Thursday, May 3, 2018
Tort cases involve personal injuries or property damage. Most tort cases are based in negligence which is a fault-based system. That means that for a person to be deemed legally negligent, certain conditions must exist. These conditions can be thought of as links in a chain. Each condition must be present before a finding of negligence can be obtained. What are those links? They are duty, breach, causation and damages. The defendant must have owed the plaintiff a duty to act in a certain way; that duty was breached; and the breach of the duty caused the plaintiff’s damages.
Perhaps the trickiest of the links is the causation link. The requirement that the breach of the duty owed to the plaintiff must be causally linked to the plaintiff’s damages is the last issue to resolve in many tort cases. Tied to the concept of causality is reasonable foreseeability. Was it or should it have been reasonably foreseeable to the defendant at the time the defendant did whatever it was that the defendant did, that the defendant’s conduct would result in harm to the plaintiff?
Reasonable foreseeability - that’s the focus of today’s post.
As noted above, the resulting harm to the plaintiff must have been a reasonably foreseeable result of the defendant's conduct at the time the conduct occurred. Reasonable foreseeability is the essence of causality (also known as proximate cause). For instance, in a Colorado case that was decided by the U.S. Court of Federal Claims, a farmer claimed personal injury caused by drinking water contaminated by U.S. Army operations. The court not only questioned the existence of the farmer's personal injuries but held that the farmer failed to prove by a preponderance of the evidence (the legal standard applicable in a civil tort case) that his personal injuries and the cattle deaths were caused by the contaminated groundwater. Land v. United States, 35 Fed. Cl. 345 (1996).
Proximate cause can also be an issue (apart from negligence) with respect to coverage for an insured-against loss. In a Nebraska case, the court dealt with the proximate cause issue in determining whether an insurance policy on livestock covered damages resulting from an infectious disease transmitted by a tornado. The policy covered damage caused by windstorm, but not specifically cover damage caused by infectious disease. The court held that the proximate cause of the damage to the hogs at issue was the windstorm – without the windstorm, the hogs would not have been infected by the disease. Griess & Sons v. Farm Bureau Insurance Co., 247 Neb. 526, 528 N.W.2d 329 (1995).
The Palsgraf Case
Some things are reasonably foreseeable and other things are not; and an individual will be held liable for harm that is reasonably foreseeable or reasonably expected to result from the defendant's actions. For example, in one case a landowner was not liable for the death of a motorist that was stuck by a falling tree because eve thought the tree leaned over the road, there was no visible decay present and the landowner had no notice of a dangerous condition. Wade v. Howard., 499 S.E.2d 652 (Ga. Ct. App. 1998). This just reinforces the notion that there must be a causal connection - a causal linkage - between the defendant's action and the plaintiff's harm. On the other hand, a superseding cause is an intervening force that relieves an actor from liability for harm that the actor’s negligence was a substantial factor in producing. Thus, negligence that is too remote from the subsequent injury bars liability.”
Foreseeability may also be an issue with respect to the plaintiff. The famous case of Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99 (1928), is an example of an injury which was caused by an unbroken chain of events. The plaintiff was standing on a platform of the defendant's railroad after buying a ticket to ride one of the defendant’s trains. As the court described the facts: “[A] train stopped at the station, bound for another place. Two men ran forward to catch it. One of the men reached the platform of the car without mishap, though the train was already moving. The other man, carrying a package, jumped aboard the car, but seemed unsteady as if about to fall. A guard on the car, who had held the door open, reached forward to help him in, and another guard on the platform pushed him from behind. In this act, the package was dislodged, and fell upon the rails. It was a package of small size, about fifteen inches long, and was covered by a newspaper. In fact it contained fireworks, but there was nothing in its appearance to give notice of its contents. The fireworks when they fell exploded. The shock of the explosion threw down some scales at the other end of the platform many feet away. The scales struck the plaintiff, causing injuries for which she sues.”
Based on those facts, the court ruled that it was not foreseeable to a reasonable and prudent person that the actions which triggered the chain of events could ultimately cause injury to the plaintiff. The railroad was not legally responsible for the plaintiff’s injuries. For a modern version of Palsgraf, see Zokhrabov v. Park 963 N.E.2d 1035 (Ill. Ct. App. 2011).
Application to Agricultural Activities
It is possible that a negligent tort claim could be brought against a farmer that plants genetically modified (GM) crops if the crops cross-pollinate and contaminate a neighbor’s conventional crop. For the neighbor to prevail in court, the neighbor would have to prove that the farmer had a duty to prevent contamination, that the duty was breached (e.g., failure to select seed properly, adhere to specified buffer zones, or follow growing and harvesting procedures), and that the breach of the duty caused the neighbor’s damages, which were a reasonably foreseeable result of the farmer’s conduct. But is there a duty on the part of the farmer planting GM crops to prevent contamination when it is the convention crops that are the rarity? I don’t know the answer to that one. To date, no appellate-level court has rendered a published opinion in a negligence tort case involving genetically modified crops on that specific set of facts that I am aware of.
As noted above, the foreseeability of harm is generally a major factor that is considered in determining the existence of a duty. However, the Restatement (Third) of Torts states that the foreseeability of physical injury to a third party is not to be considered in determining whether there exists a duty to exercise reasonable care. That’s an interesting take, and at least one court has adopted the Restatement approach in holding that a landowner has a duty to exercise reasonable care to keep their premises in a manner that would not create hazards on adjoining roadways. See, e.g., Thompson v. Kaczinski, et al., 774 N.W.2d 829 (Iowa 2009), vac’g, 760 N.W.2d 211 (Iowa Ct. App. 2008). If that is the case, then there is a duty to maintain a premises. That would be of particular importance to a rural landowner.
Tuesday, May 1, 2018
Occasionally, farmers and ranchers are required to defend their livestock from harm caused by trespassing dogs. Many states have adopted statutes that permit dogs to be killed if they are caught in the act of harming domesticated animals. However, it is critical to follow the specifics of the applicable state statute allowing the killing of trespassing dogs. Failure to do so can result in a criminal charge of cruelty to animals.
Today’s post examines the issue of killing trespassing dogs.
Sample State Statutes
Here’s a sample of state “dog-kill” statutes:
Illinois (Illinois Comp. Stat. Ann. Chapter 510, Section 5, Subsection 18): “Any owner seeing his or her livestock, poultry, or equidae being injured, wounded, or killed by a dog, not accompanied by or not under the supervision of its owner, may kill such dog.”
Indiana (Indiana Code §15-20-2-2): “A person who observes a dog in the act of killing or injuring livestock may kill the dog if the person has the consent of the person in possession of the real estate on which the dog is found.”
Iowa (Iowa Code §351.26-.28): “It shall be lawful for any person, and the duty of all peace officers within their respective jurisdictions unless such jurisdiction shall have otherwise provided for the seizure and impoundment of dogs, to kill any dog for which a rabies vaccination tag is required, when the dog is not wearing a collar with rabies vaccination tag attached. It shall be lawful for any person to kill a dog, wearing a collar with a rabies vaccination tag attached, when the dog is caught in the act of chasing, maiming, or killing any domestic animal or fowl, or when such dog is attacking or attempting to bite a person. The owner of a dog shall be liable to an injured party for all damages done by the dog, when the dog is caught in the action of worrying, maiming, or killing a domestic animal.”
Kansas (Kansas Stat. Ann. §47-646): “It shall be lawful for any person at any time to kill any dog which may be found injuring or attempting to injure any livestock as defined in K.S.A. 47-1001, and amendments thereto.” The term “livestock” is defined in K.S.A. §47-1001 as meaning and including, “cattle, bison, swine, sheep, goats, horses, mules, domesticated deer, camelids, domestic poultry, domestic waterfowl, all creatures of the ratite family that are not indigenous to this state, including, but not limited to, ostriches, emus and rheas, and any other animal as deemed necessary by the [animal health commissioner of the department of agriculture] established through rules and regulations.”
Nebraska (Neb. Rev. Stat. §54-604): “Any person [,firm or corporation] shall have the right to kill any dog found [killing, wounding, injuring, worrying, or chasing any person or persons or any sheep or other domestic animals belonging to such person, firm, or corporation] doing any damage …to any sheep or domestic animal, or if he shall have just and reasonable ground to believe that such dog has been killing, wounding, chasing or worrying such sheep or animal; and no action shall be maintained for such killing.”
As can be noted from the above-cited state statutes, they all require certain conditions to be satisfied before a trespassing dog can be killed without legal ramifications. Essentially, the statutes require that the dog be “caught in the act” of doing some specified act to covered livestock. The statutory definitions of the acts described are important, as is the definition of the livestock that are covered. That makes it critical to preserve evidence showing that the statutory requirements have been met. For example, in Grabenstein v. Sunsted, 237 Mont. 254, 772 P.2d 865 (1989), a farmer shot a neighbor’s dog that had broken into the farmer’s chicken coop and had killed all but one of the chickens when the farmer found him in the pen trying to kill that chicken and shot him. The Court held that the farmer had a common law right to kill the dog in such a situation and that the later enactment of the dog-kill statute had not removed that right. It was of no importance that the dog was of much more value at the time it was shot than was the sole remaining chicken.
Failure to maintain strict compliance with a particular state’s dog-kill statute could result in the person killing the dog being convicted of cruelty to animals. Indeed, the Oregon cruelty to animal statute has been upheld against a constitutional challenge that it was vague and overbroad. State v. Thomas, 63 P.3d 1242 (Or. Ct. App. 2003). The court held that the Tenth Amendment does not prohibit the authority of states to regulate the conduct of its citizens. As a result, the statute under which the defendant was charged with first degree animal abuse for shooting neighbor’s dog was constitutional as not prohibited by Tenth Amendment. Also, in State v. Walter, 266 Mont. 429, 880 P.2d 1346 (1994), the Montana Supreme Court held that the defendant was properly found guilty by the trial court of the misdemeanor of cruelty to animals. The court determined that there was sufficient evidence that the defendant did not shoot the dog while it was in the act of doing any of the statutorily enumerated things that would give the defendant the right to shoot the dog. Also, in Propes v. Griffith, 25 S.W.3d 544 (Mo. Ct. App. 2000) the court held the defendant liable for actual and punitive damages for killing dogs that the defendant claimed were harming his sheep. The court determined there was insufficient evidence presented that the dogs were “killing, wounding or chasing” the sheep as required by state law.
Most dog-kill statutes are only designed to protect livestock-type animals. For example, dogs are not “livestock” for purposes of the typical state statute. See, e.g., People v. Bugaiski, 224 Mich. App. 241, 568 N.W.2d 391 (1997). In addition, deer are usually not defined as “livestock.” Thus, there is no statutory protection for shooting a dog while in the act of attacking deer. See, e.g., Bueckner v. Hamel, 886 S.W.2d 368 (Tex. App. 1994). Similarly, the usually is no statutory protection under a “dog-kill” statute for the killing a dog while in the act of attacking a household pet, such as a kitten. See, e.g., McKinney v. Robbins, 319 Ark. 596, 892 S.W.2d 502 (1995).
Trespassing dogs can be a big problem for farmers and ranchers. When they are shot in the act of damaging livestock as defined by the applicable state statute, they can be shot without repercussion. However, of course, the dog owner will likely not be happy and neighborly relationships can be damaged. As always, its good to have a conversation with neighbors about dogs and livestock so that potential problems can be minimized. For many farmers and ranchers, the “shoot, shovel and shut-up” approach may seem like the best and most practical approach. But, it can lead to problems – both interpersonal and legal.
Wednesday, March 14, 2018
Most liability events that occur on a farm or ranch are judged under a standard of negligence. However, some are deemed to be so dangerous that a showing of negligence is not required to obtain a recovery. Under a strict liability approach, the defendant is liable for injuries caused by the defendant's actions, even if the defendant was not negligent in any way or did not intend to injure the plaintiff. In general, those situations reserved for resolution under a strict liability approach involve those activities that are highly dangerous. When these activities are engaged in, the defendant must be prepared to pay for all resulting consequences, regardless of the legal fault.
What are those situations that are common to the operation of a farm or ranch, or simply being a rural landowner that can lead to the application of the strict liability rule? That’s the focus of today’s post.
Application of a Strict Liability Rule
Wild animals. In general, landowners are not strictly liable for the acts of wild animals on their property. But, some courts have held that a landowner could be found negligent with regard to the indigenous wild animals that are found on the landowner’s property if the landowner knows or has reason to know of the unreasonable risk of harm posed by the animals. See, e.g., Vendrella v. Astriab Family Limited Partnership, 87 A.3d 546, 311 Conn. 301 (2014).
If an individual keeps wild animals on his or her premises, the individual will be strictly liable for any damages that the animals cause to other persons or their property. In many jurisdictions, the owner or possessor of hard-hoofed animals, such as cattle, horses and donkeys, may also be strictly liable for injuries caused by those animals, at least if known to have a vicious propensity.
Dogs and other domestic animals. Injuries or other damages caused by dogs are handled differently. The owner or possessor of a dog is normally not liable unless the owner knows the animal to be dangerous. Historically, a dog was entitled to its first bite. The dog's owner would not be liable for injuries from the dog's bite until the dog had already bitten someone. Until the dog has bitten someone, it is not known to be dangerous. In recent years, many states have passed statutes changing the common law rule and holding a dog owner (or a person who “harbors” a dog) responsible for the injuries caused by the dog. But see, Augsburger v. Homestead Mutual Insurance Company, et al., 856 N.W.2d 874, 359 Wis. 2d 385 (2014). An exception is usually made, however, for personal injuries caused by a dog if the defendant was trespassing or was committing an unlawful act at the time of the injury. Some state statutes also make a distinction on the basis of whether the dog would attack or injure someone without provocation. Also, under Restatement (Second) of Torts § 518, the owner of a domestic animal who does not know or have reason to know that the animal is more dangerous than others of its class may still be liable for negligently failing to prevent the animal from inflicting an injury. Approximately 20 states follow the Restatement approach.
Of importance to agriculture is that some state “dog-bite” statutes contain a “working dog exception.” The exception contained in the Colorado statute, for example, applies if the bite occurs while the dog is on its owner’s property or while the dog was working under the control of its owner. See, e.g., Legro v. Robinson, 369 P.3d 785, (Colo. Ct. App. 2015).
Maintaining dangerous conditions on property. Strict liability is imposed on persons responsible for activities or conditions on their property that are unreasonably dangerous and cause injury or damage to other persons or their property. For example, if a farmer or rancher decides to create a drainage ditch with explosives, and the resulting rock debris causes damages to a neighbor, the farmer will be strictly liable.
Unnatural land uses. The strict liability approach also includes most activities that are extremely dangerous. Perhaps the most frequent application of the doctrine to agriculture is in situations involving the aerial application of pesticides and other chemicals to crops. See, e.g., Pride of San Juan, Inc. v. Pratt, 548 Ariz. Adv. Rep. 20 (2009); Yancey v. Watkins, 708 S.E.2d 539, 308 Ga. App. 695 (2011). Most states utilize a strict liability rule if damage occurs. A few states purport to require a showing of negligence, but, in reality, even in these jurisdictions it may be difficult for a farmer to escape liability if damage occurs. For example, in Arkansas, violation of aerial crop spraying regulations constitutes evidence of negligence and the negligence of crop sprayers can be imputed to landowners because aerial crop spraying is viewed as an inherently dangerous activity. McCorkle Farms, Inc. v. Thompson, 84 S.W.3d 884 (Ark. Ct. App. 2003). However, the rule remains in Arkansas that the aerial application of chemicals commonly used in farming communities that are available for sale to the general public is not an ultrahazardous activity triggering application of strict liability. See, e.g., Mangrum v. Pique, et al., 359 Ark. 373, 198 S.W.3d 496 (2006).
Also, what is abnormally dangerous can depend on the circumstances and characteristics surrounding the complained-of activity. For example, in Crosstex North Texas Pipeline, L.P. v. Gardiner, 505 S.W.3d 580 (Tex. Sup. Ct. 2016), the Texas Supreme Court held that the operation of an oil and gas pipeline does not constitute an abnormally dangerous activity that would trigger the application of strict liability.
Arguably, if a farmer plants a genetically modified (GM) crop with knowledge that the crop is likely to cross-pollinate conventional crops in adjacent fields, the farmer could be held strictly liable for any resulting damages. The situation could be viewed as similar to the problem of pesticide drift. The damages in a cross-pollination case could include, among other things, loss of organic certification, costs associated with breaches of identity preserved crop contracts, and litigation costs of neighboring farmers who are sued by seed companies for “theft” of genetic intellectual property that was actually present in their fields due to wind and cross-pollination. See, e.g., Schmeiser v. Monsanto Canada, Inc.,  S.C.C. 34; Monsanto v. Trantham, 156 F.Supp. 2d 855 (W.D. Tenn. 2001); Monsanto v. McFarling, 302 F.3d 1291 (Fed. Cir. 2002); cert. den., 545 U.S. 1139 (2005). But, if the GM crop at issue had already received appropriate regulatory approval, the plaintiff could be required to prove that the GM crop was unnatural or abnormally dangerous.
While most liability events that occur on a farm ranch are judged based on a negligence standard, strict liability can apply in certain situations. In addition to those events mentioned above, certain environmental violations carry a strict liability standard of liability also. It’s helpful to know the applicable legal standard.
Friday, March 2, 2018
A significant concern for landlords is the extent of possible liability for injuries that occur on the leased premises. After all, the landlord is the owner of the leased property. Does liability follow legal ownership? If it does, that has serious implications for farm landlords, particularly because farming tends to be a hazardous occupation. Machinery, livestock, chemical application and similar farming activities and features such as farm ponds have the potential for injury.
Landlord liability for injuries occurring on leased premises, that’s the topic of today’s post.
Non-liability. In general, a landlord is not liable for injuries to third parties that occur on premises that are occupied by a tenant. For example, in Leopold v. Boone, No. 06A04-0904-CV-205, 2009 Ind. App. Unpub. LEXIS 1291 (Ind. Ct. App. Sept. 4, 2009), the plaintiff suffered a severe brain injury from a bicycle crash caused by dogs owned by the defendant’s tenant that ran from the leased property onto a public highway where the plaintiff was bicycling. The trial court judgment for the defendant was affirmed because the defendant did not owe a duty to the plaintiff. Importantly, the plaintiff failed to raise a nuisance claim at trial and was thereby precluded from raising the issue on appeal.
