Wednesday, March 24, 2021
Court and IRS Happenings in Ag Law and Tax
It’s been a while since I have written a summary of what’s been happening in the courts concerning developments relevant to agricultural producers, ag businesses and rural landowners. It’s always helpful to stay informed of the ag legal issues that the courts are addressing.
Current court developments in the courts involving ag law and tax – it’s the topic of today’s post.
Nuisance Case Against Hog CAFO Continues
Barden v. Murphy-Brown, LLC, No. 7:20-CV-85-BR, 2021 U.S. Dist. LEXIS 47809 (E.D. N.C. Mar. 15, 2021)
The plaintiff sued the defendant for trespass, negligence, civil conspiracy and unjust enrichment arising from odor, dust, feces, urine and flies from a neighboring hog facility that housed 20,000-head of the defendant’s hogs. The plaintiff sought compensatory and punitive damages. The defendant sought to dismiss the complaint for failure to join to the lawsuit the farmer that operated the hog facility via a contact with the defendant as an indispensable party. The court disagreed as the farmer’s conduct was likely irrelevant to the outcome of the litigation and any impact that an adverse judgment against the defendant might have on the farmer’s interests at the farm was speculative.
The defendant also sought dismissal on the basis that the plaintiff’s complaint failed to state a claim for relief that was other than speculative. The defendant cited the state (NC) right-to-farm (RTF) law as barring all of the plaintiff’s claims. However, the court disagreed noting that conditions that constitute a nuisance can also constitute a trespass (and other causes of action). Thus, the plaintiff’s complaint was not restricted to allegations of a nuisance cause of action which the RTF law would bar. The court noted that the NC RTF law was different from other state RTF laws that covered non-nuisance tort claims related to farming operations along with nuisance claims. The NC RTF law only covered nuisance-related claims and had no application to non-nuisance claims.
As to whether the plaintiff adequately alleged the non-nuisance claims, the court concluded that the plaintiff sufficiently alleged, at a minimum, a claim for unintentional trespass by not consenting to dust, urine and fecal matter from entering its property. On the plaintiff’s negligence claim, the court determined that it was reasonably foreseeable that if the defendant did not act reasonably in managing the facility that dust and animal waste would be present on the plaintiff’s property. As such, the defendant owed the plaintiff a duty and there was a causal link with any potential breach of that duty. Thus, the plaintiff properly stated a claim for negligence. The plaintiff also alleged that the defendant conspired with its corporate parent to mislead the public about the science of hog manure removal and various constitutional violations. The court rejected this claim because any conspiracy was between the defendant and its corporate parent and not with any independent party. The plaintiff also claimed that the defendant unjustly enriched itself by using the plaintiff’s property for a de facto easement without paying for it. The court rejected the claim because the plaintiff had conferred no benefit on the plaintiff which gave rise to any legal or equitable obligation on the defendant’s part to account for the benefit received. However, the court refused to strike the plaintiff’s allegations relating to the defendant’s Chinese ownership, influence and exploitation as well as the defendant’s financial resources. The court determined that such allegations had a bearing on the defendant’s motivation, extent of harm and ability to implement alternative technology.
1914 Fence Agreement Fixes Boundary
Eggemeyer v. Hughes, No. 08-19-0002-CV, 2021 Tex. App. LEXIS 691 (Tex. Ct. App. Jan. 28, 2021)
The parties owned adjacent tracts of land north and south of each other separated by section lines. The defendant claimed that the section lines delineated the boundary and that a barbed wire fence constructed from a survey was built in its location due to practicalities. The plaintiff claimed that the fence, which existed 150 yards to the north of the section lines, was the boundary. The disputed acreage between the section lines and the fence was 90 acres.
In 1914, prior owners of the tracts had executed a fence agreement that was filed in the county register of deeds office. In the agreement they fixed the boundary in accordance with a metes and bounds description that referred to natural landmarks. The plaintiff’s deed referred to the 1914 agreement. In 2013, the plaintiffs sought to place a water well close to the boundary and negotiations with the defendant revealed that the parties had different views of the actual boundary. The defendants sought a declaratory judgment seeking to enforce the 1914 agreement and the plaintiffs filed an adverse possession claim. The trial court upheld the 1914 fence agreement and dismissed the plaintiff’s claims.
On further review the appellate court affirmed. While the non-permanent markers referred to in the 1914 fence agreement could not be found, the appellate court determined that there was sufficient evidence to support the defendant’s claim of ownership of the disputed acres via the 1914 fence agreement. The appellate court also remanded the case on the issue of attorney fees.
