Monday, October 26, 2020

Roadkill – It’s What’s For Dinner (Reprise)

Overview

I don’t normally bring back a prior blog article for readers, but the articles are stacking up (over 500) and newer readers are frequently joining.  So, some may not know that a prior post exists on a topic they are searching for information about.  Thus, I bring back a topic I wrote about over two years ago for re-posting today (with some updates).

It’s the time of year again when I field questions about whether it is permissible to pick up roadkill.  Often, the question is in relation to big game such as deer or bear or moose.  But, other times the question may involve various types of furbearing animals such as coyotes, raccoons or badgers.  I don’t get too many roadkill questions involving small game.  That’s probably because when small game is killed on the road, it is either not wanted or the party hitting it simply assumes that there is no question that it can be possessed.

There are many collisions involving wildlife and automobiles every year.  One estimate by a major insurance company shows that one out of every 169 motorists in the U.S. hit a deer during 2018.  Between mid-2018 and mid-2019, insurance industry data show that there were almost two million animal insurance claims filed in the United States.  To put it in perspective, that’s almost ten times the number of people that have died with the virus listed as one of their co-morbidities. Perhaps state governors professing deep concern about the number of virus infections should be severely restricting speed limits or mandating no non-essential night-time travel. 

If a wild animal is hit by a vehicle, the meat from the animal is the same as that from animal meat obtained by hunting – assuming that the animal is not diseased.  So, in that instance, harvesting roadkill is a way to get free food – either for personal consumption or to donate to charity.  

What are the rules and regulations governing roadkill?  That’s the topic of today’s post.

State Rules

Presently, the top four states experiencing the highest rate of animal (wildlife)/car with collisions are West Virginia, Montana, Pennsylvania and South Dakota.  Especially in those states, it’s helpful to know the rules that apply when an animal or fowl is struck.

Many states have rules on the books concerning roadkill.  Often, the approach is for the state statutes and the regulatory body (often the state Department of Game and Fish (or something comparable)) to distinguish between "big game," "furbearing animals" and "small game."  This appears to be the approach of Kansas and a few other states.  Often a salvage tag (e.g., “permit”) is needed to pick up big game and turkey roadkill.  This is the approach utilized in Iowa and some other states.  If a salvage tag is possessed, a hunting license is not required.  For furbearing animals such as opossums and coyotes that are roadkill, the typical state approach is that these animals can only be possessed during the furbearing season with a valid fur harvester license.  As for small game, the typical state approach is that these roadkill animals can be possessed with a valid hunting license in-season.  But variations exist from state-to-state. 

An approach of several states is to allow the collection of roadkill with a valid permit.  That appears to be the approach in Colorado, Georgia, Idaho, Illinois, Indiana, Maryland, New Hampshire, North Dakota, New York, Ohio, Pennsylvania and Tennessee.  Other states require the party hitting wildlife and collecting the roadkill to report the incident and collection within 24 hours.  Other states may limit roadkill harvesting to licensed fur dealers.  In these states (and some others), the general public doesn’t have a right to collect roadkill.  In Texas, roadkill-eating is not allowed (although a legislative attempt to remove the ban was attempted in 2014).  South Dakota has legislatively attempted to make roadkill public property.  Wyoming requires a tag be received from the game warden for possessing big game roadkill.  Oregon allows drivers to get permits to recover, possess, use or transport roadkill. 

Other states (such as Alabama) may limit roadkill harvesting to non-protected animals and game animals, and then only during open season.  The Alaska approach is to only allow roadkill to be distributed via volunteer organizations.  A special rule for black bear roadkill exists in Georgia.  Illinois, in certain situations requires licenses and a habitat stamp.  Massachusetts requires that roadkill be submitted for state inspection, and New Jersey limits salvaging roadkill to deer for persons with a proper permit. 

In all states, federally-protected species cannot be possessed.  If a question exists about the protected status of roadkill, the safest approach is to leave it alone.  Criminal penalties can apply for mere possession of federally protected animals and birds.  Similarly, if a vehicle does significant enough damage to wildlife that the animal’s carcass cannot be properly identified to determine if the season is open for that particular animal (in those states that tie roadkill possession to doing so in-season) the recommended conduct is to not possess the roadkill.   

In the states that have considered roadkill legislation in recent years, proponents often claim that allowing licensed hunters to take (subject to legal limits) a fur-bearing animal from the roadside would be a cost-saving measure for the state.  The logic is that fewer state employees would be required to clean-up dead animal carcasses.  Opponents of roadkill bills tend to focus their arguments on safety-related concerns – that having persons stopped alongside the roadway to collect dead animals would constitute a safety hazard for other drivers.  That’s an interesting argument inasmuch as those making this claim would also appear to be asserting that a dead animal on a roadway at night is not a safety hazard.  Others simply appear to argue that collecting roadkill for human consumption is disgusting. 

Conclusion

There is significant variation among state approaches with respect to possession of roadkill.  That means that for persons interested in picking up roadkill, researching applicable state law and governing regulations in advance would be a good idea.  For roadkill that is gleaned from a roadway that is used for human consumption, care should be taken in preparation and cooking.  The present younger generation typically doesn’t have much experience dining on raccoon (they tend to be greasy), opossum shanks and gravy, as well as squirrel.  But, prepared properly, some people view them as a delicacy. 

To date, the USDA hasn’t issued guidelines on the proper preparation of roadkill or where roadkill fits in its food pyramid (that was revised in recent years).  That’s sounds like a good project for some USDA Undersecretary for Food Safety to occupy their time with.  Thanksgiving is just around the corner.

Be careful out there.

October 26, 2020 in Civil Liabilities, Regulatory Law | Permalink | Comments (1)

Monday, October 12, 2020

Principles of Agricultural Law

PrinciplesForBlog2020Fall-cropped

Overview

The fields of agricultural law and agricultural taxation are dynamic.  Law and tax impacts the daily life of a farmer, rancher, agribusiness and rural landowner practically on a daily basis.  Whether that is good or bad is not really the question.  The point is that it’s the reality.  Lack of familiarity with the basic fundamental and applicable rules and principles can turn out to be very costly.  As a result of these numerous intersections, and the fact that the rules applicable to those engaged in farming are often different from non-farmers, I started out just over 25 years ago to develop a textbook that addressed the major issues that a farmer or rancher and their legal and tax counsel should be aware of.  After three years, the book was complete – Principles of Agricultural Law - and it’s been updated twice annually since that time. 

The 47th edition is now complete, and it’s the topic of today’s post – Principles of Agricultural Law.

Subject Areas

The text is designed to be useful to farmers and ranchers; agribusiness professionals; ag lenders; educational professionals; lawyers, CPAs and other tax preparers; undergraduate and law students; and those that simply want to learn more about legal and tax issues.  The text covers a wide range of topics.  Here’s just a sample of what is covered:

Ag contracts.  Farmers and ranchers engage in many contractual situations, including ag leases, to purchase contracts.  The potential perils of verbal contracts are numerous and can lead to unnecessary litigation. What if a commodity is sold under forward contract and a weather event destroys the crop before it is harvested?  When does the law require a contract to be in writing?  For purchases of goods, do any warranties apply?  What remedies are available upon breach? If a lawsuit needs to be brought to enforce a contract, how soon must it be filed? Is a liability release form necessary?  Is it valid?  What happens when a contract breach occurs?  What is the remedy? 

Ag financing.  Farmers and ranchers are often quite dependent on borrowing money for keeping their operations running.  What are the rules surrounding ag finance?  This is a big issue for lenders also?  What about dealing with an ag cooperative and the issue of liens?  What are the priority rules with respect to the various types of liens that a farmer might have to deal with? 

Ag bankruptcy.  A unique set of rules can apply to farmers that file bankruptcy.  Chapter 12 bankruptcy allows farmers to de-prioritize taxes.  That can be a huge benefit.  Knowing how best to utilize those rules is very beneficial.  That’s especially true with the unsettled issue of whether Payment Protection Program (PPP) funds can be utilized by a farmer in bankruptcy.  The courts are split on that issue.

Income tax.  Tax and tax planning permeate daily life.  Deferral contracts; depreciation; installment sales; like-kind exchanges; credits; losses; income averaging; reporting government payments; etc.  The list could go on and on.  Having a basic understanding of the rules and the opportunities available can add a lot to the bottom line of the farming or ranching operation as well as help minimize the bleeding when times are tough.

Real property.  Of course, land is typically the biggest asset in terms of value for a farming and ranching operation.  But, land ownership brings with it many potential legal issues.  Where is the property line?  How is a dispute over a boundary resolved?  Who is responsible for building and maintaining a fence?  What if there is an easement over part of the farm?  Does an abandoned rail line create an issue?  What if land is bought or sold under an installment contract?  How do the like-kind exchange rules work when farmland is traded? 

Estate planning.  While the federal estate tax is not a concern for most people and the vast majority of farming and ranching operations, when it does apply it’s a major issue that requires planning.  What are the rules governing property passage at death?  Should property be gifted during life?  What happens to property passage at death if there is no will?  How can family conflicts be minimized post-death?  Does the manner in which property is owned matter?  What are the applicable tax rules?  These are all important questions.

Business planning.  One of the biggest issues for many farm and ranch families is how to properly structure the business so that it can be passed on to subsequent generations and remain viable economically.  What’s the best entity choice?  What are the options?  Of course, tax planning is a critical part of the business transition process.

Cooperatives.  Many ag producers are patrons of cooperatives.  That relationship creates unique legal and tax issues.  Of course, the tax law enacted near the end of 2017 modified an existing deduction for patrons of ag cooperatives.  Those rules are very complex.  What are the responsibilities of cooperative board members? 

Civil liabilities.  The legal issues are enormous in this category.  Nuisance law; liability to trespassers and others on the property; rules governing conduct in a multitude of situations; liability for the spread of noxious weeds; liability for an employee’s on-the-job injuries; livestock trespass; and on and on the issues go.  Agritourism is a very big thing for some farmers, but does it increase liability potential?  Nuisance issues are also important in agriculture.  It’s useful to know how the courts handle these various situations.

Criminal liabilities.  This topic is not one that is often thought of, but the implications can be monstrous.  Often, for a farmer or rancher or rural landowner, the possibility of criminal allegations can arise upon (sometimes) inadvertent violation of environmental laws.  Even protecting livestock from predators can give rise to unexpected criminal liability.  Mail fraud can also arise with respect to the participation in federal farm programs.  The areas of life potentially impacted with criminal penalties are worth knowing, as well as knowing how to avoid tripping into them.

Water law.  Of course, water is essential to agricultural production.  Water issues vary across the country, but they tend to focus around being able to have rights to water in the time of shortage and moving the diversion point of water.  Also, water quality issues are important.  In essence, knowing whether a tract of land has a water right associated with it, how to acquire a water right, and the relative strength of that water rights are critical to understand.

Environmental law.  It seems that agricultural and the environment are constantly in the news.  The Clean Water Act, Endangered Species Act and other federal (and state) laws and regulations can have a big impact on a farming or ranching operation.  Just think of the issues with the USDA’s Swampbuster rules that have arisen over the past 30-plus years.  What constitutes a regulatory taking of property that requires the payment of compensation under the Constitution?  It’s good to know where the lines are drawn and how to stay out of (expensive) trouble.

Regulatory law.  Agriculture is a very heavily regulated industry.  Animals and plants, commodities and food products are all subject to a great deal of regulation at both the federal and state level.  Antitrust laws are also important to agriculture because of the highly concentrated markets that farmers buy inputs from and sell commodities into.  Where are the lines drawn?  How can an ag operation best position itself to negotiate the myriad of rules?   

Conclusion

It is always encouraging to me to see students, farmers and ranchers, agribusiness and tax professionals get interested in the subject matter and see the relevance of material to their personal and business lives. Agricultural law and taxation is reality.  It’s not merely academic.  The Principles text is one that can be very helpful to not only those engaged in agriculture, but also for those advising agricultural producers.  It’s also a great reference tool for Extension educators. It’s also a great investment for any farmer – and it’s updated twice annually to keep the reader on top of current developments that impact agriculture.

If you are interested in obtaining a copy, perhaps even as a Christmas gift, you can visit the link here:  http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/principlesofagriculturallaw/index.html.  Instructors that adopt the text for a course are entitled to a free copy.  The book is available in print and CD versions.  Also, for instructors, a complete set of Powerpoint slides is available via separate purchase.  Sample exams and work problems are also available.  You may also contact me directly to obtain a copy.

If you are interested in obtaining a copy, you can visit the link here:  http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/principlesofagriculturallaw/index.html.  You may also contact me directly. 

October 12, 2020 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, September 10, 2020

Ag Law and Tax in the Courtroom

Overview

In today’s post, I take a look at some recent court cases involving agricultural producers and rural landowners.

The next installment of “ag in the courtroom” – it’s the topic of today’s post.

Solar “Farm” Not a Nuisance

Yates v. United States Environmental Protection Agency, No. 6:17-cv-1819-AA, 2019 U.S. Dist. LEXIS 160799 (D. Or. Sept. 20, 2019); Yates v. United States Environmental Protection Agency, No. 6:17-cv-01819-AA, 2020 U.S. Dist. LEXIS 65949 (D. Or. Apr. 14, 2020)

A nuisance is an invasion of an individual's interest in the use and enjoyment of land rather than an interference with the exclusive possession or ownership of the land.  Nuisance law prohibits land uses that unreasonably and substantially interfere with another individual's quiet use and enjoyment of property.  The doctrine is based on two interrelated concepts: (1) landowners have the right to use and enjoy property free of unreasonable interferences by others; and (2) landowners must use property so as not to injure adjacent owners.

The two primary issues at stake in any agricultural nuisance dispute are whether the use alleged to be a nuisance is reasonable for the area and whether the use alleged to be a nuisance substantially interferes with the use and enjoyment of neighboring land.  These concepts played out in a case last year involving the construction of a “solar farm” in Oregon. 

In the Oregon case, the plaintiff owned land zoned as “Exclusive Farm Use.” The plaintiff alleged that construction of a 12-acre collection of solar panels (solar array) built on an adjacent property constituted a nuisance by interfering with her use and enjoyment of her property.  The plaintiff also claimed that the construction during the summer of 2017 caused flooding on her property. The plaintiff’s suit was against the adjacent landowner; a company that held a conditional use permit for the solar array; and the construction company. The plaintiff alleged that all three defendants were responsible for the nuisance and trespass claims. The trial court granted summary judgment to all three defendants, finding that the plaintiff failed to offer any material evidence to establish either her nuisance or trespass claim. The court held that the defendant landowner did not engage in any activity constituting a nuisance or trespass. Landowners are generally not responsible for nuisances occurring after the execution of the lease, unless the landowner knew the activity being carried on would involve an unreasonable risk causing the nuisance or had control over the activities on the land. The trial court also noted that merely because the solar company obtained the permit that ultimately allowed construction to happen did not show they had any control over the construction workers’ actions. As for the actions of the construction company, the trial court held the plaintiff failed to allege evidence of an unreasonable interference with her private use or enjoyment of her land. Although the plaintiff complained of increased traffic and leftover debris, she was unable to establish that she had to adjust any daily habits or the manner in which she enjoyed her property as a result of the construction company’s conduct. The plaintiff alleged that a ditch built between the array and her property caused flooding on her property. However, the trial court noted the plaintiff could not show that the defendant construction company built the ditch or that the ditch directly diverted water onto her property. 

In a later action solely against the county, the trial court granted the county’s motion for summary judgment on the plaintiff’s claims of negligence per se and procedural due process.  The trial court determined that the county did not violate state law (a requirement for a nuisance per se) because state law didn’t require the county to provide actual notice to the plaintiff of its permitting decision, but merely an opportunity to appeal.  The appellate court also determined that the setback requirement of state law was complied with and that the waster runoff or flooding allegedly caused by the ditch did not constitute a trespass by water. 

Recreational Use Statute Provides Landowner Protection

Nolan v. Fishman, 218 A.3d 1034 (Vt. 2019)

Many states have what is known as a recreational use statute.  Under such a statute, an owner or occupier owes no duty of care to keep the premises safe for entry or use by others for recreational purposes, or to give any warning of dangerous conditions, uses, structures, or activities to persons entering the premises for such recreational purposes. Similarly, if an owner, directly or indirectly, invites or permits any person without charge to use the property for recreational purposes, the owner does not extend any assurance the premises are safe for any purpose, confer the status of licensee or invitee on the person using the property, or assume responsibility or incur liability for any injury to persons or property caused by any act or omission of persons who are on the property.  But, if injury to recreational users is caused by the willful or malicious failure to guard or warn against a dangerous condition, use, structure, or activity, the protection of the statute is lost. Likewise, if the owner imposes a charge on the user of the property, the liability protection is lost under many state provisions.  In a 2019 case, the Vermont recreational use statute was at issue.

The facts of the Vermont case revealed that the plaintiff is the administrator of the estate of a three-year-old who drowned in a brook on the defendants’ property. The defendants are the parents of the owners of the daycare facility where the decedent had been attending when the accident occurred. The defendants’ land was connected to the daycare property, and the daycare would regularly use a small area of the defendants’ land to access a brook beach and used the defendants’ land for various outdoor activities. The defendants did not profit from the daycare and were not involved in any of the daycare’s business activities. The defendant’s land was not posted, and they had always held it open to the public for recreational use.

The plaintiff sued the defendants alleging their negligence was the direct and proximate cause of the incident. The state recreational use law encourages owners to make their land and water available to the public for no consideration for recreational uses without increasing liability potential for the owner. Under the statute, a recreational user is treated as an adult trespasser, meaning that the landowner must only avoid willfully or wantonly injuring a recreational entrant. 

The trial court found that the activities engaged in by the daycare on defendants’ land were both recreational and educational, therefore qualifying as a recreational use. However, the trial court dismissed the defendant’s motion for summary judgment because questions remained as to whether the defendants’ property was open and undeveloped land that qualified for protection under the statute. On appeal, the appellate court reversed the trial court and held that the statute applied. The appellate court held that the daycare’s use of the defendants’ property was without consideration, qualified as a recreational use, and  that the land was open and undeveloped - the general public was freely permitted to use defendants’ land, along with the daycare. Although the defendants had placed a sandbox and brook bridge on their land, the appellate court noted that the legislature had expressly stated that the presence of such objects on land would not, by itself, preclude land from being open and undeveloped. Therefore, the defendants were covered under the recreational use statute.

Tract Properly Zoned as “Residential.” 

Miller v. Scott County Board of Review, No. 19-1038, 2020 Iowa App. LEXIS 436 (Iowa Ct. App. Apr. 29, 2020)

The rural-urban fringe provides its own unique set of legal issues.  One of those, is an attempt by landowners who aren’t really farmers to qualify their small tracts as “agriculture” for purposes of achieving a lower property tax assessment.  The issue came up recently in an Iowa case.

The plaintiff, a computer services consultant, bought a 10.2-acre tract in 2008. It consisted of approximately two acres of a home and improvements; five acres of deep mud/bog; and 3.6 acres of cropland. The cropland is in a 100-year floodplain. From 2009-2011 the plaintiff grew hay on the cropland, and in 2012 and 2013 he grew corn on it. No crops were grown in 2014 due to weather, and in 2015 he grew corn and pumpkins. He challenged his 2015 property tax assessment and the 2017 assessment as inequitable and on the basis that it misclassified the property as “residential” rather than “agricultural.”

The county zoning board denied his petition and he appealed to the local trial court. At a trial court hearing the county’s assessor noted that the property had multiple uses, but that the plaintiff’s farming operation was “a secondary use.” The county did adjust the valuation downward by 16 percent and granted a “slough bill” exemption for the 2017 tax year. However, the trial court upheld the county’s designation of the property as “residential” on the basis that the plaintiff was a hobby farmer. As such, the trial court determined that the plaintiff’s property taxes should be based on a valuation amount $100,000 greater than the plaintiff desired.

On appeal, the appellate court affirmed, noting that the burden was on the plaintiff to establish the predominant agricultural use of the property. The court agreed with the trial court’s findings that the ag use of the property had never been profitable, and that if it were sold it would be marketed as a residential property rather than a farm property. Indeed, the plaintiff purchased the property as a residential property, and it is surrounded by residential housing. In addition, the largest valued asset on the property is the residence. The plaintiff also testified that he benefited from tax savings as a result of the cropping activities on his tract. He also testified to spending $90,000 for ag equipment and $55,000 to construct a barn but had farm income never exceeding $1,200 annually. That’s a classic “hobby farm” activity.

Conclusion

The legal issues involving rural landowners keep rolling in.  It’s always best to have a well-trained ag lawyer at the ready when needed. 

September 10, 2020 in Civil Liabilities, Real Property | Permalink | Comments (0)

Saturday, September 5, 2020

Issues With Noxious (and Other) Weeds and Seeds

Observation

A constant struggle for farmers is the battle with weeds.  Some weeds must be controlled.  Those are the ones that are listed by the state as noxious weeds.  Failure to control those can bring monetary penalties from local government officials.  Then there are non-noxious weeds that aren’t required to be controlled.  Those are a big issue when a neighbor fails to control them and their seeds drift in the wind and create a weed problem on an adjacent owner’s tract.  That can also present legal issue.  In addition, both the state and federal government have rules governing seeds designed to prevent the spread of noxious weeds.

