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)

Wednesday, February 27, 2019

Ag Nuisances – Basic Principles

Overview

Land use conflicts are often present in urban, residential and commercial areas.  However, they also occur in rural areas.  Large-scale livestock agricultural operations, wind “farms” and similar rural land uses present many of the same issues.

How does the law handle rural land-use conflicts?  How can these conflict situations with adjoining landowners best be minimized or avoided? 

Land use conflicts in rural areas, ag nuisances and pointers for minimizes conflict among landowners – this is the discussion of today’s post.

What’s An Ag Nuisance?

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.  See, e.g., Peters, et al. v. Contigroup, et al., 292 S.W.3d 380 (Mo. Ct. App. 2009).  Nuisance law prohibits land uses that unreasonably and substantially interfere with another individual's quiet use and enjoyment.  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. In a nuisance action, proof of general damages (diminished quality of life) may be sufficient evidence to support a monetary award.  See, e.g., Stephens, et al. v. Pillen, 681 N.W.2d 59, 12 Neb. App. 600 (2004).

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.  See, e.g., Bower v. Hog Builders, Inc., 461 S.W.2d 784 (Mo. 1970)

Are Nuisance and Negligence the Same?

“Nuisance” and “negligence” are not the same thing.  Operating a farming or ranching activity properly and having all requisite permits may still constitute a nuisance if a court or jury determines the activity is “unreasonable” and causes a “substantial interference” with another person's use and enjoyment of property.  Whether a complained of activity, such as spreading manure, results in a “substantial” and “unreasonable” interference with another's property will depend on the facts of each case and the legal rules used in the particular jurisdiction.  See, e.g., Penland v. Redwood Sanitary Sewer Service District, 156 Or. App. 311, 965 P.2d 433 (1998).

Because each claim of nuisance depends on the fact of the case, there are no easy rules to determine when an activity will be considered a nuisance.  In general, a court faced with a particular nuisance claim will consider several factors.  Primary among these factors is whether the use complained of is a reasonable use that is common to the area or whether it is not suitable. See, e.g., May v. Brueshaber, 265 Ga. 889, 466 S.E.2d 196 (1995).  Also important is whether the use complained of is a minor inconvenience which happens very infrequently or whether it is a regular and continuous activity.  The nature of the property use being disturbed is also an important consideration.  If the interference has a significant impact on the complaining party's use of their own property, such as the prevention of living in the complaining party's home, a nuisance will likely be found.  Similarly, if the complained of use is preventing another landowner's use of their property that is a vital part of the local economy, the court will balance the economics of the situation and most likely conclude that the complained of use constituted a nuisance.  An additional important factor, but not conclusive in and of itself of the issue is whether the complained of use was in existence prior to the complaining party's use of their property which is now claimed to be interfered with.  A related concern, if the activity generating the alleged nuisance was in existence prior to the complaining party moving into the vicinity, is whether the nuisance activity was obvious at the time the complaining party moved in.  Many courts also attempt to balance the economic value to society of the uses in question.  If the complained of use adds jobs and income to the local economy, the value to society of continuing the alleged nuisance may outweigh the negative impact it causes.

If A Nuisance Exists, What Then?

If a court determines that a nuisance (just one that is anticipated to occur in the future) exists, it has much discretion in establishing an appropriate remedy for a nuisance.  The most common remedy is for the court to stop (enjoin) the nuisance activity. See, e.g., Moody, et al. v. Wiza, 2007 Ohio 5356 (Ohio Ct. App. 2007); Simpson, et.al. v. Kollasch, et. al., 749 N.W.2d 671 (Iowa 2008); Walker, et al. v. Kingfisher Wind, LLC, No. CIV-14-D, 2016 U.S. Dist. LEXIS 141710 (W.D. Okla. Oct. 13, 2016).  However, most courts try to fashion a remedy to fit the particular situation. 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)

Potential Defenses

Priority of location.  If a farmer gets sued for the alleged creation of a nuisance, how does the farmer mount a defense?  While there are no common law defenses that an agricultural operation may use to shield itself from liability arising from a nuisance action, as noted above, the courts do consider a variety of factors to determine if the conduct of a particular farm or ranch operation is a nuisance.  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.

Right-to-farm laws.  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.  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.  See, e.g., Alpental Community Club, Inc., v. Seattle Gymnastics Society, 86 P.3d 784 (Wash. Ct. App. 2004); Hood River County v. Mazzara, 89 P.3d 1195 (Or. Ct. App. 2004). 

