Monday, January 11, 2021
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Three
No. 5 – Dicamba Drift Damages
Numerous cases have been filed in recent years alleging damage to soybean crops as a result of dicamba drift. However, one significant case has involved alleged dicamba drift damage to a peach crop. In 2019, the federal trial court judge hearing the case allowed much of the case to go to the jury. In early 2020, the jury returned a $265 million judgment against Monsanto/Bayer and BASF. $15 million of that amount was to compensate the peach farmer. $250 million was punitive damages. Throughout 2020, the litigation continued with the courts addressing the whether the allocation of damages was proper and reasonable.
Dicamba Drift, Peaches and Calculation of Damages
The plaintiff claimed that his peach orchard was destroyed after the defendants (Monsanto and BASF) conspired to develop and market dicamba-tolerant seeds and dicamba-based herbicides. The plaintiff claimed that the damage to the peaches occurred when dicamba drifted from application to neighboring fields. The plaintiff claimed that the defendants released its dicamba-tolerant seed with no corresponding dicamba herbicide that could be safely applied. As a result, farmers illegally sprayed an old formulation of dicamba herbicide that was unapproved for in-crop, over-the-top, use and was "volatile," or prone to drift.
While many cases had previously been filed on the dicamba drift issue, the plaintiff did not join the other litigation because it focused on damages to soybean crops. Monsanto moved to dismiss the claims for failure to warn; negligent training; violation of the Missouri Crop Protection Act; civil conspiracy; and joint liability for punitive damages. BASF moved to dismiss those same counts except the claims for failure to warn. The trial court granted the motion to dismiss in part. Monsanto argued that the failure to warn claims were preempted by the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), but the plaintiff claimed that no warning would have prevented the damage to the peaches. The trial court determined that the plaintiff had adequately plead the claim and denied the motion to dismiss this claim. Both Monsanto and BASF moved to dismiss the negligent training claim, but the trial court refused to do so. However, the trial court did dismiss the claims based on the Missouri Crop Protection Act, noting that civil actions under this act are limited to “field crops” which did not include peaches. The trial court did not dismiss the civil conspiracy claim based on concerted action by agreement, but did dismiss the aiding and abetting portion of the claim because that cause of action is no recognized under Missouri tort law.
The parties agreed to a separate jury determination of punitive damages for each defendant. Bader Farms, Inc. v. Monsanto Co., et al., No. MDL No. 1:18md2820-SNLJ, 2019 U.S. Dist. LEXIS 114302 (E.D. Mo. July 10, 2019). At the jury trial, the jury found that Monsanto had negligently designed or failed to warn for 2015 and 2016 and that both defendants had done so for 2017 to the present. The jury awarded the plaintiff $15 million in compensatory damages and $250 million in punitive damages against Monsanto for 2015 and 2016. The jury also found that the defendants were acting in a joint venture and in a conspiracy. The plaintiff submitted a proposed judgment that both defendants are responsible for the $250 million punitive damages award. BASF objected, but the trial court found the defendants jointly liable for the full verdict in light of the jury’s finding that the defendants were in a joint venture. Bader Farms, Inc. v. Monsanto Co., et al., MDL No. 1:18-md-02820-SNJL, 2020 U.S. Dist. LEXIS 34340 (E.D. Mo. Feb. 28, 2020). BASF then moved for a judgment as a matter of law on punitive damages or motion for a new trial or remittitur (e.g., asking the court to reduce the damage award), and Monsanto moved for a judgment as a matter of law or a new trial. The trial court, however, found both defendants jointly liable, although the court lowered the punitive damages to $60 million after determining a lack of actual malice.
The trial court did uphold the $15 million compensatory damage award upon finding that the correct standard under Missouri law was applied to the farm’s damages. Bader Farms, Inc. v. Monsanto Co, et al., MDL No. 1:18md2820-SNLJ, 2020 U.S. Dist. LEXIS 221420 (E.D. Mo. Nov. 25, 2020). The defendants filed a notice of appeal on December 22, 2020.
No. 4 – Groundwater Discharges and Functional Equivalency
Under the Clean Water Act (CWA), a National Pollution Discharge Elimination System (NPDES) permit is required for an “addition” of any “pollutant” from a “point source” into the “navigable waters of the United States” (WOTUS). 33 U.S.C. §1362(12). Excluded are agricultural stormwater discharges and return flows from irrigated agriculture. 33 U.S.C. §1362(14). Clearly, a discharge directly into a WOTUS is covered. A point source of pollution is that which comes from a discernible, confined and discrete conveyance such as a pipe, ditch or well.