Legal issues associated with weeds – it’s the topic of today’s post.

Federal Seed Act

Originally enacted in 1939, the Federal Seed Act (Act) (7 U.S.C. §§ 1551-1611).has two major purposes:  (1) to correct abuses in the merchandising of agricultural and vegetable seed in interstate commerce; and (2) to prevent the importation of adulterated or misbranded seed.  The Act is essentially a truth-in-labeling law that protects buyers against purchasing mislabeled or contaminated seed by imposing stringent labeling requirements under which the class and variety of seed must be specified on the label of the seed product. 

Under the Federal Seed Act, seeds are deemed to include “agricultural,” “vegetable,” or “weed” seeds.  In general, the labels must disclose the variety name and kind of seed, and the percentage by weight of each variety of seed representing over 5 percent of the total weight of the container.  Hybrid seeds must be designated, and the label must also contain the lot number, origin (state or nation) of the seed, percentage by weight of weed seeds, the kind and rate of occurrence of noxious weeds, the percentage of germination, the date of the germination test, and the date after which any inoculant used on the seeds may be ineffective.  The Act establishes seed certifying agencies that have the power officially to certify seeds as meeting purity, packaging and processing standards established by the Secretary of Agriculture.  Without certification, any representation of purity is deemed to be a false representation. 7 U.S.C. § 1562.

Violations of the Act may result in having the seed seized, and civil and criminal penalties imposed.  Any violation of the Act or rules and regulations committed with knowledge or as the result of gross negligence is considered a misdemeanor and subjects the offender to a maximum fine of $1,000 for the first offense and $2,000 for each subsequent offense.  Any other violation of the Act or rules and regulations, even though committed without knowledge or actual negligence, subjects the violator to a fine of between $25 and $500 for each violation.  Any act, omission, or failure by an officer, agent, or employee also binds the company, principal, or employer, as the case may be.  The Act does not directly create a private civil remedy for the buyer who may be harmed by a violation, but buyers may recover damages against the seed seller or distributor under general tort or contract law, or by claiming a breach of warranty.  If the problem related to the seeds stems from the failure of the producer or seller to comply with the Act, that will generally be a major factor in resolving the lawsuit.

Seed imported into the United States is also subject to inspection and sampling requirements under the Act. 7 U.S.C. § 1581.  The Collector of Customs is authorized to draw samples of all seeds and screenings so they may be tested and analyzed to insure their fitness for use in the United States.  The Act establishes requirements regarding importation of seed into the United States and when seeds may be denied entry. Certain seed which is declared to be imported for the seeding of roses is subject to the import provisions of the Act.  Seed that is adulterated or deemed to be unfit for seeding purposes may be prohibited from importation.  Unfit or adulterated seed may be cleaned or processed under the supervision of a USDA employee.  If, after careful analysis, it is determined that the clean seed meets the requirements of the Act, the seed may be admitted into the United States.

State Noxious Weed Laws

The liability of farmers and ranchers for the spread of weeds and other noxious or invasive vegetation onto adjoining land is governed by statute in almost all jurisdictions.  Noxious weed laws create a duty on the part of owners, tenants, and other possessors of land to destroy noxious weeds or otherwise prevent their spread.  A typical noxious weed statute delegates enforcement authority to state agriculture officials, as well as local boards and officials.  A typical statute defines the type of noxious weed or other vegetation subject to regulation, establishes county weed control districts, authorizes the appointment of local weed control officials and specifies their authorities and duties, prescribes the duty of landowners to destroy weeds, establishes the procedure for giving notice to offending parties, and provides local control authorities with limited enforcement powers.  Most state noxious weed statutes provide that weed control officials may assess the cost of removing weeds to the property owner rather than a tenant or other person in possession of the premises.  Some statutes also impose criminal penalties for violations.

Recovering damages against a neighbor.  Most state noxious weed laws do not permit an injured landowner to recover civil damages for the spread of weeds from an adjoining owner's property. However, this does not prevent an injured party from suing to recover damages for the defendant's negligence in allowing weeds to overspread the plaintiff's land.  For example, the South Dakota Weed Act (S.D. Codified Laws Ch. 38-22) has been held to not prohibit a private nuisance action for damages caused by a failure to control non-noxious weeds.  Collins v. Barker, 668 N.W.2d 548 (S.D. 2003). In the South Dakota case, the court held that a farmer has duty to use ordinary care in working the land.  Under the facts of the case, the plaintiff could bring a nuisance action to determine whether the defendant breached the duty of ordinary care in working Conservation Reserve Program (CRP) land.

In reality, however, obtaining a judgment may be rather difficult. An injured landowner must usually prove that the weeds were spread by the defendant's active negligence or willful conduct rather than by nature. While it may be possible for the plaintiff to prove negligence by the fact that the defendant was found guilty of violating a criminal weed control provision, there does not appear to be any authority directly on point.

An offended landowner may also be able to recover damages for the spread of noxious weeds onto their land from an adjoining landowner's premises by showing that the noxious weeds were destroyed negligently.  For example, in Kukowski v. Simonson Farm, Inc., 507 N.W.2d 68 (N.D. 1993), the court held that a farmer has a duty to exercise ordinary care when attempting to control or remove weeds.  The land at issue in the case was seeded to grass and a weed control chemical was applied.  Over the course of the growing season, a stand of Kochia and Russian thistle grew on the CRP acreage.  The landowner combined the weeds in an attempt to control the weeds.  A neighboring farmer sued alleging that the combine broke off the weeds in an unnatural manner, allowing them to blow onto their property, causing damage.  The neighbor also claimed that the use of the combine “branded” the weeds, making them readily identifiable as coming from the CRP ground.  $80,000 of damages were claimed for clean-up costs, reduced crop yields and costs for present and future weed control.  While the court noted that the common law does not hold a landowner liable for the natural spread of weeds from their property, liability can be present if weeds spread from an independent act of negligence. 

Weeds in the fence line.  For noxious weeds that are in a partition fence line, state law typically sets forth a procedure for the adjoining landowners to follow to take care of the problem.  That procedure may involve one adjoining landowner making a request of the other adjoining landowner to clear the fence line of noxious weeds.  After a set time, if the needed control hasn’t occurred, then local officials can be notified.  The local officials will come view the matter and make a determination concerning weed control.  If action is to be taken, the local officials may hire someone to control the weeds and then add the costs to the responsible landowner’s property tax bill. 

Road ditches and railroads.  Many states have law requiring counties, townships or municipalities to control noxious weeds within their jurisdiction that are growing along public roadways.  There typically is a timeframe established for the control measures to be taken.  There might also be a weed control requirement outside the specified timeframe(s) if control is necessary to minimize a public safety hazard.  If a landowner controls noxious weeds in ditches, recovery of control costs against the responsible governmental entity is possible, but only if proper procedural requirements are first followed such as providing notice and then (after a period of time without action) requesting the local court to order the governmental body to fulfill its duty. For example, in Metzger v. Horton, 2013 Ohio 2964 (Ohio Ct. App. 2013), a farmer bought a larger combine and needed trees and brush trimmed back along a road he used to get access to the land he farmed.  He requested that the township trustees trim the vegetation, but when they didn’t get the job done, he did it himself and billed the township $1,863 for his costs.  The township trustees didn’t pay the invoice and the farmer sued.  He lost.  The court held that he didn’t follow the proper procedure of seeking a court to order the township to do its job.  As such, his costs he sought reimbursement for were self-imposed. 

For noxious weeds that are growing in the right-of-way of toll-road or rail line, state law commonly specifies the company controlling the toll road (for toll roads) and the railroad company (for rail lines) is responsible for controlling noxious weeds.  If control doesn’t occur, state law typically gives the local government the ability to eliminate the weeds and sue the responsible company for the cost of control. 

Public land.  For noxious weeds on public land, state law may detail the procedure to be followed in controlling such weeds. 

Non-Noxious Weeds

Weeds that are not on a state’s (or county’s) noxious weed list also present problems.  While a farmer has a duty to control the spread of noxious weeds, as noted above, that duty doesn’t extend to non-noxious weeds absent malicious intent to injure an adjoining landowner.  For example, in Krug v. Koriel, 23 Kan. App. 2d 751, 935 P.2d 1063 (1997), the court held that there is no common law duty in Kansas to control volunteer wheat so as to prevent the spread of wheat streak mosaic virus that is caused by the wheat curl mite because volunteer wheat is not listed as a noxious weed under Kansas law.  

Controlling volunteer wheat (and grassy weeds) is a key point, there is no treatment for wheat streak mosaic virus.  This is a big issue in Kansas.  Most recent data show that the five-year average statewide loss is 1.74 percent of the Kansas wheat crop.  In 2017, the loss was estimated at $76.8 million – 5.6 percent of the statewide wheat crop.  A drought in the major wheat growing regions of Kansas in the fall of 2019 and spring of 2020 could mean that more volunteer wheat will be present in 2021 without additional control measures being taken.  Adding to the potential for more volunteer wheat in 2021 is hail damage, head scab and even waterlogged fields in late summer in some areas.  Simply planting later can be at least a partial control technique.

Conclusion

Seeds and weeds present practical and legal issues for farmers and ranchers. With respect to seeds, detailed rules apply to seed that is certified.  For weeds, it’s important to understand the types of noxious weeds in a particular state and the rules governing their control.  For, non-noxious weeds properly following protocol for their control is critical.

September 5, 2020 in Civil Liabilities | Permalink | Comments (0)

Monday, August 24, 2020

Court Developments in Agricultural Law and Taxation

Overview

The cases and rulings involving agriculture keep on coming.  In today’s post, I pick out just a few involving some rather common issues.

Ag law in the courts – it’s the topic of today’s post.

Railroad Responsible For Faulty Railroad Fence 

Leslie v. BNSF Railway. Co., No. Civ. 1:16-cv-1208-JCH-JHR, 2019 U.S. Dist. LEXIS 154460 (D. N.M. Sept. 10, 2019)

Railroads are responsible for building and maintaining railroad fences.  But, the nuances of each state’s fence law involving railroads can cause some interesting arguments.  In a New Mexico case last year, the court was faced with addressing a previously unanswered application of the state fence law as applied to a railroad.   

The plaintiffs collided with a cow on a public highway.  The defendant was responsible for building and maintaining the adjacent fence along a ranch that it had a right-of-way through. The plaintiffs alleged that the railroad company negligently maintained the fence, which allowed a cow to escape onto the highway. The defendant claimed that it did not own the cow that escaped, and that the plaintiff’s theory for recovery hinged on the defendant first being found liable in an action against the owner of the livestock. The defendant removed the action from New Mexico state court to federal court and sought a judgment with respect to both of the plaintiffs’ negligence claims.

 The court interpreted the New Mexico legislature’s intent of whether the plaintiffs were a protected class under the state’s fence law and determined that the plaintiff failed to establish a negligence per se claim requiring railroads to build fence lines. The purpose of the railroad fencing portion of the fence law, the court determined, was to protect owners of livestock rather than the motoring public.  The plaintiffs’ second claim was that the defendant was per se negligent by permitting the cow to wander upon the road. The statute at issue stated that it was unlawful for “any person” to “negligently permit” livestock to wander upon any unfenced highway. The defendant argued that the term “permit” required that the negligence of the owner of the livestock must be established before liability would attach. Although the court determined that the phrase “any person” had not been construed to mean persons other than owners of livestock, it concluded that the New Mexico legislature had limited the application of similar statutes and failed to do so in this instance. According to the court, the failure to limit the statute by the state legislature meant the statute was intended to be interpreted broadly in order to protect a broader class of people.  The court held that the plaintiffs had established themselves as members of the class sought to be protected by the fence law and that the defendant had permitted the cow to wander on the road. Upon further consideration, the plaintiff must establish whether the defendant had negligently permitted the cow to wander upon the road.

Paying Principal Amount Within Redemption Period is Insufficient to Redeem Property

Sibley State Bank v. Zylstra, No. 19-0126, 2020 Iowa App. LEXIS 830 (Iowa Ct. App. Aug. 19, 2020)

When farmland is foreclosed upon, the owner is given a period of time to redeem the property by paying the price the property brought at the foreclosure sale plus costs.  But details matter.  In this case, the plaintiff purchased one of two parcels of land at a foreclosure action and another business purchased the other parcel. Under state (Iowa) law, the buyers took the property subject to the prior owner’s one-year right of redemption from the date of the sale. The prior owner assigned its redemption rights to the defendant 364 days after the foreclosure sale. The next day (the final day of the redemption period) the defendant tendered a check to the county court clerk for the principal amount of the two foreclosure bids and received a receipt from the clerk showing a “balance due” of zero.

Two days later, the plaintiff applied for a hearing on the redemption issue to refund the defendant’s check and sought a finding that no redemption had occurred because the amount tendered by the defendant did not include interest and fees. The defendant claimed that the court clerk would not tell him the exact amount that was necessary to redeem both properties upon his asking. The defendant further claimed that the clerk withheld the amount from him, and that he had acted in good faith in trying to redeem the properties by paying the full principal amount (well over $1 million). The trial court found that the defendant failed to inquire with either the bank or the bank’s attorney what the amount due for redemption would be. Additionally, the trial court held that the county clerk had no duty to the defendant to determine the redemption amount. On appeal, the defendant claimed that the trial court erred in not granting him equitable relief, and that he paid a sufficient amount to redeem at least one of the properties. The appellate court affirmed, holding that the mistake in calculating the payoff amount was the defendant’s sole fault. Further, the appellate court noted the defendant could have taken advantage of a safe harbor provision, as the redemption period was about to expire, but failed to do so. As for the defendant’s claim of partial redemption for having tendered an amount exceeding the redemption price of either property, the appellate court held that in order to redeem one tract required the defendant to specify which parcel was being redeemed. The appellate court held that an insufficient payment for redemption of two properties alone cannot result in an after-the-fact redemption of one of the properties.

A Prescriptive Easement May Be Created Over a Ditch or Waterway

Five Forks Hunting Club, LLC v. Nixon Family Partnership, No. CV-18-301, 2019 Ark. App. LEXIS 397 (Ark. Ct. App. Sept. 11, 2019)

Easement issues are frequently encountered with respect to agricultural properties.  But, is an access easement restricted to land, or can it apply to water access?  That was the issue involved in this case.

Here, the parties owned adjoining tracts that they used for duck hunting.  The plaintiff sought a declaratory judgment against the defendant, claiming that the plaintiff had the right to control the use of a ditch that the defendant had been using to gain access to the plaintiff’s land. The plaintiff had built a bridge to block the defendant’s path to their property, and in years past had obstructed the defendant’s path on separate occasions. The plaintiff claimed that the defendant merely had permissive use of the ditch, but the defendant sought a prescriptive easement over the ditch and a road that ran parallel to the ditch. The defendant would use the road to gain access to the land during dry periods and travel by boat in the ditch during times where the road was underwater. The trial court held that the defendant was able to establish an easement by prescription over the ditch by establishing that a preponderance of the evidence showed that the use of the ditch was adverse to the plaintiff and under a claim of right for the seven-year statutory period. On appeal, the appellate court noted that under Arkansas law, any vehicle needed for the operation of the easement could be driven across the servient estate. A boat could be used to access the easement therefore a prescriptive easement could be created over a ditch or waterway. The plaintiff also argued on appeal that the defendant failed to prove the necessary elements of a prescriptive easement. The plaintiff argued that the use of the ditch was not continuous or uninterrupted for the required statutory period because the ditch was not always flooded. The appellate court, however, held that mere temporary absences of a claimant do not interrupt the “continuous” requirement for a prescriptive easement. Also, the plaintiff’s attempts to obstruct the defendant’s use of the ditch occurred after the defendant had met the statutory requirement for establishing a prescriptive easement. Finally, the appellate court noted that the trial court’s decision to not limit the prescriptive easement for the ditch to a shorter route was not in error as it created no additional burden to the plaintiff landowner.

Lack of Proof for Ag Sales Tax Exemption 

Arkansas Dept. of Rev. Legal Counsel Op. No. 20200527 (Jul. 21, 2020)

In many states, personal property used in farming is exempt from sales tax.  That is the case, for example, in Arkansas.  But, it is important to be able to certify that the buyer is engaged in the trade or business of farming and that the item(s) purchased will be used in farming.  Under many state provisions, to be exempt the item(s) purchased must be used directly in farm production activities.  Indirect uses, such as an all-terrain vehicle used to spray weeds on the farm, don’t qualify.

Under the Arkansas procedure, a farmer provides a “Farm Exemption Certificate” to a seller so that the seller knows whether the sale of an item is exempt from sales tax because the buyer was engaged in farming and the item purchased would be used directly and exclusively in farming.  Here, the question was whether livestock shade systems and mower covers qualified for the exemption.  Based on the facts presented, it was determined that the taxpayer (seller) did not provide sufficient facts concerning any specific sale or transaction for a determination of exemption to be made.  However, the seller could rely on the buyer’s Certificate and could accept a certification or other information from the buyer to establish that the sale was exempt.  Alternatively, the taxpayer could accept a certification or other information that the buyer provided to establish that the sale was exempt.  Such, other information could include the buyer certifying in writing on a copy of the invoice or sales ticket that the taxpayer would retain stating that the buyer was a farmer and that the items would be used exclusively and directly in farming as a business. 

More Problems with Donated Permanent Conservation Easements

Belair Woods, LLC v. Comr., T.C. Memo. 2020-112 ; Cottonwood Place, LLC, et al. v. Comr., T.C. Memo. 2020-115

The Tax Court continues to render decisions involving claimed charitable deductions for the donation of “permanent” conservation easements.  At the National Farm Income Tax/Estate and Business Planning Conference last month in Deadwood, SD, U.S. Tax Court Judge Elizabeth Paris stated that many cases remain in the Tax Court’s pipeline yet to decide.  That vast majority of the decision so far have been decided in favor of the IRS.  Don’t expect that trend to change. 

I.R.C. §170(h)(5)(A) requires that an easement donated to a qualified organization to be “protected in perpetuity.”  Treas. Reg. §1.170A-14(g)(6) requires that the easement grant must, upon extinguishment, result in the charity receiving a proportionate part of the proceeds when the property subject to the easement is sold.  In Belair Woods, however, the deed language did not provide the charity with a proportionate part of the gross sales proceeds.  Instead, it specified that the charity would receive the extinguishment proceeds reduced by any increase in value related to improvements that the donor had placed on the property.  The deed language also required a reduction in the proceeds going to the charity by an amount paid to satisfy any and all prior claims regardless of whether a claim arose from the donor’s conduct. 

The Tax Court strictly construed the regulation and denied a charitable deduction for the donation because the grantee was not in all cases absolutely entitled to a proportionate share of the proceeds upon extinguishment sale of the property.  As such, the contribution was not protected in perpetuity.  The Tax Court noted that the improvements were part of the donation rather than the donation being restricted just to the underlying land.  The rights to construct improvements were restricted in meaningful ways by the easement, and also enhanced the property’s value.   The petitioner also claimed that the IRS had accepted deed terms comparable to the petitioner’s deed via a stipulation in a case involving a different petitioner and, as such, should be estopped from disallowing the petitioner’s deduction.  The Tax Court determined that the petitioner had failed to satisfy its burden in establishing that judicial estoppel should apply because the IRS position in the other case was merely a tactical stipulation and the case was settled. 

In Cottonwood Place, LLC, the petitioner donated a conservation easement on land to a land trust (qualified charity), reserving the right to construct limited improvements in the area subject to the easement.  The Tax Court determined that no charitable deduction was allowed because the deed language didn’t entitle the charity to a proportionate share of any easement extinguishment proceeds if a court were to extinguish the easement and order the property sold.  Thus, the language violated Treas. Reg. §1.170A-14(g)(6).  The Tax Court noted that the deed language specified that the charity’s share of such proceeds would be reduced by the value of improvements added to the property after the easement donation.  The Tax Court rejected the petitioner’s substantial compliance argument. 

Conclusion

As you can see, issues involving agricultural land and agricultural producers are prevalent.  Good legal and tax counsel is a must.  That’s what we are training at Washburn Law School in the Rural Law Program.  This week we welcome new students to the program from state across the country!

August 24, 2020 in Civil Liabilities, Income Tax, Real Property | Permalink | Comments (0)

Monday, June 15, 2020

Liability For Injuries Associated With Horses (And Other Farm Animals)

Overview

In recent years, all states except California and Maryland (and New York, to some extent) have enacted Equine Activity Liability Acts designed to encourage the continued existence of equine-related activities, facilities and programs, and provide the equine industry limited protection against lawsuits.  The laws vary from state-to-state, but generally require special language in written contracts and liability releases or waivers; require the posting of warning signs; an attempt to educate the public about inherent risks in horse-related activities; and provide immunities designed to limit liability.  The basic idea of these laws is to provide a legal framework to incentivize horse-related activities by creating liability protection for horse owners and event operators.

