Friday, July 20, 2018

Establishing the Elements of a Cruelty to Animals Charge

Overview

Many states criminalize the intentional killing, injuring, maiming, torturing or mutilating of any animal.  In some states, simply abandoning or leaving an animal in any place without making provisions for its proper care or having physical custody of an animal and failing to provide food, potable water, protection from the elements, opportunity for exercise and other care, as is needed for the health or well-being of the animal is criminal.

But, what must the state prove to make a cruelty to animals charge stick?  That issue came up in a recent case and is the topic of today’s post. 

Common Elements

Typically, the state must prove that the defendant acted with depraved intent.  Cruelty to animals is typically classified as a misdemeanor carrying a penalty of up to six months in jail and/or a fine of up to $2,000. Most states do not classify as cruelty to animals accepted veterinary practices and bona fide experiments carried on by commonly recognized research facilities.  In many of the western states, rodeo practices accepted by the Rodeo Cowboy's Association are statutorily determined not to constitute cruelty to animals as well as the humane killing of an animal which is diseased or disabled beyond recovery for any useful purpose or for population control by the animal's owner.  Normal or accepted practices of animal husbandry do not constitute cruelty to animals with respect to farm animals, and killing an animal that is found injuring or posing a threat to another person, farm animal or property is also permitted.

Recent Case

In Cadwell v. State, No. 06-17-00227-CR 2018 Tex. App. LEXIS 4545 (Tex. Ct. App. Jun. 21, 2018), the defendant and his estranged wife were involved in divorce proceedings and during that time various horses belonging to them that had been ordered into the defendant’s custody lost weight, reportedly due to inadequate nutrition. The defendant’s estranged wife as well as two other investigators and animal control officers all testified that the horses were in very bad condition with ribs showing and cracked and had split hooves due to malnutrition. The investigator testified that the horses were kept in an enclosure that had “virtually no grass,” and that grass that was present was too short for them to eat. All the bushes and shrubs had been picked clean. The water troughs within that enclosure were empty and had only leaves and debris in them or had been overturned. A stock tank or pond had water, but it was filled with debris and was stagnant. In addition, there was no evidence of hay found in the horses’ enclosure. The state’s expert witness was a veterinarian with 11 years’ experience. She explained that there is a body scoring scale from one (extremely emaciated) to nine or ten (being extremely obese). In addition, she explained that the acceptable range for a horse is four to six. A horse that is scored under four is in a condition that needs to be addressed. A horse scored at three on this scale is considered thin, while a score of two would indicated that a horse is badly emaciated but standing, while a one indicates extreme emaciation, not able to stand, and not considered savable. She testified that when she saw them the majority of the horses were scored at a three. She also testified that she was surprised with the relatively low parasite presence in most of them and concluded that the most likely reason for the horses’ thinness was that they were not being fed properly.

Ultimately, the defendant was convicted of cruelty to livestock animals and sentenced to 180 days in jail (which was changed to 24 months on the condition that the defendant serve 30 days in jail). The defendant appealed on the basis that there the state failed to prove that he had the criminal intent (mens rea) to harm the animals.  The appellate court determined that evidence could lead a rational jury to find beyond a reasonable doubt that the defendant was intentional or knowing in not providing one or more of the horses in his care enough nutrition.

The defendant also claimed that by inserting “by neglect” in the information and the jury charge, the State and the trial court, improperly instructed the jury and improperly lowered the mens rea requirement from intentionally or knowingly to a lower level of mens rea. However, the appellate court determined that the phrase “by neglect” charges the defendant with cruelty to animals by the manner and means of failure to act or of behavior that was not attentive to the needs of the horses, not with negligently doing so, especially given that the mens rea was specified in both the information and in the jury charge as intentional or knowing. Thus, the appellate court held that because the use of the phrase “by neglect” set out the manner and means of committing the offense and because the information and the jury charge clearly set out the required mens rea of intentional or knowing behavior by the defendant, the use of the phrase did not improperly reduce the State’s burden to prove the defendant’s willful or knowing mens rea. 