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).  These types of statute essentially codify the “coming to the nuisance defense,” but do 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.  Another type of right-to-farm statute may be structured to bar local and county governments from enacting regulations or ordinances that impose restrictions on normal agricultural practices.  Still another type exempts (at least in part) agricultural uses from county zoning ordinances.  The major legal issue involving this type of statute is whether a particular activity is an agricultural use or a commercial activity.  In general, “agricultural use” is defined broadly.  See, e.g., Knox County v. The Highlands, L.L.C., 302 Ill. App. 3d 342, 705 N.E.2d 128 (1998), aff’d, 723 N.E.2d 256 (Ill. 1999).

An important point is that 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); Flansburgh v. Coffey, 370 N.W.2d 127 (Neb. 1985).   While a right-to-farm law may not bar an action for a change in operations when a nuisance is present, 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. See, e.g., 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), aff’d., No. 12-3339, 2013 U.S. App. LEXIS 13621 (7th Cir. Jul. 3, 2013). See also Parker v. Obert’s Legacy Dairy, 988 N.E.2d 319 (Ind. Ct. App. 2013).

Conclusion

Land use conflicts in rural areas are not uncommon and have become more prevalent in recent decades as the structure of agriculture had changed and new types of rural land uses have appeared.  To minimize conflict with neighbors and stay out of court defending a nuisance case, attention should be paid to certain key points.  Location of any facility that could give rise to a nuisance claim is key.  Related to location, particularly with respect to odor-related issues is wind direction.  For confinement livestock facilities, proper ventilation is key as is manure storage and field injection practices.  Of course, the overall appearance of farm structures is important - perhaps almost as important as are manure disposal practices. 

Keeping these points in mind just might keep the farming operation out of court.

February 27, 2019 in Civil Liabilities | Permalink | Comments (0)

Monday, January 28, 2019

Selected Recent Cases Involving Agricultural Law

Overview

Last fall, I wrote a blog post where I took a look at a handful of recent court developments involving agricultural law.  Since then I have received numerous requests to do another post surveying more court developments involving legal issues that farmers, ranchers, rural landowners and agribusinesses face. 

Recent court opinions involving ag law issues – that’s the topic of today’s post. 

Adverse Possession

Each state, even though differences exist in state law, recognize that 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) becomes the true property owner after the statutory time-period (anywhere from 10 to 21 years) has expired.  If use is by permission, the adverse possession statute is never tolled.  See, e.g., Engel v. Carlson, No. A-07-016, 2008 Neb. App. LEXIS 94 (Neb. Ct. App. May 13, 2008).

The requirements that the use of the land must be “adverse” and under a “claim of right” are sometimes combined under the requirement that the use of the land be “hostile” to the true owner’s use.  For example, in Cannon v. Day, 165 N.C. App. 302, 598 S.E.2d 207 (2004), rev. den., 604 S.E.2d 309 (N.C. 2004), the original owners never granted permission to use a lane, and the neighbor had used the lane for more than 20 years adverse to the true owners. The court determined that the neighbor had adversely possessed the lane and the ownership of it passed to the neighbor’s successors in interest. 

The hostility requirement is designed to put the true owner on notice that another party is using the land adversely to the true owner.  See, e.g., Groves v. Applen, No. 31241-7-II, 2005 Wash. App. LEXIS 1460 (Wash. Ct. App. Jun. 14, 2005). However, in Kansas, the adverse possession statute does not contain a “hostility” requirement, and the doctrine can be asserted against an undisclosed co-tenant.  Buchanan v. Rediger, 26 Kan. App.2d 59, 975 P.2d 1235 (1999)

Recent case.  In Collier v. Gilmore, 2018 Ark. App. 549 (Ark. Ct. App. 2018), the Arkansas Court of Appeals held that farming to a cultivation line constituted adverse possession.  The parties each gained title to their respective tracts from the same predecessor. In 1972, the plaintiff purchased his tract and believed that he purchased up to the fence where his predecessor had farmed. However, the deed did not include a strip of land up to the fence. Since the 1980’s, the plaintiff farmed up to where the fence was in 1972 believing that to be the property line. Sometime during the 1980’s the defendant received title to the other portion of the predecessor’s original property. The plaintiff sued claiming adverse possession of the strip of land not in the 1972 deed. The trial court agreed.

On appeal, the appellate court affirmed. The appellate court held that the plaintiff’s farming of the disputed strip for several decades was sufficient to establish an intent to hold against the true owner’s rights. The appellate court also determined that the plaintiff’s possession was also hostile because it was greater than the deed anticipated and was without permission of the true owner. While the strip had never been enclosed by a fence or other enclosure, the property line was the cultivation line which had been clearly identified for decades via the plaintiff’s conduct. 