An important question is whether the laws extend to farm animals and persons working on farms and ranches.

Liability rules involving horses, farm animals and associated events – it’s the topic of today’s post.

State Law Variations

Under the typical statute, an “equine activity sponsor,” “equine professional,” or other person  can only be sued in tort for damages related to the knowing provision of faulty tack failure to determine the plaintiff’s ability to safely manage a horse, or failure to post warning signs concerning dangerous latent conditions.  For example, in Germer v. Churchill Downs Management, No. 3D14-2695, 2016 Fla. App. LEXIS 13398 (Fla. Ct. Ap. Sept. 7, 2016), state law “immunized” (among other things) an equine activity sponsor from liability to a “participant” from the inherent risks of equine activities.  The plaintiff, a former jockey visited a racecourse that the defendant managed.  It was a spur-of-the-moment decision, but he was required to get a guest pass to enter the stables.  He was injured by a horse in the stables and the court upheld the immunity provisions of the statute on the basis that the requirement to get a guest pass before entering the stables was sufficient protocol to amount to “organization” which made the plaintiff’s visit to the stables “an organized activity” under the statute. 

While many state equine activity laws require the postage of warning signs and liability waivers, not every state does.  For example, the statutes in CT, HI, ID, MT, NH, ND, UT, WA and WY require neither signage nor particular contract language.

Recovery for damages resulting from inherent risks associated with horses is barred, and some state statutes require the plaintiff to establish that the defendant’s conduct constituted “gross negligence,” “willful and wanton misconduct,” or “intentional wrongdoing.”  For example, in  Snider v. Fort Madison Rodeo Corp., No. 1-669/00-2065, 2002 Iowa App. LEXIS 327 (Iowa Ct. App. Feb. 20, 2002), the plaintiff sued a parade sponsor and a pony owner for injuries sustained in crossing the street during a parade.  The court determined that the omission of a lead rope was not reckless conduct and that the plaintiff assumed the risk of crossing the street during the parade.  Similarly, in Markowitz v. Bainbridge Equestrian Center, Inc., No. 2006-P-0016, 2007 Ohio App. LEXIS 1411 (Ohio Ct. App. Mar. 30, 2007), the court held that there was no evidence present that the plaintiff’s injuries sustained in the fall from a horse was a result of the defendant’s willful or wanton conduct or reckless indifference.  In addition, the signed liability release form complied with statutory requirements.  However, in Teles v. Big Rock Stables, L.P., 419 F. Supp. 2d 1003 (E.D. Tenn. 2006), the provision of a saddle with stirrups that could not be shortened enough to reach plaintiff’s feet which then caused the plaintiff to fall from a horse raised jury question as to whether faulty tack provided, whether the fall was the result of the inherent risk of horseback riding, and whether the defendant’s conduct was willful or grossly negligent and, thus, not covered by the signed liability release form.

What constitutes an “inherent risk” from horse riding is a fact issue in many states due to the lack of any precise definition of “inherent risk” in the particular state statute.  For example, under the Texas Equine Activity Liability Act, the phrase “inherent risk of equine activity” refers to risks associated with the activity rather than simply those risks associated with innate animal behavior.  See, e.g., Loftin v. Lee, No. 09-0313, 2011 Tex. LEXIS 326 (Tex. Sup. Ct. Apr. 29, 2011).  The Ohio equine activities immunity statute has been held to bar recovery for an injury incurred while assisting an employer unload a horse from a trailer during a day off, because the person deliberately exposed themselves to an inherent risk associated with horses and viewed the activity as a spectator.  Smith v. Landfair, No. 2011-1708, 2012 Ohio LEXIS 3095 (Ohio Sup. Ct. Dec. 6, 2012)Also, in Einhorn v. Johnson, et al., No. 50A03-1303-CT-93, 2013 Ind. App. LEXIS 495 (Ind. Ct. App. Oct. 10, 2013), the Indiana Equine Activity Act barred a negligence action after a volunteer at a county fair was injured by a horse.  The plaintiff’s injuries were determined to result from the inherent risk of equine activities.  Likewise, in Holcomb v. Long, No. A14A0815, 2014 Ga. App. LEXIS 726 (Ga. Ct. App. Nov. 10, 2014), the Georgia Equine Activities Act barred recovery for injuries sustained as a result of slipping saddle during horseback ride; slipping saddle inherent risk of horseback riding.  See also, Fishman v. GRBR, Inc., No. DA 17-0214, 2017 Mont. LEXIS 602 (Mont. Sup. Ct. Oct. 5, 2017).

Application to Farm Animals

Iowa and Texas amended their existing laws in 2011 to include farm animals.  The Iowa provision, known as the “Domesticated Animal Activities Act” (Iowa Code §§673.1-673.3) was amended due to a state Supreme Court decision.  The Texas “Farm Animal Act” is an expanded revision to that state’s Equine Activity Act. 

Iowa.  The Iowa law was enacted in 1997 and amended in 2011 as a result of a 2009 Iowa Supreme Court decision, Baker v. Shields, 767 N.W.2d 404 (Iowa 2009). Under the facts of the case, a farmhand suffered a severe leg fracture in a fall from a horse during an attempt to move his employer’s cattle.  What was assumed to be the employer’s horse was a two-year old that the farmhand had successful ridden a few days earlier. The farmhand sued his employer (a father and son duo) to recover for his damages, claiming that because his employer did not carry workers’ compensation insurance as the plaintiff claimed Iowa law required, he was entitled to a presumption that his injury was the direct result of the employer’s negligence and that the negligence was the proximate cause of his injury.

The employer moved for summary judgment based on the immunity granted in the Domesticated Animal Activities Act (Act). Based on the language of the statute and the history behind enactment in most of the states with equine liability laws, the employer’s claim of immunity under the Act looked to be a long-shot. However, the trial court granted the employer’s motion for summary judgment, finding that a horse is a “domesticated animal,” riding a horse is a “domesticated animal activity,” and the horse’s actions were an inherent risk of that activity. More importantly, the trial court noted that the statute provided that a “person” is not liable under the Act and reasoned that “person” should be broadly construed to include employer/employee settings involving the use of livestock – such as the employer’s horse in this case. The trial court also noted that the Act defined “participant” as “a person who engages in a domesticated animal activity, regardless of whether the person receives compensation” and reasoned that this indicated application to employment situations. 

The Supreme Court affirmed based on its belief that the Iowa legislature intended the statute to apply broadly to all “persons” and that the statutory definitions of “domesticated animal activity sponsor” and “domesticated animal event” did not preclude ag employment situations involving domesticated livestock (although the “sponsors” and “activities” listed in the statute have nothing to do with common ag employment situations).

At trial, and again at the Supreme Court, the farm hand argued that the Act did not specifically exempt farming operations as a “domesticated animal activity sponsor” and, as such, only applied to activities involving participation of members of the general public (as “spectators” in or “participants” of activities involving domesticated animals) and not “traditional farming operations done by employees.” However, the Iowa Supreme Court agreeing with the trial court, determined that the Act applied, and that the employer was immunized from suit.  The Court’s opinion was a stretch (to say the least) of the intent and meaning of the Act’s language.  At the time, the Court’s decision was the first court opinion to hold that a state equine activity (or domestic animal activity) liability act applied to common agricultural employment situations with the effect of immunizing the employer from suit from damages arising from inherent risks associated with the subject animal.  In 2011, the Iowa legislature amended the statute to include domestic animals.

Texas.  In 1995, Texas enacted the Equine Activity Act (Equine Act).  Ch. 87 of Tex. Civ. Prac. & Rem. Code.  The Equine Act provided that “any person, including an equine activity sponsor or an equine professional, is not liable for property damage or damages arising from the personal injury or death of a participant…[that] results from the dangers or conditions that are an inherent risk of equine activity.”  An equine activity sponsor is “a person or group who sponsors, organizes, or provides the facilities for an equine activity…without regard to whether the person operates for profit.”  The statute provides many examples demonstrating the specific application of the Equine Act and its concern for equine activities unrelated to ranching activities such as breeding, feeding and working equine animals as a vocation.  None of the examples hinted at any application to ranchers’ and ranch hands’ involvement with horses. 

In 2011, the Texas legislature amended the Equine Act.  The amendment renamed the law as the “Farm Animal Activity Act” and broadened coverage to include other farm animals in addition to equines.  Veterinarians and livestock shows were also included under its coverage, and the words “handling, loading, or unloading” were added to the definition of “farm animal activity.”  The Farm Animal Activity Act limits the liability of “any person, including a farm animal activity sponsor [or] farm animal professional,” but also includes examples of a person whose liability is limited that is demonstrated to be event organizers and facility providers with “professionals” defined as trainers and equipment renters.  All of the livestock examples relate to shows, rides, exhibitions, competitions and similar events.  The Farm Animal Act limits liability to or for a “participant.”  A “participant is defined as “a person who engage in [a farm animal] activity without regard to whether the person is an amateur or professional or whether the person pays for the activity or participates in the activity for free. 

In Waak v. Rodriguez, No. 19-0167, 2020 Tex. LEXIS 528 (Tex. Sup. Ct. Jun. 12, 2020), ranch owners (a married couple) bred Charolais cattle on their 760-acre ranch in southeast Texas.  They hired an individual (Raul Zuniga) on a part-time basis to work the cattle, do landscaping and cut hay.  Raul later started working full-time for them and lived on the ranch in a mobile home that he was purchasing from them.  After training him how to work and cut cattle, Raul was given daily tasks and often worked cattle alone.  In late 2013, the couple asked Raul to moved cattle to another location on the ranch, a task he had done often in the past.  The couple then went left to run errands in town about 20 miles away.  Upon their return to the ranch, the owners found Raul lying dead behind the barn.  A medical examiner determined that Raul’s cause of death at (almost) age 34 was “blunt force and crush injuries” that were “severe enough to have come from extensive force like that of a large animal trampling the body.”  His surviving parents and children sued the ranch owners for wrongful death.  They did not participate in the Texas workers’ compensation system.  The lawsuit claimed that a bull killed Raul and that the owners were negligent in failing to provide a safe workplace; failing to properly train Raul; and failing to warn of the dangers of working cattle and failing to properly supervise him.  The owners claimed that the Farm Animal Activity Act barred the lawsuit, and the trial court agreed.  The appellate court reversed, however.

On further review, the Texas Supreme Court affirmed the appellate court’s decision – the Farm Animal Activity Act did not apply, and the suit was not barred.  The Court noted that the text and examples contained the legislation did not make any reference to ranchers or ranch hands or otherwise indicate that they were covered.  The Court also indicated its belief that no reported decision anywhere in the country applied an equine statute to farming or ranching or limit an employee’s recovery for on-the-job injuries.  The ranch owners’ attorneys failed to bring the Iowa case to the Court’s attention (the owners’ attorneys were civil litigators from a big-city firm and not rural ag lawyers).  The Court also noted that while the legislature had broadened the statute in 2011 and renamed it, it still limited liability protection to event organizers and facilities providers as well as professional trainers and equipment renters.  All of the livestock examples in the amended statute still were in the context of “shows.”  Ranch hands, the Court noted, do not work as “amateurs” or “professionals” and do not pay to do their work and don’t typically work for free.  Ranch hands are not “participants.”

Conclusion

State Equine Activity Liability laws are designed to provide liability protection for injuries arising from horse-related activities.  The Iowa and Texas provisions have been modified to include farm animals.  It would have been interesting had the ranch owners in the Texas case brought the Iowa case to the Texas Supreme Court’s attention.  While doing so may not have resulted in a different outcome, the Court would have been forced to deal with it.

June 15, 2020 in Civil Liabilities | Permalink | Comments (0)

Friday, May 29, 2020

Dicamba, Peaches and a Defective Ferrari; What’s the Connection?

Overview

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.  Is that allocation of damages proper and reasonable?  A defective Ferrari may have something to say about the allocation.

Dicamba drift, a defective Ferrari and allocation of damages – it’s the topic of today’s post.

The Bader Case

Bader Farms, Inc. v. Monsanto Co., No. MDL No. 1:18md2820-SNLJ, 2019 U.S. Dist. LEXIS 114302 (E.D. Mo. Jul. 10, 2019).

Monsanto introduced dicamba-tolerant seeds for cotton in 2015 and for soybeans in 2016.  The seeds were popular with many farmers to control weeds that had become tolerant to other herbicides, including Roundup.  However, at the time the seeds were released, the EPA had not yet approved the newer formulations of dicamba (BASF’s Engenia and Monsanto’s XtendiMax with Vaporgrip and Roundup Xtend with VaporGrip) to be sprayed on crops.  Those newer formulations were less volatile and less likely to vaporize and drift to nearby crops for which they were not intended.  Starting in 2016, numerous crop damage complaints arose in certain parts of the country, particularly in southeast Missouri. Bader Farms, Inc., the largest peach farm in Missouri, claimed that its entire peach crop was destroyed by dicamba drift from nearby cotton fields that were planted with Monsanto’s Roundup Ready Xtend cotton seeds.  Those seeds had been genetically modified to withstand dicamba and glyphosate. 

Specifically, the peach farm claimed that its orchard was destroyed after the defendants (Monsanto/Bayer and BASF) conspired to develop and market dicamba-tolerant seeds and dicamba-based herbicides.  Bader Farms, Inc. claimed that the damage to the peaches occurred when dicamba drifted from application to neighboring fields. It 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, Bader Farms, Inc. did not join the other litigation because those cases 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 peach farm 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 not recognized under Missouri tort law. The parties agreed to a separate jury determination of punitive damages for each defendant. 

The Jury Verdict

In mid-February of 2020, after a three-week trial, the jury returned a $265 million verdict against Monsanto/Bayer and BASF, with $250 million of that being punitive damages.  Trial evidence revealed that the defendants anticipated drift before the new, less volatile, formulation was released.  The jury concluded that the companies negligently released the dicamba-tolerant seeds without the necessary herbicide to prevent off-target drift, and that they were negligent when they released the less volatile herbicide.  The jury also determined that the companies conspired to “create an ecological disaster to increase profits.”

The companies are appealing.  They deny that Bader Farms, Inc. suffered any damage from dicamba drift.  The experts for the companies testified that armillaria root rot fungus was the cause of the damage to the peach crop.  They claimed that armillaria had gotten into the soil and had been slowly infecting and killing the peach trees.  While the expert for Bader Farms testified that the damage was caused by dicamba drift, he also admitted that he was not a peach expert and agreed that armillaria was present in the orchard and was damaging the trees.  The companies also pointed out the peach farm did not sustain any monetary damage and that peach profits actually increased during the timeframe at issue.

After the jury returned its verdict, both parties have filed numerous briefs with the court.  Last week, Bader Farms, Inc. motioned to bar Monsanto’s request for “post-trial judicial notice” of screen shots from the farm’s website that Monsanto believes would establish that dicamba drift was not the cause of the loss of the peach crop.    

Calculating Damages

As noted, the jury returned a total verdict of $265 million.  $250 million of that is punitive damages designed to punish the companies involved.  In other words, the punitive damages were roughly 16 times that of the compensatory damages awarded to Bader Farms, Inc.  Is that reasonable?  Where do the courts draw the line between compensatory and punitive damages?  A recent case sheds some light on the issue.  In Adeli v. Silverstar Auto, Inc., No. 19-1481/19-1602, 2020 U.S. App. LEXIS 16206 (8th Cir. May 21, 2020), the plaintiff claimed that the defendant intentionally misrepresented the condition of a used Ferrari that it sold to him.  The jury agreed and awarded the plaintiff $20,201 in compensatory and incidental damages (approximately $7,000 of the amount was for compensatory damages) and $5.8 million in punitive damages on his claims for fraud, breach of express warranty, and deceptive trade practices under Arkansas Law.  The defendant then moved to alter or amend the judgment, claiming that the jury’s $5.8 million punitive damage award was unconstitutionally excessive under the Due Process Clause of the Fourteenth Amendment.  The trial court agreed and reduced the punitive damage award to $500,000.  The defendant appealed claiming, among other things, that the punitive damage award should have been further reduced.  The farm claimed that the $5.8 million amount was correct and shouldn’t have been reduced. 

The appellate court noted that while juries have considerable flexibility in determining the amount of punitive damages, the Due Process Clause bars the imposition of “grossly excessive or arbitrary punishments on a tortfeasor.”  In other words, the award is excessive if it “shocks the conscience” of the court or “demonstrates passion or prejudice on the part of the trier of fact.”  While that standard doesn’t establish a bright line, there are factors that guide courts in determining a proper award of punitive damages.  Those factors are: (1) the degree of reprehensibility of the defendant’s conduct; (2) the disparity between actual or potential harm suffered and the punitive damage award; and (3) the difference between the punitive damage award and the civil penalties authorized in comparable cases. 

The appellate court believed that the defendant’s conduct was reprehensible.  The defendant knew that the car’s headers were cracked and needed replaced, having been advised as such by a Ferrari technician.  The defendant advertised the car for sale, however, as having completed a pre-purchase inspection by a Ferrari dealership.  The plaintiff asked for a copy of the pre-purchase inspection, but was sent instead an invoice from the Ferrari dealer that reflected the defendant’s choice not to repair the tire pressure monitoring system.  It didn’t disclose the defendant’s choice not to fix the cracked headers.  The defendant represented the car as “turnkey” and “ready to go.”  The plaintiff bought the car for $90,000, signing an “as is” purchase contract.  On his way home from picking up the car, the plaintiff detected a fuel smell.  The next day the plaintiff had the car towed to a garage that specialized in Ferraris which discovered a fuel leak and the cracked headers, making it unsafe to drive. The garage identified over $30,000 worth of repairs.  The defendant refused to take the car back. 

As for the disparity between the harm and punitive damages, the appellate court factored the incidental damages into the total harm that the plaintiff suffered and upheld the trial court’s finding of a 1:24.75 ratio ($20,021/$500,000).  A single-digit ratio was not required, given the fraud that the defendant engaged in.  On the comparable civil penalty factor, the appellate court cited other comparable caselaw finding a ratio between actual and punitive damages close to the 1:24.75 ratio set by the trial court. Ultimately, the appellate court affirmed the trial court’s award of $500,000 of punitive damages.

Application to Bader Farms

From the time the jury in Bader Farms returned its verdict, the parties have been battling over the proper amount of punitive damages.  The companies claim that the punitive damage award is unconstitutionally too high. But, the ratio in Bader Farms is approximately 1:16.7.  That’s a lower ratio than the court approved in Adeli.  Bader Farms, Inc., in a recent filing in its case, claims that the Ferrari case supports an even higher punitive damage award.  Whether the court agrees will be based on the multi-factor Due Process analysis noted above.

Conclusion

The dicamba trait may be presently at its highest use rate.  Technology has not improved the potential drift issue, but education and wider usage of the dicamba trait likely has.  However, the present tough financial condition of many farmers could make it more likely that unapproved types of dicamba will be used this crop growing season.  In future years, the use of the dicamba trait may drop with newer technologies taking a larger part of market share.  In particular, the Enlist trait appears to be safer more sprayer-friendly compared to dicamba and comes with rules that are easier to follow and less potential for drift. 

As for the case involving the peach farm, it will be interesting to see how the ultimate damage award shakes out. 

May 29, 2020 in Civil Liabilities | Permalink | Comments (0)

Wednesday, April 15, 2020

Court Developments of Interest

Overview

In recent articles on this blog, I have taken a look at the various parts of recently enacted legislation as a consequence of the economic trauma the federal and state governments have imposed on businesses and individuals as a recent of the virus.  Today, I step away from virus related developments and focus on recent court opinions of relevance to agricultural law and taxation. 

Ag law and tax in the courts – it’s the topic of today’s post.

Valuation Discounting – Assignee Interests

Streightoff v. Comr., T.C. Memo. 2018-178, aff’d., No. 19-60244, 2020 U.S. App. LEXIS 10070 (5th Cir. Mar. 31, 2020).

Limited partnerships (and their variant – the family limited partnership), emerged as an important estate and business planning tool in the early 1990s.  They can be useful for farming and ranching operations of relatively higher net worth as a vehicle to transfer interests in the farming or ranching business to a succeeding generation at a discounted value.  That discounted value is often achieved by working the transferor into a minority position before death and the creation of multiple types of partnership interests, and also holding those partnership interests in different types of entities.  Discounted value can also be achieved (under the laws of some states) by transferring an assignee interest rather than the actual interest in the partnership.  Assignee interests are, in essence, limited partnership interests with economic participation equal to that of limited partnership interests but typically without the same rights.  They typically do not carry the right to vote, inspect partnership books or transfer their interests.  Thus, the claim is, they should be valued less than a general partnership interest and even less than a limited partnership interest for both federal gift tax as well as estate tax purposes - if they are established and transferred properly.  That was the issue in a recent case.