Conclusion

Generally accepted farming practices do not constitute animal cruelty.  Generally, providing adequate food and shelter is required, but some states have little to no shelter requirements in certain situations and with respect to certain types of livestock.  The statutory rules vary from state to state. 

July 20, 2018 in Criminal Liabilities | Permalink | Comments (0)

Wednesday, July 18, 2018

Agricultural Law and Economics Conference

Overview

Next month, Washburn Law School and Kansas State University (KSU) will team up for its annual symposium on agricultural law and the business of agriculture.  The event will be held in Manhattan at the Kansas Farm Bureau headquarters.  The symposium will be the first day of three days of continuing education on matters involving agricultural law and economics.  The other two days will be the annual Risk and Profit Conference conducted by the KSU Department of Agricultural Economics.  That event will be on the KSU campus in Manhattan.  The three days provide an excellent opportunity for lawyers, CPAs, farmers and ranchers, agribusiness professionals and rural landowners to obtain continuing education on matters regarding agricultural law and economics.  

Symposium

This year’s symposium on August 15 will feature discussion and analysis of the new tax law, the Tax Cuts and Jobs Act, and its impact on individuals and businesses engaged in agriculture; farm and ranch financial distress legal issues and the procedures involved in resolving debtor/creditor disputes, including the use of mediation and Chapter 12 bankruptcy; farm policy issues at the state and federal level (including a discussion of the status of the 2018 Farm Bill); the leasing of water rights; an update on significant legal (and tax) developments in agricultural law (both federal and state); and an hour of ethics that will test participant’s negotiation skills. 

The symposium can also be attended online.  For a complete description of the sessions and how to register for either in-person or online attendance, click here:  http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/continuingeducation/businessofagriculture/index.html

Risk and Profit Conference

On August 16 and 17, the KSU Department of Agricultural Economics will conduct its annual Risk and Profit campus.  The event will be held at the alumni center on the KSU campus, and will involve a day and a half of discussion of various topics related to the economics of the business of agriculture.  One of the keynote speakers at the conference will be Ambassador Richard T. Crowder, an ag negotiator on a worldwide basis.  The conference includes 22 breakout sessions on a wide range of topics, including two separate breakout sessions that I will be doing with Mark Dikeman of the KSU Farm Management Association on the new tax law.  For a complete run down of the conference, click here:  https://www.agmanager.info/risk-and-profit-conference

Conclusion

The two and one-half days of instruction is an opportunity is a great chance to gain insight into making your ag-related business more profitable from various aspects – legal, tax and economic.  If you are a producer, agribusiness professional, or a professional in a service business (lawyer; tax professional; financial planner; or other related service business) you won’t want to miss these events in Manhattan.  See you there, or online for Day 1.

July 18, 2018 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, January 11, 2018

Curtilage – How Much Ag Property Is Protected From a Warrantless Search?

Overview

The Fourth Amendment protects against illegal searches and seizures.  In general, government officials must secure a search warrant based on probable cause before searching an area unless the owner gives consent.  However, the Fourth Amendment’s protection accorded to “persons, houses, papers and effects,” does not extend to all open areas contiguous to a person’s home, but rather only to the home itself and its surrounding curtilage.  Curtilage is generally defined as the land immediately surrounding an individual’s home or dwelling, including any closely associated buildings and structures, but not any “open fields” or buildings or structures that contain separate activities conducted by others.  For example, in United States v. Ritchie, 312 Fed. Appx. 885 (9th Cir. 2009), the court held that a trailer used occasionally as a place to sleep while performing farm chores did not constitute a “home” for purposes of establishing a Fourth Amendment protection in the curtilage of the home. 

The scope and extent of curtilage is an important issue to farming and ranching operations – much of the business occurs in the “open.”  Are those areas subject to warrantless searches?  It’s an issue that comes up more than one might think, particularly with respect to possible environmental crimes.