Exceptions. The reason for the rule of landlord non-liability is that the tenant has the possession over the leasehold premises during the tenancy and has control over what occurs on the leased property. However, there are at least six well recognized exceptions to this general rule. For example, if the landlord conceals dangerous conditions or defects that cause the third party's injury, then the landlord will be liable. Likewise, if conditions are maintained on the premises that are dangerous to persons outside of the premises, the landlord is liable for any resulting injury. A landlord will also be liable if the premises is leased for admission of the public or if the landlord retains control over part of the leased premises that the tenant is entitled to use. In addition, if the landlord makes an express covenant to repair the leased premises, but fails to do so resulting in injury, the landlord is liable. Similarly, a landlord is liable for injuries resulting from the landlord's negligence in making repairs to items located on the leased premises.
Another exception to the general rule of landlord non-liability for a tenant’s acts is if the landlord knows that the tenant is harming the property rights of adjacent landowners and does nothing to modify the tenant’s conduct or terminate the lease. In that situation, the landlord can be held liable along with the tenant. See, e.g., Tetzlaff v. Camp, et al., 715 N.W.2d 256 (Iowa 2006).
Other principles. In general, a licensee or invitee of the tenant has no greater claim against the landlord than has the tenant. Thus, a landlord's duty to not wantonly or willfully injure a trespasser is usually passed to the tenant who has control of the property. However, a landlord can be held liable where the landlord knew of defects that were likely to injure known trespassers.
A landlord is also usually not held responsible for injuries occurring on the leased premises caused by animals that belong to the tenant. With respect to dogs, it must generally be proven that the landlord had actual knowledge of the animal’s dangerous propensities. See, e.g., Seeley v. Derr, et al., No. 4:12-CV-917, 2013 U.S. Dist. LEXIS 99506 (M.D. Pa. Jul. 17, 2013); Bryant v. Putnam, 908 S.W.2d 338 (Ark. 1995).
A recent Kentucky case illustrates some of the legal principles involved when an injury occurs on leased premises. In Groves v. Woods, No. 2016-CA-001546-MR 2018 Ky. App. LEXIS 59 (Ky. Ct. App. Jan. 26, 2018), the plaintiff and her husband entered into a verbal lease with the defendant for a lease of the defendant’s property. The plaintiff claimed that the lease covered the entire property, but the defendant asserted that the lease only was for the house and abutting yard. Adjacent to the home, the defendant had a pasture and a barn where the defendant boarded a Tennessee Walking Horse. The horse spent time both in the pasture and in the barn. The defendant claimed that he informed the plaintiffs not to go near the horses and to keep their children out of the barn.
Nine days after moving in, the plaintiff and her children went for a walk to see an old graveyard. They cut through the pasture to get to the site. It was disputed whether the plaintiff and the children crossed a fence into the pasture where the horses spend time. The defendant claimed that they crossed onto the pasture, but the plaintiff claimed that they never crossed onto the pasture or traversed the fence. The plaintiff maintained that the horse was running loose, chased her, and stomped her thigh after she fell. The plaintiff filed a complaint against the defendant and the defendant counterclaimed that the plaintiff was contributorily negligent. The defendant moved for summary judgment, which the trial court granted and also denied the plaintiff’s motion to alter, amend, or vacate the summary judgment.
The plaintiff appealed. The court held that the number of lengthy depositions in the case provided no certain evidence to indicate whether the plaintiffs rented the house and the yard or the entire property. With this uncertainty and the fact that the lease was verbal the court decided to accept the assertion that the family rented the entire property. The court held that because the plaintiff testified of knowing about the horse, the defendant could not be liable for failure to warn the plaintiffs about a known latent defect. Thus, the trial court’s grant of the motion for summary judgment was appropriate. In addition, the court held that because the horse’s owner did not know or have reason to know that the horse was abnormally dangerous, the defendant would be liable for the horse’s actions only if the defendant intentionally caused the horse to do harm or was negligent in failing to prevent harm. The court held that the plaintiff did not provide proof that the horse’s owner was negligent under this standard. Thus, the district court’s decision granting summary judgment was affirmed.
While a landlord will generally not be liable for injuries that occur on leased premises, there are situations where liability could result. Understanding what those situations are, taking steps to avoid their application and making sure appropriate insurance coverage is in place will go along way to avoiding an unhappy result for a landlord.
Monday, January 1, 2018
This week I will be writing about what I view as the most significant developments in agricultural law and agricultural taxation during 2017. There were many important happenings in the courts, the IRS and with administrative agencies that have an impact on farm and ranch operations, rural landowners and agribusinesses. What I am writing about this week are those developments that will have the biggest impact nationally. Certainly, there were significant state developments, but they typically will not have the national impact of those that result from federal courts, the IRS and federal agencies.
It's tough to get it down to the ten biggest developments of the year, and I do spend considerable time sorting through the cases and rulings get to the final cut. Today’s post examines those developments that I felt were close to the top ten, but didn’t quite make the list. Later this week we will look at those that I feel were worthy of the top ten. Again, the measuring stick is the impact that the development has on the U.S. ag sector as a whole.
Almost, But Not Quite
Those developments that were the last ones on the chopping block before the final “top ten” are always the most difficult to determine. But, as I see it, here they are (in no particular order):
- Withdrawal of Proposed I.R.C. §2704 Regulations. In the fall of 2016, the Treasury Department issued proposed regulations (REG-16113-02) involving valuation issues under I.R.C. §2704. The proposed regulations would have established serious limitations on the ability to establish valuation discounts (e.g., minority interest and lack of marketability) for estate, gift and generation-skipping transfer tax purposes via estate and business planning techniques. In early December of 2016, a public hearing was held concerning the proposed regulations. However, the proposed regulations were not finalized before President Trump took office. In early October of 2017, the Treasury Department announced that it was pulling several tax regulations identified as burdensome under President Trump’s Executive Order 13789, including the proposed I.R.C. §2704 regulations. Second Report to the President on Identifying and Reducing Tax Regulatory Burdens (Oct. 4, 2017).
Note: While it is possible that the regulations could be reintroduced in the future with revisions, it is not likely that the present version will ultimately be finalized under the current Administration.
- IRS Says There Is No Exception From Filing a Partnership Return. The IRS Chief Counsel’s Office, in response to a question raised by an IRS Senior Technician Reviewer, has stated that Rev. Prov. 84-35, 1984-2 C.B. 488, does not provide an automatic exemption from the requirement to file Form 1065 (U.S. Return of Partnership Income) for partnerships with 10 or fewer partners. Instead, the IRS noted that such partnerships can be deemed to meet a reasonable cause test and are not liable for the I.R.C. §6698 penalty. IRS explained that I.R.C. §6031 requires partnerships to file Form 1065 each tax year and that failing to file is subject to penalties under I.R.C. §6698 unless the failure to file if due to reasonable cause. Neither I.R.C. §6031 nor I.R.C. §6698 contain an automatic exception to the general filing requirement of I.R.C. §6031(a) for a partnership as defined in I.R.C. §761(a). IRS noted that it cannot determine whether a partnership meets the reasonable cause criteria or qualifies for relief under Rev. Proc. 84-35 unless the partnership files Form 1065 or some other document. Reasonable cause under Rev. Proc. 84-35 is determined on a case-by-case basis and I.R.M. Section 22.214.171.124.3.1 sets forth the procedures for applying the guidance of Rev. Proc. 84-35. C.C.A. 201733013 (Jul. 12, 2017); see also Roger A. McEowen, The Small Partnership 'Exception,' Tax Notes, April 17, 2017, pp. 357-361.
- “Qualified Farmer” Definition Not Satisfied; 100 Percent Deductibility of Conservation Easement Not Allowed. A “qualified farmer” can receive a 100 percent deduction for the contribution of a permanent easement to a qualified organization in accordance with I.R.C. §170(b)(1)(E). However, to be a “qualified farmer,” the taxpayer must have gross income from the trade or business of farming that exceeds 50 percent of total gross income for the tax year. In a 2017, the U.S. Tax Court decided a case where the petitioners claimed that the proceeds from the sale of the property and the proceeds from the sale of the development rights constituted income from the trade or business of farming that got them over the 50 percent threshold. The IRS disagreed, and limited the charitable deduction to 50 percent of each petitioner’s contribution base with respect to the conservation easement. The court agreed with the IRS. The court noted that the income from the sale of the conservation easement and the sale of the land did not meet the definition of income from farming as set forth in I.R.C. §2032A(e)(5) by virtue of I.R.C. §170(b)(1)(E)(v). The court noted that the statute was clear and that neither income from the sale of land nor income from the sale of development rights was included in the list of income from farming. While the court pointed out that there was no question that the petitioners were farmers and continued to be after the conveyance of the easement, they were not “qualified farmers” for purposes of I.R.C. §170(b)(1)(E)(iv)(I). Rutkoske v. Comr., 149 T.C. No. 6 (2017).
- Corporate-Provided Meals In Leased Facility Fully Deductible. While the facts of the case have nothing to do with agriculture, the issues involved are the same ones that the IRS has been aggressively auditing with respect to farming and ranching operations – namely, that the 100 percent deduction for meals provided to corporate employees for the employer’s convenience cannot be achieved if the premises where the meals are provided is not corporate-owned. In a case involving an NHL hockey team, the corporate owner contracted with visiting city hotels where the players stayed while on road trips to provide the players and team personnel pre-game meals. The petitioner deducted the full cost of the meals, and the IRS limited the deduction in accordance with the 50 percent limitation of I.R.C. §274(n)(1). The court noted that the 50 percent limitation is inapplicable if the meals qualify as a de minimis fringe benefit and are provided in a nondiscriminatory manner. The court determined that the nondiscriminatory requirement was satisfied because all of the staff that traveled with the team were entitled to use the meal rooms. The court also determined that the de minimis rule was satisfied if the eating facility (meal rooms) was owned or leased by the petitioner, operated by the petitioner, located on or near the petitioner’s business premises, and the meals were furnished during or immediately before or after the workday. In addition, the court determined that the rules can be satisfied via contract with a third party to operate an eating facility for the petitioner’s employees. As for the business purpose requirement, the court noted that the hotels where the team stayed at while traveling for road games constituted a significant portion of the employees’ responsibilities and where the team conducted a significant portion of its business. Thus, the cost of the meals qualified as a fully deductible de minimis fringe benefit. Jacobs v. Comr., 148 T.C. No. 24 (2017).
Note: The petitioner’s victory in the case was short-lived. The tax bill enacted into law on December 22, 2017, changes the provision allowing 100 percent deductibility of employer-provided meals to 50 percent effective Jan. 1, 2018, through 2025. After 2025, no deduction is allowed.
- Settlement Reached In EPA Data-Gathering CAFO Case. In 2008, the Government Accounting Office (GAO) issued a report stating that the Environmental Protection Agency (EPA) had inconsistent and inaccurate information about confined animal feeding operations (CAFOs), and recommended that EPA compile a national inventory of CAFO’s with NPDES permits. Also, as a result of a settlement reached with environmental activist groups, the EPA agreed to propose a rule requiring all CAFOs to submit information to the EPA as to whether an operation had an NPDES permit. The information required to be submitted had to provide contact information of the owner, the location of the CAFO production area, and whether a permit had been applied for. Upon objection by industry groups, the proposed rule was withdrawn and EPA decided to collect the information from federal, state and local government sources. Subsequent litigation determined that farm groups had standing to challenge the EPA’s conduct and that the EPA action had made it much easier for activist groups to identify and target particular confined animal feeding operations (CAFOs). On March 27, 2017, the court approved a settlement agreement ending the litigation between the parties. Under the terms of the settlement, only the city, county, zip code and permit status of an operation will be released. EPA is also required to conduct training on FOIA, personal information and the Privacy Act. The underlying case is American Farm Bureau Federation v. United States Environmental Protection Agency, 836 F.3d 963 (8th Cir. 2016).
- Developments Involving State Trespass Laws Designed to Protect Livestock Facilities.
- Challenge to North Carolina law dismissed for lack of standing. The plaintiffs, numerous animal rights activist groups, brought a pre-enforcement challenge to the North Carolina Property Protection Act (Act). The Act creates a civil cause of action for a NC employer against an employee who “captures or removes” documents from the employer’s premises or records images or sound on the employer’s premises and uses the documents or recordings to breach the employee’s duty of loyalty to the employer. The plaintiffs claimed that the Act stifled their ability to investigate NC employers for illegal or unethical conduct and restricted the flow of information those investigations provide in violation of the First and Fourteenth Amendments of the U.S. Constitution and various provisions of the NC Constitution. The court dismissed the case for lack of standing. People for the Ethical Treatment of Animals v. Stein, 259 F. Supp. 3d 369 (M.D. N.C. 2017).
- Utah law deemed unconstitutional. Utah law (Code §76-6-112) (hereinafter Act) criminalizes entering private agricultural livestock facilities under false pretenses or via trespass to photograph, audiotape or videotape practices inside the facility. Anti-livestock activist groups sued on behalf of the citizen-activist claiming that the Act amounted to an unconstitutional restriction on speech in violation of the First Amendment. While the state claimed that lying, which the statute regulates, is not protected free speech, the court determined that only lying that causes “legally cognizable harm” falls outside First Amendment protection. The state also argued that the act of recording is not speech that is protected by the First Amendment. However, the court determined that the act of recording is protectable First Amendment speech. The court also concluded that the fact that the speech occurred on a private agricultural facility did not render it outside First Amendment protection. The court determined that both the lying and the recording provisions of the Act were content-based provisions subject to strict scrutiny. To survive strict scrutiny the state had to demonstrate that the restriction furthered a compelling state interest. The court determined that “the state has provided no evidence that animal and employee safety were the actual reasons for enacting the Act, nor that animal and employee safety are endangered by those targeted by the Act, nor that the Act would actually do anything to remedy those dangers to the extent that they exist”. For those reasons, the court determined that the act was unconstitutional. Animal Legal Defense Fund v. Herbert, 263 F. Supp. 3d 1193 (D. Utah 2017).
- Wyoming law struck down. In 2015, two new Wyoming laws went into effect that imposed civil and criminal liability upon any person who "[c]rosses private land to access adjacent or proximate land where he collects resource data." Wyo. Stat. §§6-3-414(c); 40-27-101(c). The appellate court, reversing the trial court, determined that because of the broad definitions provided in the statutes, the phrase "collects resource data" includes numerous activities on public lands (such as writing notes on habitat conditions, photographing wildlife, or taking water samples), so long as an individual also records the location from which the data was collected. Accordingly, the court held that the statutes regulated protected speech under the First Amendment in spite of the fact that they also governed access to private property. While trespassing is not protected by the First Amendment, the court determined that the statutes targeted the “creation” of speech by penalizing the collection or resource data. Western Watersheds Project v. Michael, 869 F.3d 1189 (10th Cir. 2017), rev’g., 196 F. Supp. 3d 1231 (D. Wyo. 2016).
- Challenge to North Carolina law dismissed for lack of standing. The plaintiffs, numerous animal rights activist groups, brought a pre-enforcement challenge to the North Carolina Property Protection Act (Act). The Act creates a civil cause of action for a NC employer against an employee who “captures or removes” documents from the employer’s premises or records images or sound on the employer’s premises and uses the documents or recordings to breach the employee’s duty of loyalty to the employer. The plaintiffs claimed that the Act stifled their ability to investigate NC employers for illegal or unethical conduct and restricted the flow of information those investigations provide in violation of the First and Fourteenth Amendments of the U.S. Constitution and various provisions of the NC Constitution. The court dismissed the case for lack of standing. People for the Ethical Treatment of Animals v. Stein, 259 F. Supp. 3d 369 (M.D. N.C. 2017).
- GIPSA Interim Final Rule on Marketing of Livestock and Poultry Delayed and Withdrawn.In the fall of 2016, the USDA sent to the Office of Management and Budget (OMB) interim final rules that provide the agency’s interpretation of certain aspects of the Packers and Stockyards Act (PSA) involving the buying and selling of livestock and poultry. The interim final rules concern Section 202 of the PSA (7 U.S.C. §§ 192 (a) and (e)) which makes it unlawful for any packer who inspects livestock, meat products or livestock products to engage in or use any unfair, unjustly discriminatory or deceptive practice or device, or engage in any course of business or do any act for the purpose or with the effect of manipulating or controlling prices or creating a monopoly in the buying, selling or dealing any article in restraint of commerce. The “effect” language of the statute would seem to eliminate any requirement that the producer show that the packer acted with the intent to control or manipulate prices. However, the federal courts have largely interpreted the provision to require a plaintiff to show an anti-competitive effect in order to have an actionable claim. Under the proposed regulations, "likelihood of competitive injury" is defined as "a reasonable basis to believe that a competitive injury is likely to occur in the market channel or marketplace.” It includes, but is not limited to, situations in which a packer, swine contractor, or live poultry dealer raises rivals' costs, improperly forecloses competition in a large share of the market through exclusive dealing, restrains competition, or represents a misuse of market power to distort competition among other packers, swine contractors, or live poultry dealers. It also includes situations “in which a packer, swine contractor, or live poultry dealer wrongfully depresses prices paid to a producer or grower below market value, or impairs a producer's or grower's ability to compete with other producers or growers or to impair a producer's or grower's ability to receive the reasonably expected full economic value from a transaction in the market channel or marketplace." According to the proposed regulations, a “competitive injury” under the PSA occurs when conduct distorts competition in the market channel or marketplace. The scope of PSA §202(a) and (b) is stated to depend on the nature and circumstances of the challenged conduct. The proposed regulations specifically note that a finding that a challenged act or practice adversely affects or is likely to affect competition is not necessary in all cases. The proposed regulations also note that a PSA violation can occur without a finding of harm or likely harm to competition, but as noted above, that is contrary to numerous court opinions that have decided the issue. On April 11, 2017, the USDA announced that it was delaying the effective date of the interim final rule for 180 days, until October 19, 2017. However, on October 18, 2017, GIPSA officially withdrew the proposed rule. Related to, but not part of, the GIPSA Interim Final Rule, a poultry grower ranking system proposed rule was not formally withdrawn.
- Syngenta Settlement. In late 2017, Syngenta publicly announced that it was settling farmers’ claims surrounding the alleged early release of Viptera and Duracade genetically modified corn. While there are numerous cases and aspects of the litigation involving Syngenta, the settlement involves what is known as the “MIR 162 Corn Litigation” and a Minnesota state court class action. The public announcement of the settlement indicated that Syngenta would pay $1.5 billion.