In Streightoff, the decedent had created a limited partnership under Texas law before death. The decedent held a one percent general partner interest and an 88.99 percent limited partner interest. Eight of the decedent’s family members owned the balance of the limited partner interests. The partnership didn’t conduct any meetings and held cash, equities, bonds and mutual funds. The decedent had the power to approve the sale of partnership interests and had a right of first refusal on all sales. The partnership agreement described persons who acquired partnership interests as “assignees.”

A few years before death, the decedent purported to create an “assignee” interest in his revocable trust with respect to his 88.99 percent limited partnership interest. The decedent’s estate tax return reported the decedent’s limited partnership interest as an “assignee” of the revocable trust and claimed a 37.2 percent discount for lack of marketability discount and lack of control. The estate based the level of the discount on the notion that the trust only held an assignee interest consistent with the partnership agreement which stated that, “A transferee who was not admitted as a substituted limited partner would hold the right to allocations and distributions with respect to the transferred interest, but would have no right to information or accounting or to inspect the books or records of the partnership and would not have any of the rights of a general or limited partner (including the right to vote on partnership matters)."

The IRS reduced the extent of the discount and asserted a deficiency of about $500,000. While the estate claimed that the lack of marketability discount should be 27.5 percent based on a possible holding period until 2075, the Tax Court determined that the decedent’s assignee interest was essentially the same thing as a limited partnership interest. Accordingly, the Tax Court settled on an 18 percent discount for lack of marketability. No discount for lack of control was allowed because the Tax Court found that the partnership interest was significant and carried with it the power to remove the general partner. The appellate court affirmed on appeal, concluding that the Tax Court properly determined that the assignment was essentially a transfer of the decedent’s partnership interest. The “assignment” clearly conveyed more than an assignee interest. 

 

Petition to Quiet Title Over Disputed Boundary Denied

Liddiard v. Mikesh, No. 19-0143, 2020 Iowa App. LEXIS 267 (Iowa Ct. App. March 18, 2020)

If an individual possesses someone else's land in an open and notorious fashion with an intent to take it away from them, such person (known as an adverse possessor) can become the true property owner after the statutory time period has expired via a quiet title action.  Adverse possession statutes vary by jurisdiction in terms of the requirements a person claiming title by adverse possession must satisfy and the length of time property must be adversely possessed.  A boundary between two properties can also be established by acquiescence.  This theory applies when neither of the adjacent owners knows the location of the true boundary.  Instead, the parties treat a particular marker or line as the boundary for a prescribed period of time.  Both parties simply agree (acquiesce) to treat that particular line or marker as the boundary.  Both of these concepts were involved in a recent Iowa case.

The parties had been adjoining rural landowners since 1988. When the defendant bought his tract, a survey was conducted.  That survey was relied on in litigation between the parties concerning a dispute over logged timber on a five-acre parcel where ownership between the parties was not clear via the respective deeds. A few years later the plaintiff sued to quiet title to the disputed area claiming that the true boundary was the existing fence line based on either the theory of adverse possession or boundary by acquiescence.

The trial court determined that the plaintiff had failed to establish the requirements for either theory, and refused to quiet title in the plaintiff. On appeal, the appellate court agreed. Based on the evidence, the appellate court determined that the plaintiff failed to establish exclusive use of the disputed area for the statutory period and did not substantially maintain or improve the area.  Thus not all of the elements of adverse possession were satisfied.  In addition, the plaintiff did not bring the quiet title action for six years after the initial dispute over timber. The appellate court also determined that the defendant did not treat the fence line as the boundary. Thus, no boundary by acquiescence was established because both parties did not assume the fence line was the boundary. 

Court Addresses Direct and Indirect Discharges Under CWA – Awaiting Supreme Court Guidance

Conservation Law Foundation v. New Hampshire Fish & Game Department, No. 18-CV-996-PB, 2020 U.S. Dist. LEXIS 59608 (D. N.H. Apr. 6, 2020).

The plaintiff claimed that the defendant had violated the Clean Water Act (CWA) by allowing a hatchery that the defendant owned and operated to discharge pollutants into a river in violation of the hatchery’s National Pollutant Discharge Elimination System (NPDES) permit. The plaintiff claimed that the defendant was making both direct and indirect discharges in violation of its NPDES permit. The direct discharge claims were based on current and anticipated future discharges directly from the hatchery into the river. The indirect discharge claims stemmed from past releases of phosphorus by the hatchery that became sediment at the bottom of the river.  Those discharges continued to leach phosphorus into the water.

The trial court dismissed the direct discharge claims and directed the parties to submit additional arguments with respect to the indirect discharge claims. The direct discharge claims were dismissed because in late 2019, the EPA released a new NPDES permit for the hatchery which ultimately may allow the discharges that the plaintiffs claim violate the CWA. Because the anticipated 2020 permit may moot some or all of the plaintiffs’ direct discharge claims, the court dismissed those claims. As for the indirect discharge claims, the court noted that the plaintiffs’ arguments that the defendants have violated the CWA by allowing pollutants to enter a water of the United States through a conduit is similar to an issue that is presently before the United States Supreme Court.  See 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)Because how the Supreme Court rules on the indirect discharge claim could impact the court’s decision in this case, the court requested that the parties file additional briefing on whether the Maui case should influence the court’s decision. 

Alimony Payments Not Deductible

Biddle v. Comr., T.C. Memo. 2020-39

In divorce situations, it’s fairly common for one ex-spouse to become legally obligated to make payments to the other ex-spouse.  Before 2018, the ex-spouse making alimony payments could deduct them for federal income tax purposes.  To be deductible alimony, a payment could not be classified as fixed or deemed to be child support under a set of complex rules, as evidenced in a recent Tax Court case.

Under the facts of the case, the petitioner and his wife were married for 14 years and had four children together before divorcing in 2010. The divorce decree included provisions for “child support” and “alimony.” The decree ordered the petitioner to pay monthly child support of $1,795.63 per month until each child reached age 18, died, married, entered military school or became self-sufficient. The decree also ordered the petitioner to pay “permanent periodic alimony” of $1,592.50 for at least five years until either the youngest child reached age 18, the ex-wife or petitioner died, the ex-wife remarried at the five-year point or later, or the wife became self-supporting. The decree also specified that if the husband received a pay raise that half of the net increase would increase the alimony payment. The decree was later modified to reduce the monthly child support amount because the petitioner took custody of an additional child. No change was made to the alimony payment.

On petitioner’s 2015 return, he claimed a $28,000 alimony deduction. The IRS disallowed the deduction as nondeductible child support because of one of the contingencies terminating payment was petitioner’s youngest child turning 18. The Tax Court upheld the IRS position. The Tax Court noted that under I.R.C. §71(c)(2)(A), the payments would count as child support until the child turned 18. Here, the decree clearly stated that the designated alimony payments would terminate on the contingency that the petitioner’s youngest child turn 18. That was a contingency relating to a child that qualifies a payment as nondeductible child support. This is the result, the court noted, even though the decree designated separate amounts for child support and alimony. The parties’ intent also was immaterial. 

Conclusion

Even though the focus of much present thought and discussion is on the virus and the economic wreckage that (primarily) state governmental policies are causing, the courts continue to crank out important cases.  Make sure you are still paying attention to what is going on.

April 15, 2020 in Business Planning, Civil Liabilities, Environmental Law, Estate Planning | Permalink | Comments (0)

Monday, January 27, 2020

Ag Law and Tax in the Courts – Bankruptcy Debt Discharge; Aerial Application of Chemicals; Start-Up Expenses and Lying as Protected Speech

Overview

A couple of weeks ago I did a post on some recent developments in the courts involving ag law and ag tax.  Since that time, there have been additional important court developments.  Before getting deep into tax season, it may be a good idea to provide a summary of a few of these cases.

More ag law and tax developments in the courts – it’s the topic of today’s post.

Bankruptcy Discharge and Fraud

In re Kurtz, 604 B.R. 349 (Bankr. D. Neb. 2019)

A major feature of bankruptcy in the United States is the ability to discharge at least some debt.  This makes possible the “fresh start” for debtors. But, some debtors and debts are not eligible for discharge.  Of the several categories of debts that aren’t eligible for discharge, one category is reserved for debts associated with the debtor’s fraudulent conduct.  In this case, the creditor was a landlord and the debtor was the farm tenant who put up hay and other crops on the landlord’s land. The parties did not have a written lease agreement, but the landlord assumed the lease was a 50-50 crop share agreement where the parties would split the expenses and the sale proceeds equally. The record was unclear as to what the tenant understood the relationship to be, but he did make statements to others that it was a cash rent lease. The tenant did not pay the landlord after the first two cuttings of hay because he incurred expenses while cutting. After the third cutting was bailed the landlord contacted the tenant about payment. The tenant told the landlord that he could have the proceeds from the third cutting of hay and that the tenant was finished farming for the landlord. The tenant paid a third party to stack the hay. When the landlord attempted to sell the hay he discovered that the tenant had already given the hay to a third party to settle a debt. Both parties submitted expenses related to the hay crop that year.

The landlord filed a complaint in the tenant’s bankruptcy case alleging fraud and misrepresentation seeking that the debt to the landlord not be discharged. The bankruptcy court agreed, determining that the landlord proved that the tenant’s obligation of $5,916.50 was exempt from discharge because of the debtor’s false representation. The bankruptcy court determined that the full debt owed to the landlord was $22,292.84 based on the oral lease, but that the only part of that amount derived from fraud was the amount related to the third cutting of hay - $5,370.50 plus $546 for stacking. The balance of the unpaid debt arose from a general misunderstanding that wasn’t settled before the debtor put up the first two hay cuttings. The only blatant dishonesty, the bankruptcy court determined, concerned the third cutting.  

Aerial Application of Ag Chemicals Not Inherently Dangerous

Keller Farms, Inc. v. Stewart, No. 1:16 CV 265 ACL, 2018 U.S. Dist. LEXIS 210209 (E.D. Mo. Dec. 13, 2018), aff’d. sub. nom., Keller Farms, Inc. v. McGarity Flying Service, LLC, No. 18-3755, 2019 U.S. App. LEXIS 36664 (8th Cir. Dec. 11, 2019)

This case involves a dispute involving alleged damage to the plaintiffs’ trees caused by chemicals that allegedly drifted during aerial application. The plaintiffs attempted to hold liable both the aerial applicator and the landowner that hired the applicator. The plaintiffs claimed the landowner was vicariously liable (liable because of the relationship with the applicator) for the applicator’s actions because aerial spraying of burndown chemicals is an "inherently dangerous activity." The trial court granted the defendants’ motion for Judgment as a Matter of Law on the plaintiff's trespass claim, but the remaining issues were left for the jury to resolve. The jury returned a verdict in favor of the defendants on the negligence and negligence per se claims. The plaintiffs filed a motion for a new trial, arguing the verdict was against the weight of the evidence; that the trial court erred in excluding evidence; and that the trial court erred in granting the defendants’ Motion for Judgment as a Matter of Law. The trial court, however, denied the plaintiff’s motion for a new trial.

On appeal, the appellate court affirmed. The appellate court determined that the jury’s verdict was not against the weight of the evidence, and that the aerial application of herbicides was commonplace and not inherently dangerous. In addition, the appellate court noted that the defendants’ evidence was that the herbicides did not actually drift onto the plaintiffs’ property and that the applicator complied with all label requirements and sprayed during optimal conditions. The appellate court also determined that the trial court had ruled properly on evidentiary matters and that the plaintiff had not proven the alleged monetary damages to the trees properly. The appellate court also upheld the trial court’s denial of the plaintiff’s motion for a new trial.

The Line Between Nondeductible Start-Up Expenses and Deductible Business Expenses

Primus v. Comr., T.C. Sum. Op. 2020-2

The petitioner lived in New York and bought a property in Quebec containing 200 maple trees with a significant number of them being mature, maple syrup-producing trees. The tract contained other types of trees and pasture ground and hay fields and a small amount of ground suitable for growing crops. There were also various improvements on the tract. Before collecting sap and producing syrup, the petitioner thinned underbrush and later installed a pipeline to collect sap. Sap production began in 2017. When the petitioner bought the property in 2012, the cleared the areas of the tract where he planned to plant blueberry bushes. He ordered 2,000 blueberry bushes in 2014 and planted them in 2015. He reported a substantial amount of farming-related expenses in 2012 and 2013, with most of the expenses attributable to costs of repairs to improvements on the property. The petitioner deducted expenses attributable to preparatory costs for the production of selling maple syrup and blueberries as trade or business expenses under I.R.C. §162 (or as I.R.C. §212 expenses for income-producing property).

The IRS denied the deductions, asserting that they were nondeductible start-up expenses under I.R.C. §195 on the basis that the petitioner had not yet begun the business of producing maple syrup and blueberries. The Tax Court upheld the IRS position. The Tax Court noted that expenses are not deductible as trade or business expenses until the business is actually functioning and performing the activities for which it was organized. Here, the petitioner had not actually started selling blueberries or sap in either 2012 or 2013.  That meant that the expenses incurred in 2012 and 2013 were incurred to prepare the farm to produce sap and plant blueberries, and were nondeductible startup expenses. The thinning activities, while a generally acceptable industry practice, did not establish that the business had progressed beyond the startup phase. In addition, during the years at issue, the petitioner had not collected sap, installed any infrastructure needed to convert sap into syrup, or bought any blueberry bushes. 

Lying With Purpose of Harming Livestock Facility is Protected Speech

Animal Legal Defense Fund v. Schmidt, No. 18-2657-KHV, 2020 U.S. Dist. LEXIS 10202 (D. Kan. Jan. 22, 2020)

The plaintiffs are a consortium of activist groups regularly conduct undercover investigations of livestock production facilities. Some of the plaintiffs gain access to farms through employment without disclosing the real purpose for which they seek employment (and lie about their ill motives if asked) and wear body cameras while working. For those hired into managerial and/or supervisory positions, they gain the ability to close off parts of the facility to avoid detection when filming and videoing. The film and photos obtained are circulated through the media and with the intent of encouraging public officials, including law enforcement, to take action against the facilities. The employee making the clandestine video or taking pictures, is on notice that the facility owner forbids such conduct via posted notices at the facility. The other plaintiffs utilize the data collected to cast the facilities in a negative public light, but do no “investigation.”

In 1990, Kansas enacted the Kansas Farm Animal and Field Crop and Research Facilities Protect Act (Act). K.S.A. §§ 47-1825 et seq.  The Act makes it a crime to commit certain acts without the facility owner’s consent where the plaintiff commits the act with the intent to damage an animal facility. Included among the prohibited acts are damaging or destroying an animal facility or an animal or other property at an animal facility; exercising control over an animal facility, an animal from an animal facility or animal facility property with the intent to deprive the owner of it; entering an animal facility that is not open to the public to take photographs or recordings; and remaining at an animal facility against the owner's wishes. K.S.A. § 47-1827(a)-(d). In addition, K.S.A. § 47-1828 provides a private right of action for "[a]ny person who has been damaged by reason of a violation of K.S.A. § 47-1827 against the person who caused the damage." For purposes of the Act, a facility owner’s consent is not effective if it is induced by force, fraud, deception duress or threat. K.S.A. § 47-1826(e). The plaintiff challenged the constitutionality of the Act, and filed a motion for summary judgment. The defendant also motioned for summary judgment on the basis that the plaintiffs lacked standing or, in the alternative, the Act barred trespass rather than speech.

On the standing issue, the trial court held that the plaintiffs lacked standing to challenge the portions of the Act governing physical damage to an animal facility (for lack of expressed intent to cause harm) and the private right of action provision, However, the trial court determined that the plaintiffs did have standing to challenge the exercise of control provision, entering a facility to take photographs, etc., and remaining at a facility against the owner’s wishes to take pictures, etc. The plaintiffs that did no investigations but received the information from the investigations also were deemed to have standing on the same grounds. On the merits, the trial court determined that the Act regulates speech by limiting what the plaintiffs could say and by barring pictures/videos. The trial court determined that the provisions of the Act at issue were content-based and restricted speech based on viewpoint – barring only that speech that would harm an animal facility. The trial court determined that barring lying is only constitutionally protected when it is associated with a legally recognizable harm, and the Act is unconstitutional to the extent it bars false speech intended to damage livestock facilities. Because the provisions of the Act at issue restrict content-based speech, its constitutionality is measured under a strict scrutiny standard. As such, a compelling state interest in protecting legally recognizable rights must exist. The trial court concluded that even if privacy and property rights involved a compelling state interest, the Act must be narrowly tailored to protect those rights. By focusing only on those intending to harm owners of a livestock facility, the Act did not bar all violations of property and privacy rights. The trial court also determined that the Governor was a proper defendant. 

The status of the litigation presently rests with the Kansas Attorney General and the Governor to determine the next step(s) to be taken.

Conclusion

There is never a dull moment in agricultural law and taxation.  I will provide more updates like this is in future posts.

January 27, 2020 in Bankruptcy, Civil Liabilities, Criminal Liabilities, Income Tax | Permalink | Comments (0)

Friday, January 17, 2020

Principles of Agricultural Law

Overview

Principles2020springedition400x533The fields of agricultural law and agricultural taxation are dynamic.  Law and tax impacts the daily life of a farmer, rancher, agribusiness and rural landowner practically on a daily basis.  Whether that is good or bad is not really the question.  The point is that it’s the reality.  Lack of familiarity with the basic fundamental and applicable rules and principles can turn out to be very costly.  As a result of these numerous intersections, and the fact that the rules applicable to those engaged in farming are often different from non-farmers, I started out just over 25 years ago to develop a textbook that addressed the major issues that a farmer or rancher and their legal and tax counsel should be aware of.  After three years, the book was complete – Principles of Agricultural Law - and it’s been updated twice annually since that time. 

The 46th edition is now complete, and it’s the topic of today’s post – Principles of Agricultural Law.

Subject Areas

The text is designed to be useful to farmers and ranchers; agribusiness professionals; ag lenders; educational professionals; laywers, CPAs and other tax preparers; undergraduate and law students; and those that simply want to learn more about legal and tax issues.  The text covers a wide range of topics.  Here’s just a sample of what is covered:

Ag contracts.  Farmers and ranchers engage in many contractual situations, including ag leases, to purchase contracts.  The potential perils of verbal contracts are numerous as one recent bankruptcy case points out.  See, e.g., In re Kurtz, 604 B.R. 549 (Bankr. D. Neb. 2019).  What if a commodity is sold under forward contract and a weather event destroys the crop before it is harvested?  When does the law require a contract to be in writing?  For purchases of goods, do any warranties apply?  What remedies are available upon breach? If a lawsuit needs to be brought to enforce a contract, how soon must it be filed?

Ag financing.  Farmers and ranchers are often quite dependent on borrowing money for keeping their operations running.  What are the rules surrounding ag finance?  This is a big issue for lenders also?  For instance, in one recent Kansas case, the lender failed to get the debtor’s name exactly correct on the filed financing statement.  The result was that the lender’s interest in the collateral (a combine and header) securing the loan was discharged in bankruptcy.   In re Preston, No. 18-41253, 2019 Bankr. LEXIS 3864 (Bankr. D. Kan. Dec. 20, 2019). 

Ag bankruptcy.  A unique set of rules can apply to farmers that file bankruptcy.  Chapter 12 bankruptcy allows farmers to de-prioritize taxes.  That can be a huge benefit.  Knowing how best to utilize those rules is very beneficial.

Income tax.  Tax and tax planning permeate daily life.  Deferral contracts; depreciation; installment sales; like-kind exchanges; credits; losses; income averaging; reporting government payments; etc.  The list could go on and on.  Having a basic understanding of the rules and the opportunities available can add a lot to the bottom line of the farming or ranching operation. 

Real property.  Of course, land is typically the biggest asset in terms of value for a farming and ranching operation.  But, land ownership brings with it many potential legal issues.  Where is the property line?  How is a dispute over a boundary resolved?  Who is responsible for building and maintaining a fence?  What if there is an easement over part of the farm?  Does an abandoned rail line create an issue?  What if land is bought or sold under an installment contract? 

Estate planning.  While the federal estate tax is not a concern for most people and the vast majority of farming and ranching operations, when it does apply it’s a major issue that requires planning.  What are the rules governing property passage at death?  Should property be gifted during life?  What happens to property passage at death if there is no will?  How can family conflicts be minimized post-death?  Does the manner in which property is owned matter?  What are the applicable tax rules?  These are all important questions.

Business planning.  One of the biggest issues for many farm and ranch families is how to properly structure the business so that it can be passed on to subsequent generations and remain viable economically.  What’s the best entity choice?  What are the options?  Of course, tax planning is part and parcel of the business organization question. 

Cooperatives.  Many ag producers are patrons of cooperatives.  That relationship creates unique legal and tax issues.  Of course, the tax law enacted near the end of 2017 modified an existing deduction for patrons of ag cooperatives.  Those rules are very complex.  What are the responsibilities of cooperative board members? 