But, is an NPDES permit necessary if the discharge is directly into groundwater which then seeps its way to a WOTUS in a diffused manner? Are indirect discharges from groundwater into a WOTUS covered? If so, does that mean that farmland drainage tile is subject to the CWA and an NPDES discharge permit is required? 1n the 48 years of the CWA, the federal government has never formally taken that position, instead leaving the matter up to the states. The issue is a big one for agriculture. In 2020, the U.S. Supreme Court addressed the issue.
Ninth Circuit Decision
In 2018, three different U.S. Circuit Courts of Appeal decided cases on the discharge from groundwater issue. One of those cases was heard by the U.S. Circuit Court of Appeals for the Ninth Circuit. In Hawai’i Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018), the defendant owned and operated four wells at the Lahaina Wastewater Reclamation Facility (LWRF). Although constructed initially to serve as a backup disposal method for water reclamation, the wells became the defendant’s primary means of effluent disposal into groundwater and, ultimately, the Pacific Ocean. The defendant injected approximately 3 to 5 million gallons of treated wastewater per day into the groundwater via its wells. The wastewater seeped through the groundwater for about one-half of a mile until it reached the Pacific Ocean. The U.S. Court of Appeals for the Ninth Circuit held that the seepage into the Pacific from the point-source wells one-half mile away was “functionally one into navigable water,” and that a permit was required because the “pollutants are fairly traceable from the point source to a navigable water.”
After the Ninth Circuit issued its opinion, the EPA, on February 20, 2018, requested comment on whether pollutant discharges from point sources that reach jurisdictional surface waters via groundwater may be subject to Clean Water Act (“CWA”) regulation. Specifically, the EPA sought comment on whether the EPA should consider clarification or revision of previous EPA statements regarding the Agency’s mandate to regulate discharges to surface waters via groundwater under the CWA. In particular, the EPA sought comment on whether it is consistent with the CWA to require a CWA permit for indirect discharges into jurisdictional surface waters via groundwater. The EPA also sought comment on whether some or all of such discharges are addressed adequately through other federal authorities, existing state statutory or regulatory programs or through other existing federal regulations and permit programs.
After receiving over 50,000 comments, on April 15, 2019, the EPA issued an interpretive statement concluding that the releases of pollutants to groundwater are categorically excluded from the NPDES regardless of whether the groundwater is hydrologically connected to surface water. The EPA reasoned that the Congress explicitly left regulation of groundwater discharges to the states and that the EPA had other statutory authorities through which to regulate groundwater other than the NPDES. The EPA, in its statement, noted that its interpretation would apply in areas not within the jurisdiction of the U.S. Circuit Courts of Appeal for the Ninth and Fourth Circuits.
The Supreme Court and the Hawaii Case
In 2019, the U.S. Supreme Court agreed to hear the Ninth Circuit opinion. Hawaii Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018), pet. for cert. granted, County of Maui v. Hawaii Wildlife Fund, 139 S. Ct. 1164 (2019). Boiled down to its essence, the case turns on the meaning of “from.” As noted above, an NPDES permit is required for point source pollutants that originate “from” a point source that are discharged into a navigable water. The NPDES system only applies to discharges of “any addition” of any pollutant from “any point source” to “navigable waters.” Thus, by the statutory text, there must be an “addition” of a pollutant to a navigable water of the U.S. “from” a point source. Discharges of pollutants into groundwater are not subject to the NPDES permit requirement even if the groundwater is hydrologically connected to surface water. The legislative history of the CWA indicates that the Congress intentionally chose not to regulate hydrologically-connected groundwater, instead leaving such regulation up to the states. See, e.g., Umatilla Water Quality Protective Association v. Smith Frozen Foods, 962 F. Supp. 1312 (D. Or. 1997).
As noted, the case involved pollutants that originated from a point source, traveled through groundwater, and then a half-mile later reached a WOTUS. Does the permit requirement turn on a direct discharge into a WOTUS (an addition of a pollutant from a point source), or simply a discharge that originated at a point source that ultimately ends up in a WOTUS? Clearly, the wells at issue in the case are point sources – on that point all parties agreed. But, are indirect discharges into a WOTUS via groundwater (which is otherwise exempt from the NPDES) subject to the permit requirement?