Vicarious Liability

In certain situations, one person may be held liable for the tortious acts of another person based on a special relationship between the two.  Such liability (called vicarious liability) exists even though the person held liable not have personally committed the act.  Often this issue arises in employment situations.  An employer may be held vicariously liable for the tortious acts (usually negligent ones) committed by an employee.  Thus, if an employee commits a tort during the “scope of employment”, the employer will (jointly with the employee) be liable. 

This rule is often described as the doctrine of “respondeat superior”, which means “let the person higher up answer.”  Vicarious liability applies to torts committed by employees and generally not to those committed by independent contractors.  Therefore, it is critical to determine whether a particular individual was an employee or an independent contractor.  While no single factor is dispositive in all cases, an employee is generally one who works subject to the control of the employer concerning the manner and means of performance. 

Recent case.  In Moreno v. Visser Ranch, Inc., No. F075822, 2018 Cal. App. LEXIS 1194 (Cal. Ct. App. Dec. 20, 2018), at issue was a dairy farm’s liability for a worker involving in an accident.  The dairy employed a worker to be on call around the clock to repair equipment at the dairy.  The worker was involved in his work vehicle when he was involved in a single vehicle accident. The plaintiff was riding with the worker at the time of the accident. The plaintiff was employed by a third party to perform various services at the dairy and other local farms. On the night of the accident, the worker and plaintiff attended a family function (they were related) not located on the dairy’s property. On the way home after the function, the vehicle they were in left the road and rolled over. The plaintiff was not wearing a seat belt and was seriously injured. The plaintiff sued the driver, dairy farm and the auto manufacturer for negligence. The plaintiff also sued the State and the County based on the dangerous condition of the road where the accident occurred (the road was under construction). The dairy moved for summary judgment on the plaintiff’s respondeat superior claim on the basis that the driver was not acting within the scope of employment when the accident occurred. The trial court granted the motion. The trial court also granted summary judgment for the diary on the issue of liability arising from ownership of the vehicle. The plaintiff was, however, able to recover statutory damages from the driver.

On appeal, the appellate court determined that fact issues remained on the respondeat superior claim. Though the worker and the plaintiff were returning from a family function, the driver was on call 24/7 to respond to issues at the dairy farm. In addition, the appellate court determined that a fact issue remained as to whether the worker was acting within the scope of his employment and benefiting the dairy farm at the time of the accident. The appellate court remanded the case. 

Inherently Dangerous Activities

Another aspect of respondeat superior involves activities that the law deems to be inherently dangerous. In this instance, the person making the hire can be held vicariously liable even if the person hired is an independent contractor.  For example, in some states, aerial crop spraying is considered evidence of negligence.  In these situations, a plaintiff only needs to establish that aerial spraying occurred and damage resulted.  A showing of negligence on the part of the individual spraying the crops is not necessary.  However, the majority of states still require a showing of negligence before damages can be recovered.  In the states not requiring a showing of negligence, the practical effect is to apply a strict liability rule.  In these jurisdictions, delegation of the spraying task to an independent contractor does not eliminate a farmer's liability.  This problem is so severe that most farm liability policies do not cover the aerial spraying or dusting of crops.  The damage award in a crop dusting case is calculated on the basis of the difference between the crop yield that would have normally resulted and the yield actually obtained after the damage, adjusted for any reduction in costs, such as drying or hauling costs.  Yield is based on the best evidence available.

Recent case.  In Keller Farms, Inc. v. Stewart, No. 1:16 CV 265 ACL, 2018 U.S. Dist. LEXIS 210209 (E.D. Mo. Dec. 13, 2018), the court held that the aerial application of ag chemicals is not an inherently dangerous activity.  The case involved a dispute involving damage to the plaintiffs’ trees caused by chemicals that allegedly drifted during aerial application. The plaintiffs attempted to hold both the aerial applicator and the landowner that hired the applicator. The plaintiffs claimed the landowner was vicariously liable 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 plaintiff’s 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. 

Conclusion

The legal issues that farmers and ranchers deal with are potentially very large.  Today’s post examined just a small slice.  It’s always helpful to know what the rules are when the issue arises. 

January 28, 2019 in Civil Liabilities, Real Property | Permalink | Comments (0)

Wednesday, January 16, 2019

When Is An Employer Liable For The Conduct of Workers?

Overview

An important issue for many farmers and ranchers concerns potential liability for injury or damage caused by persons that work on behalf of the farming or ranching business.  This is a real concern because of the many potentially dangerous situations that farming or ranching can present with respect to, for example, machinery and equipment, livestock, and a work environment that is subject to weather conditions that can often be less than favorable. 

