The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Four

Overview

The biggest three developments of 2020 in ag law and tax are up for discussion today.  2020 was a year of many important developments of relevance to the agricultural industry, but the top three stand out in particular. 

The three most important developments of 2020 – it’s the topic of today’s post.

No. 3 – SCOTUS DACA Opinion

Background.  In mid-2020, the U.S. Supreme Court issued its opinion in Department of Homeland Security, et al. v. Regents of the University of California, et al., 140 S. Ct. 1891 (2020) where the Court denied the U.S. Department of Homeland Security’s (DHS) revocation of the Deferred Action for Childhood Arrivals (DACA).  The Court’s decision is of prime importance to agriculture because the case involved the ability of a federal government agency to create rules that are applied with the force of law without following the notice and comment requirements of the Administrative Procedure Act.  Agricultural activities are often subjected to the rules developed by federal government agencies, making it critical that agency rules are subjected to public input before being finalized.

The DHS started the DACA program by issuing an internal agency memorandum in 2012.  The DHS took this action after numerous bills in the Congress addressing the issue failed to pass over a number of years.  The DACA program illegal aliens that were minors at the time they illegally entered the United States to apply for a renewable, two-year reprieve from deportation.  The DACA program also gave these illegal immigrants work authorizations and access to taxpayer-funded benefits such as Social Security and Medicare.  Current estimates are that between one million and two million DACA-protected illegal immigrants are eligible for benefits  In 2014, the DHS attempted to expand DACA to provide amnesty and taxpayer benefits for over four million illegal aliens, but the expansion was foreclosed by a federal courts in 2015 for providing benefits to illegal aliens without following the procedural requirements of the Administrative Procedure Act as a substantive rule and for violating the Immigration and Naturalization Act.  Texas v. United States, 809 F.3d 134 (5th Cir. 2015), aff’g., 86 F. Supp. 3d 591 (S.D. Tex. 2015).  In 2016, the U.S. Supreme Court affirmed the lower court decisions.  United States v. Texas, 136 S. Ct. 2271 (2016).  Based on these court holdings and because DACA was structured similarly, the U.S. Attorney General issued an opinion that the DACA was also legally defective.  Accordingly, in June of 2017, the DHS announced via an internal agency memorandum that it would end the illegal program by no longer accepting new applications or approving renewals other than for those whose benefits would expire in the next six months.  Activist groups sued and the Supreme Court ultimately determined that the action of the DHS was improper for failing to provide sufficient policy reasons for ending DACA.  In other words, what was created with the stroke of a pen couldn’t be eliminated with a stroke of a pen. 

Administrative Procedure Act (APA).  The APA was enacted in 1946.  Pub. L. No. 79-404, 60 Stat. 237 (Jun. 11, 1946).  The APA sets forth the rules governing how federal administrative agencies are to go about developing regulations.  It also gives the federal courts oversight authority over all agency actions.  The APA has been referred to as the “Constitution” for administrative law in the United States.  A key aspect of the APA is that any substantive agency rule that will be applied against an individual or business with the force of law (e.g., affecting rights of the regulated) must be submitted for public notice and comment.  5 U.S.C. §553.  The lack of DACA being subjected to public notice and comment when it was created and the Court’s requirement that it couldn’t be removed in like fashion struck a chord with the most senior member of the Court.  Justice Thomas authored a biting dissent that directly addressed this issue.  He wrote, “Without grounding its position in either the APA or precedent, the majority declares that DHS was required to overlook DACA’s obvious legal deficiencies and provide additional policy reasons and justifications before restoring the rule of law. This holding is incorrect, and it will hamstring all future agency attempts to undo actions that exceed statutory authority.”

Farmers and ranchers often deal with the rules developed by federal (and state) administrative agencies.  Those agency rules often involve substantive rights and, as such, are subject to the notice and comment requirements of the APA.  Failure to follow the APA often results in the restriction (or outright elimination) of property rights without the necessary procedural protections the APA affords. It’s also important that when administrative agencies overstep their bounds, a change in agency leadership has the ability to swiftly rescind prior illegal actions – a point Justice Thomas made clear in his dissent.

No. 2 - Public Trust Doctrine

Background.  Centuries ago, the seas were viewed as the common property of everyone - they weren’t subject to private use and ownership.  Instead, they were held in what was known as the “public trust.”  This concept was later adopted in English law, the Magna Carta, and became part of the common (non-statutory) law of individual states in the United States after the Revolution.  Over the years, this “public trust doctrine” has been primarily applied to access to the seashore and intertidal waters, although recently some courts have expanded its reach beyond its historical application.

But, any judicial expansion of the public trust doctrine results in curtailing vested property rights.  That’s a very important concern for agriculture because of agriculture’s necessary use of natural resources such as land, air, water, minerals and the like.  Restricting or eliminating property rights materially impacts agricultural operations in a negative manner.  It also creates an economic disincentive to use property in an economically (and socially) efficient manner.

How could an expanded public trust doctrine apply?  For farmers and ranchers, it could make a material detrimental impact on the farming operation.  For instance, many endangered species have habitat on privately owned land.  If wildlife and their habitat are deemed to be covered by the doctrine, farming and ranching practices could be effectively curtailed.  What about vested water rights?  A farming or ranching operation that has a vested water right to use water from a watercourse for crop irrigation or livestock watering purposes could find itself having those rights limited or eliminated if, under the public trust doctrine, a certain amount of water needed to be retained in the stream for a species of fish. 