Curtilage and Agriculture

Multi-factor test.  The extent of the curtilage is defined with reference to the proximity to the home of the area claimed to be curtilage, whether the area is included within an enclosure surrounding the home, the nature of the uses to which the area is put, and the steps taken by the resident to protect the area from observation by passersby.  These are known as the “Dunn factors” based on United States v. Dunn, 480 U.S. 294 (1987).  One key case applying the factors was United States v. Gilman, No. 06-00198 SOM, 2007 U.S. Dist. LEXIS 32524 (D. Haw. May 2, 2007), aff’d, sub nom., United States v. Terragna, 390 Fed. Appx. 631 (9th Cir. 2010), cert. den., Terragna v. United States, 562 U.S. 1191 (2011).  In this case, which turned the typical curtilage analysis on its head, the court held that all evidence that was seized from a shed was to be suppressed because the shed was not within the curtilage of the residence for which a search warrant had been issued.  The court reasoned that the home and shed were not enclosed by a fence or natural boundary, and there was no evidence that the shed was used for illegal activities.  In addition, the court noted that the defendant took no steps to prevent the observation of the shed from passersby.

Another instructive case applying the Dunn factors is Wilson v. Florida, 952 So. 2d 564 (Fla. Ct. App. 2007).  In that case, a warrantless search was allowed of a greenhouse that was not within the curtilage of the defendant’s home.  The greenhouse was used to manufacture controlled substances.  It was not locked and was made of semitransparent materials.  The court determined that there was no reasonable expectation of privacy with respect to the greenhouse to which the protection against an illegal search and seizure extended.

The “open fields doctrine.”  Obviously, a great deal of farming and ranching activities occurs in the “open” and the courts have held that, under the “open fields doctrine,” that government officials can make warrantless searches of such areas.  Here’s a sample of some of the more prominent cases involving the doctrine:

  • In United States v. Kirkwood, No. CR11-5488RBL, 2012 U.S. Dist. LEXIS 65214 (W.D. Wash. May 9, 2012), an open clearing near a rural home that separated the home and outbuildings from a wooded area functioned as curtilage. The court determined that the area was suitable for activities associated with the home and the use of the area associated with the home.
  • In Westfall v. State, 10 S.W.3d 85 (Tex. Ct. App. 1999), a sheriff entered a pasture without a warrant. The sheriff seized cattle and charged the owner with cruelty to animals.  The warrantless search was challenged, but was upheld under the open fields doctrine.
  • In Trimble v. State, 842 N.E.2d 798 (Ind. 2006), the court upheld a conviction for cruelty to a dog even though the police did not have a search warrant to search the defendant’s home.  While the dog house was within the curtilage of the home, the court determined that the defendant had no expectation of privacy because the dog was visible from the route any visitors to the property would be expected to use.
  • In Hill v. Commonwealth, 47 Va. App. 442, 624 S.E.2d 666 (2006), the court upheld convictions for violations of the Virginia Food Act even though an administrative inspection of the defendant’s goat cheese manufacturing facility was conducted without a search warrant. The court determined that the state had a significant interest in protecting public health and that even though the facility was located within the curtilage of the defendant’s home, it was subject to search because it was functioning as commercial property.
  • In United States v. Boyster, 436 F.3d 986 (8th Cir. 2006), open fields were found not to be within the curtilage of the defendant’s home. The fields were within the plain view of an aerial flyover and were 100 yards from the defendant’s residence and not enclosed by a fence and no other precautions had been taken to keep the growing marijuana from being visible by others.  Thus, the fields were not protected by the Fourth Amendment.
  • In State v. Nance, 149 N.C. App. 734, 562 S.E.2d 557 (N.C. Ct. App. 2002), a warrantless search was upheld under the open fields doctrine, where the animals observed were in plain view from the nearby road. However, the court noted that the seizure of items in plain view may require a warrant absent exigent circumstances.