Civil liabilities.  The legal issues are enormous in this category.  Nuisance law; liability to trespassers and others on the property; rules governing conduct in a multitude of situations; liability for the spread of noxious weeds; liability for an employee’s on-the-job injuries; livestock trespass; and on and on the issues go.  It’s useful to know how the courts handle these various situations.

Criminal liabilities.  This topic is not one that is often thought of, but the implications can be monstrous.  Often, for a farmer or rancher or rural landowner, the possibility of criminal allegations can arise upon (sometimes) inadvertent violation of environmental laws.  Even protecting livestock from predators can give rise to unexpected criminal liability.  Mail fraud can also arise with respect to the participation in federal farm programs.  The areas of life potentially impacted with criminal penalties are worth knowing, as well as knowing how to avoid tripping into them.

Water law.  Of course, water is essential to agricultural production.  Water issues vary across the country, but they tend to focus around being able to have rights to water in the time of shortage and moving the diversion point of water.  Also, water quality issues are important.  In essence, knowing whether a tract of land has a water right associated with it, how to acquire a water right, and the relative strength of that water rights are critical to understand.

Environmental law.  It seems that agricultural and the environment are constantly in the news.  The Clean Water Act, Endangered Species Act and other federal (and state) laws and regulations can have a big impact on a farming or ranching operation.  Just think of the issues with the USDA’s Swampbuster rules that have arisen over the past 30-plus years.  It’s good to know where the lines are drawn and how to stay out of (expensive) trouble.

Regulatory law.  Agriculture is a very heavily regulated industry.  Animals and plants, commodities and food products are all subject to a great deal of regulation at both the federal and state level.  Antitrust laws are also important to agriculture because of the highly concentrated markets that farmers buy inputs from and sell commodities into.  Where are the lines drawn?  How can an ag operation best position itself to negotiate the myriad of rules?   

Conclusion

The academic semesters at K-State and Washburn Law are about to begin for me.  It is always encouraging to me to see students getting interested in the subject matter and starting to understand the relevance of the class discussions to reality.  The Principles text is one that can be very helpful to not only those engaged in agriculture, but also for those advising agricultural producers.  It’s also a great reference tool for Extension educators. 

If you are interested in obtaining a copy, you can visit the link here:  http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/principlesofagriculturallaw/index.html

January 17, 2020 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 15, 2020

Ag Law in the Courts – Feedlots; Dicamba Drift; and Inadvertent Disinheritance

Overview

It’s been over two months since I last did a post surveying court action of interest to farmers and ranchers.  I owe readers a couple of those types of posts to catch up.  It’s not that the courts have been quiet.  They haven’t.  I have just been writing about other things – including top legal and tax developments of 2019.  So, for today’s post I take a look at a few recent developments in the courts – this time two court opinions each from Iowa and Missouri.  The issues involve livestock feeding facilities, Dicamba drift and disinheritance.

Ag law in the courts – that’s the topic of today’s post.

Time Limit for Suing a Livestock Facility on Nuisance Claims

Dvorak v. Oak Grove Cattle, L.L.C., No. 18-1624, 2019 Iowa App. LEXIS 743 (Iowa Ct. App. Aug. 7, 2019).

The plaintiffs owned property adjacent to the defendant’s cattle feedlot. The feedlot began operating in 2006 and was investigated in 2009 and 2013 by the Iowa Department of Natural Resources (IDNR) due to manure run-off issues. The IDNR required that the defendants take remedial action. In 2016 the plaintiffs sued for negligence, trespass, and nuisance. The plaintiffs claimed, "from approximately 2009 to the present there have been multiple occasions when manure from [the defendant’s] cattle lot has entered upon, and traversed over, [the plaintiffs’] property." The defendant countered with a claim for defamation, arguing that the plaintiffs made false statements about the feedlot and published it to third parties. The defendant moved for summary judgment arguing that the nuisance cause of action was barred by the five-year statute of limitations. The trial court granted the motion for summary judgment on the basis that the plaintiffs were claiming that the feedlot was a permanent nuisance from its inception in 2006.  Thus, the nuisance suit should have been brought within five years of that time, according to the defendant.  The plaintiffs did not make separate nuisance claims for each instance of runoff which would make their claims an intermittent nuisance.

On further review, the appellate court reversed and remanded. The only issue on appeal concerned the statute of limitations. The parties agreed that a five-year statute of limitations applied.  But, did it start to run from the time the feedlot was established, or upon each occurrence of manure runoff?  In other words, was the manure runoff a permanent nuisance or a continuing nuisance?  If the manure runoff constituted a permanent nuisance, the statute of limitations began to run in 2006 and would have expired in 2011. Conversely, If the manure runoff amounted to an intermittent nuisance, the statute of limitations would start upon each occurrence. The appellate court determined that the defendant failed to meet the burden of proof that the runoff was a permanent nuisance in order to sustain the motion for summary judgment. Permanence of a nuisance, the appellate court held, goes to the injury itself and the defendant did not show that the damage to the plaintiffs’ property could not be cleaned up or abated. Instead, the defendant relied upon the contention that the runoff from the feed lot was not temporary. The appellate court determined that he feedlot itself is a permanent nuisance but the runoff itself is a temporary nuisance. Thus, the plaintiffs’ suit was not time barred. 

CAFO Permit Properly Granted 

K Tre Holdings, LP v. Missouri Department of Natural Resources, No. SD35512, 2019 Mo. App. LEXIS 1146 (Ct. App. Jul. 26, 2019)

In early 2016, a farm applied for a "General Operating Permit" to operate a Class 1C poultry Confined Feeding Operation “CAFO” in southwest Missouri.  Later that year, the farm was issued a “State No-Discharge" CAFO operating permit. The plaintiff challenged the issuance before the Administrative Hearing Commission (ACH), and the ACH determined that the CAFO permit was issued in accordance with the applicable state law and regulations. In late 2017, the defendant (state Dept. of Natural Resources) affirmed. The plaintiff sued and that state appellate court affirmed. The appellate court noted that the farm provided a 2014 google map image with labels and setback distances marked. Other maps were also presented during the agency hearings and submitted as evidence. The appellate court determined that the defendant’s decision was supported by sufficient evidence. The maps provided the necessary information to determine whether the setback distance requirements had been satisfied. The appellate court also determined that the farm did not have to provide a copy of proposed building plans to obtain a building permit, and that the plaintiff could not challenge the ACH appointment of commissioners. 

Some Dicamba Drift Claims Proceed

Bader Farms, Inc. v. Monsanto Co., No. MDL No. 1:18md2820-SNLJ, 2019 U.S. Dist. LEXIS 114302 (E.D. Mo. Jul. 10, 2019)

Dicamba drift issues have been in the news and the courts over the past couple of years.  In this case, 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 to his peach orchard after being applied to neighboring fields. The plaintiff claimed that the defendants released the 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"  - meaning that it was highly likely 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 plaintiff’s claims that were based on 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 claims except those for failure to warn. 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 not recognized under Missouri tort law. The parties agreed to a separate jury determination of punitive damages for each defendant.

The saga continues. 

Inadvertent Disinheritance – Words Means Things

In re Trust Under the Will of Daubendiek, 929 N.W.2d 723 (Iowa Ct. App. 2019)

This case has an unfortunate (and, I believe, incorrect result).  It points out that sometimes courts are willing to strictly apply the law even in light of a potentially absurd result.  It also points out that lawyers drafting wills and trusts have to carefully consider the words that they use and how those words might be applied years later.  

Here, the testator created a will in 1942 which contained a trust. The trust had nine beneficiaries and specified that in the event of a named beneficiary’s death, the beneficiary’s interest would pass to the beneficiary’s “lawful bodily issue.” The testator died in 1948, and in 1956 one of the named beneficiaries (a grandson of the testator) adopted a child. The grandson died in 2016, and the adopted child (great-grandson of the testator) sought court confirmation that he and his descendants were the “lawful bodily issue” of the beneficiary for purposes of the trust. The trial court disagreed and granted summary judgment for the trustee, effectively disinheriting the great-grandson.

On further review, the appellate court affirmed. While the appellate court noted that Iowa law presumes that a testator intends to treat an adopted child in the same manner as a natural born child, this presumption does not apply when an intent to exclude the adopted child is shown in the will. The appellate court held that intent to exclude was present by the testator’s repeated use of “lawful bodily issue” after denoting every named trust beneficiary to describe who received that share of the trust upon a particular beneficiary’s death. The appellate court cited a 1983 Iowa Supreme Court opinion where that Court said that a similar phrase, “heirs of the body,” did not include adopted children. The appellate court concluded that there was no reasonable interpretation of the will/trust that allowed for an adopted child who is not a beneficiary’s “lawful bodily issue” to receive a share of the trust.

An expert on wills and trusts (and my law school professor on the same subject) testified that lawyers often use “legalisms” without the client providing express direction for such terminology.  As such, in his view, the phraseology of the will was ambiguous and created a genuine issue of material fact.  That would have bearing on the issue of the testator’s intent – the “polestar” or directing principle of construing a will.  But, the court refused to consider the professor’s point as being a legal argument concerning a legal issue – an opinion as to a legal standard.  As such, the court said it would not be considered.  But with that said, the court did consider it and still concluded that the will was clear and the great-grandson was to be disinherited. 

I take issue with the appellate court’s opinion.   The court read "lawful bodily issue" in a way that disinherited the great grandson without the testator specifically saying that is what he wanted to do.  Normally, disinheriting someone requires the testator’s clearly expressed intention.  Did the attorney in 1942 explain what the phrase “lawful bodily issue” meant to the testator and the effect that it possibly could have 74 years later?  Highly unlikely.  At a minimum the phrase created an ambiguity.   Also, the appellate court made no mention of the fact that under Iowa law, a legally adopted child is treated as blood relation (“lawful bodily issue”) of the adoptive parent(s) for purposes of intestacy. Thus, had the grandson involved died intestate, Iowa law would have treated the great grandchild as “lawful bodily issue.” The appellate court did not address this potentially absurd result of its opinion – making disinheritance of a great grandson dependent on whether the great grandson’s father died without a will.

Words mean things – sometimes unintended things. 

Conclusion

I will do another post on more developments in the courts soon. 

January 15, 2020 in Civil Liabilities, Estate Planning | Permalink | Comments (0)

Wednesday, January 1, 2020

Top Ten Agricultural Law and Tax Developments from 2019 (Numbers 10 and 9)

Overview

2019 contained many legal and tax developments that were of importance to agricultural producers, rural landowners, agribusinesses and others tied to the business of agriculture.  The legal and tax systems impact agriculture in many ways.  From environmental and water issues to income tax and estate/business planning issues, to bankruptcy and contract issues, to financing and liability issues as well as others, there are many ways that legal and tax issues impact agriculture.    

On Monday’s post, I highlighted what I viewed as significant developments but not significant enough to make my “Top 10” list for 2019.  In today’s post, I start the journey through the ten biggest legal and tax developments of 2019 in terms of their impact (or potential impact) on the agricultural sector.

The “Top Ten” of 2019 – developments 10 and nine.  It’s the topic of today’s post.

  1. The Relevance of Roundup Jury Verdicts

2019 saw more juries render verdicts in cases involving alleged damages by Roundup.  The jury verdicts have been in the multi-millions of dollars.  Presently, over 11,000 cases involving Roundup have been filed and are awaiting trial and adjudication.  The basic claim in each case is that the use of Roundup caused some sort of physical injury to the plaintiff.  In many of the cases, the claim is that physical injury occurred after usage (usually over a long period of time) of Roundup.  While the temptation may be great to dismiss the recent verdicts as the result of raw emotion and passion by juries that don’t have much, if any, relation to agriculture, that temptation should be resisted.  It is true that juries tend to react based on emotion to a greater degree than do judges (indeed, the judge in the 2018 case significantly reduced the jury verdict), but that doesn’t mean that there aren’t some “take-home” implications for farming and ranching operations at this early stage of the litigation.

Farming and ranching operations should at least begin to think about the possible implications of the Roundup litigation. 

  • What about lease agreements? Farmers and ranchers that lease out farmland and pasture may want to reexamine the lease terms. Consideration should be given as to whether the lease should incorporate language that specifies that the tenant assumes the risk of claims arising from the use of Roundup or products containing glyphosate.  Relatedly, perhaps language should be included that either involves the tenant waiving potential legal claims against the landlord or provides for the landlord to be indemnified by the tenant for any and all glyphosate-related claims.  Should language be included specifying that the tenant has the sole discretion to select chemicals to be used on the farm and that any such chemicals shall be used in accordance with label directions and any applicable regulatory guidance?  How should the economics of the lease be adjusted to reflect this type of lease language?  The tenant is giving up some rights and will want compensation for the loss of those rights.  If the lease isn’t in writing, perhaps this is a good time to reduce it to writing. 
  • Is the comprehensive liability policy for the farm/ranch sufficient to cover glyphosate-related claims? Many farm comprehensive general liability policies contain “pollution exclusion” clauses.  Do those clauses exclude coverage for glyphosate-related claims?  How is “pollution” defined under the policy?  Does it include pesticides and herbicides and associated claims?  Does it cover loss to livestock that consume corn and/or soybeans that were grown with the usage of chemicals containing glyphosate?  Can a rider be obtained to provide coverage, if necessary?  These are all important questions to ask the insurance agent and an ag lawyer trained in reading farm comprehensive liability policies. 
  • If the farm employs workers, should that arrangement be modified from employer/employee to independent contractor status? If employee status remains and an employee sues the employer for alleged glyphosate-related damages, what can be done?  Will enrolling the farm in the state workers’ compensation program provide sufficient liability protection for the farming/ranching operation?      

What About Food Products?

To date, the cases have all involved the use of Roundup directly over a long period of time.  At some point will there be cases where consumers of food products claim they were harmed by the presence of glyphosate in the food they ate?  If those cases arise, given the use of production contracts in agriculture and the possibility of tracing back to the farm from which the grain in the allegedly contaminated food product was grown, does the farmer have liability?  If you think this is far-fetched, remember that there is presently a member of the U.S. House that is proposing the regulation (if not elimination) of cows with flatulence.  Relatedly, there are certain segments of the population that are opposed to the manner in which modern, conventional agriculture is conducted.  These persons/groups would not hesitate in trying to pin liability all the way back down the chain to the farmer. 

The Roundup litigation shouldn’t be ignored.  It may be time to start thinking through possible implications and modifying certain aspects of the way the typical farm or ranch does business in order to provide the greatest liability protection possible. 

  1. Ag Antitrust – The Ability of a Farmer To Sue For Anticompetitive Conduct

The markets for the major ag products in the U.S. are highly concentrated.  This raises economic and legal questions as to whether the conduct that such concentration makes possible improperly denies farmers a proper share of the retail food dollar and simultaneously increase prices to consumers.  In other words, does the conduct associated with market concentration at these various levels negatively impact commodity prices, and result in producers receiving less of the retail food dollar while consumers simultaneously pay more for food?  If so, what can a farmer or rancher do about it?  Does antitrust law provide a remedy? Does it matter that a farmer/rancher is not a directly injured party?  In 2019, the U.S. Supreme Court decided a case involving the Apple Co. and IPhone users that involves some of these concepts.  The Court’s decision has implications for agriculture. 

In 1977, the U.S. Supreme Court held in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), that a plaintiff cannot claim damages when the plaintiff is not the party that was directly injured.  In other words, even if an antitrust violation can be established that results, for example, in ag product prices being lower than a competitive market would produce, Illinois Brick bars the farmer/rancher from suing for damages due to lack of standing because they haven’t been directly injured – there is a processor in-between.

Note:   Since 1977, most states have enacted laws or have judicial opinions that reject the Illinois Brick decision (which are not preempted by federal law – see California v. ARC America, 490 U.S. 93 (1989)).  In these states, indirect purchasers can seek recovery under state antitrust laws. 

In Apple Inc. v. Pepper, et al., 139 S. Ct. 1514 (2019), IPhone users sued Apple Inc. over its operations of the App Store.  The trial court held that the consumers in the case were indirect purchasers that lacked standing due to Illinois Brick.  The Ninth Circuit reversed (Pepper v. Apple Inc., 846 F.3d 313 (9th Cir. 2017)) and the U.S. Supreme Court agreed to hear the case (Apple Inc. v. Pepper, 138 S. Ct. 2647 (2018)On May 13, the Supreme Court affirmed the Ninth Circuit decision by a 5 to 4 vote.  Thus, the plaintiffs could pursue their claims against Apple for allegedly monopolizing access to apps for Apple’s iPhones and imposing monopoly prices.  Apple had constructed its arrangement with the app developers so that formally the developers set the prices charged to buyers and Apple took a 30 percent commission from that price before remitting the remainder to the developer.  Thus, as a formal contract matter, Apple was only the agent of the developer although the customers could only deal with Apple to get apps.  The majority took the view that Apple was a retailer of apps with an alleged monopoly over the supply.  In this view the formal contract relationship between the developer and Apple was irrelevant to the question of whether the buyers were the first victim to Apple’s alleged monopoly. 

Thus, the court was unanimous that the Illinois Brick rule should remain.  However, the decision appears to reject the use of formal contracts to determine who is the first buyer.  This is consistent with historic practice in antitrust where courts have looked to the substance and not the form of the conduct.  However, to determine who is the first seller, the majority focused on transactional characteristics that seem very formal. But it repeatedly characterized Apple as a classic retailer that selected the goods it would sell, and generally controlled the marketing of the goods.  In contrast, there are real “agents” who function as independent contractors to deliver goods for others and remit the payments.  The decision does not make this distinction explicitly but its repeated characterization of Apple as a retailer suggests that the majority was taking a realistic, functional view of the relationship. A more nuanced analysis of this point would have been very helpful.

Peter Carstensen, antitrust expert and Professor Emeritus of the Wisconsin School of Law commented to me that because the decision leaves the Illinois Brick rule in place, it fails to give farmers any direct expansion of their right to damages under federal law.  Of greater significance for agriculture where the concern is exploitation of monopsony or oligopsony power, Prof. Carstensen noted that the majority opinion is clear that both downstream customers and upstream suppliers (e.g., farmers) can sue the buyer/seller engaged in anticompetitive conduct causing harm.  This is helpful with respect to poultry and (potentially) hog cases brought on behalf of farmers providing growing services. It confirms their independent right to claim damages.  This declaration is also relevant to the continuing disputes over the interpretation of the Packers and Stockyards Act (PSA) condemnation of unfair and discriminatory conduct. 7 U.S.C. §§182 et seq. The courts have imposed an interpretation that holds that the PSA is an antitrust statute which requires competitive injury before there can be a violation.  In addition, the decisions have required that there be an adverse effect on consumers and not just producers.  Prof. Carstensen noted that the Pepper decision re-emphasizes the well-established antitrust principle that both upstream and downstream harms are independent antitrust injuries.  In future PSA cases proof of harm to producers should establish “harm to competition.” 

Another implicit but important underlying assumption of the case is that Illinois Brick applies to exploitive conduct (i.e., either excessive prices imposed on buyers, or under payment to sellers).  The implication is that this rule has no bearing on cases involving exclusion or predation where the illegal conduct harms the victims but does not create a direct gain to the wrongdoer.  Unlike the exploitation cases, the predatory wrongdoer is not sitting on a “pot of money” resulting from its illegal deeds; rather it has expended resources to exclude rivals or entrench its market position in some way.  In such cases the measure of harm is the loss to the victim and not the gain to the wrongdoer.  This is important because usually the harm results from some market manipulation or exclusionary practice in which the wrongdoer causes the harms without directly dealing with the victim. Where farmers are victims of such exclusionary practices even if the harm is inflicted indirectly, they would still have standing to seek damages as well as injunctions in federal court.

On the whole, Prof. Carstensen concluded that the Supreme Court reaffirmed the Illinois Brick rule.  However, it employs a functional analysis to identify the first buyer (seller).  This may improve slightly the chances of farmers getting damages in federal court when buyers engaged in unlawful exploitation have used agents or other specious means to avoid direct dealings.  But the rule remains a major barrier to getting damages for farmers harmed indirectly by exploitive practices by downstream buyers.  Where the farmers’ harm stems from exclusionary or predatory conduct, the decision reinforces the position that the rule does not apply to such damages.  But, it also provides a further correction to the misinterpretations of competitive harm invoked in PSA cases.  The Court’s opinion is a helpful one for agriculture.

Conclusion

In Friday’s post, I will continue the trek through the Top Ten of 2019. 

January 1, 2020 in Civil Liabilities, Regulatory Law | Permalink | Comments (0)

Tuesday, November 19, 2019

Fence Law Basics

Overview

Robert Frost once said that, “Good Fences make good neighbors.”  To paraphrase G.K. Chesterton, “Whenever you remove any fence, pause long enough to consider why it was put up there in the first place.”  Both quotes are sound advice.  Of all the areas of agricultural law that I field questions concerning, outside of farm income tax and farm estate and business planning, perhaps questions concerning fences (and leases) are the most abundant.    

Most states have numerous laws concerning partition fences. Those laws involve such issues as the construction of fences; what is deemed to be a “legal” fence; liability for damages caused by livestock that escape their enclosure; the maintenance of partition fences; the role of the county officials serving as fence viewers in settling fence disputes; and rules for handling stray animals.

