANT information for those in the oil and gas exploration area

Ohio's new legacy trust is a boon to oil and gas industry, landowners

7:56 am, February 22, 2013

With the recent Marcellus and Utica shale boom, there has been a significant increase in the public concern for safety relating to drilling and fracking. While some may set aside Gasland and other portrayals as scare tactics by environmentalists, there is no doubt that fracking has potential liabilities associated with it. The website EcoWatch.org identifies a number of concerns, including:

handling and disposal of radioactive wastewater and sludge;

accidents involving transportation of radioactive/chemical waste;

groundwater contamination from leaking storage containers, abandoned wells and failed casings;

high levels of radon in natural gas from Marcellus shale;

respirable crystalline silica exposure of workers and nearby populations;

air contamination from diesel engines at drilling sites and in local communities;

air contamination from flaring; and

increased health care costs.

There is also concern that fracking may be categorized as an abnormally dangerous activity subject to strict liability — a rather blunt and drastic legal standard. What can land owners, operators and ancillary business owners do to protect a nest egg from complex litigation?

On Dec. 20, Gov. John Kasich signed the Ohio Legacy Trust Act, which allows an individual to put assets aside in trust to be protected from creditors. States including Alaska, Delaware and Nevada have had this kind of law for years, but Ohio is the first state in the Midwest to pass such a law.

Ohio borrowed the best provisions from these other states and now has one of the most protective laws in the country. Beginning on March 27, 2012, residents of Ohio, Pennsylvania and West Virginia who are involved in fracking have been protected by this new law.

An Ohio legacy trust is an irrevocable trust and can be established by anyone, not just an Ohioan. However, there must be at least one Ohio trustee who has custody of the assets, maintains the trust records or materially participates in the management of the trust. The person establishing the trust (called a settlor) cannot be trustee. Typically the trustee would be an Ohio bank or trust company. The settlor then transfers assets to the trustee of the legacy trust and is the primary beneficiary, often with spouse and/or children as permissible beneficiaries as well.

Under the laws of most states, if a settlor is a beneficiary of a trust she established, creditors can reach the trust assets to the extent that the settlor could benefit from the trust. However, the purpose of the legacy trust is to permit the settlor to benefit from the trust but enjoy protection from the settlor's personal creditors.

Sound too good to be true? Well, the answer is yes and no.

Transfers to the legacy trust (like any gift transfers) are subject to claims by a specific creditor that the transfer was “fraudulent.” A transfer to an Ohio legacy trust cannot be effective if it renders you insolvent; you cannot transfer all of your assets to a Legacy Trust and then jilt current creditors.

There also is a statute of limitations period determining how long a creditor might have to contest such a transfer. Ohio's period is the shortest in the country, making it more difficult for class action attorneys to seize trust assets if they received a judgment. This will make Ohio an attractive place to create this type of trust.

Ohio's statute protects transfers to legacy trusts after only 18 months from the date of transfer with respect to non pre-existing creditors. Ohio's statute protects transfers to legacy trusts after the greater of eighteen months from the date of transfer or six months from the date the creditor discovered or should have discovered the transfer to the trust with respect to preexisting creditors. Most other states, including Alaska, Delaware or Nevada, allow plaintiff/creditor's attorneys a much longer time to try to undo a transfer — from two to four years.

The Ohio Legislature determined that it was necessary to allow certain classes of creditors to access the trust assets even though most creditors are barred (they're known as “exception creditors”). Ohio provides an exception for divorcing spouses, but only if the settlor was married to the divorcing spouse prior to the transfer to the legacy trust. Ohio also extends protection to child support orders.

While the Ohio legacy trust is not a panacea, it will offer land owners, business owners and entrepreneurs associated with the shale boom an opportunity to protect a nest egg for a rainy day.

In addition to the right to receive income and principal from the legacy trust, the settlor can retain other significant powers, including the right to change trustees, the right to change the distribution of the ultimate distribution of the trust, the right to manage investment of the trust assets and the right to use the trust assets.

The rules governing the formation and administration of the legacy trust — both tax and non-tax — can be quite complex. To learn more about how a legacy trust can benefit you and your family, seek the advice of competent and qualified counsel and a qualified trust company that has experience with these types of trusts.

Expansion - Is Geauga County the next Drilling Target

CHESTER TOWNSHIP, Ohio -- Mining company Fairmount Minerals is moving its headquarters to Chester Township, after outgrowing its longtime offices in Chardon.