- IRS To Finalize Regulations on the Tax Status of LLC and LLP Members. In its 2017-2018 Priority Guidance Plan, the IRS states that it plans to finalize regulations under I.R.C. §469(h)(2) – the passive loss rules that were initially proposes in 2011. That provision creates a per se rule of non-material participation for limited partner interests in a limited partnership unless the Treasury specifies differently in regulations. Those regulations were initially issued in temporary form and became proposed regulations in 2011. Is the IRS preparing to take a move to finalize regulations taking the position that they the Tax Court refused to sanction? Only time will tell, but the issue is important for LLC and LLP members. The issue boils down to the particular provisions of a state’s LLC statute and whether there are sufficient factors under the state statute that distinguish an LLC from a limited partnership. That will be the case until IRS issues regulations dealing specifically with LLCs and similar entities. The proposed definition would make it easier for LLC members and some limited partners to satisfy the material participation requirements for passive loss purposes, consistent with the court opinions that IRS has recently lost on the issue. Specifically, the proposed regulations require that two conditions have to be satisfied for an individual to be classified as a limited partner under I.R.C. §469(h)(2): (1) the entity must be classified as a partnership for federal income tax purposes; and (2) the holder of the interest must not have management rights at any time during the entity’s tax year under local law and the entity’s governing agreement. Thus, LLC members of member-managed LLCs would be able to use all seven of the material participation tests, as would limited partners that have at least some rights to participate in managerial control or management of a partnership.
- Fourth Circuit Develops New Test for Joint Employment Under the FLSA. The Fair Labor Standards Act of 1938 (FLSA) (29 U.S.C. §§ 201 et seq.) as originally enacted, was intended to raise the wages and shorten the working hours of the nation's workers. The FLSA is very complex, and not all of it is pertinent to agriculture and agricultural processing, but the aspect of it that concerns “joint employment” is of major relevance to agriculture. Most courts that have considered the issue have utilized an “economic realities” or “control” test to determine if one company’s workers are attributable to another employer for purposes of the FLSA. But, in a 2017 case, the U.S. Court of Appeals for the Fourth Circuit, created a new test for joint employment under the FLSA that appears to expand the definition of “joint employment” and may create a split of authority in the Circuit Courts of Appeal on the issue. The court held that the test under the FLSA for joint employment involved two steps. The first step involved a determination as to whether two or more persons or entities share or agree to allocate responsibility for, whether formally or informally, directly or indirectly, the essential terms and conditions of a worker’s employment. The second step involves a determination of whether the combined influence of the parties over the essential terms and conditions of the employment made the worker an employee rather than an independent contractor. If, under this standard, the multiple employers were not completely disassociated, a joint employment situation existed. The court also said that it was immaterial that the subcontractor and general contractor engaged in a traditional business relationship. In other words, the fact that general contractors and subcontractor typically structure their business relationship in this manner didn’t matter. The Salinas court then went on to reason that separate employment exists only where the employers are “acting entirely independent of each other and are completely disassociated with respect to” the employees. The court’s “complete disassociation” test appears that it could result in a greater likelihood that joint employment will result in the FLSA context than would be the case under the “economic realities” or “control” test. While the control issue is part of the “complete disassociation” test, joint determination in hiring or firing, the duration of the relationship between the employers, where the work is performed and responsibility over work functions are key factors that are also to be considered. Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017), rev’g, No. JFM-12-1973, 2014 U.S. Dist. LEXIS 160956 (D. Md. Nov. 17, 2014).
- Electronic Logs For Truckers. On December 18, 2017, the U.S. Department of Transportation (USDOT) Final Rule on Electronic Logging Devices (ELD) and Hours of Service (HOS) was set to go into effect. 80 Fed. Reg. 78292 (Dec.16, 2015). The final rule, which was issued in late 2015, could have a significant impact on the livestock industry and livestock haulers. The new rule will require truck drivers to use electronic logging devices instead of paper logs to track their driving hours starting December 18. The devices connect to the vehicle's engine and automatically record driving hours. The Obama Administration pushed for the change to electronic logs purportedly out of safety concerns. The Trump Administration has instructed the FMCSA (and state law enforcement officials) to delay the December 18 enforcement of the final rule by delaying out-of-service orders for ELD violations until April 1, 2018, and not count ELD violations against a carrier’s Compliance, Accountability, Safety Score. Thus, from December 18, 2017 to April 1, 2018, any truck drivers who are caught without an electronic logging device will be cited and allowed to continue driving, as long as they are in compliance with hours-of-service rules. In addition, the FMCSA has granted a 90-day waiver for all vehicles carrying agricultural commodities. Other general exceptions to the final rule exist for vehicles built before 2000, vehicles that operate under the farm exemption (a “MAP 21” covered farm vehicle; 49 C.F.R. §395.1(s)), drivers coming within the 100/150 air-mile radius short haul log exemption (49 CFR §395.1(k)), and drivers who maintain HOS logs for no more than eight days during any 30-day period. One rule that is of particular concern is an HOS requirement that restricts drive time to 11 hours. This rule change occurred in 2003 and restricts truck drivers to 11 hours of driving within a 14-hour period. Ten hours of rest is required. That is a tough rule as applied to long-haul cattle transports. Unloading and reloading cattle can be detrimental to the health of livestock.
- Dicamba Spray-Drift Issues. Spray-drift issues with respect to dicamba and the use of XtendiMax with VaporGrip (Monsanto) and Engenia (BASF) herbicides for use with Xtend Soybeans and Cotton were on the rise in 2017. , 2017Usage of dicamba has increased recently in an attempt to control weeds in fields planted with crops that are engineered to withstand it. But, Missouri (effective July 7) and Arkansas (as of June 2017) took action to ban dicamba products because of drift-related damage issues. In addition, numerous lawsuits have been filed by farmers against Monsanto, BASF and/or DuPont alleging that companies violated the law by releasing their genetically modified seeds without an accompanying herbicide and that the companies could have reasonably foreseen that seed purchasers would illegally apply off-label, older dicamba formulations, resulting in drift damage. Other lawsuits involve claims that the new herbicide products are unreasonably dangerous and have caused harm even when applicators followed all instructions provided by law. In December of 2017, the Arkansas Plant Board voted to not recommend imposing a cut-off date of April 15 for dicamba applications. Further consideration of the issue will occur in early 2018.
Monday, September 11, 2017
Every state has enacted a right-to-farm law that is designed to protect existing agricultural operations by giving farmers and ranchers who meet the legal requirements a defense in nuisance suits that are brought against them.
These laws have become more important in recent years because of increasing rural/urban land use conflicts. Today’s post takes a look at right-to-farm laws – the type of farming operations they are designed to protect and how they work
What Is “Farming”?
The general idea of a particular state's right-to-farm law is that it is unfair for a person to move to an agricultural area knowing the conditions which might be present and then ask a court to declare a neighboring farm a nuisance. Thus, the basic purpose of a right-to-farm law is to create a legal and economic climate in which farm operations can be continued. Right-to-farm laws can be an important protection for agricultural operations, but, to be protected, an agricultural operation must satisfy the law's requirements.
To be granted the protection of a statute, the activity at issue must be a farming activity. While the laws commonly apply to traditional farming activities, sometimes state provisions take a more expansive definition of “farming” to cover more than just row crop and livestock operations. For example, the Washington statute applies to “forest practices” which has been held to not be limited to logging activity, but include the growing of trees. Alpental Community Club, Inc. v. Seattle Gymnastics Society, 86 P.3d 784 (Wash Ct. App. 2004). Similarly, in Hood River County v. Mazzara, 89 P.3d 1195 (Or. Ct. App. 2004), the court held that state statutes protecting farms against nuisance actions barred a lawsuit against a farmer for noise from barking dogs because the court determined that the use of dogs to protect livestock constituted a farming practice. Also, in Vicwood Meridian Partnership, et al. v. Skagit Sand and Gravel, 98 P. 3d 1277 (Wash. Ct. App. 2004), the court held that an indoor composting facility for a mushroom farm qualified as a “farm” under state right-to-farm law. The compost was produced for use in growing mushrooms and the composting activity was held to be an agricultural activity.
Types of Statutes
Right-to-farm laws are of three basic types: (1) nuisance related; (2) restrictions on local regulations of agricultural operations; and (3) zoning related. While these categories provide a method for identifying and discussing the major features of right-to-farm laws, any particular state's right-to-farm law may contain elements of each category.
The most common type of right-to-farm law is nuisance related. This type of statute requires that an agricultural operation will be protected only if it has been in existence for a specified period of time (usually at least one year) before the change in the surrounding area that gives rise to a nuisance claim. These types of statute essentially codify the “coming to the nuisance defense,” but do not protect agricultural operations which were a nuisance from the beginning or which are negligently or improperly run. For example, if any state or federal permits are required to properly conduct the agricultural operation, they must be acquired as a prerequisite for protection under the statute.
A second type of right-to-farm statute is designed to prevent local and county governments from enacting regulations or ordinances that impose restrictions on normal agricultural practices. This type of statute is usually contained in the state's agricultural districting law. Under this type of a statute, agricultural operations are required to be located within a designated agricultural district in order to be protected from nuisance suits. However, agricultural activities, even though they may be located in an agricultural district, must be conducted in accordance with federal, state and local law or rules in order to take advantage of the statute's protections. Some courts have held that state law pre-empts local governments from making siting decision for confined animal feeding operations. See, e.g. Worth County Friends of Agriculture v. Worth County, 688 N.W.2d 257 (Iowa 2004); Adams v. State of Wisconsin Livestock Facilities String Review Bd., No. 2009AP608, 2012 Wisc. LEXIS 381 (Wisc. Sup. Ct. Jul. 11, 2012).
A third type of right-to-farm statute exempts (at least in part) agricultural uses from county zoning ordinances. The major legal issue involving this type of statute is whether a particular activity is an agricultural use or a commercial activity. In general, “agricultural use” is defined broadly. For example, the Illinois Court of Appeals has interpreted the Illinois statute such that the use of seven acres to board 19 show horses constitutes an agricultural use, Tuftee v. Kane Co., 76 Ill. App. 3d 128, 394 N.E.2d 896 (1979). The same conclusion was reached with respect to a poultry hatchery on a three-acre tract, Lake County v. Cushman, 40 Ill. App. 3d 1045, 353 N.E.2d 399 (1976). and a 60-acre tract used for the temporary storage of sewage sludge for spreading on land as fertilizer. Soil Enrichment Materials Corp. v. Zoning Board of Appeals of Grundy County, 15 Ill. App. 3d 432, 305 N.E.2d 521 (1973). The court has also held that the “rearing and raising of hogs, in any quantity, constitutes an agricultural purpose” under the statute. Knox County v. The Highlands, L.L.C., 302 Ill. App. 3d 342, 705 N.E.2d 128 (1998), aff’d, 723 N.E.2d 256 (Ill. 1999). However, the same court has held that the right-to-farm statute does not prevent the application of county zoning laws to a mobile home placed on agricultural land. People v. Husler, 34 Ill. App. 3d 977, 342 N.E.2d 401 (1975). The Iowa statute, even though essentially identical to the Illinois statute, has not been interpreted as broadly.
In some states, agricultural activities receive nuisance-type protection through zoning laws wholly separate from the protections of a right-to-farm statute. For instance, the Iowa Supreme Court, in a case predating the Iowa right-to-farm statute, held that the use of a four-acre tract as the site for two 40,000 capacity chick-growing houses was not “agricultural” but was “commercial” and not exempt from county zoning. Farmegg Products, Inc. v. Humboldt County, 190 N.W.2d 454 (Iowa 1971). In 1995, the Iowa Supreme Court followed its earlier analysis, but held that the proposed construction of a hog confinement facility was associated with an existing farming operation and was exempt from county zoning. Thompson v. Hancock County, 539 N.W.2d 181 (Iowa 1995). However, in 1996, the court overturned its previous decisions concerning the agricultural use exemption from county zoning. Kuehl v. Cass County, 555 N.W.2d 686 (Iowa 1996). The 1996 case, involved a hog confinement facility in contract production with a Pennsylvania company. The court determined that the facility was exempt from county zoning even though the proposed facility was separate from any traditional farming operation carried on by the hog farmers. As such, the case reflects an acknowledgement of the changes in present-day agricultural business structures.
What’s Not Protected
Subsequent changes. While right-to-farm laws try to assure the continuation of farming operations, they do not protect subsequent changes in a farming operation that constitute a nuisance after local development occurs nearby. For example, in Davis, et al. v. Taylor, et al., 132 P.3d 783 (Wash. Ct. App. 2006), the state’s right-to-farm law was held to be inapplicable where the increased noise caused by a farmer’s use of propane cannons and cherry guns to scare birds from a cherry orchard began after homeowners built their house and an adjoining residential neighborhood was well-established. The orchard had previously been quiet and pastoral, and the farmer’s use of cherry guns and propane cannons was held to be a nuisance. Similarly, in Trickett v. Ochs, 838 A.2d 66 (Vt. 2003), the Vermont right-to-farm statute was inapplicable where the nature of an apple farming operation changed after the plaintiffs moved into a nearby home. However, some states may allow increased agricultural activity on property that is used for agricultural use without substantial interruption if the agricultural use began before the plaintiff began using the neighboring land. See, e.g., Wis. Stat. §823.08.
Nuisances. Right-to-farm laws don’t protect nuisances. In other words, a farmer has the right to continue farming without being sued for being a nuisance (if the statutory requirements are satisfied), but if the farming operation constitutes a nuisance after conditions have changed around the operation, the statute may not protect the farming operation. For instance, in Flansburgh v. Coffey, 370 N.W.2d 127 (Neb. 1985), the plaintiffs purchased a 1.67-acre home site from the defendant in 1980. After the plaintiffs moved to the location, the defendant allowed his tenant to construct a 400-head hog facility within 100 feet of the plaintiff's land. The plaintiffs filed a nuisance action, and the defendants raised the Nebraska right-to-farm law as a defense. The court held that the right-to-farm law did not bar an action for a change in operations when a nuisance is present. If a nuisance cannot be established, a right-to-farm law can operate to bar an action when the agricultural activity on land changes in nature. For instance, in Dalzell, et al. v. Country View Family Farms, LLC, No. 1:09-cv-1567-WTL-MJD, 2012 U.S. Dist. LEXIS 130773 (S.D. Ind. Sept. 13, 2012), the land near the plaintiffs changed hands. The prior owner had conducted a row-crop operation on the property. The new owner continued to raise row crops, but then got approval for a 2800-head sow confinement facility. The defendant claimed the state (IN) right-to-farm law as a defense and sought summary judgment. The court held that state law only allows nuisance claims when “significant change” occurs and that transition from row crops to a hog confinement facility did not meet the test because both are agricultural uses. The court noted that an exception existed if the plaintiffs could prove that the hog confinement operation was being operated in a negligent manner which causes a nuisance, but the plaintiffs failed to prove that the alleged negligence was the proximate cause of the claimed nuisance. Thus, the exception did not apply and the defendant’s motion for summary judgment was granted. The court’s decision was affirmed on appeal. Dalzell, et al. v. Country View Family Farms, LLC, et al., No. 12-3339, 2013 U.S. App. LEXIS 13621 (7th Cir. Jul. 3, 2013). Similarly, in Parker v. Obert’s Legacy Dairy, LLC, No. 26A05-1209-PL-450, 2013 Ind. App. LEXIS 203 (Ind. Ct. App. Apr. 30, 2013), the defendant had expanded an existing dairy operation from 100 cows to 760 cows by building a new milking parlor and free-stall barn on a tract adjacent to the farmstead where the plaintiff’s family had farmed since the early 1800s. The plaintiff sued for nuisance and the defendant asserted the state (IN) right-to-farm statute as a defense. The court determined that the statute barred the suit. Importantly, the court determined that the expansion of the farm did not necessarily result in the loss of the statute’s protection. The expanded farm remained covered under the same Confined Animal Feeding Operation permit as the original farm. In addition, the conversion of a crop field to a dairy facility was protected by the statute because both uses simply involved different forms of agriculture. The court noted that the statute protected one farmer from suit by another farmer for nuisance if the claim involves odor and loss of property value. But, it is important to note that not all state statutes will protect a farmer from nuisance suits brought by other farmers.
The increasing interactions between non-farmers farmers in rural areas makes understanding the importance and operation of right-to-farm laws important. Do you know how your state provisions operate?
Tuesday, August 22, 2017
On September 18, Washburn School of Law will be having its second annual CLE conference in conjunction with the Agricultural Economics Department at Kansas St. University. The conference, hosted by the Kansas Farm Bureau (KFB) in Manhattan, KS, will explore the legal, economic, tax and regulatory issue confronting agriculture. This year, the conference will also be simulcast over the web.
That’s my focus today – the September 18 conference in Manhattan, for practitioners, agribusiness professionals, agricultural producers, students and others.
Financial situation. Midwest agriculture has faced another difficult year financially. After greetings by Kansas Farm Bureau General Counsel Terry Holdren, Dr. Allen Featherstone, the chair of the ag econ department at KSU will lead off the day with a thorough discussion on the farm financial situation. While his focus will largely be on Kansas, he will also take a look at nationwide trends. What are the numbers for 2017? Where is the sector headed for 2018?
Regulation and the environment. Ryan Flickner, Senior Director, Advocacy Division, at the KFB will then follow up with a discussion on Kansas regulations and environmental laws of key importance to Kansas producers and agribusinesses.
Tax – part one. I will have a session on the tax and legal issues associated with the wildfire in southwest Kansas earlier this year – handling and reporting losses, government payments, gifts and related issues. I will also delve into the big problem in certain parts of Kansas this year with wheat streak mosaic and dicamba spray drift.
Weather. Mary Knapp, the state climatologist for Kansas, will provide her insights on how weather can be understood as an aid to manage on-farm risks. Mary’s discussions are always informative and interesting.
Crop Insurance. Dr. Art Barnaby, with KSU’s ag econ department, certainly one of the nation’s leading experts on crop insurance, will address the specific situations where crop insurance does not cover crop loss. Does that include losses caused by wheat streak mosaic? What about losses from dicamba drift?