One might argue that the government already has the ability to place those restrictions on farming operations, and that argument would be correct.  But, such restrictions exist via the legislative and regulatory process and are subject to constitutional due process, equal protection and just compensation protections.  Conversely, land-use restrictions via the public trust doctrine bypass those constitutional protections.  No compensation would need to be paid, because there was no governmental taking – a water right, for example, could be deemed to be subject to the “public trust” and enforced without the government paying for taking the right.  

Nevada Case.  Mineral County v. Lyon County, No. 75917, 2020 Nev. LEXIS 56 (Nev. Sup. Ct. Sept. 17, 2020), involved the state of Nevada’s water law system for allocating water rights and an attempt to take those rights without compensation via an expansion of the public use doctrine.  The state of Nevada appropriates water to users via the prior appropriation system – a “first-in-time, first-in-right” system.  Over 100 years ago, litigation over the Walker River Basin began between competing water users in the Walker River Basin.  The Basin covers approximately 4,000 square miles, beginning in the Sierra Nevada mountain range and ending in a lake in Nevada.  In 1936, a federal court issued a decree adjudicating water rights of various claimants to water in the basin via the prior appropriation doctrine. 

In 1987, an Indian Tribe intervened in the ongoing litigation to establish procedures to change the allocations of water rights subject to the decree.  Since that time, the state reviews all changes to applications under the decree.  In 1994, the plaintiff sought to modify the decree to ensure minimum stream flows into the lake under the “doctrine of maintenance of the public trust.”  The federal district (trial) court granted the plaintiff’s motion to intervene in 2013.  In 2015, the trial court dismissed the plaintiff’s amended complaint in intervention on the basis that the plaintiff lacked standing; that the public trust doctrine could only apply prospectively to bar granting appropriative rights; any retroactive application of the doctrine could constitute a taking requiring compensation; that the court lacked the authority to effectuate a taking; and that the lake was not part of the basin. 

On appeal, the federal appellate court determined that the plaintiff had standing, and that the lake was part of the basin.  The appellate court also held that whether the plaintiff could seek minimum flows depended on whether the public trust doctrine allowed the reallocation of rights that had been previously settled under the prior appropriation doctrine.  Thus, the appellate court certified two questions to the Nevada Supreme Court:  1) whether the public trust doctrine allowed such reallocation of rights; and 2) if so, whether doing so amounted to a “taking” of private property requiring “just compensation” under the Constitution. 

The state Supreme Court held that that public trust doctrine had already been implemented via the state’s prior appropriation system for allocating water rights and that the state’s statutory water laws is consistent with the public trust doctrine by requiring the state to consider the public interest when making allocating and administering water rights.  The state Supreme Court also determined that the legislature had expressly prohibited the reallocation of water rights that have not otherwise been abandoned or forfeited in accordance with state water law. 

The state Supreme Court limited the scope of its ruling to private water use of surface streams, lakes and groundwater such as uses for crops and livestock. The plaintiff has indicated that it will ask the federal appellate court for a determination of whether the public trust doctrine could be used to mandate water management methods.  If the court would rule that it does, the result would be an unfortunate disincentive to use water resources in an economically efficient manner (an application of the “tragedy of the commons”).  It would also provide a current example (in a negative way) of the application of the Coase Theorem (well-defined property rights overcome the problem of externalities).  See Coase, “The Problem of Social Cost,” Journal of Law and Economics, Vol. 3, October 1960. 

Oregon Case.  In Chernaik v. Brown, 367 Or. 143 (2020), the plaintiffs claimed that the public trust doctrine required the State of Oregon to protect various natural resources in the state from harm due to greenhouse gas emissions, “climate change,” and ocean acidification. The public trust doctrine has historically only applied to submerged and submersible lands underlying navigable waters as well as the navigable waters. The trial court rejected the plaintiffs’ arguments. On appeal the state Supreme Court affirmed, rejecting the test for expanding the doctrine the plaintiffs proposed. Under that test, the doctrine would extend to any resource that is not easily held or improved and is of great value to the public. The state Supreme Court held that the plaintiffs’ test was too broad to be adopted and remanded the case to the lower court. 

No. 1 – CARES Act, CFAP Programs and Disaster Legislations and CAA, 2021

Quite clearly, the biggest development of 2020 involved the numerous tax and loan provisions enacted in an attempt to offset the loss of income and closure of business resulting from the actions of various state governors as a result of the virus.  Also, the various pieces of legislation made some of the most significant changes to the retirement planning rules in about 15 years.  In addition, tax provisions were contained in disaster legislation that took effect in 2020.  In late December of 2020, the Consolidated Appropriations Act of 2021 (CAA, 2021) was signed into law.  This law made significant changes to the existing Paycheck Protection Program (PPP), and provided another round of payments to farmers and ranchers under the Coronavirus Food Assistance Program (CFAP).  The CAA, 2021 also extended numerous tax provisions that were set to expire at the end of 2020.

Conclusion

2020 was another big year in the ag law and tax world.  There’s never a dull moment.