Boundary by Acquiescence Established by Landowners’ Conduct
Waggoner v. Alford, No. CV-19-931, 2021 Ark. App. 120 (Ark. Ct. App. Mar. 10, 2021)
The defendants purchased land adjacent to the plaintiff’s property on which they built a house. The defendants had a survey completed which indicated that their house was twenty-seven feet from the property line. This initial survey treated the plaintiff’s wire fence as the boundary. The plaintiff commissioned a survey nine years later that revealed that the fence was not the true boundary, and the defendants’ house encroached thirty-three feet onto the plaintiff’s property. A subsequent survey by the defendants made the same finding. The plaintiff sued to eject the defendants from the disputed .828-acre tract. The defendants claimed that the plaintiff’s fence constituted a boundary by acquiescence. The plaintiff argued that the fence was never intended to act as a boundary line, but rather as a means for keeping his horses on his property for a period of two to three years.
The trial court determined that the defendants had proved title to the disputed .828-acre tract. On appeal, the plaintiff argued that a boundary by acquiescence had not been established. Specifically, the plaintiff argued that the parties had not mutually consented to the fence as the property line. The appellate court noted that an express agreement between the parties is not necessary, and silent acquiescence can be established when a boundary line can be inferred from the conduct of the parties over a period of time. The appellate court noted that the defendants had maintained the disputed property for eight years before the plaintiff objected. As a result, the appellate court held that the evidence supported the finding of a boundary by acquiescence.
Trump-Era WOTUS Rule Applies in All States
Colorado v. United States Environmental Protection Agency, No. 20-1238, 2021 U.S. App. LEXIS 6070 (10th Cir. Mar. 2, 2021)
The “Navigable Waters Protection Rule” (NWPR) issued in April 2020, defines the Clean Water Act (“CWA”) term “waters of the United States” (“WOTUS”). The definition is a key aspect of administering the CWA. Only waters that constitute a WOTUS are subject to the CWA requirements and regulations. However, the Congress left the definition of a WOTUS up to the Environmental Protection Agency (EPA) to write rules defining the term. The NWPR is the most recent attempt at a regulatory definition.
In 2020, the Colorado federal district court entered a preliminary injunction that barred the NWPR from taking effect in Colorado as applied to the discharge permit requirement of Section 404 of the CWA. On appeal, the appellate court reversed. The appellate court noted that Colorado had failed to show irreparable harm without the issuance of the preliminary injunction. The result of the appellate court’s decision is that the NWPR is presently in effect in every state in the U.S.
CWA Contains “Knowing” Requirement, But WOTUS is Not Vague
United States v. Lucero, No. 10074, 2021 U.S. App. LEXIS 6307 and 6327 (9th Cir. Mar. 4, 2021)
The defendant, in 2014, operated a business that charged construction companies for the dumping of soil and debris on dry lands near San Francisco bay. The Environmental Protection Agency (EPA) later claimed that the dry land was a “wetland” subject to the dredge and fill permit requirements of Section 404 of the Clean Water Act (CWA). As a result, the defendant was charged with (and later convicted of) violating the CWA without any evidence in the record that the defendant knew or had reason to know that the dry land was a wetland subject to the CWA.
On further review, the appellate court noted that the CWA prohibits the “knowing” discharge of a pollutant into covered waters without a permit. At trial, the jury instructions did not state that the defendant had to make a “knowing” violation of the CWA to be found guilty of a discharge violation. Accordingly, the appellate court reversed on this point. However, the appellate court ruled against the defendant on his claim that the regulation defining “waters of the United States” was unconstitutionally vague, and that the 2020 Navigable Waters Protection Rule should apply retroactively to his case.
Conservation Easement Deduction Allowed for Donated Façade Easement
C.C.M. AM 2021-001 (Mar. 8, 2021)
The taxpayer donated an easement on a building in a registered historic district on which the taxpayer had installed an accessibility ramp to comply with the Americans With Disabilities Act (ADA). The IRS determined that the installation of the ramp would not disqualify the taxpayer’s deduction. The IRS viewer the ramp as “upkeep” essential to the preservation of the structure. Such upkeep, if required to comply with the ADA, does not jeopardize the donor’s eligibility for a charitable deduction under I.R.C. §170(h)(4)(B) with respect to a building in a registered historic district.
No Exception From Early Withdrawal Penalty for Payment of Living Expenses
Catania v. Comr., T.C. Memo. 2021-33
The petitioner retired at age 55 and transferred his 401(k) funds to a traditional IRA. Two years later, the petitioner withdrew $37,000 from the IRA to pay for maintenance on his home and other living expenses. The IRS applied a 10 percent penalty to the amount withdrawn because the petitioner had not reached age 59.5 at the time of the withdrawal. The Tax Court agreed with the IRS, determining that the Code contains no exception to early retirement account withdrawals for payment of living expenses and/or home maintenance.
These are just some of the recent developments in the ag law and tax world. There’s never a dull moment.