Washburn’s Rural Law Program. Prof. Shawn Leisinger, the Executive Director of the Centers for Excellence at the law school (among his other titles) will tell attendees and viewers what the law school is doing (and planning to do) with respect to repopulating rural Kansas with well-trained lawyers to represent the families and businesses of agriculture. He will also explain the law school’s vision concerning agricultural law and the keen focus that the law school has on agricultural legal issues.
Succession Planning. Dr. Gregg Hadley with the KSU ag econ department will discuss the interpersonal issues associated with transitioning the farm business from one generation to the next. While the technical tax and legal issues are important, so are the personal family relationships and how the members of the family interact with each other.
Tax – part two. I will return with a second session on tax issues. This time my focus will be on hot-button issues at both the state and national level. What are the big tax issues for agriculture at the present time? There’s always a lot to talk about for this session.
Water. Prof. Burke Griggs, another member of our “ag law team” at the law school, will share his expertise on water law with a discussion on interstate water disputes, the role of government in managing scarce water supplies, and what the relationship is between the two. What are the implications for Kansas and beyond?
Producer panel. We will close out the day with a panel consisting of ag producers from across the state. They will discuss how they use tax and legal professionals as well as agribusiness professionals in the conduct of their day-to-day business transactions.
The Symposium is a collaborative effort of Washburn law, the ag econ department at KSU and the KFB. For lawyers, CPAs and other tax professionals, application has been sought for continuing education credit. The symposium promises to be a great day to interact with others involved in agriculture, build relationships and connections and learn a bit in the process.
We hope to see you either in-person or online. For more information on the symposium and how to register, check out the following link: http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/continuingeducation/businessofagriculture/index.html
August 22, 2017 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Monday, July 31, 2017
Today's post is a deviation from my normal posting on an aspect of agricultural law and tax that you can use in your practice or business. That’s because I have a new book that is now available that you might find useful as a handbook or desk reference. Thanks to West Academic Publishing, my new book “Agricultural Law in a Nutshell,” is now available. Today’s post promotes the new book and provides you with the link to get more information on how to obtain you copy.
The Nutshell is taken from my larger textbook/casebook on agricultural law that is used in classrooms across the country. Ten of those 15 chapters are contained in the Nutshell, including some of the most requested chapters from my larger book – contracts, civil liabilities and real property. Also included are chapters on environmental law, water law and cooperatives. Bankruptcy, secured transactions, and regulatory law round out the content, along with an introductory chapter. Not included in this Nutshell are the income tax, as well as the estate and business planning topics. Those remain in my larger book, and are updated twice annually along with the other chapters found there.
The Nutshell is designed as a concise summary of the most important issues facing agricultural producers, agribusinesses and their professional advisors. Farmers, ranchers, agribusinesses, legal advisors and students will find it helpful. It’s soft cover and easy to carry.
Rural Law Program
The Nutshell is another aspect of Washburn Law School’s Rural Law Program. This summer, the Program placed numerous students as interns with law firms in western Kansas. The feedback has been tremendous and some lawyers have already requested to be on the list to get a student for next summer. Students at Washburn Law can take numerous classes dealing with agricultural issues. We are also looking forward to our upcoming Symposium with Kansas State University examining the business of agriculture and the legal and economic issues that are the major ones at this time. That conference is set for Sept. 18, and a future post will address the aspects of that upcoming event.
You can find out more information about the Nutshell by clicking here: http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/agriculturallawnutshell/index.html
Tuesday, July 11, 2017
Spray-drift issues with respect to dicamba and the use of XtendiMax with VaporGrip (Monsanto) and Engenia (BASF) herbicides for use with Xtend Soybeans and Cotton are on the rise. Usage of dicamba has increased recently in an attempt to control weeds in fields planted with crops that are engineered to withstand it. But, Missouri (effective July 7) and Arkansas (as of June) have now taken action to ban dicamba products because of drift-related damage issues.
So, what factors help determine the proper application of dicamba? In addition, if drift occurs and damage crops in an adjacent field, how should the problem be addressed? Can the matter be settled privately by the parties involved? If not, what legal standard applies in resolving the matter – negligence or strict liability?
Issues associated with dicamba drift – that’s the focus of today’s post.
Uniqueness of Dicamba
In many instances, spray drift is a straightforward matter. The typical scenario involves either applying chemicals in conditions that are unfavorable (such as high wind), or a misapplication (such as not following recommended application instructions). But, dicamba is a unique product with its own unique application protocol.
I asked an expert on chemical applications to provide me with an assist on the issues associated with the application of dicamba. Jeff Haggerty of Heinen Bros. Ag near Seneca, KS, has many years in the agricultural chemical application business and provided some helpful comments to me, and the following bullet points summarize his thoughts on the matter:
- Dicamba is a very volatile chemical and is rarely sprayed in the summer months. This is because when the temperature reaches approximately 90 degrees Fahrenheit, dicamba will vaporize such that it can be carried by wind for several miles. This can occur even days after application.
- The typical causes of spray drift are application when winds are too strong, a temperature inversion (temperature not decreasing with atmospheric height) exists or there has been a misapplication of the chemical.
- For the new dicamba soybeans, chemical manufacturers reformulated the active ingredient to minimize the chance that it would move off-target due to it volatility.
- Studies have concluded that the new formulations are safe when applied properly, but if a user mixes-in unapproved chemicals, additives or fertilizer, the safe formulations revert to the base dicamba formulation with the attendant higher likelihood of off-target drift.
- Soybeans have an inherit low tolerance to dicamba. As low as 1/20,000 of an application rate can cause a reaction. A 1/1000 of rate can cause yield loss.
- The majority of crops damaged from vapor drift may not actually result in yield loss. That’s particularly the case if drift damage occurs before flowering. However, if the drift damage occurs post-flowering the likelihood of yield loss increases. Also, studies have shown that a slight rain event can stop the volatilizing of dicamba.
- The label is the law. This is particularly true with the new chemicals used on Xtend crops. The labels are very specific with respect to additives, nozzles, boom height, and wind speed and direction.
Damage Claims – Building a Case
Negligence. For a person to be deemed legally negligent, certain conditions must exist. These conditions can be thought of as links in a chain. Each condition must be present before a finding of negligence can be obtained. The first condition is that of a legal duty giving rise to a standard of care. To be liable for a negligent tort, the defendant's conduct must have fallen below that of a “reasonable and prudent person” under the circumstances. A reasonable and prudent person is what a jury has in mind when they measure an individual's conduct in retrospect - after the fact, when the case is in court. The conduct of a particular tortfeasor (the one causing the tort) who is not held out as a professional is compared with the mythical standard of conduct of the reasonable and prudent person in terms of judgment, knowledge, perception, experience, skill, physical, mental and emotional characteristics as well as age and sanity. For those held out as having the knowledge, skill, experience or education of a professional, the standard of care reflects those factors. For example, the standard applicable to a farmer applying chemicals to crops is what a reasonably prudent farmer would have done under the circumstances, not what a reasonably prudent person would do.
If a legal duty exists, it is necessary to determine whether the defendant's conduct fell short of the conduct of a “reasonable and prudent person (or professional) under the circumstances.” This is called a breach, and is the second element of a negligent tort case.
Once a legal duty and breach of that duty are shown to exist, a causal connection (the third element) must be established between the defendant's act and (the fourth element) the plaintiff's injuries (whether to person or property). In other words, the resulting harm to the plaintiff must have been a reasonably foreseeable result of the defendant's conduct at the time the conduct occurred. Reasonable foreseeability is the essence of causality (also known as proximate cause).
For a plaintiff to prevail in a negligence-type tort case, the plaintiff bears the burden of proof to all four elements by a preponderance of the evidence (just over 50 percent).
Typical drift case. In a straightforward drift case, the four elements are typically satisfied – the defendant misapplied the chemical or did so in high winds (breach of duty to apply chemicals in a reasonable manner in accordance with industry standards/requirements) resulting in damages to another party’s crops. In addition, the plaintiff is able to pin-down where the drift came from by weather reports for the day of application combined with talking with neighbors to determine the source of the drift (causation). In many of these situations, a solution is worked out privately between the parties. In other situations, the disaffected farmer could file a complaint with the state and the state would begin an investigation which could result in a damage award or litigation.
Generally, what are contributing factors to ag chemical drift? For starters, the liquid spray solution of all herbicides can physically drift off-target. This often occurs due to misapplication including such things as applying when wind speed exceeds the recommended velocity, improper spray pressure, and not setting the nozzle height at the proper level above the canopy of the intended plant target. Clearly, not shielding sprayers and aerial application can result in an increased chance of off-site drift. Also, the possibility of drift to an unintended field can be influenced by droplet size if the appropriate nozzle is not utilized.
Dicamba drift cases. As noted above, dicamba is a different product that is more volatile than other crop chemicals. That volatility, the increased likelihood of drift over a broader geographic area, and that dicamba drift damages can occur several days after application, makes it more difficult for a plaintiff to determine the source of the drift. Thus, the causation element of the plaintiff’s tort claim can be more difficult to establish with dicamba-related damage claims. In addition, soybeans are inherently sensitive to extremely low dicamba concentrations, thus elevating the potential for damages.
Clear patterns of injury indicate physical drift which could make the causation element easier to satisfy. Wind speed at time of application, sprayer speed, sprayer boom height above the plant canopy, nozzle height, tank cleaning, sprayer set-up and whether the application occurs at night rather in the daylight, are also factors that are within the applicator’s control. Failure to follow label directions, meet common industry standards or manufacturer guidance on any of those points could point toward the breach of a duty and could also weigh on the causation element of a tort claim.
Relatedly, another factor with dicamba, as noted above, is whether it was applied on a hot day. The chemistry of dicamba has a “vapor curve” that rises with the temperature. While I have not seen that vapor curve, it would be interesting to see whether that curve has a discernibly steeper slope at a particular temperature. If so, that would indicate the point at which dicamba becomes very volatile and should not be applied. Indeed, the Banvel (brand name of dicamba) label specifically states that the chemical is not to be applied “adjacent to sensitive crops when the temperature on the day of the application is expected to exceed 85 [degrees Fahrenheit] as drift is more likely to occur.” To the extent any particular defendant can establish that application occurred when temperature on the day of application was forecast to exceed 85 degrees, the duty and breach elements of the plaintiff’s tort claim would be easier to satisfy.
Dicamba manufacturers have protocols in place to aid in the safe application of the products. Thus, in quantifiable damage cases, it is likely that an application protocol was not followed. But, establishing that breach to the satisfaction of a jury could be steep uphill climb for a plaintiff. That’s particularly the case with dicamba given its heightened volatility. As previously noted, damages could be caused by physical drift, temperature, volatility or temperature inversions. Is a particular cause tied to the defendant’s breach of a duty owed to the plaintiff?
Strict liability. Most pesticide drift cases not involving aerially-applied chemicals are handled under the negligence standard. However, a strict liability approach is sometimes utilized for aerially applied chemicals. See, e.g., Langan v. Valicopters, Inc., 567 P.2d 218 (Wash. 1977); but see Mangrum v. Pique, et al., 359 Ark. 373, 198 S.W.3d 496 (2006)(the aerial application of chemicals commonly used in farming communities that are available for sale to the general public is not an ultrahazardous activity triggering application of strict liability). In such a situation, liability results from damages to others as a result of the chemicals. It makes no difference whether the applicator followed all applicable rules for applying the chemicals and did so without negligence. The strict liability rule is harsh, and is normally reserved for ultra-hazardous activities. Do the present issues associated with dicamba drift damages warrant the application of the strict liability rule? Only time will tell whether the theory is pled in a future case and whether the court would apply it.
The dicamba drift issue is an important one in agriculture at the present time with respect to soybean and cotton crops. While the new dicamba formulations will not eliminate the problem of physical drift, proper application procedures by following label directions can go a long way to minimizing it. Likewise, drift issues can also be minimized by communication among farmers that helps determine the planting location of particular crops, their relative sensitivities to dicamba and following acceptable setbacks. But, farmers that sustain damage should quantify the economic loss, and see whether it can be determined if the source of the loss arose from a causally-connected breach of a duty.
Wednesday, June 21, 2017
One issue that I occasionally receive questions on concerns liability for animal disease. The questions can take several forms, including diseased animals of the owner as well as another person’s diseased animals that cause an infection.
Given that animal disease can result in significant economic loss, the liability question is an important one. Today’s post takes a brief look at the issue.
Trespassing or Straying Animals
If an owner of diseased animals knows of an infection and knows that it would be communicated to other animals if contracted, some states hold the owner liable for damages caused by transmission of the disease. Knowledge that the animals were infected is typically an essential element. Once the animals' owner has knowledge of the disease, the owner is under a duty to take reasonable steps to ensure that the animals do not come into contact with healthy, uninfected livestock of anyone else. Knowledge that the animals were infected is typically an essential element. Several states, by statute, require restraint of animals that are known to have an infectious or contagious disease from running at large or coming into contact with other animals. These statutes have been enacted by the major livestock producing states.
The injured party may be barred from recovering damages if the complaining party is contributorily negligent. Knowledge that animals running at large were infected coupled with the complainant's failure to attempt to prevent the infected animal from coming in contact with the complainant's own animals may preclude recovery. Moreover, allowing infected animals to remain on the complaining party's premises after being aware of their diseased condition may be a bar to damages.
Landlord's Duty Regarding Diseased Premises
Sometimes questions arise concerning a landlord's liability for diseased or contaminated premises when a tenant brings healthy animals to the premises. In most jurisdictions, the liability of the landlord depends largely upon the landlord's deceit to the tenant concerning the past presence of disease on the premises. Thus, if a tenant has healthy animals and brings those animals onto the landlord's diseased or contaminated premises and the animals become diseased themselves, it will be difficult for the tenant to recover against the landlord. Failure to disclose the diseased condition of the leased premises is usually not a basis for action. Instead, actual deceit is required. Therefore, if the tenant fails to ask whether the premises are disease or contamination free, the landlord is under no duty to disclose that fact to the tenant. However, if the tenant asks and the landlord responds less than fully or less than truthfully, actual deceit may be present and provide the tenant a basis for recovery. See, e.g., Wilcox v. Cappel, No. A-95-798, 1996 Neb. App. LEXIS 243 (Neb. Ct. App. Dec. 3, 1996).
For farm tenants that claim that the landlord’s premises caused damage to the tenant’s animals, the law is fairly clear. As a prerequisite for recovering damages against a landlord arising from defects in the leased premises, the tenant should make a thorough inspection of the property and ask questions. It is also a really good idea to reduce the lease agreement to writing and include in the lease a provision that specifies which party is liable for damages resulting from disease or contamination.
Disposal of Animal Carcasses
All states have statutory requirements that must be satisfied in order to properly dispose of a dead animal. In most states, disposal must occur within 24 hours after death. By statute, states typically acknowledge that disposal may be by burying, burning or feeding the carcass to other livestock. The option of feeding the carcass to other livestock is typically only available if the animal did not die of a contagious disease. Disposal is also usually available to a licensed rendering company. The typical state statute requires direct delivery to the point of disposal with an exception often made for stops to load additional carcasses. Vehicles used to transport the carcass of an animal typically must be lined or other measures taken to prevent any leakage of liquid, and must be disinfected after each transport.
Most states prohibit certain methods of dead animal disposal. For instance, placing the carcass of dead animal in a water course or roadway is a misdemeanor in many states. Similarly, knowingly allowing a carcass to remain in such an area is also typically a misdemeanor. But, in most jurisdictions, cattle and horse carcasses may be moved from one farm to another if they are not diseased.
Animal diseases are a natural aspect of livestock production activities. Knowing the liability issues that might arise is an important aspect of livestock risk management.
Wednesday, April 26, 2017
The range fires in Kansas, Oklahoma and Texas earlier this year have generated numerous questions. I have addressed several of those in earlier posts. Another one is on the table for discussion today and concerns associated liability issues. In particular, whether a landowner is liable for smoke damage to others and whether there is any obligation to inform people that might be affected by the smoke.
Range Fire or Controlled Burns?
It is important to distinguish between a true range fire and a controlled burn. For a range fire that starts by some external event that the landowner has no control over or involvement in, there simply is no liability to others. This is the situation for the recent range fires in the Southern Plains. It’s just one of those situations that unfortunately occurs and landowners try their best to contain it and deal with it. The outpouring of support from farmers and ranchers across the country was heartening to see.
Many areas of Kansas and elsewhere engage in controlled burns of pasture. For controlled burns, each state has rules and regulations what govern the procedures to be followed. Those rules may include a duty to notify adjoining landowners and local authorities before starting a burn. It is important to understand the rules and follow them closely to avoid fines and other penalties that could apply.
Smoke Drift As a Trespass?
For a controlled burn, can smoke drift onto another’s property constitute a trespass and make the person conducting the burn liable for any resulting damages? Trespass is the unlawful or unauthorized entry upon another person's land that interferes with that person's exclusive possession or ownership of the land. The tort of trespass is conceptually related to the tort of nuisance, but a nuisance is an invasion of an individual's interest in use and enjoyment of land rather than an interference with the exclusive possession or ownership of the land. The law governing trespass to land is particularly important to farmers and ranchers because real estate plays a significant role in the economic life of the typical farmer or rancher.
A trespass consists of two basic elements: (1) intent and (2) force. Most jurisdictions do not impose absolute liability for trespass. Instead, proof of intentional invasion, reckless or negligent conduct, or inherently or abnormally dangerous activity is required. In these jurisdictions, proof of intent to commit a trespass is not necessary. Rather, the plaintiff must show that the trespasser either intended the act that resulted in the unlawful invasion or acted so negligently or in such a dangerous manner that willfulness can be assumed as a matter of law. A minority of jurisdictions still follow the common law approach holding an individual liable for any interference with the possession of land, even if that interference was completely unintentional. In these jurisdictions, it is immaterial whether the act was done accidently, in good faith, or by mistake.
Trespass also involves an element of force. Liability for trespass may result from any willful act, whether the intrusion is the immediate or inevitable consequence of a willful act or of an act that amounts to willfulness.
At its most basic level, a trespass is the intrusion on to another person's land without the owner's consent. However, many other types of physical invasions that cause injury to an owner's possessory rights abound in agriculture. These types of trespass include dynamite blasting, flooding with water or residue from oil and gas drilling operations, erection of an encroaching fence, unauthorized grazing of cattle, or raising of crops and cutting timber on another's land without authorization, among other things. In general, the privilege of an owner or possessor of land to utilize the land and exploit its potential natural resources is only a qualified privilege. The owner or possessor must exercise reasonable care in conducting operations on the land so as to avoid injury to the possessory rights of neighboring landowners. That can include controlled burn activities and the resulting smoke drift. For example, in Ream v. Keen, 112 Or. App. 197, 828 P.2d 1038 (1992), smoke from field burning drifted to an adjoining home and the neighbor sued for soot removal costs and emotional and physical damages. The trespass claim was submitted to a jury and the appellate court ultimately determined that the elements of an intentional trespass had been established and sent the case back to the trial court for a determination of damages.