Recent Case

The scope of curtilage in an ag setting was recently before another court – this time the Ohio Court of Appeals.  In State v. Powell, No. 27580, 2017 Ohio App. LEXIS 5096 (Ohio Ct. App. Nov. 22, 2017), the defendant was charged with seven counts of cruelty to animals. A humane agent for the local Humane Society testified that she was constantly getting complaints, both from the public, next door neighbors, news and also from the County Sherriff’s Office regarding the defendant’s horse not being fed and a pig being stuck. The agent testified that she responded to the area based upon only seeing two of the three horses she knew were normally on the property. The agent also testified that she heard the pigs squealing and followed the sound of animal distress, a sound which she recognized through her experiences as a humane agent. She stated that she first observed the pigs on January 3, 2017. At this time, they were standing in “liquid mud” and she smelled “fecal and urine ammonia” coming from the pen. Fecal and urine ammonia is toxic to pigs. She further stated that pigs were at risk of hypothermia due to the cold weather. The agent spoke with the defendants concerning the condition of the pig pen and the fact that it needed to be remedied along with the pigs’ food and water. The humane agent stated that she and the defendants agreed on a timetable for these items to be remedied. The defendants stated that they would work on it through the week remedy the situation in a timely manner, and that the pigs would be provided food and water. The humane agent testified that when she returned to the property the next day, the pigs were in the same condition and the weather was getting colder. Finally, on her third trip to the property, the humane agent stated the pigs lacked food and fresh water, and that they were “actively freezing to death.” The outside temperature had fallen to six degrees, according to the humane agent. The humane agent arranged for the removal of the pigs from the property on January 7, 2017 at around 12:30am.

The defendant filed a motion to suppress the evidence obtained by the humane agent as the result of an illegal warrantless search of the curtilage surrounding their home. The trial court sustained the defendant’s motion to suppress and the state appealed. On appeal, the appellate court reversed. The appellate court noted that while curtilage is considered to be part of a defendant’s home and, as such, is entitled to Fourth Amendment protection, the agent’s testimony revealed that the home on the property was uninhabitable due to a collapsed roof and no windows. In addition, the evidence showed that the pig pen was 100 yards from the vacant home, and the pig pen was not in an enclosure surrounding the vacant home. There also was no evidence that steps had been taken to protect the area from observation from the adjacent lane, such as the erection of a privacy fence, locked gates or “No Trespassing” signs. Thus, the court concluded that the pig pen was not within the defendant’s residence or its curtilage, and that the defendant’s observation of the pigs was not a “search” for purposes of the Fourth Amendment. Accordingly, the trial court’s judgment was reversed and the matter remanded for further proceedings. 

Conclusion

Warrantless searches can be an important issue for farmers and ranchers, particularly with respect to the possibility of inadvertent violations of the criminal provisions of environmental laws.  It’s helpful to know when a search warrant is required. 

January 11, 2018 in Criminal Liabilities | Permalink | Comments (0)

Thursday, August 24, 2017

What Problems Does The Migratory Bird Treaty Act Pose For Farmers, Ranchers and Rural Landowners?

Overview

The Migratory Bird Treaty Act (MBTA) 16 U.S.C. § 703 et seq. (2008). protects migratory birds that are not necessarily endangered and, thereby, protected under the Endangered Species Act.  The MBTA is important to agricultural producers and rural landowners because it has been broadly interpreted such that routine daily activities can become subject to the MBTA and create criminal liability at the hands of the U.S. government.      

The Scope of the MBTA

What does “take” mean?  The MBTA makes it unlawful at any time, by any means or in any manner, to “take” any migratory bird.  “Take is defined to mean “pursue, hunt, shoot, wound, kill, trap, capture or collect any migratory bird. 16 U.S.C. §§ 703-712 (2008); 50 C.F.R. §10.12.  Practically all bird species in the United States are covered due to regulations developed by the U.S. Fish and Wildlife Service (FWS) that apply the MBTA to species that don’t even migrate internationally or even at all.  50 C.F.R. §10.13.   

The Act is not limited to covering only hunting, trapping and poaching activities, but extends to commercial activities that kill migratory birds absent an MBTA permit.  The Act prohibits taking or killing of migratory birds (including a nest or egg) at any time, by any means or in any manner.  That could include such conduct as operating oil and gas production facilities, aerogenerators, cell towers as well as commercial forestry and common agricultural activities.  16 U.S.C. §703. However, the courts are split on whether the MBTA applies strictly to truly migratory bird deaths that are not inadvertent (see, e.g., United States v. Citgo Petroleum Corporation, 801 F.3d 477 (5th Cir. 2015)) or deaths of a broader classification of birds that are killed only inadvertently. 