Fences and the legal issues for farmers, ranchers and rural landowners – it’s the topic of today’s post.

Partition Fences and Location Issues

State law commonly specifies that a partition fence is to be placed on the line between tracts of land owned by different persons, but also does allow for a partition fence to be located entirely on side of the boundary.  See, e.g., Kan. Stat. Ann. §§29-316; 317. 2 Kan. Stat. Ann. §60-503.  Having a fence located on one side of the actual property boundary may not raise an issue concerning ownership of the land that is fenced, but if such a fence has been in place for long-enough time and the adjacent landowners have, over time, come to believe that the fence marks the boundary then the fence may become the actual boundary regardless of what a deed or survey says. So, in an agricultural setting, usage of property may determine property boundaries more often than do surveys. On this point, there are two different, but related theories that may apply to determine the amount of land owned by the adjacent landowners.

Adverse possession. Under the adverse possession theory, a landowner may acquire title to property by making an open and notorious use of the property for a statutorily-prescribed timeframe that varies among the states from two to 21 years.    In general, this theory can be utilized if the adjacent parties know that the fence between their properties is not on the boundary but do know where the actual boundary is located (thus, the possession is knowingly adverse) and one party is benefited by the misplaced fence, but the other party doesn’t take any action to remedy the problem within the statutory timeframe.

Doctrine of practical location.  The doctrine of practical location can be used in situations where the parties know that the fence is not on the boundary, but don’t know where the actual boundary is located. Thus, one party has a good faith belief of ownership. Similarly, after the statutorily-prescribed timeframe of usage of a fence as the boundary, the fence can become the actual boundary between the tracts.

Building and Maintenance Issues

In general, the owners of adjoining lands are required to build and maintain in good repair all partition fences in equal shares, unless the parties agree otherwise.  The duty to maintain a partition fence confers on the landowner the privilege to lawfully enter onto the adjoining landowner’s property at reasonable times and in a reasonable manner to maintain the fence.  In practice, many adjoining landowners adopt the “right-hand” or “left-hand” rule — they face each other at the mid-point of their fence and agree to build and/or maintain the portion of the fence to either their respective right or left. Of course, adjacent landowners can execute a written fence agreement specifying the part of the fence that each party is responsible for building or maintaining. Such an agreement can be recorded and thereby become part of the land records that will bind subsequent owners of the properties.

Fence-in or fence-out?  States that are not in the western part of the United States follow the “fence-in” rule.  That means that livestock owners are required to fence their animals in.  But, as stated above, state law in these states also requires that the owners of adjoining lands build and maintain in good repair all partition fences in equal shares.  That sometimes creates problems when a livestock owner shares a partition fence with a crop farmer or other landowner who does not graze livestock and, hence, has no need for a fence. But, if an adjacent non-livestock owner does not participate in the maintenance of their share of the partition fence, and injury results to them because of the defective fence that they were required to maintain, they cannot recover for damages caused by the adjacent landowner’s stock.  Also, a non-livestock owner will be held liable to others who are damaged by the neighbor’s livestock escaping through the defective partition fence that the non-livestock owner is required to maintain.  However, there can be special rules in a particular state that might also apply in this situation.  See, e.g., Kan. Stat. Ann. §29-309. 

Procedure for Handling Fence Disputes

In some instances, adjoining landowners may come to an agreement as to how to allocate the responsibility between themselves for the building and/or maintenance of a partition fence. If an agreement is reached, it may be wise to put the agreement in writing and record it in the county Register of Deeds office in the county where the fence is located. However, if the adjoining landowners cannot reach an agreement concerning fence building and/or maintenance, most states require that the fence be called.  The fence viewers are some governmental body of elected officials (who sometimes don’t know that they have a statutory obligation to view partition fences). 

Under Kansas law, for example, the county commissioners (or their designees) in the county where the fence in question is located are the fence viewers.  Kan.Stat. Ann. § 29-201.  For partition fences that are on the boundary between counties, state law should specify the procedure to be followed to determine who is responsible for viewing the fence.  Detailed rules often apply in determining how the view is to be conducted, whether a majority vote is required for determinations, and the appeal procedure if a landowner objects to the conclusions of the viewers.  Ultimately, state law (or caselaw) will provide a mechanism to get a partition fence repaired and the proper party compensated for any work done.

What Is a Legal Fence?

State law specifies what a legal fence is in that particular state.  Sometimes, a statewide requirement applies.  In other jurisdictions, an individual county can set the legal fence requirements.  Generally, the fence viewers can require the parties to build only what is a legal fence in the county. They cannot require a higher-quality fence.   In many states, a legal fence is a barbed wire fence that meets certain specifications, but a legal fence may also be of another type such as posts and rails; post and palings; posts and planks; palisades; stone; post and wires; turf; and electric wire.  State (and/or local) law can be rather detailed on the requirements for a legal fence. 

Escaped Animals – Liability

In general.  In fence-in jurisdictions, if livestock escape through an owner’s faulty fence, the owner is liable for any resulting damages.  However, if the fence is in good shape, the livestock owner is generally not liable absent a showing of negligence.  Evidence of negligence includes such things as gates having been left open, the fence being improperly constructed or maintained, knowledge that the animals were in heat requiring a stronger enclosure or a closer watch, or knowledge that the animals were outside their enclosure and the owner made no attempt to return them. 

The same rules apply when livestock wander onto a public roadway and cause injury to a motorist. In most fence-in jurisdictions, the animal’s owner must be shown to have been negligent.  However, some fence-in jurisdictions apply the doctrine of res ipsa loquitor in livestock/automobile collision cases. The doctrine is a procedural technique that can be used to shift the burden of proof to the livestock owner. In other words, if the doctrine were applied and its elements satisfied, the animal owner would have to prove that owner was not negligent for failing to keep the animal enclosed.

Distraint. If a neighbor’s animals trespass onto an adjoining property owner’s land and the adjoining property owner’s land is lawfully fenced, the adjoining owner may have a right to distrain the animals.  State law often allows a landowner that has been damaged by trespassing livestock to retain the trespassing animals until payment has been made for the damages and the reasonable cost of distraint.  The livestock owner must be notified within a certain timeframe of distraint being utilized.  If the owner can’t be found, a common requirement is that the local sheriff is to be notified.  Once notice is given, the animals can only be held for a few days without bringing legal action against the livestock owner to recover the damages incurred.  As an alternative, many states will allow for the sheriff to be summoned to retrieve the livestock, hold them in custody and dispose of them in accordance with state law procedures.  

What About Railroad Fences?

Typically, landowners do not have any responsibility to build or maintain railroad fences. Instead, railroads are responsible for damages caused to animals that are hit by a train regardless of whether they were negligent or not.  Livestock owners do not have to establish that the railroad was negligent.  However, the liability of a railroad can be waived by the adjacent owner by contract.  But, railroads can avoid liability if they enclose their tracks with a lawful fence. Adjacent landowners can require the railroad to enclose its right-of-way with either a lawful fence or a hog-tight fence, but cannot require the railroad to maintain an electric fence.  If the railroad fails to fence-off its right-of-way, state law often provides a procedure for landowners to follow in getting such a fence built.  Issues can also arise, however, when railroads abandon lines.

Public Roads Through Private Pastures

In states from the Great Plains to points further west, it is possible that a public road may exist through a privately-owned pasture by authorization of the public officials.  In other words, a gate and fence could be authorized to be placed over and across certain public roads, but it couldn’t be authorized to be locked to prohibit general public access to the road.  In these situations, the road can be either auto-gated or cattle-guarded. If a gate is used and is left open, criminal penalties can apply. 

Responsibility for Highway Fences

In some states, it is conventional to expect landowners to build highway fences. Other states have resolved the issue by placing a common law duty on the state highway commission or department of transportation the non-delegable responsibility to keep the highways in a reasonably safe condition.

Conclusion

Fences can create numerous legal issues for farmers, ranchers and rural landowners.  Unfortunately, some of those issues can escalate such that a lawyer trained in agricultural fence law issues becomes necessary. 

November 19, 2019 in Civil Liabilities | Permalink | Comments (1)

Friday, November 8, 2019

Ag Law In The Courts

Overview

This month’s installment of legal developments in the courts involving agriculture features odors, estate planning and a farm program regulation. Farmers, ranchers, rural landowners and agribusinesses sometimes find themselves in disputes with other private parties or state or federal government agencies.  Once a month I try to feature a several developments that illustrate the problems that can arise and how they are resolved.

The November installment of ag law in the courts – that’s the focus of today’s post.

The Case of the Obnoxious Odors

Agricultural production operations and ag businesses sometimes produce offensive odors (at least to some).  While neighbors might complain and state and local governments may try to regulate, the question is really one of the relative degree of offensiveness.

In Chemsol, LLC, et al. v. City of Sibley, 386 F. Supp. 3d 1000 (N.D. Iowa 2019), the plaintiffs owned and operated a milk drying facility. Allegations arose that the facility made the local town, the defendant in the case, smell like “rotten eggs, dried blood, rotten animal carcasses (boiling, burning and decomposing), vomit, human waste and dead bodies.” The defendant enacted an odor ordinance in 2013 which prohibited the creation or maintenance of a nuisance," and defined nuisance to include "offensive smells.”  The ordinance barred the following:  “The erecting, continuing or using of any building or other place for the exercise of any trade, employment or manufacture which, by occasioning noxious exhalations, offensive smells or other annoyances, becomes injurious and dangerous to the health, comfort or property of individuals or the public.” In 2015 the town increased the penalties for violating the ordinance from $100 per offense to $750 for a "first offense," and $1,000 for repeated violations. In 2016, the ordinance was amended to clarify that: "[N]uisance" shall mean whatever is injurious to health, indecent, or unreasonably offensive to the senses, or an obstruction to the free use of property, so as essentially to interfere unreasonably with the comfortable enjoyment of life or property. *** Offensive Smells: The erecting, continuing or using of any building or other place for the exercise of any trade, employment or manufacture which, by occasioning unreasonably noxious exhalations, unreasonably offensive smells or other unreasonable annoyances, becomes injurious and dangerous to the health, comfort or property of individuals or the public.” (emphasis added).

From 2012 to 2016 the plaintiffs did not receive any citations under the odor ordinance. In 2016 the plaintiffs began receiving citations but didn’t pay or appeal the associated fines. Abatement of the nuisance was negotiated, but the odors problems persisted. The plaintiffs received 36 citations in 2016 (16 before the abatement hearing and 20 after), four citations in 2017 and one citation in 2018. The plaintiffs chose to reduce odors by drying less product. The plaintiffs sued on the basis that the ordinance violated their due process by causing them to lose business and become unable to sell the business due to bad publicity. The plaintiffs also alleged a constitutional taking had occurred and that the town had tortuously interfered with business operations. The defendant moved for summary judgment and the court agreed.

The court noted that the plaintiffs did not build the plant on any promise or assurance that the defendant would not be enact such an ordinance, and it was within the defendant’s jurisdiction to enact such an ordinance for a facility within the defendant’s limits. The court also determined that the ordinance did not rise to a regulatory taking because economic use of the plaintiffs’ property remained. The court also concluded that the defendant did not act improperly in enforcing the ordinance or in speaking to potential buyers. 

The Case of Crop Insurance Coverage Computation

Under the crop insurance program of the 2014 Farm Bill, crop insurance coverage for low yield losses was to be determined based on actual production history (APH). However, APH is determined by excluding abnormally low-yield years in the computation.  In this case, JL Farms v. Vilsack, No. 2:16-cv-02548-CM-GEB, 2019 U.S. Dist. LEXIS 106789 (D. Kan. Jun. 26, 2019), the Risk Management Agency (RMA) determined that the 2015 winter wheat crop was not excludible from the APH. Thus, the insurer did not exclude the 2015 yield data from the plaintiff’s insurance pay-out computation.

On review by the National Appeals Division ("NAD") of the United States Department of Agriculture. The NAD hearing officer determined that the NAD lacked jurisdiction. On further review the NAD Director again determined that the NAD did not have jurisdiction, but that the RMA had discretion to implement the exclusion. The plaintiff then sought judicial review of the RMA’s decision and the NAD Director’s decision of lack of jurisdiction. The trial court determined that the NAD did have jurisdiction over the matter and remanded the matter to the NAD Director for reconsideration of the exclusion of the 2015 wheat crop from the plaintiff’s APH. The trial court also referenced a recent decision by the U.S. Court of Appeals for the 10th Circuit holding that the Congress intended the exclusion to be available for the 2015 crop year (winter wheat planted in 2014). 

The Ruling on the Reformed Trust

Trusts are very popular tools that are used in estate planning.  One of the key benefits is that they provide a great deal of flexibility to adjust to unknown events that might occur in the future.  One way in which that is done is by including a power of appointment in a trust.  A power of appointment gives the holder of the power the ability to direct the assets of the trust in a certain manner and in a certain amount.  Essentially, the power of appointment gives the person that creates the power in someone else the ability to determine how the property will be distributed at some point in the future.  Basically, the power creates the ability to defer deciding the ultimate distribution of trust assets.  For example, assume that a husband dies and leaves property in trust for his surviving wife and their children.  When the surviving spouse dies, the trust specifies that the remaining trust assets are to pass equally to the children, unless the surviving spouse exercises the power of appointment that was included in the husband’s trust.  At the time of the husband’s death, $2 million worth of assets was included in the trust and the couple had two children, each equally situated in life.  However, when the surviving spouse dies years later, perhaps the children aren’t so equally positioned anymore – one is rather well off and the other is struggling.  The exercise of the power of appointment can give the surviving spouse the ability to “unbalance” the disposition of the trust assets and leave more assets to the child with greater needs. 

A general power of appointment is one that is exercisable in favor of the decedent, his estate, his creditors or the creditors of his estate.  I.R.C. §2041(b)(1). It also means a power that is exercisable in favor of the individual possessing the power, his estate, his creditors, or the creditors of his estate.  I.R.C. §2514(c). Generally, the lapse of a power of appointment during the life of the individual who has the power of appointment is a release of the power.  I.R.C. §2041(b)(2)But, this rule only applies to a lapse of powers during any calendar year to the extent that the property which could have been appointed by exercise of such lapsed powers exceeded the greater of $5,000 or 5% of the aggregate value of the assets out of which the exercise of the lapsed powers could have been satisfied.  I.R.C. §§2041(b)(2); 2514(e).  In addition, generally the exercise or release of a general power of appointment is a transfer of property by the individual possessing such power.  I.R.C. §2514(c).  When that occurs, it can result in a taxable gift to the trust and/or inclusion of the assets in the power holder’s estate.  If large dollar values are involved, that can be a disastrous result.

A recent IRS ruling involved a trust that contained a general power of appointment that had been drafted incorrectly.  The question was whether that error could be corrected without triggering gift tax or causing the property to be included in the power holder’s estate.  In Priv. Ltr. Rul. 201941023 (May 29, 2019), the settlor created an irrevocable trust for the benefit of his six children. The purpose of the trust was to provide for his descendants and reduce transfer taxes by keeping trust assets from being included in a primary beneficiary’s gross estate. Under the trust terms, each child had his or her own separate trust (collectively, Children’s Trusts; individually, Child’s Trust). Each child was the primary beneficiary of his or her Child’s Trust.

Unfortunately, the trust had a drafting error pertaining to the withdrawal provision – it didn’t limit the general power of withdrawal right of a primary beneficiary over assets contributed to the trust to the greater of $5,000 or five percent of the value of the trust assets as I.R.C. §2041(b)(2) required. Thus, any lapse of a primary beneficiary’s withdrawal right would be a taxable transfer by that particular primary beneficiary under I.R.C. §2514 to the extent that the property that could have been withdrawn exceeded the greater of $5,000 or five percent of the aggregate value of the assets. Also, the portion of each child’s trust relating to the lapsed withdrawal right that exceeded the greater of $5,000 or five percent of trust asset value would be included in the primary beneficiary’s estate.

A subsequent estate planning attorney discovered the error in the original drafting upon review of the estate plan. Consequently, the trustee sought judicial reformation to correct the drafting error on a retroactive basis, and the court issued such an order contingent on the IRS favorably ruling. The IRS did favorably rule that the reformation didn’t cause the release of a general power of appointment with respect to any primary beneficiary. The purpose of the reformation, the IRS determined, was to correct a scrivenor’s error and did not alter or modify the trust in any other manner.  That meant that none of the children would be deemed to have released a general power of appointment by reason of the lapse of a withdrawal right that they held with respect to any transfer to their trust.  Thus, no child would be deemed to have made a taxable gift to their trust and no part of any child’s trust would be included in any child’s estate. 

Perhaps there is a “kindler and gentler” IRS after all – at least on this point. 

Conclusion

These are just a small snippet of what’s been going on in the courts and IRS recently that can impact agricultural producers and others involved in agriculture.  Each day brings something new. 

November 8, 2019 in Civil Liabilities, Estate Planning, Insurance | Permalink | Comments (0)

Wednesday, June 5, 2019

Public Trust vs. Private Rights – Where’s the Line?

Overview

Centuries ago, the seas were viewed as the common property of everyone -  they weren’t subject to private use and ownership.  This concept was later adopted in English law, the Magna Carta, and became part of the common (non-statutory) law in the United States.  Over the years, the doctrine has been primarily applied to access to the seashore and intertidal waters, but it can also be applied with respect to natural resources.  A recent case involving seaweed involved the application of the public trust doctrine.

The public trust doctrine and the right to harvest seaweed – that’s the topic of today’s post.

In General

The U.S. Supreme Court’s first application of the public trust doctrine was in 1842 in Martin v. Lessee of Waddell, 41 U.S.367 (1842). In the case, the issue was who had the right to submerged land and oyster harvesting off the coast of New Jersey.  The Court, largely based on the language in the charter granted by the King to a Duke to establish a colony and for policy and economic reasons, determined that the land area in issue belonged to the state of New Jersey for the benefit of the people of the state.  The Court dealt with the issue again in 1892 in a case involving a railroad that had been granted a large amount of the Chicago harbor. Illinois Central Railroad Company v. Illinois, 146 U.S. 387 (1892).  The Court determined that the government cannot alienate (interfere with) the public’s right to access land under waters that are navigable in fact except for situations where the land involved wouldn’t interfere with the public’s ability to access the water or impair navigation. 

As generally applied in the United States (although there are differences among the states), an oceanfront property owner can exclude the public below the mean high tide (water) line.  See e.g., Gunderson v. State, 90 N.E. 3d 1171 (Ind. 2018)That’s the line of intersection of the land with the water's surface at the maximum height reached by a rising tide (e.g., high water mark).  Basically, it’s the debris line or the line where you would find fine shells.  However, traceable to the mid-1600s, Massachusetts and Maine recognize private property rights to the mean low tide line even though they do allow the public to have access to the shore between the low and high tide lines for "fishing, fowling and navigation.  In addition, in Maine, the public can cross private shoreline property for scuba diving purposes.  McGarvey v. Whittredge, 28 A.3d 620 (Me. 2011). 

Other applications of the public trust doctrine involve the preservation of oil resources, fish stocks and crustacean beds.  Also, many lakes and navigable streams are maintained via the public trust doctrine for purposes of drinking water and recreation. 

Recent Case

The public trust doctrine was invoked recently in a Maine case.  In Ross v. Acadian Seaplants, Ltd., 2019 ME 45 (2019), the defendants harvest rockweed with skiffs in the intertidal zones of Maine. Rockweed is a perennial plant that attaches to the rocks in the intertidal zones. Rockweed regulates the temperature of the area where it is located and is home to many organisms. Commercially, rockweed is used for fertilizer and feed. To harvest Rockweed, the defendant uses skiffs, rakes, and watercraft without physically stepping foot on the intertidal zone. The defendant annually harvests the statutory maximum 17 percent of eligible harvestable rockweed biomass in Cobscook Bay. The plaintiff, an intertidal landowner, sued seeking (1) a declaratory judgment that the plaintiff is the exclusive owner of the rockweed growing on and affixed to his intertidal property; and (2) injunctive relief that would prohibit the defendant from harvesting rockweed from the plaintiff’s intertidal land without his permission. The defendant sought a judgment declaring that harvesting rockweed from the intertidal water is a public right as a form of "fishing" and "navigation" within the meaning of the Colonial Ordinance. The trial court granted summary judgment for the plaintiff on the declaratory judgment claim, and on the defendants’ counterclaim. The trial court denied the defendant’s counterclaim.