As in any trespass case, the outcome turns on the facts of each case. Each case is different.
Is A Controlled Burn an Unnatural Land Use?
“Unnatural” land uses are typically governed by a rule of strict liability. That means that intent doesn’t matter. If damage occurs to others, there is liability. The strict liability approach for “non-natural” land use activities was applied in an 1868 English case. Rylands v. Fletcher. L.R. 3 H.L. 330 (1868). In Rylands, the defendants hired an independent contractor to construct a reservoir on their property. When the reservoir was filled up, water broke from it and flowed into abandoned mine shafts on the property, and then flooded adjacent mine shafts owned by the plaintiffs. The defendants themselves were not aware of the abandoned shafts, and were therefore not negligent (although the contractor probably was). After the lowest court denied liability, the case came before the Exchequer Chamber, in effect an intermediate appeals court. The court reversed, holding that there was liability because “...the person who for his own purposes brings on his lands and collects and keeps there anything likely to do mischief if it escapes, must keep it in at his peril, and if he does not do so, is prima facie answerable for all the damage which is the natural occurrence of its escape.” The case then went to the House of Lords, the final appellate tribunal. The holding of the Exchequer Chamber was affirmed, but was significantly limited. Liability existed because, the court said, the defendants put their land to a “non-natural use for the purpose of introducing [onto it] that which in its natural condition was not in or upon it”, i.e., a large quantity of water. If, on the other hand, the court said, the water had entered during a “natural use” of the land, and had then flowed off onto the plaintiff's land, there would have been no liability.
Initially, American courts frequently misconstrued the Ryland's decision and purported to reject it. They focused on the Exchequer Chamber version, which would have imposed liability for escaping forces even where the land is put to a natural use. Eventually, however, the vast majority of American courts accepted at least the practical result of Rylands, even if not the case by name.
Today, the rule has been extended to include most activities that are extremely dangerous. However, in Koger v. Ferrin, 926 P.2d 680 (Kan. Ct. Ap. 1996), the court refused to apply a strict liability rule in a situation involving the spread of a fire that was not intentionally started. In an important passage, the court stated the following:
“In Kansas, farmers and ranchers have a right to set controlled fires on their property for agricultural purposes and will not be liable for damages resulting if the fire is set and managed with ordinary care and prudence, depending on the conditions present [citation omitted]. There is no compelling argument for imposing strict liability on a property owner for failing to prevent the spread of a fire that did not originate with that owner or operator. Because the essential facts of this case are undisputed, as a matter of law, the doctrine of strict liability is not applicable under the facts presented.”
Liability for smoke damage from fires depends on the facts and circumstances surrounding the fire. For controlled burns, carefully following any applicable rules and regulations will go a long way to eliminating liability for any resulting damages. Range fires typically don’t lead to personal liability issues.
Tuesday, April 4, 2017
A nuisance is an invasion of an individual's interest in the use and enjoyment of land rather than an interference with the exclusive possession or ownership of the land. The concept has become increasingly important in recent years due to land use conflicts posed by large-scale, industrialized confinement livestock operations. But, that’s not the only activity that has generated nuisance litigation. “Renewable” energy also has started to produce its own subset of nuisance cases. In these cases, the claim might involve allegations of noise, vibration, flicker, and damage to local aesthetics, among other annoyances.
But, can a nuisance claim be based solely on a claim of harm to aesthetics? If so, that could spell trouble for sources of renewable energy. The issue has been addressed by court on numerous occasions, but came up most recently in Vermont involving the installation of solar panels in a rural area – a so-called solar farm.
The issue of aesthetics (visual blight) and nuisance is the focus of today’s post.
Nuisance – In General
Nuisance law prohibits land uses that unreasonably and substantially interfere with another individual's quiet use and enjoyment of property. The doctrine is based on two interrelated concepts: (1) landowners have the right to use and enjoy property free of unreasonable interferences by others; and (2) landowners must use property so as not to injure adjacent owners.
Nuisance law is rooted in the common law and two primary issues are at stake in any agricultural nuisance dispute - whether the use alleged to be a nuisance is reasonable for the area and whether the use alleged to be a nuisance substantially interferes with the use and enjoyment of neighboring land. Each case is highly fact-dependent with the court considering multiple factors.
A private nuisance is a civil wrong that is based on a disturbance of rights in land. A private nuisance may consist of an interference with the physical condition of the land itself, as by vibration or blasting which damages a house, the destruction of crops, flooding, the raising of the water table, or the pollution of a stream or underground water supply. A private nuisance may also consist of a disturbance of the comfort or convenience of the occupant as by unpleasant odors, smoke, dust or gas, loud noises, excessive light, high temperatures, or even repeated telephone calls. The remedy for a private nuisance lies in the hands of the individual whose rights have been disturbed. A public nuisance, on the other hand, is an interference with the rights of the community at large. A public nuisance may include anything from the obstruction of a highway to a public gaming house or indecent exposure. The normal remedy is in the hands of the state.
Nuisance and Renewable Energy Production Activities
Odors from large-scale livestock confinement operations are not the only activities on rural property that give rise to nuisance actions. While such activities tend to predominate nuisance actions, especially in the Midwest, the development of large-scale wind turbine operations is also generating a great deal of conflict among rural landowners. While nuisance litigation involving large-scale “wind farms” is in its early stages, a significant opinion from the West Virginia Supreme Court in 2007 illustrates the land-use conflict issues that wind-farms can present. In Burch, et al. v. Nedpower Mount Storm, LLC and Shell Windenergy, Inc., 220 W. Va. 443, 647 S.E.2d 879 (2007), the West Virginia Supreme Court ruled that a proposed wind farm consisting of approximately 200 wind turbines in close proximity to residential property could constitute a nuisance. Seven homeowners living within a two-mile radius from the location of where the turbines were to be erected sought a permanent injunction against the construction and operation of the wind farm on the grounds that they would be negatively impacted by turbine noise, the eyesore of the flicker effect of the light atop the turbines, potential danger from broken blades, blades throwing ice, collapsing towers and a reduction in their property values. The court held that even though the state had approved the wind farm, the common-law doctrine of nuisance still applied. While the court found that the wind-farm was not a nuisance per se, the court noted that the wind-farm could become a nuisance. As such the plaintiffs’ allegations were sufficient to state a claim permitting the court to enjoin the creation of the wind farm. The court remanded the case to the trial court for a trial. At trial, the defendant was given an opportunity to establish that the operation of the wind farm did not unreasonably interfere with the plaintiffs’ use and enjoyment of their property. That’s how most of the cases positioned like this would turn out. Courts thend not to permit a claim for “anticipatory nuisance.” A party is entitled to show that they can conduct their activity without creating a nuisance.
In another case involving nuisance-related aspects of large-scale wind farms, the Kansas Supreme Court upheld a county ordinance banning commercial wind farms in the county. Zimmerman v. Board of County Commissioners, 218 P.3d 400 (Kan. 2009). The court determined that the county had properly followed state statutory procedures in adopting the ordinance, and that the ordinance was reasonable based on the county’s consideration of aesthetics, ecology, flora and fauna of the Flint Hills. The Court cited the numerous adverse effects of commercial wind farms including damage to the local ecology and the prairie chicken habitat (including breeding grounds, nesting and feeding areas and flight patterns) and the unsightly nature of large wind turbines. The Court also noted that commercial wind farms have a negative impact on property values, and that agricultural and nature-based tourism would also suffer.
Aesthetic Injury Only?
But what if the only complained-of problem is aesthetic? Is that enough to make out a claim for nuisance? The issue came up recently in a court case from Vermont that involved solar panels. In Myrick v. Peck Electric Co., et al., No. 16-167, 2017 Vt. LEXIS 4 (Vt. Sup. Ct. Jan. 13, 2017), the plaintiff was a landowner that sued the defendant, two solar energy companies, when the plaintiff’s neighbors leased property to the defendants for the purpose of constructing commercial solar arrays (panels). The plaintiff claimed that the solar arrays constituted a private nuisance by negatively affecting the surrounding area’s rural aesthetic which also caused local property values to decline. The trial court granted summary judgment to the defendants. On appeal, the Vermont Supreme Court affirmed. The Court noted that Vermont law has held, dating back to the late 1800s, that private nuisance actions based on aesthetic disapproval alone are barred. The Court rejected the plaintiff’s argument that the historic Vermont position should change based on changed society. The Court also rejected the notion that Vermont private nuisance law was broad enough to apply to aesthetic harm, stating that, “An unattractive sight, without more, is not a substantial interference as a matter of law because the mere appearance of the property of another does not affect a citizen’s ability to use and enjoy his or her neighboring land.” Emotional distress is not an interference with the use or enjoyment of land, the court stated. But, if the solar panels casted reflections, for example, that could be an interference with the use and enjoyment of one’s property. Aesthetic values, the court noted, are inherently subjective and the court wasn’t going to set an aesthetic standard. The Court also noted that the plaintiffs had conceded at oral argument that they were not pursuing a claim that diminution in value, by itself, was sufficient to constitute a nuisance. However, the Court went on to state that a nuisance claim based solely on loss in value invites speculation that the Court would not engage in.
The decision from Vermont follows the majority rule among jurisdictions in the United States. Of course, there are some exceptions. For example, a few courts have held that proof of general damages (diminished quality of life) may be sufficient evidence to support a monetary award. See, e.g., Stephens, et al. v. Pillen, 12 Neb. App. 600 (2004). But, in general, aesthetic injury, by itself, is not enough to make a claim for nuisance. However, if it is coupled with claims of substantial interference with use and enjoyment of property, a nuisance claim might successfully be made. Renewable energy generation tends to require a large amount of land for its operation, but unsightliness, by itself, probably won’t be enough to make it a nuisance.
Friday, February 3, 2017
A recent court decision from Michigan involving that state’s recreational use statute raised a question that I sometimes get from farmers, ranchers and rural landowners – just what type of activity does a recreational use statute cover? It’s a good question. The answer is, “it depends.” Each state provision is unique, but there are some basic general points that can be made.
In 1965, the Council of State Governments proposed the adoption of a Model Act to limit an owner or occupier's liability for injury occurring on the owner's property. The stated purpose of the Model Act was to encourage owners to make land and water areas available to the public for recreational purposes by limiting their liability toward persons who enter the property for such purposes. Liability protection was extended to holders of a fee ownership interest, tenants, lessees, occupants, and persons in control of the premises. Land which receives the benefit of the act include roads, waters, water courses, private ways and buildings, structures and machinery or equipment when attached to the realty. Recreational activities within the purview of the act include hunting, fishing, swimming, boating, camping, picnicking, hiking, pleasure driving, nature study, water skiing, water sports, and viewing or enjoying historical, archeological, scenic or scientific sites. Most states have enacted some version of the 1965 Model legislation.
Under the model legislation, an owner or occupier owes no duty of care to keep the premises safe for entry or use by others for recreational purposes, or to give any warning of dangerous conditions, uses, structures, or activities to persons entering the premises for such recreational purposes. Similarly, if an owner, directly or indirectly, invites or permits any person without charge to use the property for recreational purposes, the owner does not extend any assurance the premises are safe for any purpose, confer the status of licensee or invitee on the person using the property, or assume responsibility or incur liability for any injury to persons or property caused by any act or omission of persons who are on the property.
The protection afforded by the Model Act is not absolute, however. Should injury to users of the property be caused by the willful or malicious failure to guard or warn against a dangerous condition, use, structure, or activity, the protection of the act would be lost. Likewise, if the owner imposes a charge on the user of the property, the protection of the act is lost. The 1965 Model Act contained a specific provision that did not exempt anyone from liability for injury in any case where the owner of land charges a fee to the person or persons who enter or go onto the land for recreational purposes. Under most state statutes patterned after the Model Act, if a fee is charged for use of the premises for recreational purposes, it converts the entrant's status to that of an invitee. Some states (such as Wisconsin) establish a monetary limit on what a landowner may receive in a calendar year and still have the liability protection of the statute. The North Dakota statute provides immunity for landowners that invite the public onto their land for recreational rather than commercial purposes, with the distinction between the two classifications largely turning on whether a fee is directly charged.
Signs, Release Language and Gross Negligence
Many fee-based recreational use operations require guests to sign a form releasing the landowner from liability for any injury a guest may sustain while recreating on the premises. To be an effective shield against liability, a release must be drafted carefully and must be clear, unambiguous, explicit and not violate public policy. Courts generally construe release language against the drafter and severely limit the landowner’s ability to contract away liability for its own negligence. Likewise, most courts that have considered the question have held that a parent cannot release a minor child’s prospective claim for negligence. This has led some state legislatures to consider legislation designed to protect organizations while not allowing wrongdoers to escape liability for intentional or grossly negligent conduct. This is where that recent Michigan case fits in.
In Otto v. Inn at Watervale, No. 330214, 2017 Mich. App. LEXIS 68 (Mich. Ct. App. Jan. 17, 2017). the plaintiff, the mother of a 10-year-old girl sued the defendant for burn injuries her daughter suffered while using the defendant’s beach area. The daughter was playing on the beach with friends when she stepped on hot coals that were covered up in the beach’s sand. The defendant had allowed guests in the past to have “fire rings” on the beach, and they had become covered with sand blown by the wind which had not yet been uncovered from the prior fall season. There had also been prior problems with guests not properly extinguishing fires on the beach in the past. The plaintiff sued based in negligence and the defendant moved for summary judgment on the basis that the claim was barred by the state (MI) Recreational Land Use Act (RLUA) (MCL §324.73301). The RLUA bars an action to recover for injuries incurred while on the land of another without paying a fee for the purpose of “fishing, hunting, trapping, camping, hiking sightseeing, motorcycling, snowmobiling, or any other outdoor recreational use or trail use with or without permission,…unless the injuries were caused by gross negligence or willful and wanton misconduct of the owner, tenant or lessee. The trial court granted the defendant’s motion, but allowed the plaintiff to amend the complaint to add gross negligence and willful and wanton misconduct claims. The plaintiff amended the complaint, claiming that the defendant’s conduct was reckless in letting guests have beach bonfires without properly supervising or providing instructions for putting the fires out, and for not properly warning the public of the possibility of hot fire coals. The defendant claimed that the hot coals were buried and not visible and that a reasonable inspection would not have disclosed them and that staff cleaned embers from fire rings on a weekly basis. The trial court again granted summary judgment for the defendant. On appeal, the appellate court reversed. The court noted that a child’s play on a beach was not the type of activity that was of the same kind, class, character or nature of the listed activities in the RLUA. In addition, the court determined that the child was not engaged in “any other outdoor recreational use or trail use.” As such, the RULA did not apply and the court reversed the trial court’s determination.
With increased interest by farm and ranch owners in providing recreational activities to generate additional income, some states have passed ag immunity laws designed to supplement the protection provided by recreational liability acts. In general, the various state statutes provide liability protection for landowners against the injury or death of a participant in a recreational activity arising from the “inherent risks” of the activity. The Colorado statute, for example, is written in this manner.
Recreational use statutes generally do not preclude legal claims based on negligent supervision. In one case from Maine, the plaintiff was engaged in cutting and making firewood on the defendant’s property and was injured while loading a wood splitter. The state recreational use statute covered the harvesting or gathering of forest products and would have shielded the defendant from liability for the plaintiff’s injuries. As a result, the plaintiff alleged negligent supervision and instruction concerning the use of the wood splitter. The court held that the plaintiff’s claim was not precluded by the recreational use statute inasmuch as the statute only precluded claims alleging premises liability, and allowed the case to proceed to trial on the negligent supervision claim. Dickinson v. Clark, 767 A.2d 303 (Me. 2001).
While this discussion just scratches the surface, the point is that a rural landowner should have at least some knowledge of their state’s recreational use statute, or at least have legal counsel that does. Each state’s particular statutory language is unique, and there are a seemingly endless number of situations that could invoke the statute. Given that agricultural land is prone to activities of third party entrants that could create liability situations for the landowner, knowledge of the rules (and insurance) are key.
Friday, January 6, 2017
Today we continue our look this week at the biggest developments in agricultural law and taxation during 2016. Out of all of the court rulings, IRS developments and regulatory issues, we are down to the top five developments in terms of their impact on ag producers, rural landowners and agribusinesses.
So, here are the top five (as I see them) in reverse order:
(5) Pasture Chiseling Activity Constituted Discharge of “Pollutant” That Violated the CWA. The plaintiff bought approximately 2,000 acres in northern California in 2012. Of that 2,000 acres, the plaintiff sold approximately 1,500 acres. The plaintiff retained an environmental consulting firm to provide a report and delineation map for the remaining acres and requested that appropriate buffers be mapped around all wetlands. The firm suggested that the plaintiff have the U.S. Army Corps of Engineers (COE) verify the delineations before conducting any grading activities. Before buying the 2,000 acres, the consulting firm had provided a delineation of the entire tract, noting that there were approximately 40 acres of pre-jurisdictional wetlands. The delineation on the remaining 450 acres of pasture after the sale noted the presence of intact vernal and seasonal swales on the property along with several intermittent and ephemeral drainages. A total of just over 16 acres of pre-jurisdictional waters of the United States were on the 450 acres – having the presence of hydric soils, hydrophytic vegetation and hydrology (1.07 acres of vernal pools; 4.02 acres of vernal swales; .82 acres of seasonal wetlands; 2.86 acres of seasonal swales and 7.40 acres of other waters of the United States). In preparation to plant wheat on the tract, the property was tilled at a depth of 4-6 inches to loosen the soil for plowing with care taken to avoid the areas delineated as wetlands. However, an officer with the (COE) drove past the tract and thought he saw ripping activity that required a permit. The COE sent a cease and desist letter and the plaintiff responded through legal counsel requesting documentation supporting the COE’s allegation and seeking clarification as to whether the COE’s letter was an enforcement action and pointing out that agricultural activities were exempted from the CWA permit requirement. The COE then provided a copy of a 1994 delineation and requested responses to numerous questions. The plaintiff did not respond. The COE then referred the matter to EPA for enforcement. The plaintiff sued the COE claiming a violation of his Fifth Amendment right to due process and his First Amendment right against retaliatory prosecution. The EPA refused the referral due to the pending lawsuit so the COE referred the matter to the U.S. Department of Justice (DOJ). The DOJ filed a counterclaim against the plaintiff for CWA violations.