Type of crime.  Violation of the MBTA is a misdemeanor punishable by fine up to $500 and imprisonment up to six months. 16 U.S.C. § 707(a) (2008), as amended by 18 U.S.C. §§3559; 3571.  Anyone who knowingly takes a migratory bird and intends to, offers to, or actually sells or barters a migratory bird is guilty of a felony, with fines up to $2,000, jail up to two years, or both.

Strict liability?  The MBTA is a strict liability statute, and has been applied to impose liability on farmers who inadvertently poison migratory birds by use of pesticides.  While the MBTA is a strict liability statute, constitutional due process requirements must still be satisfied before liability can be imposed.  In other words, there still must be an affirmative act that causes the migratory bird deaths.  For example, in United States v. Apollo Energies, Inc., et al., 611 F.3d 679 (10th Cir. 2010), oil drilling operators were not liable for deaths of migratory birds under the MBTA to the extent that the operators did not have adequate notice or a reasonable belief that their conduct violated the MBTA.  Likewise, in United States v. Rollins, 706 F. Supp. 742 (D. Idaho 1989), a farmer was prosecuted for violating the MBTA when he used a mixture of granular pesticides on an alfalfa field. The chemicals poisoned a flock of geese and killed several of them.  The trial court held that even though the farmer had not applied the pesticide in a negligent manner and could not control the fact that the geese would land and eat the granules, liability under the MBTA was based on whether the farmer knew that the land was a known feeding area for geese.  The trial court concluded that “a reasonable person would have been placed on notice that alfalfa grown on Westlake Island in the Snake River would attract and be consumed by migratory birds.”  The trial court was reversed on appeal on the grounds that the MBTA was too vague to give the farmer adequate notice that his conduct would likely lead to the killing of the protected birds since the farmer's past experience with the pesticide and the geese was that it did not kill them.  But, in United States v. Van Fossan, 899 F.2d 636 (7th Cir. 1990), the court confirmed the notion that the MBTA is a strict liability statute and approved its application to a defendant who used pesticides to poison birds, even though the defendant did not know that his use of the pesticide would kill migratory birds protected under the Act.

“Baiting” of birds.  The MBTA also prohibits the taking of migratory game birds by the aid of “baiting”.  However, it is permissible to take migratory game birds, including waterfowl, on or over standing crops, flooded harvested croplands, grain crops that have been properly shocked on the field where grown, or grains found scattered solely as the result of normal agricultural planting or harvesting.  See 50 C.F.R. §§ 20.11(g); 20.21(i)(2008).  The FWS has promulgated regulations defining “normal agricultural planting” and “harvesting,” and in Falk v. United States Fish and Wildlife Service, 452 F.3d 951 (8th Cir. 2006), the court held that FWS determinations that harvesting corn after December 1 and aerial seeding of winter wheat in standing corn were not “normal planting” and that the landowners were barred from hunting next to the neighbors’ baited fields were a reasonable interpretation of the MBTA.

Some states also have statutes that prohibit the baiting of wildlife for hunting purposes unless the alleged baiting was the result of commonly accepted agricultural practices.  For instance, in State v. Hansen, 805 N.W.2d 915 (Minn. Ct. App. 2011), the defendant’s conviction for using bait to hunt deer was reversed.  The court held that the state statute violated due process because it was vague as applied to the defendant’s pumpkin patch operation.  The law did not distinguish between normally accepted agricultural practices and the unlawful baiting of deer.