The privately held company, which employs 800 people worldwide, has signed a three-year lease at a small office building off Mayfield Road. Roughly eight miles west of Fairmount's current Geauga County home, the building is part of a complex owned by the HF Group, a company that binds books and stores paper and digital records.

Fairmount mines and processes clean, industrial-quality sand used for everything from water filtration to natural gas drilling.

The company isn't pulling out of Chardon, where it sources sand and employs nearly 100 people at a blending operation, a technology center and other facilities. But recent hiring, and the boom in hydraulic fracturing, forced Fairmount to look for larger digs.

"We wanted to stay in Geauga County and also get a little bit closer to the airport," said Jessi O'Reilly, an executive assistant at the headquarters. "It just happened that the location opened up, and we jumped on it."

O'Reilly confirmed that Fairmount will move into 11,000 square feet at the HG Group complex on Thursday. Fairmount's existing headquarters, on Ravenna Road, will become back-up offices.

The HG Group, which occupies the larger of two buildings at 8844 Mayfield Road, bought the property and the book-binding business in 1989 and built the smaller, 16,000-square-foot building 10 years later. Fairmount will share the space with another tenant but has opportunities to expand.

"As a Geauga County businessperson and a resident, I'm also very happy that Fairmount is staying in the county," said Jay Fairfield, the HF Group's president. "They are a very civic-minded company, and they've been very, very good to Geauga County."

Chuck Fowler, Fairmount's chief executive officer, was not available Wednesday.

Lupo & Harrock Excavating in REAL TROUBLE

By JAMISON COCKLIN | jcocklin@vindy.com

YOUNGSTOWN

Like the Mahoning River, the future of Ben W. Lupo, embattled owner of D&L Energy and Hardrock Excavating, is a bit more murky.

Download as PDF:
Final Analytical Report for Ohio EPA-NEDO

Analytical report prepared by TestAmerical Laboratories, Inc. for Ohio EPA-NEDO regarding suspected water contamination by D&L Energy Group.

Download as PDF:
D&L Sample Results Statement

Statement from ODNR and Ohio EPA: Sample results from D&L Oil Field Waste Brine Dumping into tributary and Mahoning River

Download as PDF:
US vs. Ben Lupo - Criminal Complaint

United States District Court for the Northern District of Ohio: Criminal Complaint, Case No. 4:13M 6006. United States of America v. Ben Lupo.

Flanked by high-ranking state and federal officials, U.S. Attorney Steven M. Dettelbach announced that Lupo has been charged with one count of violating the U.S. Clean Water Act.

State and federal regulators, along with Ohio Attorney General Mike DeWine, gathered along the banks of the Mahoning River, where over the years millions have been spent to clean up the waterway, to tell a crowd of reporters, residents and activists that Lupo’s actions would not be tolerated. He eventually also will face civil charges brought by the state, DeWine said.

In a whirlwind of activity Thursday, new details emerged about an incident Jan. 31, when regulators discovered that Lupo had instructed an employee of Hardrock Excavating to dump thousands of gallons of oil, brine water and drilling mud down a storm drain at the company’s 2761 Salt Springs Road headquarters. The waste discharged into a nearby creek and then seeped into the Mahoning River.

In response to the early findings of a criminal investigation, an affidavit was filed in support of the federal charge, leading to an arrest warrant and Lupo’s decision to turn himself in early Thursday.

He posted $50,000 in unsecured bond, pleaded not guilty and waived his right to a preliminary hearing, instead allowing Magistrate Judge George J. Limbert of U.S. District Court in Youngstown to turn him over to a federal grand jury, where he could face as many as 20 counts of illegal dumping and other charges.


“This charge should serve as a warning to anyone that places their personal interests ahead of the public’s safety,” said Jim Zehringer, Ohio Department of Natural Resources director.

“ODNR will continue to aggressively pursue and seek prosecution of any business or individual that blatantly disregards the laws we have in place to protect Ohio’s communities and natural resources.”

Court documents make clear the uphill battle Lupo likely will face in coming months.

According to the affidavit, based on sworn statements from David J. Barlow, a special agent with the U.S. Environmental Protection Agency’s Criminal Investigation Division, one of Lupo’s employees said Lupo had instructed similar waste dumps on 20 separate occasions.

Upon further questioning from Barlow, the employee said Lupo instructed those dumps be made after dark and “only after no one else was present at the facility.”