The court granted the government’s motion on the due process claim because the cease and desist letter did not initiate any enforcement that triggered due process rights. The court also dismissed the plaintiff’s retaliatory prosecution claim. On the CWA claim brought by the defendant, the court determined that the plaintiff’s owner could be held liable as a responsible party. The court noted that the CWA is a strict liability statute and that the intent of the plaintiff’s owner was immaterial. The court then determined that the tillage of the soil causes it to be “redeposited” into delineated wetlands. The redeposit of soil, the court determined, constituted the discharge of a “pollutant” requiring a national pollution discharge elimination system (NPDES) permit. The court reached that conclusion because it found that the “waters” on the property were navigable waters under the CWA due to a hydrological connection to a creek that was a tributary of Sacramento River and also supported the federally listed vernal pool fairy shrimp and tadpole shrimp. Thus, a significant nexus with the Sacramento River was present. The court also determined that the farming equipment, a tractor with a ripper attachment constituted a point source pollutant under the CWA. The discharge was not exempt under the “established farming operation” exemption of 33 U.S.C. §1344(f)(1) because farming activities on the tract had not been established and ongoing, but had been grazed since 1988. Thus, the planting of wheat could not be considered a continuation of established and ongoing farming activities. Duarte Nursery, Inc. v. United States Army Corps of Engineers, No. 2:13-cv-02095-KJM-AC, 2016 U.S. Dist. LEXIS 76037 (E.D. Cal. Jun. 10, 2016).
(4) Prison Sentences Upheld For Egg Company Executives Even Though Government Conceded They Had No Knowledge of Salmonella Contamination. The defendant, an executive of a large-scale egg production company (trustee of the trust that owned the company), and his son (the Chief Operating Officer of the company) pled guilty as “responsible corporate officers” to misdemeanor violations of 21 U.S.C. §331(a) for introducing eggs that had been adulterated with salmonella into interstate commerce from the beginning of 2010 until approximately August of 2010. They each were fined $100,000 and sentenced to three months in prison. They appealed their sentences as unconstitutional on the basis that they had no knowledge that the eggs at issue were contaminated at the time they were shipped. They also claimed that their sentences violated Due Process and the Eighth Amendment insomuch as the sentences were not proportional to their “crimes.” They also claimed that incarceration for a misdemeanor offense would violate substantive due process.
The trial court determined that the poultry facilities were in poor condition, had not been appropriately cleaned, had the presence of rats and other rodents and frogs and, as a result, the defendant and his son either “knew or should have known” that additional salmonella testing was needed and that remedial and preventative measures were necessary to reduce the presence of salmonella. The appellate court agreed, finding that the evidence showed that the defendant and son were liable for negligently failing to prevent the salmonella outbreak and that 21 U.S.C. §331(a) did not have a knowledge requirement. The appellate court also did not find a due process violation. The defendant and son claimed that because they did not personally commit wrongful acts, and that due process is violated when prison terms are imposed for vicarious liability felonies where the sentence of imprisonment is only for misdemeanors. However, the court held that vicarious liability was not involved, and that 21 U.S.C. §331(a) holds a corporate officer accountable for failure to prevent or remedy “the conditions which gave rise to the charges against him.” Thus, the appellate court determined, the defendant and son were liable for negligently failing to prevent the salmonella outbreak. The court determined that the lack of criminal intent does not violate the Due Process Clause for a “public welfare offense” where the penalty is relatively small (the court believed it was), the defendant’s reputation was not “gravely” damaged (the court believed that it was not) and congressional intent supported the penalty (the court believed it did). The court also determined that there was no Eighth Amendment violation because “helpless” consumers of eggs were involved. The court also found no procedural or substantive due process violation with respect to the sentences because the court believed that the facts showed that the defendant and son “had reason to suspect contamination” and should have taken action to address the problem at that time (even though law didn’t require it).
The dissent pointed out that the government stipulated at trial that its investigation did not identify any corporate personnel (including the defendant and son) who had any knowledge that eggs sold during the relevant timeframe were contaminated with salmonella. The dissent also noted that the government conceded that there was no legal requirement for the defendant or corporation to comply with stricter regulations during the timeframe in issue. As such, the convictions imposed and related sentences were based on wholly nonculpable conduct and there was no legal precedent supporting imprisonment in such a situation. The dissent noted that the corporation “immediately, and at great expense, voluntarily recalled hundreds of millions of shell eggs produced” at its facilities when first alerted to the problem. As such, according to the dissent, due process was violated and the sentences were unconstitutional. United States v. Decoster, 828 F.3d 626 (8th Cir. 2016).
(3) The IRS and Self-Employment Tax. Two self-employment tax issues affecting farmers and ranchers have been in the forefront in recent years – the self-employment tax treatment of Conservation Reserve Program (CRP) payments and the self-employment tax implications of purchased livestock that had their purchase price deducted under the de minimis safe harbor of the capitalization and repair regulations. On the CRP issue, in 2014 the U.S. Court of Appeals ruled that CRP payments in the hands of a non-farmer are not subject to self-employment tax. The court, in Morehouse v. Comr., 769 F.3d 616 (8th Cir. 2014), rev’g, 140 T.C. 350 (2013), held the IRS to its historic position staked out in Rev. Rul. 60-32 that government payments attributable to idling farmland are not subject to self-employment tax when received by a person who is not a farmer. The court refused to give deference to an IRS announcement of proposed rulemaking involving the creation of a new Rev. Rul. that would obsolete the 1960 revenue ruling. The IRS never wrote the new rule, but continued to assert their new position on audit. The court essentially told the IRS to follow appropriate procedure and write a new rule reflecting their change of mind. In addition, the court determined that CRP payments are “rental payments” statutorily excluded from self-employment tax under I.R.C. §1402(a). Instead of following the court’s invitation to write a new rule, the IRS issued a non-acquiescence with the Eighth Circuit’s opinion. O.D. 2015-02, IRB 2015-41. IRS said that it would continue audits asserting their judicially rejected position, even inside the Eighth Circuit (AR, IA, MN, MO, NE, ND and SD).
In 2016, the IRS had the opportunity to show just how strong its opposition to the Morehouse decision is. A Nebraska non-farmer investor in real estate received a CP2000 Notice from the IRS, indicating CRP income had been omitted from their 2014 return. The CP2000 Notice assessed the income tax and SE Tax on the alleged omitted income. The CRP rental income was in fact included on the return, but it was included on Schedule E along with cash rents, where it was not subject to self-employment tax. The practitioner responded to the IRS Notice by explaining that the CRP rents were properly reported on Schedule E because the taxpayer was not a farmer. This put the matter squarely before the IRS to reject the taxpayer’s position based on the non-acquiescence. But, the IRS replied to the taxpayer’s response with a letter informing the taxpayer that the IRS inquiry was being closed with no change from the taxpayer’s initial position that reported the CRP rents for the non-farmer on Schedule E.
On the capitalization and repair issue, taxpayers can make a de minimis safe harbor election that allows amounts otherwise required to be capitalized to be claimed as an I.R.C. §162 ordinary and necessary business expense. This de minimis expensing election has a limit of $5,000 for taxpayers with an Applicable Financial Statement (AFS) and $2,500 for those without an AFS. Farmers will fall in the latter category. In both cases, the limit is applied either per the total on the invoice, or per item as substantiated by the invoice. One big issue for farmers and ranchers is how to report the income from the sale of purchased livestock that are held for productive use, such as breeding or dairy animals for which the de minimis safe harbor election was made allowing the full cost of the livestock to be deducted. It had been believed that because the repair regulations specify when the safe harbor is used, the sale amount is reported fully as ordinary income that is reported on Schedule F where it is subject to self-employment tax for a taxpayer who is sole proprietor farmer or a member of a farm partnership. In that event, the use of the safe harbor election would produce a worse tax result that would claiming I.R.C. §179 on the livestock.
An alternative interpretation of the repair regulations is that the self-employment tax treatment of the gain or loss on sale of assets for which the purchase price was deducted under the de minimis safe harbor is governed by Treas. Reg. §1.1402(a)-6(a). That regulation states that the sale of property is not subject to selfemployment tax unless at least one of two conditions are satisfied: (1) the property is stock in trade or other property of a kind which would properly be includible in inventory if on-hand at the close of the tax year; or (2) the property is held primarily for sale to customers in the ordinary course of a trade or business. Because purchased livestock held for dairy or breeding purposes do not satisfy the first condition, the question comes down to whether condition two is satisfied – are the livestock held primarily for sale to customers in the ordinary course of a trade or business? The answer to that question is highly fact-dependent. If the livestock whose purchase costs have been deducted under the de minimis rule are not held primarily for sale to customers in the ordinary course of the taxpayer’s trade or business, the effect of the regulation is to report the gain on sale on Part II of Form 4797. This follows Treas. Reg. §1.1402(a)-6(a) which bars Sec. 1231 treatment (which would result in the sale being reported on Part I of Form 4797). In that event, the income received on sale would not be subject to self-employment tax.
In 2016, the IRS, in an unofficial communication, said that the alternative interpretation is the correct approach. However, the IRS was careful to point out that the alternative approach is based on the assumptions that the livestock were neither inventoriable nor held for sale, and that those assumptions are highly fact dependent on a case-by case basis. The IRS is considering adding clarifying language to the Farmers’ Tax Guide (IRS Pub. 225) and/or the Schedule F Instructions.
(2) TMDLs and the Regulation of Ag Runoff. Diffused surface runoff of agricultural fertilizer and other chemicals into water sources as well as irrigation return flows are classic examples of nonpoint source pollution that isn’t discharged from a particular, identifiable source. A primary source of nonpoint source pollution is agricultural runoff. As nonpoint source pollution, the Clean Water Act (CWA) leaves regulation of it up to the states rather than the federal government. The CWA sets-up a “states-first” approach to regulating water quality when it comes to nonpoint source pollution. Two key court opinions were issued in 2016 where the courts denied attempts by environmental groups to force the EPA to create additional federal regulations involving Total Maximum Daily Loads (TMDLs). The states are to establish total maximum daily TMDLs for watercourses that fail to meet water quality standards after the application of controls on point sources. A TMDL establishes the maximum amount of a pollutant that can be discharged or “loaded” into the water at issue from all combined sources on a daily basis and still permit that water to meet water quality standards. A TMDL must be set “at a level necessary to implement water quality standards.” The purpose of a TMDL is to limit the amount of pollutants in a watercourse on any particular date. Two federal court opinions in 2016 reaffirmed the principle that regulation of nonpoint source pollution is left to the states and not the federal government.
In Conservation Law Foundation v. United States Environmental Protection Agency, No. 15-165-ML, 2016 U.S. Dist. LEXIS 172117 (D. R.I. Dec. 13, 2016), the plaintiff claimed that the EPA’s approval of the state TMDL for a waterbody constituted a determination that particular stormwater discharges were contributing to the TMDL being exceeded and that federal permits were thus necessary. The court, however, determined that the EPA’s approval of the TMDL did not mean that EPA had concluded that stormwater discharges required permits. The court noted that there was nothing in the EPA’s approval of the TMDL indicating that the EPA had done its own fact finding or that EPA had independently determined that stormwater discharges contributed to a violation of state water quality standards. The regulations simply do not require an NPDES permit for stormwater discharges to waters of the United States for which a TMDL has been established. A permit is only required when, after a TMDL is established, the EPA makes a determination that further controls on stormwater are needed.
In the other case, Gulf Restoration Network v. Jackson, No. 12-677 Section: “A” (3), 2016 U.S. Dist. LEXIS 173459 (E.D. La. Dec. 15, 2016), numerous environmental groups sued the EPA to force them to impose limits on fertilizer runoff from farm fields. The groups claimed that many states hadn’t done enough to control nitrogen and phosphorous pollution from agricultural runoff, and that the EPA was required to mandate federal limits under the Administrative Procedure Act – in particular, 5 U.S.C. §553(e) via §303(c)(4) of the CWA. Initially, the groups told the EPA that they would sue if the EPA did not write the rules setting the limits as requested. The EPA essentially ignored the groups’ petition by declining to make a “necessity determination. The groups sued and the trial court determined that the EPA had to make the determination based on a 2007 U.S. Supreme Court decision involving the Clean Air Act (CAA). That decision was reversed on appeal on the basis that the EPA has discretion under §303(c)(4)(B) of the CWA to decide not to make a necessity determination as long as the EPA gave a “reasonable explanation” based on the statute why it chose not to make any determination. The appellate court noted that the CWA differed from the CAA on this point. On remand, the trial court noted upheld the EPA’s decision not to make a necessity determination. The court noted that the CWA gives the EPA “great discretion” when it comes to regulating nutrients, and that the Congressional policy was to leave regulation of diffused surface runoff up to the states. The court gave deference to the EPA’s “comprehensive strategy of bringing the states along without the use of federal rule making…”.
Also, in 2016 the U.S. Supreme Court declined to review a decision of the U.S. Court of Appeals for the Third Circuit which had determined in 2015 that the EPA had acted within its authority under 33 U.S.C. §1251(d) in developing a TMDL for the discharge of nonpoint sources pollutants into the Chesapeake Bay watershed. American Farm Bureau, et al. v. United States Environmental Protection Agency, et al., 792 F.3d 281 (3d Cir. 2015), cert. den., 136 S. Ct. 1246 (2016).
(1) The Election of Donald Trump as President and the Potential Impact on Agricultural and Tax Policy. Rural America voted overwhelmingly for President-elect Trump, and he will be the President largely because of the sea of red all across the country in the non-urban areas. So, what can farmers, ranchers and agribusinesses anticipate the big issues to be in the coming months and next few years and the policy responses? It’s probably reasonable to expect that same approach will be applied to regulations impacting agriculture. Those with minimal benefit and high cost could be eliminated or retooled such that they are cost effective. Overall, the pace of the generation of additional regulation will be slowed. Indeed, the President-elect has stated that for every new regulation, two existing regulations have to be eliminated.
Ag policy. As for trade, it is likely that trade agreements will be negotiated on a much more bi-lateral basis – the U.S. negotiating with one other country at a time rather than numerous countries. The President-elect is largely against government hand-outs and is big on economic efficiency. That bodes well for the oil and gas industry (and perhaps nuclear energy). But, what about less efficient forms of energy that are heavily reliant on taxpayer support? Numerous agricultural states are heavily into subsidized forms of energy with their state budgets littered with numerous tax “goodies” for “renewable” energy.” However, the President-elect won those states. So, does that mean that the federal subsidies for ethanol and biodiesel will continue. Probably. The Renewable Fuels Standard will be debated in 2017, but will anything significant happen? Doubtful. It will continue to be supported, but I expect it to be reviewed to make sure that it fits the market. Indeed, one of the reasons that bio-mass ethanol was reduced so dramatically in the EPA rules was that it couldn’t be produced in adequate supplies. What about the wind energy production tax credit? What about the various energy credits in the tax code? Time will tell, but agricultural interests should pay close attention.
The head of the Senate Ag Committee will be Sen. Roberts from Kansas. As chair, he will influence the tone of the debate of the next farm bill. I suspect that means that the farm bill will have provisions dealing with livestock disease and biosecurity issues. Also, I suspect that it will contain significant provisions crop insurance programs and reforms of existing programs. The House Ag Committee head will be Rep. Conaway from Texas. That could mean that cottonseed will become an eligible commodity for Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC). It may also be safe to assume that for the significant Midwest crops (and maybe some additional crops) their reference prices will go up. Also, it now looks as if the I.R.C. §179 issue involving the income limitation for qualification for farm program payments (i.e., the discrepancy of the treatment between S corporations and C corporations) will be straightened out. Other federal agencies that impact agriculture (EPA, Interior, FDA, Energy, OSHA) can be expected to be more friendly to agriculture in a Trump Administration.
Tax policy. As for income taxes, it looks at this time that the Alternative Minimum Tax might be eliminated, as will the net investment income tax that is contained in Obamacare. Individual tax rates will likely drop, and it might be possible that depreciable assets will be fully deductible in the year of their purchase. Also, it looks like the corporate tax rate will be cut as will the rate applicable to pass-through income. As for transfer taxes, President-elect Trump has proposed a full repeal of the federal estate tax as well as the federal gift tax. Perhaps repeal will be effective January 1, 2017, or perhaps it will be put off until the beginning of 2018. Or, it could be phased-in over a certain period of time. Also, while it appears at the present time that any repeal would be “permanent,” that’s not necessarily a certainty. Similarly, it’s not known whether the current basis “step-up” rule would be retained if the estate tax is repealed. That’s particularly a big issue for farmers and ranchers. It will probably come down to a cost analysis as to whether step-up basis is allowed. The President-elect has already proposed a capital gains tax at death applicable to transfers that exceed $10 million (with certain exemptions for farms and other family businesses). Repeal of gift tax along with repeal of estate tax has important planning implications. There are numerous scenarios that could play out. Stay tuned, and be ready to modify existing plans based on what happens. Any repeal bill would require 60 votes in the Senate to avoid a filibuster unless repeal is done as part of a reconciliation bill. Also, without being part of a reconciliation bill, any repeal of the federal estate tax would have to “sunset” in ten years.
January 6, 2017 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Wednesday, January 4, 2017
This week we are looking at the biggest developments in agricultural law and taxation for 2016. On Monday, we highlighted the important developments that just missed being in the top ten. Today we take a look at developments 10 through six. On Friday, we will look at the top five.