In addition, the Act permits the taking of all migratory game birds, except waterfowl, on or over any lands where shelled, shucked, or unshucked corn, wheat or other grain, salt, or other feed has been distributed or scattered as the result of bona fide agricultural operations or procedures.  In United States v. Adams, 383 Fed. Appx. 481 (5th Cir. 2010), a farmer was convicted of violating the Act for hunting doves on a field that he had recently planted to wheat.  For purposes of the “baiting” provision of the Act, the trial court judge determined that intent was not an element of the offense for which the farmer was convicted and did not allow the farmer to introduce evidence concerning the procedures commonly used to plant winter wheat in northeast Louisiana.  On appeal, the Fifth Circuit Court of Appeals reversed the trial court, holding instead that the government was required to prove that the farmer’s intentions were not in good faith and that the farmer’s acts were merely a sham to attract migratory birds to hunt.  Accordingly, the court reversed the farmer’s conviction and rendered acquittal based on the court’s determination that the farmer was entitled to have the lower court consider the evidence of his good faith in growing the wheat, and because there was no evidence from which a jury could find that the farmer’s planting was not the result of a “bona fide agricultural operation or procedure.”  In another case, United States v. Andrus, 383 Fed. Appx. 481 (5th Cir. 2010), the court determined that the use of a stripper header to harvest milo was not a "normal agricultural practice" with the result that the defendant's sentence for taking migratory birds by aid of bait in violation of the MTBA was upheld.  The defendant's testimony that he could not reasonably have been expected to know that the field he was hunting in was baited because he was not a farmer was not credible.  The court noted that the defendant failed to inspect the field and that unharvested milo was clearly present near the defendant's duck blinds and decoys.

Migratory bird facilities.  The MBTA regulations specify that “no migratory bird preservation facility shall receive or have in custody any migratory game birds unless such birds are tagged.  See, e.g., 50 C.F.R. § 20.36.  The requirement has been held to apply to an individual.  See, e.g., United States v. Gilkerson, 556 F.3d 854 (8th Cir. 2009).

Conclusion

Supposedly, the FWS (the enforcing agency of the MBTA) is only interested in enforcing the MBTA on activities that “chronically” kill protected birds, and then only after notice has been given to the alleged offending party.  80 Fed. Reg. 30034 (May 26, 2015).  But, that might be of little assurance to farmers, ranchers, rural landowners and others whose fate could be left up to FWS discretion and the interpretation of the MBTA by the courts where interpretations can differ by jurisdiction. 

August 24, 2017 in Criminal Liabilities, Environmental Law | Permalink | Comments (0)

Tuesday, August 22, 2017

The Business of Agriculture – Upcoming CLE Symposium

Overview

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. 

Symposium Topics

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.

Conclusion

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)

Wednesday, May 10, 2017

The Necessity Defense To Criminal Liability

In general, the law only punishes those individuals who have the capacity to make a moral choice of whether to engage in the prohibited behavior.  Consequently, insane persons who commit crimes are generally believed to lack the moral fault necessary for punishment.  Similarly, persons below a certain age are deemed to lack the full capacity for criminal liability and are typically liable only as juvenile delinquents.  Likewise, those who commit crimes while voluntarily intoxicated are liable for their behavior, though sometimes at a lesser level.

Sometimes, however, conduct that would otherwise constitute a crime is not because it is deemed necessary.  That’s an issue that sometimes arises in agriculture.

Necessity - Defined

The Model Penal Code (MPC) states that conduct that is believed to be necessary to avoid a harm or evil to oneself or to another is justifiable, provided that the harm or evil sought to be avoided is greater than that sought to be prevented by the law defining the offense charged, and the law does not provide another exception or defense.  Under a necessity defense, for example, property may be destroyed to prevent the spread of a fire or a speed limit may be violated in pursuing a suspected criminal.

In 1884, in a case brought before the Queen's Bench in England, the court completely rejected the necessity defense.  R. v. Dudley & Stephens, 15 Cox Crim. Cas. 624 (QB 1884). The defendants, while adrift on a lifeboat about 1,000 miles from land, killed a weak and sick boy, and fed upon his body to avoid their own death by starvation.  The Queen's Bench found that this act constituted willful murder and sentenced the defendants to death, the only penalty then available for murder.  Later, the Crown commuted the sentence to six-months imprisonment.  In the United States, however, the approach of the English court has been rejected.