On appeal, the state Supreme Court affirmed, holding that rockweed that is attached to and growing on rocks in the intertidal zone is private property owned by the adjacent landowner.  The Court noted that the English common law tradition vested both “title” to and “dominion” over the intertidal zone in the crown.  While title belonged to the crown, however, it was held subject to the public’s rights of “navigation,” “commerce,” and “fishing.”  After the American colonies gained independence, the ownership of intertidal land devolved to the particular state where the intertidal area was located.  See, e.g., Phillips Petroleum Co. v. Mississippi, 484 U.S. 469 (1988)But, the Court noted the uniqueness of rockweed.  It takes specialized equipment and skills to harvest it, and harvesting didn’t “look like” the usual activities in the water of fishing and navigation. Instead, it was more like the other uses in the intertidal zone that have been held to be outside the public trust doctrine.  Thus, the Court concluded that the harvesting of rockweed was not within the collection of rights held by the State for use by its citizens – the public couldn’t engage in rockweed harvest as a matter of right.  The Court stated that, "rockweed in the intertidal zone belongs to the upland property owner and therefore is not public property, is not held in trust by the State for public use, and cannot be harvested by members of the public as a matter of right."

Conclusion

The application of the public trust doctrine has the potential to be quite broad.  Environmental activists and others opposed to various agricultural activities often attempt to get courts to apply the doctrine in an expansive manner well beyond public access to that of preservation in general.  The potential application of the doctrine can be rather expansive – nonpoint source pollution from farm field runoff; wetlands; dry sand areas; cattle ranching in areas of the West, etc.  See, e.g., Mathews v. Bay Head Improvement Association, 471 A.2d 355 (N.J. 1984).  The issue is acute in California where a private party can bring an independent action against a state agency under the public trust doctrine when that agency allegedly doesn’t follow the public trust in the conduct of its duties.  See Citizens for Biological Diversity, Inc. v. FPL Group, Inc., 83 Cal. Rptr. 3d 588 (Cal Ct. App. 2008); San Francisco Baykeeper, Inc. v. State Lands Commission, 29 Cal. App. 5th 562, 240 Cal. Rptr. 3d 510 (2018)

In the recent Maine case, the public trust doctrine was not used to unnecessarily erode private property rights.  The Court balanced the public’s rights against those of private property owners.  It wasn’t enough for the plaintiff to simply assert the public trust doctrine. 

Maybe there’s hope that the public trust doctrine will be properly balanced against the rights of private landowners.  The recent Maine case weighs in on that side of the scale. 

June 5, 2019 in Civil Liabilities, Environmental Law, Real Property | Permalink | Comments (0)

Friday, May 10, 2019

More Ag Law and Tax Developments

Overview

It’s been a while since I have devoted a post to recent developments, so that’s what today’s post is devoted to.  There are always many significant developments in ag law and tax.  I was pleased recently when one of my law students, near the conclusion of the course, commented on how many areas of the law that agricultural law touches and how often the rules as applied to farmers and ranchers are different.  That is so true.  Ag law is daily life for a farmer, rancher, rural landowner, and agribusiness in action.

Recent development in ag law and tax – that’s the topic of today’s post.

Chapter 12 Plan Not Feasible

As I have written in other posts, when a farmer files Chapter 12 bankruptcy, the reorganization plan that is proposed must be feasible.  That means that the farmer must estimate reasonable crop yields and revenue based on historical data, and also provide reasonable estimates of expenses.  Courts also examine other factors to determine whether a reorganization plan is feasible.

In, In re Jubilee Farms, 595 B.R. 546, 2018 Bankr. LEXIS 4080 (Bankr. E.D. Ky. Dec. 28, 2018), the debtor, a farm partnership operated by two brothers, farmed primarily corn and soybeans. The Debtors filed Chapter 12 bankruptcy in early 2018. In May of 2018, the Debtors filed a joint Chapter 12 plan, but the secured creditors, FCMA and FCS, objected. The debtors filed an amended Chapter 12 plan providing FCMA with a fully secured claim of roughly $2.7 million and FCS with a fully secured claim of roughly $180,000. The plan provided for periodic payments funded primarily by the debtor’s farming income and supplemented by custom trucking and combining revenue. Additional funding in the first year would come from crop insurance and anticipated federal aid for farmers affected by political activity upsetting foreign crop sales.

The creditors and the Trustee objected to the confirmation of the amended plan on various grounds, but the main argument raised was that the amended plan was not feasible, because the debtor’s one-year income and expense projections were limited and unrealistic compared to the debtor’s historical income and expenses. An evidentiary hearing was held to present projected revenue and expenses for the farm and thus determine the feasibility (whether the debtor could make all plan payments and comply with the plan) of the amended plan.

The court analyzed the projected revenues and expenses for the coming year, and the concluded that the plan was not feasible because the debtors had failed to prove that the plan was feasible beyond March 2019. The court stated that if the debtors only had to prove they could make the payments required up to March 2019, the debtors would prevail because the testimony created a reasonable belief that the receipts necessary to make payments up to that time either had or would soon occur. However, beyond March 2019 that was not the case. The court compared the debtors’ projections to calculations using the yield and price per acre that was supported by the record. The record showed that the debtors could only pay anticipated operating expenses and plan payments after March 2019 if the debtor’s unsupported projections were used. The projections using the bushels per acre and price per bushel only showed revenue of $592,000 to $736,000 with expenses of $872,000. Given this lack of ability to pay combined with the debtor’s projections overstating revenue from soybean production during the 2019 crop year the court found that the debtors anticipated receipts simply did not cover the debtors’ obligations to pay operating expenses and plan payments beyond March 2019. Thus, the plan was not feasible and the court denied confirmation of the amended plan.

Grazing Scam Results in Fraud Convictions

There are various scams that one can get caught up in, but they don’t often involve cattle grazing.  However, a recent case did involve a cattle grazing scam.  In United States v. Hagen, No. 17-3279, 2019 U.S. App. LEXIS 6109 (8th Cir. Feb. 28, 2019), the defendant and his ex-wife set up a company to provide custom grazing in 2004. The ex-wife obtained grazing leases on tribal land from the Bureau of Indian Affairs ("BIA"). The defendant worked with ranchers to set up custom grazing contracts. In 2011, the BIA issued letters to the defendants for non-compliance with leasing procedures. In 2012, the defendants had leased enough pasture to sustain 57.92 cow-calf pairs but contracted to graze with three cattle producers for the lease of 100 cow-calf pairs and 200 heifers. That summer, 70 pairs were grazed for the full term of the grazing contract, and 33 pairs belonging to another rancher were grazed for a day. A third rancher was forced to find other pasture for his heifers. In 2013, the defendants had leased pasture for 91.26 pairs and had contracted with six different producers to graze a total of 380 pairs. A total of $126,500 was paid upfront by the producers. Not a single pair was grazed that summer and no rancher was reimbursed.

In 2014, the defendants had leased pasture for 6.67 pairs and again over-contracted with three ranchers for 300 pairs, who paid $102,500 up front. No pairs grazed during the summer of 2014 and the ranchers were not reimbursed. The defendants were charged with three counts of wire fraud, four counts of mail fraud, and one count of conspiracy to commit mail and wire fraud for their fraudulent contracting/leasing practices. The ex-wife plead guilty to the conspiracy count and testified against the her ex-spouse at trial. He was convicted by a jury on all eight counts. Sentencing included 46 months imprisonment and 3 years of supervised release on each count, restitution in the amount of $236,000, and a $100 special assessment on each count. The defendant appealed on the basis that the evidence was insufficient to prove he had the requisite intent to defraud, and that the two mailings were not in furtherance of any fraud.

The appellate court affirmed the defendant’s conviction of conspiracy to commit mail and wire fraud, but vacated the conviction and special assessments on the other five substantive counts. The appellate court determined that sufficient evidence supported the jury verdict that the ex-husband had conspired to commit fraud by contracting with twelve different cattle producers to graze cattle. Only one of those contracts had been filled, and the defendants failed to issue refunds on the other contracts for the the 2012-2014 grazing seasons. The appellate court also found sufficient evidence to support the jury’s verdict of use of mail and wire to defraud. One of the ranchers had mailed the defendant a $35,000 check, as full payment for the grazing contract and the defendant had cashed the check using a wire transmission a week later. There was a pasture visit where a rancher was assured that the pasture could support 200 pairs. Another contract was signed by the rancher’s son, and another $35,000 check was written to the defendant. This second contract brought the total contracted to graze with the defendant to 200 pairs for $70,000. It later became evident that the defendant only had 40 acres leased, enough to sustain 6.67 pairs. When it came time for delivery, the defendant did not return any calls. The ranch did not graze any cattle that season nor issued refunds for their payments. The appellate court determined that the evidence was sufficient for the jury to conclude that the defendant knowingly only had enough pasture to graze 6 pairs but nonetheless contracted to graze 200 pairs with this rancher. However, the appellate court vacated the convictions and special assessments tied to specific instance of fraud against different ranchers. The dry conditions that limited the length of the grazing season likely lead to a breach of contract for early termination, rather than an intent to defraud. Other mailings by the defendants containing offers to graze cattle were not in furtherance of fraud, and the convictions and special assessments related to these mailings were vacated.

Fences, Boundary Lines and Adverse Possession

Fences and boundary issues present many court cases.  It is certainly true that good fences make good neighbors.  Bad fences and boundary disputes tend to bring out the worst in neighbors.  A recent Alabama case illustrates the issues that can arise when fences and boundary issues are involved.  In Littleton v. Wells, No. 2170948, 2019 Ala. Civ. App. LEXIS 20 (Civ. App. Feb. 22, 2019), a predecessor sold 82 acers to the defendants in 2015. This land had been in the same family for generations, however the seller had only been on the property “maybe twice” since 1989. The plaintiffs received title to their property from their parents, who had been there since 1964. There were three fences between the party’s properties. The defendant relied on a 1964 survey when making his purchase, thinking the property line was the middle fence.  No survey was completed at that time.

In 2000, the mapping office notified the parties of a “conflict.” The office determined the actual boundary to be closer to the fence on the defendant’s property rather than the middle fence. However, this determination was for tax purposes and was not a substitute for a survey. The plaintiffs also treated the third fence line, like the map office, as the boundary line.

The plaintiffs grazed cattle up to the furthest fence and maintained all the ground between the fences as their own. The plaintiff also testified as to working on the furthest fence as a child in the 1960’s. The plaintiffs also showed that they held annual gatherings and the kids would play in the creek on the disputed ground. There was also evidence that the plaintiffs leased the disputed ground to others. The plaintiffs did not present all the witnesses as to the family’s use of the property up to the furthest fence. Nor was the employee of the map office testimony heard in court.

The trial court determined that the property line was to be the closer center fence, not the third fence as the plaintiffs claimed. The court ordered an official survey to their findings and entered that survey as the final order. The plaintiffs appealed. The appellate court reversed and remanded. The plaintiffs’ challenged the trial court’s denial of their adverse possession claim and determination of the location of the boundary line. The court looked at all the evidence on record from trial, when analyzing the plaintiff’s adverse possession claim. The appellate court held that the record showed that the plaintiffs had been in actual, hostile, open, notorious, exclusive, and continuous possession of the disputed property for more than ten years (the statutory timeframe). The plaintiffs had presented evidence to support every one of those elements and the defendants have not rebutted any element. The only evidence the defendant presented to rebut the plaintiffs’ evidence was a “belief” that he owned up to the second fence. Since the lower court was erroneous in determining the adverse possession claim, the appellate court did not need to analyze the boundary line determination. The court remanded to create a new boundary line that included the property that the plaintiffs had adversely possessed.

Conclusion

There’s never a dull moment in agricultural law.  It’s everyday reality in the life of a farmer, rancher, rural landowner and agribusiness.

May 10, 2019 in Bankruptcy, Civil Liabilities, Criminal Liabilities | Permalink | Comments (0)

Monday, May 6, 2019

Coming-To-The-Nuisance By Staying Put – Or, When 200 Equals 8,000

Overview

Nuisance lawsuits in agriculture are often triggered by offensive odors that migrate to neighboring rural residential landowners.  While there aren’t any common law defenses that an agricultural operation may use to shield itself from liability arising from a nuisance action, courts do consider a variety of factors to determine if the conduct of a particular farm or ranch operation is a nuisance.  See, e.g., Valasek v. Baer, 401 N.W.2d 33 (Iowa 1987); Spur Industries, Inc. v. Del E. Webb Development Co., 108 Ariz. 178, 494 P.2d 700 (1972).  Of primary importance are priority of location and reasonableness of the operation.  Together, these two factors have led courts to develop a “coming to the nuisance” defense.  This means that if people move to an area they know is not suited for their intended use, they should be prohibited from claiming that the existing uses are nuisances.  But, what if the ag nuisance comes to you?  Is the ag operation similarly protected in that situation?

The coming-to-the-nuisance defense in reverse – that’s the topic of today’s post.

Right-To-Farm Laws

In general.  Every state has enacted a right-to-farm law that is designed to protect existing agricultural operations by giving farmers and ranchers who meet the legal requirements a defense in nuisance suits. It may not be only traditional row crop or livestock operations that are protected.  For example, the Washington statute also applies to “forest practices” which has been held to not be limited to logging activity, but include the growing of trees.  Alpental Community Club, Inc., v. Seattle Gymnastics Society, 86 P.3d 784 (Wash. Ct. App. 2004).   

The basic thrust of a particular state's right-to-farm law is that it is unfair for a person to move to an agricultural area knowing the conditions which might be present and then ask a court to declare a neighboring farm a nuisance.  Thus, the basic purpose of a right-to-farm law is to create a legal and economic climate in which farm operations can be continued.  Right-to-farm laws can be an important protection for agricultural operations.  But, to be protected, an agricultural operation must satisfy the law's requirements. To be granted the protection of a statute, the activity at issue must be a farming activity.  For example, in Hood River County v. Mazzara, 89 P.3d 1195 (Or. Ct. App. 2004), the state statute that protected farms against nuisance actions was held to bar a lawsuit against a farmer for noise from barking dogs. The use of dogs to protect livestock was held to be farming practice.

Types.  Right-to-farm laws are of three basic types: (1) nuisance related; (2) restrictions on local regulations of agricultural operations; and (3) zoning related.  While these categories provide a method for identifying and discussing the major features of right-to-farm laws, any particular state's right-to-farm law may contain elements of each category.

The most common type of right-to-farm law is nuisance related.  This type of statute requires that an agricultural operation will be protected only if it has been in existence for a specified period of time (usually at least one year) before the change in the surrounding area that gives rise to a nuisance claim.  See, e.g., Vicwood Meridian Partnership, et al. v. Skagit Sand and Gravel, 98 P. 3d 1277 (Wash. Ct. App. 2004).  This type of statute essentially codifies the “coming to the nuisance defense,” but does not protect agricultural operations which were a nuisance from the beginning or which are negligently or improperly run.  For example, if any state or federal permits are required to properly conduct the agricultural operation, they must be acquired as a prerequisite for protection under the statute.

Subsequent changes – what’s going on in Indiana?  While right-to-farm laws try to assure the continuation of farming operations, they do not protect subsequent changes in a farming operation that constitute a nuisance after local development occurs nearby. See, e.g., Davis, et al. v. Taylor, et al., 132 P.3d 783 (Wash. Ct. App. 2006); Trickett v. Ochs, 838 A.2d 66 (Vt. 2003); Flansburgh v. Coffey, 370 N.W.2d 127 (Neb. 1985)If a nuisance cannot be established, a right-to-farm law can operate to bar an action when the agricultural activity on land changes in nature.  For instance, in Dalzell, et al. v. Country View Family Farms, LLC, No. 1:09-cv-1567-WTL-MJD, 2012 U.S. Dist. LEXIS 130773 (S.D. Ind. Sept. 13, 2012), the land near the plaintiffs changed hands.  The prior owner had conducted a row-crop operation on the property.  The new owner continued to raise row crops, but then got approval for a 2800-head sow confinement facility.  The defendant claimed the state (IN) right-to-farm law as a defense and sought summary judgment.  The court held that state law only allows nuisance claims when “significant change” occurs and that transition from row crops to a hog confinement facility did not meet the test because both are agricultural uses.  The court noted that an exception existed if the plaintiffs could prove that the hog confinement operation was being operated in a negligent manner which causes a nuisance, but the plaintiffs failed to prove that the alleged negligence was the proximate cause of the claimed nuisance.  Thus, the exception did not apply and the defendant’s motion for summary judgment was granted.  The court’s decision was affirmed on appeal.  Dalzell, et al. v. Country View Family Farms, LLC, et al., No. 12-3339, 2013 U.S. App. LEXIS 13621 (7th Cir. Jul. 3, 2013).

Similarly, in Parker v. Obert’s Legacy Dairy, LLC, No. 26A05-1209-PL-450, 2013 Ind. App. LEXIS 203 (Ind. Ct. App. Apr. 30, 2013), the defendant had expanded an existing dairy operation from 100 cows to 760 cows by building a new milking parlor and free-stall barn on a tract adjacent to the farmstead where the plaintiff’s family had farmed since the early 1800s.  The plaintiff sued for nuisance and the defendant asserted the state (IN) right-to-farm statute as a defense.  The court determined that the statute barred the suit.  Importantly, the court determined that the expansion of the farm did not necessarily result in the loss of the statute’s protection.  The expanded farm remained covered under the same Confined Animal Feeding Operation permit as the original farm.  In addition, the conversion of a crop field to a dairy facility was protected by the statute because both uses simply involved different forms of agriculture.  The court also noted that the Indiana statute at issue protected one farmer from suit by another farmer for nuisance if the claim involves odor and loss of property value.  Not all state statutes apply to protect farmers from nuisance suits brought by other farmers.

The coming-to-the-nuisance defense in reverse – recent case.  A recent case again involving the Indiana right-to-farm statute was decided.  In Himsel v. Himsel, No. 18A-PL-645, 2019 Ind. App. LEXIS 181 (Ind. Ct. App. Apr. 22, 2019), the defendants were three individuals, their farming operation and a hog supplier.  In 2013, the individual defendants petitioned the County Area Plan Commission to rezone a 58.42-acre tract from agricultural/residential to agricultural/intense.  The land had been in the family for over 20 years and had been used for ag purposes since at least 1941. From 1994-2013, the property was cropland.  The zoning change would allow for the operation of a Concentrated Animal Feeding Operation (CAFO). The plaintiffs were two married couples, one of whom built their non-farm residence in 1971 and the other who started using their home as a non-farming residence in 2000 after deciding to retire from farming and sell most of the farmland that the husband had grown up on and lived on since the early 1940s.  The plaintiffs attended the hearing and opposed the petition.  The retired farmer plaintiff had raised about 200 head of hogs and 200 head of cattle in an area directly adjacent to his home.  There also was a confinement building about 700 feet from the plaintiff’s home that contained up to 400 hogs that was used for two years until it burnt down.  The area around the plaintiffs’ homes is predominated by agriculture uses, and there are other hog barns near the plaintiff’s property.  The Commission approved the zoning change and the defendant obtained the necessary permits to build an 8,000-head CAFO one quarter of a mile from the retired farmer plaintiff’s home.  The plaintiffs did not appeal.

In late 2015, the plaintiff sued the defendant (the retired farmer plaintiff’s cousin and two nephews) for nuisance and negligence and challenged the state’s Right-to-Farm Act (RTFA) as unconstitutional. The plaintiff also claimed that another part of state law (known as the “Agricultural Canon”) which requires state law to be construed to “protect the rights of farmers to choose among all generally accepted farming and livestock production practices, including the use of ever-changing technology,” was unconstitutional. The defendant asserted the RTFA as a defense, and the state joined the suit to defend the constitutionality of the Agricultural Canon. 

The trial court granted the defendant summary judgment.  On appeal, the appellate court affirmed, holding that the plaintiffs’ nuisance, negligence, and trespass claims were barred by the RTFA. The appellate court also determined that the plaintiffs’ various claims that the RTFA was unconstitutional were futile.  As to the RTFA, the appellate court determined that the retired farmer plaintiff essentially “came to the nuisance” when they retired and switched their farming and livestock operation to purely residential with full knowledge of the surrounding ag uses.  This plaintiff came to the nuisance by not moving away before the CAFO was built.

As to the rural residential plaintiff (as well as the retired farmer plaintiff), the court noted that a 2005 amendment to the RTFA meant that the change in the nature of the individual defendants’ farming operation from crops to a large-scale confinement hog operation was not a significant change that would make the RTFA inapplicable. 

The appellate court also determined that the defendant was not operating the confinement facility negligently which would have eliminated the RTFA as a defense.  In addition, the defendant also had obtained all necessary permits to operate the CAFO.  The appellate court also upheld the constitutionality of the RTFA, finding that it was within the legislature's legitimate constitutional authority, and determined that the RTFA had not “taken” the plaintiffs property.  While the plaintiff may have experienced a reduction in value due to the presence of the nearby CAFO, existing caselaw did not indicate that this amounted to a taking.  On this point, the court noted that the plaintiff continued to live in his home and alleged no distinct, investment-backed expectations that the CAFO had frustrated.  The plaintiff also claimed that the RTFA unconstitutionally separated rural dwellers into those engaged in ag operations on land that has been consistently farmed for at least the prior year, and those living in rural areas that don’t farm.  Under the RTFA, farmers can sue either other farmers or non-farmers for nuisance, but non-farmers can only sue other non-farmers for nuisance.  The appellate court determined that the distinction was not unconstitutional because the state had a rational basis for the distinction in terms of conserving, protecting, and encouraging the development and improvement of agricultural land for the production of food and other agricultural products, and that the distinction was applied uniformly.  The appellate court did not rule on the constitutionality of the Agricultural Canon for lack of jurisdiction.  