The revelation is troubling, considering that regulators revealed there are 58 temporary storage tanks at 2761 Salt Springs Road, each capable of holding 20,000 gallons of drilling waste.

After receiving an anonymous tip on Jan. 31, ODNR inspectors arrived to discover a hose connected to one of those tanks discharging into a storm drain.

When the Ohio EPA was called the next day to examine the contents of those tanks, a “very dark, oil-like” substance, similar in appearance to motor oil, could be seen. OEPA officials detected puddles of oil throughout the length of the nearby tributary and “oil and oil sheen were visible in the Mahoning River” farther downstream, according to the affidavit.

Court documents show Lupo’s insistence that his employees lie to investigators if asked how regularly the dumping incidents occurred — instructing them to say the violations had happened only four to six times before.

Test results taken from samples, obtained by The Vindicator, show that several hazardous pollutants were detected in the drilling waste that spilled into the creek and river.

Among them were benzene and toluene. Benzene is a flammable, colorless liquid that is a natural part of crude oil, gasoline and cigarette smoke. According to the American Cancer Society, studies have demonstrated the substance causes cancer.

Toluene is water-insoluble and often found in paint thinners. Its low solubility makes it difficult for the body to expunge by sweat or bodily fluid.


If convicted of the current charge, Dettelbach said Lupo faces up to three years imprisonment and a $250,000 fine.

However, facing a grand jury means more charges could be considered for Lupo, as the jury usually meets in secret to hear arguments from a prosecutor. In that case, jurors could take into account the investigator’s findings that he instructed dumping on 20 occasions, meaning he could be indicted on separate counts.

DeWine said federal charges were filed because the U.S. Department of Justice has the ability to charge violators under stronger federal laws. Still, he added that civil charges will be pursued.

“It is our intention to take civil action as well. We have illegal storage, illegal transportation and illegal disposal,”

DeWine said. “The potential fine under state law for each one of these separate violations per day is between $2,500 and $20,000. This action will be filed by the attorney general’s office on behalf of the state.”

A separate effort is under way to shore up the state’s laws on permitting oil and gas operators and tightening regulatory oversight of the industry.

Under state law, brine shipments are tracked with daily logs that are sent to ODNR. Asked if it was possible that Lupo was accepting more brine shipments than he could store, Richard J. Simmers, chief of ODNR’s Division of Oil and Gas Resources Management, said it was “entirely possible.” Haulers are paid by each shipment, raising the question of whether Lupo was accepting waste, dumping it and getting paid to take more.

Simmers said regulators are working to examine the brine-hauling records of Hardrock Excavating to determine whether Lupo was profiting in any way by making repeated dumps.

State Sen. Joe Shiavoni of Boardman, D-33rd, in cooperation with the Ohio Attorney General’s Office, the John Kasich administration and other Republican lawmakers, is working to draft legislation to increase the penalties for first-time violators and make it nearly impossible for operators to receive permits if they knowingly break the law.


Though regulators can now issue violations, there is no law that bars transgressors from receiving future permits after incidents occur.

Both Schiavoni and state Rep. Robert Hagan of Youngstown, D-58th, hailed Lupo’s swift prosecution, saying it sent the right message of balance between protecting the environment and pursuing economic development through the state’s emerging oil and gas industry.

U.S. Rep. Tim Ryan of Niles, D-13th, added: “I am supportive of the federal prosecutor’s involvement, and if the alleged violations occurred, then there must be justice. We cannot allow our environment to suffer because of unlawful and immoral actions, and we must show any would-be polluters that any infractions will be prosecuted to the fullest extent of the law.”

Asked if state and federal officials were weighing any of Lupo’s other environmental infractions, stretching back to the 1970s, Dettelbach said no. But DeWine said Gov. John Kasich has requested that those infractions be examined closely.

At this point, Dettelbach added, Lupo’s other companies — about 20 of them — are not subject to this investigation. He offered few details but said those operations could eventually get a second look if investigators deem it necessary.

Furthermore, where the drilling waste was coming from still remains unclear, as regulators continue to examine records. Officials on Thursday could say only that the waste was coming from “active drilling sites in Pennsylvania and Ohio.”

Last week, in an unprecedented move, all of D&L Energy’s permits were revoked, idling its injection wells. At the same time, regulators revoked Hardrock Excavating’s permit to haul brine water.