- Court Obscures Rational Basis Test To Eliminate Ag Exemption From Workers' Compensation Law. While this is a state Supreme Court decision, its implications are significant. Most, if not all, states have a statutory exemption from workers’ compensation for employers that are engaged in agriculture. The statutory exemption varies in scope from state to state and, of course, an employer that is otherwise exempt can choose to be covered by the statute and offer workers’ compensation benefits to employees. In this case, the plaintiffs claimed that their on-the-job injuries should be covered under the state (NM) workers' compensation law. One plaintiff tripped while picking chile and fractured her left wrist. The other plaintiff was injured while working in a dairy when he was head-butted by a cow and pushed up against a metal door causing him to fall face-first into a concrete floor and sustain neurological damage. The plaintiffs' claims for workers' compensation benefits were dismissed via the exclusion from the workers' compensation system for employers. On appeal, the appellate court reversed. Using rational basis review (the standard most deferential to the constitutionality of the provision at issue), the court interpreted Sec. 52-1-6(A) of the New Mexico Code as applying to the primary job duties of the employees (as opposed to the business of the employer and the predominant type of employees hired), and concluded the distinction was irrational and lacked any rational purpose. The appellate court noted that the purpose of the law was to provide "quick and efficient delivery" of medical benefits to injured and disabled workers. Thus, the court determined that the exclusion violated the constitutional equal protection guarantee. The court further believed that the exclusion for workers that cultivate and harvest (pick) crops, but the inclusion of workers that perform tasks associated with the processing of crops was a distinction without a difference. The appellate court made no mention that the highest court in numerous other states had upheld a similar exclusion for agriculture from an equal protection constitutional challenge. On further review, the state Supreme Court affirmed. The Court determined that there was nothing to distinguish farm and ranch laborers from other ag employees and that the government interest of cost savings, administrative convenience and similar interests unique to agriculture were not rationally related to a legitimate government interest. The court determined that the exclusion that it construed as applying to ag laborers was arbitrary discrimination. A dissenting judge pointed out that the legislature’s decision to allow employers of farm and ranch laborers to decide for themselves whether to be subject to workers’ compensation or opt out and face tort liability did not violate any constitutionally-protected right. The dissent noted that such ability to opt out was a legitimate statutory scheme that rationally controlled costs for New Mexico farms and ranches, and that 29 percent of state farms and ranches had elected to be covered by workers’ compensation. The dissent also noted that the majority’s opinion would have a detrimental economic impact on small, economically fragile farms in New Mexico by imposing an additional economic cost of $10.5 million annually (as projected by the state Workers’ Compensation Administration). On this point, the dissent further pointed out that the average cost of a claim was $16,876 while the average net farm income for the same year studied was $19,373. The dissent further concluded that the exemption for farming operations was legitimately related to insulating New Mexico farm and ranches from additional costs. In addition, the dissent reasoned that the majority misapplied the rational basis analysis to hold the act unconstitutional as many other state courts and the U.S. Supreme Court had held comparable state statutes to satisfy the rational basis test. The dissent pointed out forcefully that the exclusion applied to employers and that the choice to be covered or not resided with employers who predominately hired ag employees. As such there was no disparate treatment between ag laborers and other agricultural workers. Rodriguez, et al. v. Brand West Dairy, et al., 378 P.3d 13 (N.M. Sup. Ct. 2016), aff’g., 356 P.3d 546 (N.M. Ct. App. 2015).
- 9. COE Jurisdictional Determination Subject to Court Review. The plaintiff, a peat moss mining company, sought the approval of the Corps of Engineers (COE) to harvest a swamp (wetland) for peat moss to use in landscaping projects. The COE issued a jurisdictional determination that the swamp was a wetland subject to the permit requirements of the Clean Water Act (CWA). The plaintiff sought to challenge the COE determination, but the trial court ruled for the COE, holding that the plaintiff had three options: (1) abandon the project; (2) seek a federal permit costing over $270,000; or (3) proceed with the project and risk fines of up to $75,000 daily and/or criminal sanctions including imprisonment. On appeal, the court unanimously reversed, strongly criticizing the trial court's opinion. Based on Sackett v. Environmental Protection Agency, 132 S. Ct. 1367 (2012), the court held that COE Jurisdictional Determinations constitute final agency actions that are immediately appealable in court. The court noted that to hold elsewise would allow the COE to effectively kill the project without any determination of whether it's position as to jurisdiction over the wetland at issue was correct in light of Rapanos v. United States, 547 U.S. 715 (U.S. 2006). The court noted that the COE had deliberately left vague the "definitions used to make jurisdictional determinations" so as to expand its regulatory reach. While the COE claimed that the jurisdictional determination was merely advisory and that the plaintiff had adequate ways to contest the determination, the court determined that such alternatives were cost prohibitive and futile. The court stated that the COE's assertion that the jurisdictional determination (and the trial court's opinion) was merely advisory ignored reality and had a powerful coercive effect. The court held that the Fifth Circuit, which reached the opposition conclusion with respect to a COE Jurisdictional Determination in Belle Co., LLC v. United States Army Corps. of Engineers, 761 F.3d 383 (5th Cir. 2014), cert. den., 83 U.S.L.W. 3291 (U.S. Mar. 23, 2015), misapplied the Supreme Court's decision in Sackett. Hawkes Co., Inc., et al. v. United States Army Corps of Engineers, 782 F.3d 984 (8th Cir. 2015), rev'g., 963 F. Supp. 2d 868 (D. Minn. 2013). In a later decision, the court denied a petition to rehear the case en banc and by the panel. Hawkes Co., Inc., et al. v. United States Army Corps of Engineers, No. 13-3067, 2015 U.S. App. LEXIS 11697 (8th Cir. Jul. 7, 2015). In December of 2015, the U.S. Supreme Court agreed to hear the case and affirmed the Eighth Circuit on May 31, 2016. The Court, in a unanimous opinion, noted that the memorandum of agreement between the EPA and the Corps established that jurisdictional determinations are “final actions” that represent the Government’s position, are binding on the Government in any subsequent Federal action or litigation involving the position taken in the jurisdictional determination. When the landowners received an “approved determination” that meant that the Government had determined that jurisdictional waters were present on the property due to a “nexus” with the Red River of the North, located 120 miles away. As such, the landowners had the right to appeal in Court after exhausting administrative remedies and the Government’s position take in the jurisdictional determination was judicially reviewable. Not only did the jurisdictional determination constitute final agency action under the Administrative Procedure Act, it also determined rights or obligations from which legal consequences would flow. That made the determination judicially reviewable. United States Army Corps of Engineers v. Hawkes Company, 136 S. Ct. 1807 (2016).
- 8. Proposed Regulations Under I.R.C. §2704. In early August, the IRS issued new I.R.C. §2704 regulations that could seriously impact the ability to generate minority interest discounts for the transfer of family-owned entities. Prop. Reg. – 163113-02 (Aug. 2, 2016). The proposed regulations, if adopted in their present form, will impose significant restrictions on the availability of valuation discounts for gift and estate tax purposes in a family-controlled environment. Prop. Treas. Regs. §§25.2704-1; 25.2704-4; REG- 163113-02 (Aug. 2, 2016). They also redefine via regulation and thereby overturn decades of court decisions honoring the well-established willing-buyer/willing-seller approach to determining fair market value (FMV) of entity interests at death or via gift of closely-held entities, including farms and ranches. The proposed regulations would have a significant impact on estate, business and succession planning in the agricultural context for many agricultural producers across the country and will make it more difficult for family farm and ranch businesses to survive when a family business partner dies. Specifically, the proposed regulations treat transfer within three years of death as death-bed transfers, create new “disregarded restrictions” and move entirely away from examining only those restrictions that are more restrictive than state law. As such, the proposed regulations appear to exceed the authority granted to the Treasury by Congress to promulgate regulations under I.R.C. §2704 and should be withdrawn. A hearing on the regulations was held in early December.
- 7. Capitalization Required For Interest and Real Property Taxes Associated with Crops Having More Than Two-Year Preproductive Period. The petitioner (three partnerships) bought land that they planned to use for growing almonds. They financed the purchase by borrowing money and paying interest on the debt. They then began planting almond trees. They deducted the interest and property taxes on their returns. The IRS objected to the deduction on the basis that the interest and taxes were indirect costs of the “production of real property” (i.e., the almonds trees that were growing on the land. The Tax Court agreed with the IRS noting that I.R.C. §263A requires the capitalization of certain costs and that those costs include the interest paid to buy the land and the property taxes paid on the land attributable to growing crops and plants where the preproductive period of the crop or plant exceeds two years. I.R.C. §263A(f)(1) states that “interest is capitalized where (1) the interest is paid during the production period and (2) the interest is allocable to real property that the taxpayer produced and that has a long useful life, an estimated production period exceeding two years, or an estimated production period exceeding one year and a cost exceeding $1 million.” The corresponding regulation, the court noted, requires that the interest be capitalized under the avoided cost method. The court also noted that the definition of “real property produced by the taxpayer for the taxpayer’s use in a trade or business or in an activity conducted for profit” included “land” and “unsevered natural products of the land” and that “unsevered natural products of the land” general includes growing crops and plants where the preproductive period of the crop or plant exceeds two years. Because almond trees have a preproductive period exceeding two years in accordance with IRS Notice 2000-45, and because the land was “necessarily intertwined” with the growing of the almond trees, the interest and tax cost of the land is a necessary and indispensable part of the growing of the almond trees and must be capitalized. Wasco Real Properties I, LLC, et al. v. Comr., T.C. Memo. 2016-224.
6. No Recapture of Prepaid Expenses Deducted in Prior Year When Surviving Spouse Claims Same Deduction in Later Year. The decedent, a materially participating Nebraska farmer, bought farm inputs in 2010 and deducted their cost on his 2010 Schedule F. He died in the spring of 2011 before using the inputs to put the spring 2011 crop in the ground. Upon his death, the inputs were included in the decedent’s estate at their purchase price value and then passed to a testamentary trust for the benefit of his wife. The surviving spouse took over the farming operation, and in the spring of 2011, took a distribution of the inputs from the trust to plant the 2011 crops. For 2011, two Schedule Fs were filed. A Schedule F was filed for the decedent to report the crop sales deferred to 2011, and a Schedule F was filed for the wife to report the crops sold by her in 2011 and claim the expenses of producing the crop which included the amount of the inputs (at their date-of-death value which equaled their purchase price) that had been previously deducted as prepaid inputs by the husband on the couple’s joint 2010 return. The IRS denied the deduction on the basis that the farming expense deduction by the surviving spouse was inconsistent with the deduction for prepaid inputs taken in the prior year by the decedent and, as a result, the “tax benefit rule” applied. The court disagreed, noting that the basis step-up rule of I.R.C. §1014 allowed the deduction by the surviving spouse which was not inconsistent with the deduction for the same inputs in her deceased husband’s separate farming business. The court also noted that inherited property is not recognized as income by the recipient, which meant that another requisite for application of the tax benefit rule did not apply. Estate of Backemeyer v. Comr., 147 T.C. No. 17 (2016).
Those were developments ten through six, at least as I see it for 2016. On Friday, we will list the five biggest developments for 2016.
January 4, 2017 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Monday, January 2, 2017
This week we will be taking a look at what I view as the most significant developments in agricultural law and agricultural taxation during 2016. There were many important happenings in the courts, the IRS and with administrative agencies that have an impact on farm and ranch operations, rural landowners and agribusinesses. What I am writing about this week are those developments that will have the biggest impact nationally. Certainly, there were significant state developments, but they typically will not have the national impact of those that result from federal courts, the IRS and federal agencies.
It’s tough to get it down to the ten biggest developments of the year, and I do spend considerable time going sorting through the cases and rulings get to the final cut. Today we take a quick look at those developments that I felt were close to the top ten, but didn’t quite make the list. Later this week we will look at those that I feel were worthy of the top ten. Again, the measuring stick is the impact that the development has on the ag sector as a whole.
Almost, But Not Quite
Those developments that were the last ones on the chopping block before the final “top ten” are always the most difficult to determine. But, as I see it, here they are (in no particular order):
- HRA Relief for Small Businesses. Late in 2016, the President signed into law H.R. 6, the 21st Century Cures Act. Section 18001 of the legislation repeals the restrictions included in Obamacare that hindered the ability of small businesses (including farming operations) to use health reimbursement arrangements (HRAs). The provision allows a "small employer" (defined as one with less than 50 full-time employees who does not offer a group health plan to any employees) to offer a health reimbursement arrangement (HRA) that the employer funds to reimburse employees for qualified medical expenses, including health insurance premiums. If various technical rules are satisfied, the basic effect of the provision is that, effective for plan years beginning after December 31, 2016, such HRAs will no longer be a violation of Obamacare's market "reforms" that would subject the employer to a penalty of $100/day per affected person). It appears that the relief also applies to any plan year beginning before 2017, but that is less clear. Of course, all of this becomes moot if Obamacare is repealed in its entirety in 2017.
- More Obamacare litigation. In a somewhat related development, in May the U.S. District Court for the District of Columbia ruled in United States House of Representatives v. Burwell, No. 14-1967 (RMC), 2016 U.S. Dist. LEXIS 62646 (D. D.C. May, 12, 2016), that the Obama Administration did not have the power under the Constitution to spend taxpayer dollars on "cost sharing reduction payments" to insurers without a congressional appropriation. The Obama Administration had argued that congressional approval was unnecessary because the funds were guaranteed by the same section of Obamacare that provides for the premium assistance tax credit that is designed to help offset the higher cost of health insurance as a result of the law. However, the court rejected that argument and enjoined the use of unappropriated funds due insurers under the law. The court ruled that the section at issue only appropriated funds for tax credits and that the insurer payments required a separate congressional appropriation. The court stayed its opinion pending appeal. A decision on appeal is expected in early 2017, but would, of course, be mooted by a repeal of Obamacare.
- Veterinary Feed Directive Rule. The Food and Drug Administration revised existing regulations involving the animal use of antibiotics that are also provided to humans. The new rules arose out of a belief of bacterial resistance in humans to antibiotics even though there is no scientific proof that antibiotic resistant bacterial infections in humans are related to antibiotic use in livestock. As a result, at the beginning of 2017, veterinarians will be required to provide a “directive” to livestock owners seeking to use or obtain animal feed products containing medically important antimicrobials as additives. A “directive” is the functional equivalent of receiving a veterinarian’s prescription to use antibiotics that are injected in animals. 21 C.F.R. Part 558.
- Final Drone Rules. The Federal Aviation Administration (FAA) issued a Final Rule on UASs (“drones”) on June 21, 2016. The Final Rule largely follows the Notice of Proposed Rulemaking issued in early 2015 (80 Fed. Reg. 9544 (Feb. 23, 2015)) and allows for greater commercial operation of drones in the National Airspace System. At its core, the Final Rule allows for increased routine commercial operation of drones which prior regulations required commercial users of drones to make application to the FAA for permission to use drones - applications the FAA would review on a case-by-case basis. The Final Rule (FAA-2015-0150 at 10 (2016)) adds Part 107 to Title 14 of the Code of Federal Regulations and applies to unmanned “aircraft” that weigh less than 55 pounds (that are not model aircraft and weigh more than 0.5 pounds). The Final Rule became effective on August 29, 2016.
- County Bans on GMO Crops Struck Down. A federal appellate court struck down county ordinances in Hawaii that banned the cultivation and testing of genetically modified (engineered) organisms. The court decisions note that either the state (HI) had regulated the matter sufficiently to remove the ability of counties to enact their own rules, or that federal law preempted the county rules. Shaka Movement v. County of Maui, 842 F.3d 688 (9th Cir. 2016) and Syngenta Seeds, Inc. v. County of Kauai, No. 14-16833, 2016 U.S. App. LEXIS 20689 (9th Cir. Nov. 18, 2016).
- Insecticide-Coated Seeds Exempt from EPA Regulation Under FIFRA. A federal court held that an existing exemption for registered pesticides applied to exempt insecticide-coated seeds from separate regulation under the Federal Insecticide, Rodenticide Act which would require their separate registration before usage. Anderson v. McCarthy, No. C16-00068, WHA, 2016 U.S. Dist. LEXIS 162124 (N.D. Cal. Nov. 21, 2016).
- Appellate Court to Decide Fate of EPA’s “Waters of the United States” Final Rule. The U.S. Court of Appeals for the Sixth Circuit ruled that it had jurisdiction to hear a challenge to the EPA’s final rule involving the scope and effect of the rule defining what waters the federal government can regulate under the Clean Water Act. Murray Energy Corp. v. United States Department of Defense, 817 F.3d 261 (6th Cir. 2016).
- California Proposition Involving Egg Production Safe From Challenge. California enacted legislation making it a crime to sell shelled eggs in the state (regardless of where they were produced) that came from a laying hen that was confined in a cage not allowing the hen to “lie down, stand up, fully extend its limbs, and turn around freely.” The law was challenged by other states as an unconstitutional violation of the Commerce Clause by “conditioning the flow of goods across its state lines on the method of their production” and as being preempted by the Federal Egg Products Inspection Act. The trial court determined that the plaintiffs lacked standing and the appellate court affirmed. Missouri v. Harris, 842 F.3d 658 (9th Cir. 2016).
- NRCS Properly Determined Wetland Status of Farmland. The Natural Resource Conservation Service (NRCS) determined that a 0.8-acre area of a farm field was a prairie pothole that was a wetland that could not be farmed without the plaintiffs losing farm program eligibility. The NRCS made its determination based on “color tone” differences in photographs, wetland signatures and a comparison site that was 40 miles away. The court upheld the NRCS determination as satisfying regulatory criteria for identifying a wetland and was not arbitrary, capricious or contrary to the law. Certiorari has been filed with the U.S. Supreme Court asking the court to clear up a conflict between the circuit courts of appeal on the level of deference to be given federal government agency interpretive manuals. Foster v. Vilsack, 820 F.3d 330 (8th Cir. 2016).
- Family Limited Partnerships (FLPs) and the “Business Purpose” Requirement. In 2016, there were two cases involving FLPs and the retained interest section of the Code. That follows one case late in 2015 which was the first one in over two years. In Estate of Holliday v. Comr., T.C. Memo. 2016-51, the court held that the transfers of marketable securities to an FLP two years before the transferor’s death was not a bona fide sale, with the result that the decedent (transferor) was held to have retained an interest under I.R.C. §2036(a) and the FLP interest was included in the estate at no discount. Transferring marketable securities to an FLP always seems to trigger issues with the IRS. In Estate of Beyer v. Comr., T.C. Memo. 2016-183, the court upheld the assessment of gift and estate tax (and gift tax penalties) with respect to transfers to an FLP because the court determined that every benefit allegedly springing from the FLP could have been accomplished by trusts and other arrangements. There needs to be a separate non-tax business purpose to the FLP structure. A deeper dive into the court opinions also points out that the application of the “business purpose” requirement with respect to I.R.C. §2036 is very subjective. It’s important to treat the FLP as a business entity, not put personal assets in the FLP, or at least pay rent for their use, and follow all formalities of state law.