On April 23, 2020, in County of Maui v. Hawaii Wildlife Fund, 140 S. Ct. 1462 (2020), issued a 6-3 opinion written by Justice Breyer holding that an NPDES permit is required not only when there is a direct discharge of a pollutant from a point source into a WOTUS, but also when there is the “functional equivalent” of a direct discharge. This conclusion, the Court noted, was somewhat of a middle ground between the Ninth Circuit’s “fairly traceable” test and the position that a permit is required only if a point source ultimately delivered the pollutant to a WOTUS. The Court determined that because the Congress coupled the words “from” and “to” in the statutory language that the Congress was referring to the destination of a WOTUS rather than the origin of a point source. Thus, the Court determined that a permit is required when there is a direct discharge of a point source pollutant to a WOTUS or when, in effect, that is what occurred. The Court believed that the EPA’s recent Interpretive Statement excluding all releases of pollutants to groundwater from the permit requirement was too broad and would create a loophole that would defeat the purpose of the CWA. The Court noted that many factors could be relevant in determining whether a particular discharge is the functional equivalent of a direct discharge into a WOTUS, but that time and distance would be the most important factors in most cases. The Court also indicated that other factors could include the nature of the material through which a pollutant traveled and the extent of its dilution or chemical change while doing so, and noted that the lower courts would provide additional guidance as they decided subsequent cases.
Justice Thomas dissented (joined by Justice Gorsuch), pointing out that the use of the word “addition” in the statute requires an augmentation or increase of a WOTUS by a pollutant and that, as a result, anything other than a direct discharge is statutorily excluded. Indeed, in 2010, the Court declined to hear a case where the lower court held that an NPDES permit is not required unless there is an “addition” of a pollutant to a WOTUS. See e.g., Friends of the Everglades, et al. v. South Florida Water Management District, et al., 570 F.3d 1210 (11th Cir. 2009) reh’g., den., 605 F.3d 962 (11th Cir. 2010), cert. den., 131 S. Ct. 643 (2010). Justice Thomas also noted that the Court’s opinion provided practically zero guidance on the question of when a permit is necessary when a direct discharge is not involved, except for the Court’s provision of a list of non-exhaustive factors. Justice Thomas stated, “[The] Court does not commit to whether those factors are the only relevant ones, whether [they] are always relevant, or which [ones] are the most important.”
Justice Alito also dissented, similarly disenchanted with the nebulous standard and “buck-passing” of the Court to lower courts on the issue. Justice Alito wrote that, “If the Court is going to devise its own legal rules, instead of interpreting those enacted by Congress, it might at least adopt rules that can be applied with a modicum of consistency.”
Ultimately, the Court’s “functional equivalency” test was narrower than the “fairly traceable” test that the Ninth Circuit utilized, and the Court vacated the Ninth Circuit’s opinion and remanded the case for a decision based on the Court’s standard.
Implications for agriculture. The Court’s opinion is significant for agriculture. From a hydrological standpoint, surface water and groundwater systems are often connected. Groundwater is what often maintains a presence of surface water in a stream. From agriculture’s perspective, the case is important because of the ways that a pollutant can be discharged from an initial point and ultimately reach a WOTUS. For example, the application of manure or commercial fertilizer to a farm field either via surface application or via injection could result in eventual runoff of excess via the surface or groundwater into a WOTUS. Certainly, when manure collects and channelizes through a ditch or depression and enters a WOTUS a direct discharge requiring an NPDES permit is required. See, e.g., Concerned Area Residents for the Environment v. Southview Farm, 34 F.3d 114 (2d Cir. 1994). But, that’s a different situation from seepage of manure (or other “pollutants”) through groundwater. No farmer can guarantee that 100 percent of a manure or fertilizer application is used by the crop to which it is applied and that there are no traces of the unused application remaining in the soil. Likewise, while organic matter decays and returns to the soil, it contains nutrients that can be conveyed via stormwater into surface water. The CWA recognizes this and contains an NPDES exemption for agricultural stormwater discharges. But, if the Supreme Court decides in favor of the environmental group, the exemption would be removed, subjecting farmers (and others) to onerous CWA penalties unless a discharge permit were obtained - at a cost estimated to exceed $250,000 (not to mention time delays).
What about farm field tile drainage systems? Seemingly, such systems would make it easier for “pollutants” to enter a WOTUS. Such drainage systems are prevalent in the Midwest and other places, including California’s Central Valley. Groundwater, by some standards, is polluted or includes pollutants. Farm field drainage tile is deliberately installed to deliver that polluted groundwater to a WOTUS. That is a significant reason that groundwater discharges have always been exempt from the NPDES permit requirement along with agricultural stormwater discharges and agricultural irrigation return flows. Should the law now discourage agricultural drainage activities?
Pesticide drift and groundwater discharges of “pollutants” - two big issues for agricultural producers. Next time I look at the three biggest developments of 2020.