Wyoming Case

In a prominent Wyoming Supreme Court decision in 1962 (Cross v. State, 370 P.2d 371 (Wyo. 1962)), the court found the defendant not guilty of illegally shooting game animals in defense of his property due to the constitutional guarantee that one cannot be deprived of property without due process of law.  Under the facts of the case, a rancher was charged on six counts for various acts associated with shooting two moose in violation of Wyoming law.  He plead not guilty, but the jury found him guilty on all of the charges.  The problem stemmed from a large herd of wild game in a nearby refuge that followed natural water courses and creek bottoms in the winter time in search of food that caused them to ultimately gather on the defendant’s ranch.  The wild game, including a large herd of moose, did serious and substantial damage to the defendant’s ranch by consuming pasture and other forage that was for the defendant’s livestock.  The wild game also prevented the production of hay and other natural grasses on the defendant’s ranch, as well as destroying fences.  Overall, the defendant’s ranching operations were substantially interrupted. 

Because of these problems, the defendant sought help from the Wyoming State Game and Fish Department, and ultimately ended up in litigation designed to induce the Department to enforce sufficient controls to protect his ranch and residents in the area.  The Department and the defendant took various measures to keep the moose away, but to no avail.  The two moose at issue were in feeding in the defendant’s meadow and he tried to “spook” them away.  One of them ran into his fence and got entangled in the wire.  When the moose tried to free itself, it instead tore down a considerable amount of good fence.  The defendant shot the moose to protect his property from further destruction.

After being charged, the defendant plead that he was justified in protecting his private property.  While the trial court disagreed with the defendant, the Wyoming Supreme Court reversed and dismissed the complaint.  The state claimed that the defendant had violated the state’s game law.  However, the Wyoming Supreme Court noted that the power of the state cannot conflict with constitutional provisions.  Framed that way, the issue was whether the state could bar the defendant from protecting his property from the depredations of wild animals.  The court determined that the defendant should not be penalized because the killing of the moose was reasonable necessary (based on the facts) for the protection of his private property.  The court did emphasize that before force can be taken to protect one’s property from wild animals that are protected by law, a person must use every available before killing the animals.  Then, the property owner can use only such force as is reasonably necessary and suitable to protect the private property and that force must be what a reasonably prudent person would use under the circumstances. 

Defending Property – Generally

In certain parts of the United States damage to crops, poultry and livestock by wildlife is a significant concern.  All states have criminal statutes that prohibit the taking of protected wildlife out of season and without a license.  However, a broader question is whether such a statute violates a state Constitutional provision vesting state citizens with certain inalienable rights – including the right to protect one’s property. For instance, the Iowa Constitution provides that, "All men and women are, by nature, free and equal, and have certain inalienable rights among which are those of enjoying and defending life and liberty, acquiring, possessing and protecting property, and pursuing and obtaining safety and happiness.”  Iowa Const. art. I, §1.

The Constitutional defense of property provisions most often make a difference in cases where the defendant claims a right to kill wild animals to protect property.  Courts considering these cases have read the right to protect property as a judicially enforceable constitutional right that trumps state statutes and regulations.  The longest line of such cases comes from Pennsylvania, where, from 1917 to 2000, the courts held that the constitutional right to protect property entitles landowners and their agents to kill wild animals that are threatening the landowner's crops, and that it is unconstitutional for state game laws barring the killing of wild animals to be applied in such situations.  Courts from Iowa, Kentucky, Montana, New Hampshire, and Ohio have taken the same view.  Courts from Alabama, South Carolina, Washington, and Wyoming have taken this view even though the respective state constitutions do not have an express provision for the protection of property. 