These are the developments that were important, but just not big enough in terms of their overall impact on the ag sector to make the list of the “top ten.” The next post will take a look at developments ten through six.
January 2, 2017 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)
Thursday, December 29, 2016
What’s a Rural Landowner’s Responsibility Concerning Crops, Trees and Vegetation Near an Intersection?
A question that I get periodically involves the responsibility, if any, of a farmer or rural landowner to make sure that crops, trees or other vegetation on their property don’t obscure a motorist’s view on a public roadway. It’s an interesting question, and the answer involves a discussion of the negligence principles of tort law. The answer can also depend on the particular jurisdiction, and it may be surprising.
Every negligent tort case contains four elements that a plaintiff must establish in order to prevail – (1) duty (2) breach (3) causation and (4) damages. The defendant must have had a duty to act in a certain way towards the plaintiff, must have breached that duty, and the breach of the duty must have caused the plaintiff’s damages. There usually isn’t any question about the breach or damages elements – those are typically self-evident in most cases. Sometimes a question does arise concerning the duty element. But, most of the controversy in any given negligent tort case is commonly focused on the causation element. Did the defendant’s breach of the duty owed to the plaintiff actually cause the plaintiff’s damages? In other words, the resulting harm to the plaintiff must have been a reasonably foreseeable result of the defendant's conduct at the time the conduct occurred.
Some things are reasonably foreseeable and other things are not, and an individual will be held liable for harm that is reasonably foreseeable or reasonably expected to result from the defendant's actions. For example, in a Georgia case, a landowner was not liable for the death of a motorist struck by a falling tree. While the tree leaned over the road, there was no visible decay present and the landowner had no notice of the dangerous condition. Wade v. Howard, 499 S.E.2d 652 (Ga. Ct. App. 1998). There must be a causal connection - a causal linkage - between the defendant's action and the plaintiff's harm. But, what about crops, trees or other vegetation that obstructs a motorist’s view? Does the landowner have a duty to maintain crops, trees and other vegetation in a manner that doesn’t block the view of the motoring public? That issue came up in a recent Kansas case. If there is no duty, then the causation issue is moot.
In Manley v. Hallbauer, No. 115,531 (Kan. Ct. App. Dec. 23, 2016), the defendants (a married couple) owned about 11 acres of land that abutted an intersection of an infrequently traveled gravel county road. The intersection was uncontrolled – there were no traffic signs. Trees on the defendants’ property completely obstructed the view for the last 50 to 60 feet before the intersection. Two vehicles collided at the intersection, with the driver of one of the vehicles dying in the crash. The decedent’s estate sued the landowner for negligence, claiming that the defendants had a duty to trim their trees to maintain visibility at the intersection. The trial court granted summary judgment for the defendants and the estate appealed.
The appellate court affirmed. The court noted that the trees had been on the property when the defendants acquired it about five years before the accident, and that the defendants had not received any complaints from the County or anyone else about the trees. The court also noted that there was no record of any prior accidents at the intersection and also no evidence that either driver attempted to stop or slow down before entering the intersection.
On the duty issue, the court noted that it existed if the plaintiff was a foreseeable plaintiff and the probability of harm was foreseeable. In other words, the question was whether a reasonable landowner would have foreseen a probability of harm to motorists from the obstructed view. But, as the court noted, that question cuts both ways. Drivers also have responsibility to drive with more caution when view is obstructed. Similarly, under the Restatement [Second] of Torts §343A, the court noted that landowners don’t have a duty to protect people from open and obvious dangers. That, principle, the court noted, relates to the foreseeability issue. The defendants could reasonably assume that motorists would protect themselves from the obvious visual obstruction by taking additional precaution. Also, under the Restatement [Second] of Torts §363, a provision that Kansas courts have applied numerous times, a rural landowner has no liability for physical harm caused to someone outside the land itself when the injury was caused by a natural condition on the land, such as trees. The court rejected the approach of the Restatement [Third] of Torts §54 that makes landowners liable if the landowner knew of the risk or the risk was obvious as not being consistent with Kansas law. Instead, the rule in Kansas is one of no-liability, no-duty. The court noted that was also the rule in Arkansas, Florida, Illinois, Iowa, Massachusetts, and Virginia. In all of these jurisdictions, landowners don’t owe a duty to motorists to cut down naturally occurring vegetation that obstructs the view at an intersection. If the condition on the land is artificial, however, a different rule applies. In that situation, landowners owe a duty of reasonable care to motorists.
Hallbauer points out the general rule that if a natural object on the premises injures another person, the landowner is not liable. There is no duty to remedy a natural hazard. That is particularly the case with respect to rural land. But, over time, some states have modified the common-law rule, particularly as applied to trees and entrants onto the property. See, e.g., Lewis v. Krussel, 101 Wash. App. 178, 2 P.3d 486 (2000); Cobb, et al. v. Town of Blowing Rock, No. COA09-1443, 2011 N.C. App. LEXIS 1398 (N.C. Ct. App. Jul. 5, 2011). In such situations, landowners owe a duty to ensure that their trees (and other natural conditions) do not cause harm. However, that’s not the rule in Kansas (and some other states).
While Hallbauer was brought on negligence principles, another theory that could have possibly applied was nuisance. Nuisance law prohibits land uses that unreasonably and substantially interfere with another individual's quiet use and enjoyment of property. Nuisance cases exist that involve encroaching limbs and roots of neighboring trees. The courts have adopted four basic rules for determining if trees constitute a nuisance. Under the “Massachusetts Rule,” a landowner’s right to protect property from encroaching limbs and roots of an adjacent property owner’s trees is limited to self-help (i.e., cutting-off branches and roots at the point they cross the property line). The “Virginia Rule” is a slight modification of the Massachusetts Rule and can result in a tree owner being held liable for damage caused by the tree and being required to cut back roots and limbs if the tree poses a risk of actual harm or an imminent danger. In such situations, if self-help is inadequate as a permanent remedy, complete removal of the tree may be an available remedy. The “Restatement Rule” (based on Restatement (Second) of Torts §§839-840 (1979)) requires a landowner to control vegetation that encroaches upon adjoining land if the vegetation has been planted or is maintained by a person, but not if the vegetation is “natural.” Under the “Hawaii Rule,” living trees and plants are ordinarily not nuisances. However, trees and plants can become a nuisance when they cause harm or pose an imminent danger of actual harm to adjacent property.
It may come as a surprise to some that in numerous states rural landowners have no duty to make sure that crops, trees and other vegetation don’t obstruct the view on public roadways. But, remember, motorists also have a duty to operate their vehicles in a safe manner. Is it foreseeable that a motorist might not operate their vehicle in a safe manner? Probably, but that’s not a landowner’s problem with respect to natural conditions that present an open and obvious danger. Even so, it’s still a good idea not to plant crops so that when they are grown they could cause a visual obstruction. The same can be said for other vegetation too. It’s just a common courtesy. Not necessary under the law, but certainly a good thing to do.
Wednesday, September 28, 2016
In recent years, almost every state has enacted an Equine Activity Liability Act (ELA) designed to encourage the continued existence of equine-related activities, facilities and programs, and provide the equine industry limited protection against lawsuits. The laws generally require special language in written contracts and liability releases or waivers, require the posting of warning signs and attempt to educate the public about inherent risks in horse-related activities and immunities designed to limit liability. Under the typical statute, an “equine activity sponsor,” “equine professional,” or other person can only be sued in tort for damages related to the provision of faulty tack, failure to determine the plaintiff’s ability to safely manage a horse, or failure to post warning signs concerning dangerous latent conditions. Recovery for damages resulting from inherent risks associated with horses is barred, and some state statutes require the plaintiff to establish that the defendant’s conduct constituted “gross negligence,” “willful and wanton misconduct,” or “intentional wrongdoing.”
The various state statutes are all unique and fact issues abound. That means that cases involving a state’s ELA often end up before juries to decide those fact issues. One interpretation of the Iowa statute resulting in the term “person” in the Iowa Domesticated Animal Activities Act being construed to include an employer in an agricultural employment setting involving livestock. Baker v. Shields, 767 N.W.2d 404 (Iowa 2009). Another common issue involves determining what an inherent risk of horseback riding amounts to. In Wyoming, that is a fact issue because the statute doesn’t provide any precise definition as examples of inherent risks from riding horses. Under the Texas statute, the phrase “inherent risk of equine activity” refers to risks associated with the activity rather than simply those risks associated with innate animal behavior. Loftin v. Lee, No. 09-0313, 2011 Tex. LEXIS 326 (Tex. Sup. Ct. Apr. 29, 2011). The Ohio equine activities immunity statute has been held to bar recovery for an injury incurred while assisting an employer unload a horse from a trailer during a day off, because the person deliberately exposed themselves to an inherent risk associated with horses and viewed the activity as a spectator. Smith v. Landfair, No. 2011-1708, 2012 Ohio LEXIS 3095 (Ohio Sup. Ct. Dec. 6, 2012).
A recent case involved the construction of the Florida EALA. The plaintiff, a former jockey, visited a horse race course that the defendant managed. The decision was a spur-of-the-moment decision made along with the plaintiff’s roommate who was a current jockey and had a horse stabled there. As a former jockey, the plaintiff was required to get a guest pass to enter the stables. While walking through the barn to see the roommate’s horse, another horse jumped out of its stall and bit the plaintiff’s chest. The plaintiff sued the defendant for negligence. The defendant asserted immunity based on the state (FL) Equine Activities Liability Act (EALA) on the basis that the plaintiff was a “participant engaged in an equine activity” that was precluded from recovering damages. The EALA immunizes an equine activity sponsor, an equine professional, or any other person or entity from liability to a “participant” from the inherent risks of equine activities. A “participant” need not pay a fee, and engaging in an equine activity includes “visiting or touring…an equine facility as part of an organized event or activity.” The plaintiff claimed that the decision to visit the stables was simply a spur-of-the-moment decision that did not constitute an organized event or activity, the court disagreed. The court focused on the requirement that the plaintiff obtain a guest pass before entering the horse barn. That was sufficient enough of a protocol to amount to “organization” which made the plaintiff’s visit to the stables “an organized activity” under the EALA.
If you have horses, engage is horse-related activities, or attend horse events for pleasure, you might want to become familiar with the governing state EALA.
The Florida case is Germer v. Churchill Downs Management, No. 3D14-2695, 2016 Fla. App. LEXIS 13398 (Fla. Ct. App. Sept. 7, 2016).
Monday, September 26, 2016
The Fair Labor Standards Act of 1938 (FLSA) (29 U.S.C. §§201, et seq.) as originally enacted, was intended to alleviate some of the more harmful effects of the Great Depression. In particular, the Act was intended to raise the wages and shorten the working hours of the nation's workers. Since 1938, the FLSA has been amended frequently and extensively. It is very complex and not all of it pertains to agriculture. In today’s blogpost, we examine the FLSA exemption from the requirement to pay the minimum wage, whether non-workday activities must be compensated, and the exemption to pay overtime wages to employees that are engaged in “agriculture” activities.
Under the FLSA, an agricultural employer who uses 500 man-days or more of agricultural labor in any calendar quarter of a particular year must pay the agricultural minimum wage to certain agricultural employees in the following calendar year. A “man-day” is a day during which an employee performs any agricultural labor for more than an hour, and all ag employees count in the 500 man-days test. 29 U.S.C. §203(e)(3)). The minimum wage must be paid to all agricultural employees except: (1) members of the employer's immediate family, unless the farm is incorporated; (2) local hand-harvest, piece-rate workers who come to the farm from their permanent residences each day, but only if such workers were employed less than 13 weeks in agriculture in the preceding year; (3) children, age 16 and under, whose parents are migrant workers, and who are employed as hand-harvest piece-rate workers on the same farm as their parents, provided that they receive the same piece-rate as other workers; and (4) employees engaged in range production of livestock. Where the agricultural minimum wage must be paid to piece-rate employees, the rate of pay for piece-rate work must be sufficient to allow a worker reasonably to generate that rate of hourly income.
The FLSA also requires covered employers to compensate employees for activities performed during the workday. But, the FLSA does not require that compensation be paid to employees for activities performed outside the workday such as walking, riding or traveling to and from the actual place of performance of the employee’s principal activity, and for activities which occur before and after the employee’s principal activity. On the question of whether an employee is entitled to compensation for time spent waiting at stations where required safety and health equipment is distributed, donned and doffed, and traveling to and from these stations to work sites at the beginning and end of each workday, the U.S. Supreme Court has ruled that such activities are indispensable to an employee’s principal activity and are, therefore, a principal activity itself. IBP, Inc. v. Alvarez, et al., 546 U.S. 21 (2005). However, the Court ruled that unless an employee is required to report at a specific time and wait to don required gear, the time spent waiting to don gear is preliminary to the first principal activity of the workday and is not compensable unless compensation is required by the employment agreement or industry custom and practice.
On the overtime issue, as noted above, the FLSA requires payment of an enhanced rate of at least one and one-half times an employee’s regular rate for work over 40 hours in a week. However, an exemption denies persons employed in agriculture the benefit of mandatory overtime payment. 29 U.S.C. §213(b)(12). The 500 man-days test is irrelevant in this context. In addition, there are specific FLSA hour exemptions for certain employment that is not within the FLSA definition of agriculture.
But, just what exactly is “agriculture” for purposes of the exemption from paying overtime wages? The agricultural exemption is broad, defining “agriculture” to include “farming in all its branches and the production, cultivation, growing, and harvesting of...horticultural commodities and any practices performed by a farmer or on a farm as an incident to or in conjunction with farming operations.” There are numerous cases on the issue, including a recent one from Connecticut.
In the Connecticut case, the plaintiff worked at a small farm, originally commuting to the farm from his home, where he assisted the resident caretaker. When the resident caretaker died, the plaintiff moved to the farm and assumed full responsibility for caring for the animals and grounds. At the farm were several retired racehorses, a mule, a donkey, two llamas, two cows, about 20 chickens, ten ducks, twenty pigeons and a dog. Also, on the farm was the deceased caretaker’s 1,000-pound pig. The plaintiff fed the animals twice daily, took them from the stable to pasture, sprayed the horses with fly spray and groomed them, and also check on the horses at night. The plaintiff also drove the farm truck to buy food and supplies for the all of the livestock. The plaintiff was also responsible for the animals’ medical care by lining up veterinarians. On a daily basis, the plaintiff called the owner to report on the animals. The plaintiff also maintained the farm grounds by shoveling snow, mowing grass, trimming trees, and controlling weeds. The plaintiff had some assistance in these tasks, but remained on the farm on a constant basis to care for the animals. After the owner died, the plaintiff filed a claim against the owner’s estate for overtime pay under the FLSA. As noted above, the FLSA requires overtime pay for works hours exceeding 40 hours per week, but a worker who works in “agriculture” for a small agricultural operation is exempt from the overtime requirements. The court examined the FLSA definition of “agriculture” and noted that it includes “farming in all its branches and among other things includes…the raising of livestock, bees, fur-bearing animals, or poultry, and any practice…performed on a farm as an incident to or in conjunction with such farming operation.” Based on that definition, the court held that the plaintiff was engaged in the primary agricultural practice of raising livestock, which the FLSA defines as “cattle, sheep, swine, horses, mules, donkeys, and goats.” The court also noted that the FLSA regulations define “raising” of livestock as “the breeding, fattening, feeding, and general care of livestock.” The court also held that the balance of the plaintiff’s work on the farm that did not involve feeding and general care of the animals also qualified for the agriculture exemption because they were performed on the farm and were incidental to the farming activities.
The case is Chhum v. Anstett, No. 3:15-cv-00900 (JAM), 2016 U.S. Dist. LEXIS 104463 (D. Conn. Aug. 9, 2016).
Tuesday, September 6, 2016
The turn of the calendar to September lets us know that fall is just around the corner. For some rural landowners, that means that various activities will occur where members of the public will be invited to the premises to engage in various activities such as hayrides, corn mazes, and similar activities, often for compensation. When others come onto the farm or ranch, that raises the prospect of injury and potential liability.
In recent years, numerous states have enacted agritourism legislation designed to limit landowner liability to those persons engaging in an “agritourism activity.” Typically, such legislation protects the landowner (commonly defined as a “person who is engaged in the business of farming or ranching and [who] provides one or more agritourism activities, whether or not for compensation”) from liability for injuries to participants or spectators associated with the inherent risks of a covered activity. The statutes tend to be written very broadly and can apply to such things as mentioned above - corn mazes, hay rides and even hunting and fishing activities. Under some provisions, the landowner must post warning signs to receive the protection of the statute, and in some states the landowner must register their property with the state.
Generally, the state laws related to agritourism relate to financial incentives via tax credits or cost-sharing, promotion, protecting the ag real property tax classification of the property involved, or liability protection. On the tax classification issue, the Ohio Supreme Court, in Columbia Township Board of Zoning v. Otis, 663 N.E.2d 377, 104 Ohio App. 3d 756 (Ohio 1995), held that haunted hay rides on farm property did not constitute the use of land for agricultural purposes because the addition of a Halloween theme with shrieks and flashing lights was completely inconsistent with traditional agricultural activity. Similarly, in Shore v. Maple Lane Farms, LLC, 411 S.W.3d 405 (Tenn. Sup. Ct. 2013), the Tennessee Supreme Court reversed a determination by the court of appeals that music concerts on a farm were within the definition of farm activities within the scope of the agritourism statute and were exempt from a county zoning provision. The Tennessee Supreme Court said the activity was not “agriculture” as defined by the statute. Likewise, in Forster v. Town of Henniker, 167 N.H. 745 (2015), the court held that the use of a Christmas tree farm for weddings did not meet the definition of agritourism and, as a result, was not “agriculture” for zoning purposes.
On the liability issue, some state laws (such as the Illinois, Kansas, Maine and Oklahoma provisions) limit liability to situations where the landowner acted wantonly or with willful negligence, and exclude liability for injury arising from the inherent risks associated with an active farming operation. In many of the states that have agritourism statutes, the posting of specific signage is required to get the liability protection and, of course, the person claiming the protection of the statute must meet the definition of a covered person and the activity that gave rise to the liability claim must be a statutorily covered activity. Further, in some states (such as Iowa), liability release forms, at least with respect to minors, may be deemed to violate “public policy” (as decided by judges rather than the public).
In any event, it is important for landowners to become familiar with the particulars of state law.