Several observations about the case can be made.

  • The appellate court in Himsel, determined that the RTFA applied because the change in the nature of the defendant’s hog operation from row crop farming to a CAFO operation involving 8,000 hogs was “not a significant change” that would make the RTFA inapplicable. In other words, 8,000 hogs in a confinement building raised by a contracting party that likely doesn’t make management decisions concerning the hogs, may or may not report the associated contract income as farm income on Schedule F, doesn't report building rent as farm income, and cannot pledge the hogs as loan collateral, was somehow not significantly different from 200 hogs and 200 head of cattle raised by a farmer with associated crop ground who managed the diversified operation.  Just the sheer number of hogs alone stands out in stark contrast.
  • Unlike the Obert’s Legacy Dairy case where the expansion of the dairy farm did not require a new permit, the hog operation in Himsel required a change in the existing zoning of the tract.
  • The plaintiffs in Himsel were found to have essentially come to the nuisance because one of them chose to retire from farming and remain on the land that he had lived on for nearly 80 years, and the other didn’t move from the rural home they built in 1971. In reaching this conclusion the court determined that an 8,000-head hog confinement operation and the presence of 3.9 million gallons of untreated hog manure was comparable to farming in this area in 1941.
  • The Himsel court determined that a “taking” had not occurred because the plaintiff had not sold his home and moved away from the place where he grew up and lived all of his life. The court did not address the implications of whether its opinion essentially granted the CAFO an easement to produce odors across the plaintiffs’ property.

Conclusion

It is possible that the Himsel decision could be transferred to the Indiana Supreme Court for review.  It’s also possible that the Indiana legislature could revisit the RTFA and the 2005 amendment that appears to have resulted in a construction that allows a CAFO of any size to be built in any place with a history of agricultural activity at any time in the past that predates the plaintiff’s use.  While the original idea behind right-to-farm legislation in general was to protect and incentivize multi-generation farming operations that are often significantly tied to the land and the local communities, the Himsel decision is difficult to square with those ideals.  That’s the case even though the court may be right in its construction of the statutory language at issue.  If that’s correct, the policy of the Indiana RTFA and the future of the Hoosier rural countryside is up to the legislature. 

May 6, 2019 in Civil Liabilities | Permalink | Comments (0)

Thursday, May 2, 2019

Product Liability Down on the Farm – Modifications

Overview

If a farmer or rancher buys a product and the product turns out to be defective, can the manufacturer be held liable on a product liability claim for defective product?  In general, the answer is “yes.”  However, there are some exceptions to that general rule.  One of those may involve an acetylene tank and a torch. 

A limitation on the ability to sue a manufacturer on a product liability claim – that’s the topic of today’s post.

Manufacturer’s Liability – In General

Historically, a manufacturer or seller of defective chattels was not liable to persons injured using the product unless a contractual relationship existed.  This rule limited a manufacturer's liability to immediate purchasers if a product turned out to be defective, dangerous or hazardous to health.   This rule, known as the “privity limitation,” dates back to the 1843 English case of Winterbottom v. Wright, 10 M. & W. 109, 152 Eng. Rep. 402 (Ex. 1842). In Winterbottom, the plaintiff purchased a ticket to ride the stage and as the stage was being driven, a wheel with rotten spokes collapsed.  The ensuing crash injured the plaintiff.  The plaintiff sued the defendant who had undertaken to provide a mail coach to carry the mail bags.  The English court ruled that the plaintiff could not sue the defendant because the plaintiff did not have a contract with the defendant.

Winterbottom became a leading case, not only in England, but also in the United States.  The requirement of privity of contract in product liability cases continued in the United States until 1916.  In a 1916 case, MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916), the plaintiff bought a Buick from a retail dealer.  The plaintiff was injured while driving the car when the wooden spokes on one of the wheels crumbled into fragments.  The defective wheel had been supplied to Buick Motor Co. by a parts manufacturer.  There was evidence tending to show that a reasonable inspection by Buick would have disclosed the defective wheel, but that Buick failed to make such an inspection.  Buick defended on the basis that the plaintiff purchased the car from a retail dealer and, therefore, did not have privity of contract with Buick.  The New York Court of Appeals upheld the trial court and rejected Winterbottom v. Wright.  The Court held that Buick owed a duty of care to the plaintiff as the ultimate purchaser of the automobile from an independent distributor.   Precedent drawn from the days of stagecoach travel no longer squared with the needs of a modern commercial society.

The MacPherson decision marked the beginning of the consumer movement.  Consumers could now sue manufacturers and hold them accountable for negligence in manufacturing faulty products as well as negligence in design.  For the first several years after MacPherson, the question was limited to negligence in manufacturing.  More recently, the focus has expanded to include negligence in design.  Both come within the rule.  No longer is privity of contract required before a manufacturer can be sued.

MacPherson spawned a great deal of products liability litigation.  Much of the early litigation dealt with food and beverage products.  See, e.g., Pillars v. R.J. Reynolds Tobacco Company, 117 Miss. 490 (1918); Coca-Cola Bottling Company v. Burgess, 195 S.W.2d 392 (Tex. Ct. Civ. App. 1946). 

Since the early 1960s, manufacturer's liability law has changed greatly.  The recent trend is away from a negligence approach and toward strict liability.  In many instances, an injured party is not required to show that the manufacturer was negligent.  While a strict liability approach is not the same as absolute liability, in many instances, manufacturer's liability has become so favorable for plaintiffs that many manufacturers have complained of the inability to afford liability insurance coverage.

Under the modern approach, the injured party is required to prove five elements in order to recover from a manufacturer on a product liability claim. 

  • First, the injured party must show that the defendant sold the product and was engaged in the business of selling the product. This requirement is typically easy to satisfy. 
  • Second, the injured party must show that the product was in a defective condition. See, e.g., Russell v. Deere & Co., 61 P.3d 955 (Or. Ct. App. 2003). This, likewise, is not usually very difficult to establish.
  • Third, the injured party must show that the defective condition was unreasonably dangerous to an ordinary user during normal use. Normal use includes all intended uses and foreseeable misuses of the product. See, e.g., Ellis v. Weasler Engineering, Inc., 258 F.3d 326 (5th Cir. 2001)This requirement is somewhat more difficult to satisfy than the first two, and a few courts do not require this element.  If this element is required, a product may be deemed to be unreasonably dangerous if the manufacturer fails to warn of dangers inherent in the product's normal use that is not obvious to an ordinary user. If the product bears an adequate warning, the product is deemed not to be in defective condition in those states whose product liability act follows Comment j of the Restatement (Second) of Torts § 402A.  However, some states follow Comment i of the Restatement (Third) of Torts § 2, which provides that an adequate warning does not foreclose a finding that a product is defectively designed.  See, e.g., Delaney v. Deere and Company, 268 Kan. 769, 999 P.2d 930 (2000), rev’d, 219 F.3d 1195 (10th Cir. 2000).  In these states, a manufacturer cannot simply warn of open and obvious dangers. The belief in these states is that Comment j allows an adequate warning to absolve the manufacturer of its duty to design against dangers when a reasonably safer design could have been adopted that would have reduced or eliminated the risk remaining after a warning is provided.  But, under either approach, foreseeable misuse of the product remains an issue.  See, e.g., Mallery v. International Harvester Company, 690 So. 2d 765 (La. Ct. App. 1996). 
  • The fourth element that an injured party must prove to recover from a manufacturer on a product liability claim is that the product was expected to reach the user without substantial change in condition and, in fact, did so.
  • The fifth requirement is that the product defect was the proximate cause of the plaintiff's injury or damage. This requirement is the most difficult to show and involves proving one of the elements of negligence.

Preemption Possibilities

There are at least three situations that a particular farmer or rancher may face in which they will be limited in their ability to sue a manufacturer on a product liability claim.  One involves the situation when purchased equipment is altered or when multiple component parts are purchased individually, but are then later combined to make a complete system.  If the component parts are not defective, but when combined produce a defective system, the manufacturers of the component parts do not have a duty to warn or properly instruct about the use of the system. See,e.g., Shaffer v. A.O. Smith Harvestore Products, Inc., 74 F.3d 722 (6th Cir. 1996).  When purchased equipment is altered, the manufacturer is generally released from liability unless the manufacturer could have reasonably foreseen that purchasers would alter the equipment in the manner that resulted in injury.  For example, in Hiner v. Deere & Co., 340 F.3d 1190 (10th Cir. 2003), rev’g, 161 F. Supp. 2d 1279 (D. Kan. 2001), the farmer altered a front-end loader resulting in injury.  The court determined that the farmer’s alterations presented a fact issue for the jury to sort out on the plaintiff’s strict liability claim as to whether the defendant could have reasonably foreseen the alteration.  See, also, Brinkman v. International Truck and Engine Corp., 351 F. Supp. 2d 880 (W.D. Wisc. 2004). 

Conclusion

So, when you buy a product and take it home to the farm or ranch, or have it delivered, sometimes the tendency is to modify the item to fit the specs of the situation.  But, once an alteration is made (perhaps by cutting and welding) and the product fails to operate as expected, that alteration can remove the ability to recover from the manufacturer on a defective product claim. 

Just something else to think about on the farm or ranch from the world of agricultural law.

May 2, 2019 in Civil Liabilities | Permalink | Comments (0)

Friday, April 12, 2019

What Does A “Reasonable Farmer” Know?

Overview

The negligence concept is the great workhorse of tort law.  To be liable for a negligent tort, the defendant's conduct must have fallen below that of a “reasonable and prudent person” under the circumstances.  A reasonable and prudent person is what a jury has in mind when they measure an individual's conduct in retrospect - after the fact, when the case is in court.

But, what is a reasonable and prudent farmer?  What is a farmer presumed to have knowledge of?   These are important questions when the issue is negligence.   

The reasonably prudent farmer – it’s the topic of today’s post.

Negligence – In General

More than 90 percent of all civil liability problems relate to negligence.  The negligence system is a system designed to provide compensation to those who suffer personal injury or property damage.  The negligence system is a fault system.  For a person to be deemed legally negligent, certain conditions must exist. These conditions can be thought of as links in a chain. Each condition must be present before a finding of negligence can be obtained. 

The first condition is that of a legal duty giving rise to a standard of care.  If a legal duty exists, it is necessary to determine whether the defendant's conduct fell short of the conduct of a “reasonable and prudent person (or professional) under the circumstances.”  This is called a breach, and is the second element of a negligent tort case.  Once a legal duty and breach of that duty are shown to exist, a causal connection (the third element) must be established between the defendant's act and (the fourth element) the plaintiff's injuries (whether to person or property). In other words, the resulting harm to the plaintiff must have been a reasonably foreseeable result of the defendant's conduct at the time the conduct occurred. Reasonable foreseeability is the essence of causality (also known as proximate cause).  For a plaintiff to prevail in a negligence-type tort case, the plaintiff bears the burden of proof to all four elements by a preponderance of the evidence (just over 50 percent).

The “Reasonably Prudent” Standard

The conduct of a particular tortfeasor (the one causing the tort) who is not held out as a professional is compared with the mythical standard of conduct of the reasonable and prudent person in terms of judgment, knowledge, perception, experience, skill, physical, mental and emotional characteristics as well as age and sanity. For those held out as having the knowledge, skill, experience or education of a professional, the standard of care reflects those factors. For example, the standard applicable to a professional veterinarian in diagnosing or treating animals is what a reasonable and prudent veterinarian would have done under the circumstances, not what a reasonable and prudent person would do.

Recent Case

The issue of what a farmer is presumed to know was at issue in a recent case.  In Perkins v. Fillio, No. 18A-PL-2278, 2019 Ind. App. LEXIS 73 (Ind. Ct. App. Feb. 19, 2019), the defendant owned a small farm where she kept various animals including sheep and goats. The defendant spent roughly half her time at the farm and half her time in Florida. In 2016, the defendant was in Florida and left her half-brother (Slate) in charge of caring for her animals while she was gone, including feeding and watering them. While the defendant was in Florida, one of the goats (a ram) got sick, and because Slate had little experience with farm animals, he contacted a neighbor, the plaintiff, to come and help with the sick goat.

As the plaintiff bent over the ill goat head-butted her, causing her to fall and break her arm/wrist. The plaintiff then sued the defendant on three theories of negligence; premises liability, negligent entrustment and/or supervision, and vicarious liability. Under Indiana law, tort liability based on negligence requires that the defendant owe a plaintiff a duty; that the duty was breached; and that the plaintiff was injured as a result of the breach of the duty.  At issue were whether a duty existed and whether the defendant had violated that duty. The plaintiff presented expert testimony to show that rams are generally territorial and tend to defend themselves, their territory, and the females that they perceive to be in their herd by headbutting unfamiliar animals or persons, and that tendency is generally known by farmers. The plaintiff claimed that when she went into the pen to care for the sick goat, she did not realize it was a ram because it had no horns, and she had never been warned that a ram might be protective and territorial.

Both parties moved for summary judgment on the liability question, and the trial court found in favor of the defendant because, in part, there was a lack of evidence indicating that the defendant knew the plaintiff would be on her real estate and, in particular, be inside the pen where the defendant kept the ram. There was also no evidence that the ram had been aggressive toward anyone in the past. Accordingly, the trial court found that the defendant had not violated a duty of care to the plaintiff. The plaintiff appealed.

On the premises liability question, the appellate court found that a duty to protect against harm caused by domestic animals could be established by either (1) a defendant’s knowledge that a particular animal has a propensity for violence and/or (2) a defendant’s ownership of a member of a class of animals that are known to have dangerous propensities, as the owner of such an animal is bound to have knowledge of that potential danger. The appellate court held that the plaintiff had presented sufficient evidence to establish that rams have dangerous tendencies as a class of animals, and the defendant was bound to have knowledge of that propensity. This evidence was enough to create a genuine issue of fact as to whether the defendant took reasonable measures to prevent the ram from causing harm to invitees, such as the plaintiff. Based on this standard, the appellate court held that the trial court had erred in granting summary judgment on the premise liability issue.

However, the plaintiff did not present sufficient evidence to create a genuine issue of material fact as to the remaining theories of negligence, and therefore the appellate court did not reverse on those rulings. Accordingly, the appellate court remanded to the trial court for further proceedings on the issue of premises liability. 

Conclusion

Farmers have a great deal of skill and knowledge in many matters.  For conduct that falls below the standard or reasonableness for a prudent farmer, tort liability may apply.  That standard is difficult to determine and depends on the facts of each particular case.  In the recent Indiana case, the farmer, even though part-time but as a keeper of animals (including sheep and goats) was presumed to know of the tendency of rams to butt. 

 

Think through how the reasonably prudent person standard might apply in your situation. 

April 12, 2019 in Civil Liabilities | Permalink | Comments (0)

Thursday, April 4, 2019

Do the Roundup Jury Verdicts Have Meaning For My Farming Operation?

Overview

Last month, another jury has determined that Bayer-Monsanto was liable for damages caused by its Roundup weed killer.  Roundup contains glyphosate, the most heavily used herbicide worldwide.  According to the USDA, about 240 million pounds of glyphosate were sprayed in the U.S. in 2014, and traces of it can be found in air, water, soil and food products. 

The most recent jury verdict awarding $81 million in damages to a plaintiff who developed non-Hodgkin lymphoma came about eight months after a different jury (also in California) awarded a different plaintiff almost $300 million for his claim that Roundup caused his cancer.  In that 2018 case, however, the judge reduced the damages to about a third of what the jury awarded. 

Do these verdicts and the thousands of other cases that have been filed in the Roundup litigation mean anything to a farming or ranching operation? 

The implications of the Roundup litigation on a farming or ranching operation– that’s the topic of today’s post.

The Roundup Litigation

The Roundup litigation is an important matter for agriculture.  Roundup is used heavily on genetically modified corn and soybeans as well as oats.  It is presently sold in more than 160 countries.  The patent on glyphosate expired in 2001 with generic versions being sold virtually worldwide.  Presently, over 11,000 cases involving Roundup have been filed and are waiting trial and adjudication.  The basic claim in each case is that the use of Roundup caused some sort of physical injury to the plaintiff.  In many of the cases, the claim is that physical injury occurred after usage (usually over a long period of time) of Roundup.  Indeed, both of the cases involving plaintiff jury verdicts involved the spraying of Roundup over many years.   

Studies have reached differing conclusions on the safety of glyphosate.  The Environmental Working Group (EWG) claims that glyphosate is present in many oat-based cereals and breakfast bars.  The EWG believes that there is a causal connection between glyphosate and cancer, but others differ.  In 2015, the International Agency for Research on Cancer classified glyphosate as a “probable human carcinogen.”  That classification spurred lawsuits against Monsanto.  But, the U.S. Environmental Protection Agency asserts that glyphosate is safe for humans when used in accordance with label directions.  In addition, the World Health Organization has stated that glyphosate is “unlikely to pose a carcinogenic risk to humans from exposure through the diet.” 

Vince Chhabria has been selected to oversee the Roundup lawsuits and has deemed the case resulting in last month’s jury verdict as one of the “bellweather” (test) cases.  Judge Chhabria is a judge on the bench at the U.S. District Court for the Northern District of California.  He was nominated to the bench by the President in 2013. 

What Does the Litigation Mean For My Farm/Ranch?

While the temptation may be great to dismiss the recent verdicts as the result of raw emotion and passion by juries that don’t have much, if any, relation to or understanding of agriculture, that temptation should be resisted.  It is true that juries tend to react based on emotion to a greater degree than do judges (indeed, the judge in the 2018 case significantly reduced the jury verdict), but that doesn’t mean that there aren’t some “take-home” implications for farming and ranching operations at this early stage of the litigation.

Things to ponder.  Farming and ranching operations should at least begin to think about the possible implications of the Roundup litigation. 

  • What about lease agreements? Farmers and ranchers that lease out farmland and pasture may want to reexamine the lease terms. Consideration should be given as to whether the lease should incorporate language that specifies that the tenant assumes the risk of claims arising from the use of Roundup or products containing glyphosate.  Relatedly, perhaps language should be included that either involves the tenant waiving potential legal claims against the landlord or provides for the landlord to be indemnified by the tenant for any and all glyphosate-related claims.  Should language be included specifying that the tenant has the sole discretion to select chemicals to be used on the farm and that any such chemicals shall be used in accordance with label directions and any applicable regulatory guidance?  How should the economics of the lease be adjusted to reflect this type of lease language?  The tenant is giving up some rights and will want compensation for the loss of those rights.  If the lease isn’t in writing, perhaps this is a good time to reduce it to writing. 
  • Is the comprehensive liability policy for the farm/ranch sufficient to cover glyphosate-related claims? Many farm comprehensive general liability policies contain “pollution exclusion” clauses.  Do those clauses exclude coverage for glyphosate-related claims?  How is “pollution” defined under the policy?  Does it include pesticides and herbicides and associated claims?  Does it cover loss to livestock that consume corn and/or soybeans that were grown with the usage of chemicals containing glyphosate?  Can a rider be obtained to provide coverage, if necessary?  These are all important questions to ask the insurance agent and an ag lawyer trained in reading farm comprehensive liability policies. 
  • If the farm employs workers, should that arrangement be modified from employer/employee to independent contractor status? If employee status remains and an employee sues the employer for alleged glyphosate-related damages, what can be done?  Will enrolling the farm in the state workers’ compensation program provide sufficient liability protection for the farming/ranching operation?       

What About Food Products?

To date, the cases have all involved the use of Roundup directly over a long period of time.  At some point will there be cases where consumers of food products claim they were harmed by the presence of glyphosate in the food they ate?  If those cases arise, given the use of production contracts in agriculture and the possibility of tracing back to the farm from which the grain in the allegedly contaminated food product was grown, does the farmer have liability?  If you think this is far-fetched, remember that there is presently a member of the U.S. House that is proposing the regulation (if not elimination) of cows with flatulence.  Relatedly, there are certain segments of the population that are opposed to the manner in which modern, conventional agriculture is conducted.  These persons/groups would not hesitate in trying to pin liability all the way back down the chain to the farmer. 

Conclusion

The Roundup litigation shouldn’t be ignored.  It may be time to start thinking through possible implications and modifying certain aspects of the way the typical farm or ranch does business in order to provide the greatest liability protection possible. 

Just some additional things to think about as you deal with low crop and livestock prices, flooding in the Midwest and Plains, and tax season!  Also, a special “hat tip” to Jeremy Cohen, a lawyer in the Denver, Colorado area who put the bug in my ear about writing on this issue.  Jeremy and I started our legal careers together in North Platte, NE nearly 30 years ago with Don Kelley – an iconic name in farm and ranch estate and business planning circles.

April 4, 2019 in Civil Liabilities | Permalink | Comments (0)