In a 1997 Ohio case, State v. Troyer, No. 97CA0015, 1997 Ohio App. LEXIS 5207 (Ohio Ct. App. Nov. 19, 1997), the defendant’s primary source of income was from the raising of exotic and domestic birds on his farm.  To combat the threat from great horned owls preying on his birds, the defendant erected traps at various locations on the farm near where his birds were located.  He was charged and convicted of violating a state statute which provided that “…hawks or owls causing damage to domestic animals or fowl may be killed by the owner of the domestic animal or fowl while such damage is occurring.”  The State claimed that the defendant was attempting to take or kill an owl at a time when damage to his property was not occurring.  The defendant claimed that waiting until an owl had actually caught one of his birds in its beak would be too late to prevent damage to his property.  On appeal, his conviction was reversed on the basis that the statute unconstitutionally abridged the defendant’s right to protect his property.  The court noted that the statute should be construed in such a manner to allow the defendant to use such force as is reasonably necessary to protect his property from predatory owls.

Under the MPC, the necessity defense is limited to those situations where the harm or evil sought to be avoided is greater than that sought to be prevented by the law defining the offense charged, and a legislative purpose to exclude the justification claimed does not plainly appear.  MPC §3.02

Conclusion

It is certainly frustrating for farmers, ranchers and rural landowners to have property damaged or destroyed by wildlife.  If the wildlife are protected game under state law, it’s important to know your rights before taking action to remedy the situation. 

May 10, 2017 in Criminal Liabilities | Permalink | Comments (0)

Friday, January 6, 2017

Top Ten Agricultural Law Developments of 2016 (Five Through One)

Overview

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

Top Ten Agricultural Law and Tax Developments of 2016 (Ten Through Six)

Overview

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. 

  1. 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).

Conclusion

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

The Most Important Agricultural Law and Tax Developments of 2016

Overview

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. 

Conclusion

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, July 28, 2016

Prison Sentences Upheld For Egg Company Executives Even Though Government Conceded They Had No Knowledge of Salmonella Contamination.

Facts

The defendant was an executive (in the capacity of a trustee of the trust that owned the company) of a large-scale egg production company in Iowa, and his son was the Chief Operating Officer of the company. They both pled guilty as “responsible corporate officers” to misdemeanor violations of 21 U.S.C. §331(a) (Food, Drug and Cosmetic Act (FDCA)) for unknowingly 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.

Trial Court Decision

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.

Appellate Court Affirms, But Not Unanimously

A split panel of 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 FDCA provision at issue did not have a knowledge requirement. The majority of the appellate court panel also did not find a due process violation. The defendant and son claimed that because they did not personally commit wrongful acts, 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 the FDCA provision holds a corporate officer accountable for failure to prevent or remedy “the conditions which gave rise to the charges against him.” Thus, the majority on the appellate court panel 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 majority 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).

One judge wrote a stinging dissent.  This judge 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. 

Implications

Historically, the key case involving this area of the law was decided by the U.S. Supreme Court in 1975.  In that case, United States v. Park, 421, U.S. 658 (1975), the Court allowed the Food and Drug Administration (FDA) to pierce the corporate veil to hold the chief executive officer of the food company strictly liable for unsanitary conditions at the company warehouse on the basis that the FDCA is a “public welfare” statute.  The Court’s decision freed-up federal prosecutors to go after jail sentences for the executives of food companies that have FDCA violations just by virtue of having an executive title.  Historically, however, federal prosecutors reserved the heavy hammer for only those executives who had notice of problems at their facility or facilities.  Under the current Administration, the prosecutorial position has changed to go after executives of food companies that were merely negligent or just on the basis of the strict liability nature of the FDCA.  For instance, in a recent case involving a peanut company executive that knew about the shipping of salmonella-contaminated peanuts, federal prosecutors sought a life sentence, but got 20 years for the executive. 

In the Iowa case, even though the FDCA provision is a strict liability provision, two of the judges thought that culpable intent should have to be proven in some fashion, and they believed the plaintiffs were negligent.  That could mean that there’s a good shot that the plaintiffs might ask the Supreme Court to take another look.  We’ll have to see.

The case is United States v. Decoster, No. 15-1890, 2016 U.S. App. LEXIS 12423 (8th Cir. Jul. 6, 2016).

July 28, 2016 in Criminal Liabilities | Permalink | Comments (0)