Farm/ranch businesses and liability for the acts of workers – that’s the topic of today’s post.

Employee or Independent Contractor?

In certain situations, one person may be held liable for the tortious acts of another person based on a special relationship between the two even without having personally committed the act that caused liability.  This is known as “vicarious liability,” and it can mean that an employer can be liable for the acts of an employee. But, for the employer to be jointly liable with the employee, the employee must have committed the act leading to liability while acting in the “scope of employment.”  This rule is often described as the doctrine of “respondeat superior,” which means “let the person higher up answer.”  It’s the control by the employer over an employee that justifies joint liability.

Factors for making the distinction.  The control issue is a key point.  Vicarious liability generally does not apply to conduct of independent contractors.  How is that determination made?  While no single factor is dispositive in all cases, an employee is generally one who works subject to the control of the employer. See, e.g., Coates v. Anderson, 84 P.3d 953 (Wyo. 2004).   This usually requires control both with respect to the manner and means of performing the particular job task.  In these situations, the employer is responsible for the acts of the employee committed in the scope of the employee's employment.  The “control” required to make a person an employee rather than an independent contractor is usually held to be control over the physical details of the work.  It is not enough that the employer exercise control over the general manner in which the work is carried out, there must be control over the physical details of the work in order for an employer-employee relationship to be established. Therefore, if the employer retains control over the manner of performance by specifying how the work is to be accomplished, the time the individual will start working, the lunch break and other breaks, the employer is retaining control over the manner of performance.  Likewise, the employer retains control over the means of performance if the employer provides the tools and equipment necessary to complete the job.  An employer may also be directly liable to a customer for breaching a duty of care owed to the customer to supervise its employees involved in service for hire or to supply its employees with safe and proper equipment.  See, e.g., Eischen, et al. v. Crystal Valley Cooperative, 835 N.W.2d 629 (Minn. Ct. App. 2013). An independent contractor, on the other hand, although hired to produce a certain result, is not subject to the control of the employer while the work is performed.

In any given situation, there may not be any control over the manner of performance, but there may be control over the means of performance.  Thus, individuals hiring other persons to accomplish certain tasks should clearly specify whether an employer-employee relationship is to result.  This clarity is often lacking in ag settings.

If the subordinate is free to execute the work without being subject to the direction of the principal as to details, that person is usually an independent contractor.  A person engaging an independent contractor is generally not liable to third persons for the independent contractor's acts.  However, if the work is such that, unless special precautions are taken, there will be a high degree of danger to others, the person hiring the independent contractor will be liable.  This is an exception for “inherently dangerous”activities.  This rule first applied principally to work which was highly dangerous even if every possible precaution was taken such as might occur with the use of dynamite.  More recently, employer liability has been applied where the work to be done by the independent contractor is not “ultra-hazardous” if it is performed without adequate precautions.  In this situation, if the independent contractor omits the precautions, the independent contractor's negligence is attributed to the employer.  An example could be aerial crop spraying in some states. 

“Scope of employment.”  A difficult question in the area of respondeat superior is whether, in a particular case, the employee was acting “within the scope of his employment” when the tort occurred.  In general, the tort is within the scope of employment if the individual acted with the intent to further the employer's business, even if the means chosen were indirect, unwise, and perhaps even forbidden.  Most courts hold that an employee will be deemed to be within the scope of employment even though the employee's intent to serve the employer is coupled with a separate personal purpose. 

Most courts hold that if an accident occurs when the employee is traveling from home to work, the employee is not acting within the scope of employment.  This seems correct because the employer usually has no “control” over the employee at that time.  The result should be the same even if the employer pays the employee a mileage allowance for the trip, and also agrees to pay the employee's hotel expenses for an overnight stay.  Likewise, where the employee is returning home after the day's business activities, most courts do not hold an employer liable if the employee commits a negligent act.  In one case, the defendant was not liable for the plaintiff's injuries sustained in an auto accident with the defendant's farm tenant while the tenant traveling from the farm to the defendant's home to help mow the defendant's law.  The tenant not acting within scope of his job duties as a farm tenant at the time of accident and no evidence was presented that the defendant was in partnership or acting in a joint enterprise with the tenant.  Granillo, et al. v. McKinzie, No. 11-07-00241-CV, 2009 Tex. App. LEXIS 728 (Tex. Ct. App. Feb. 5, 2009).

Interesting cases arise in situations involving an employee on a business trip who makes a short “side trip”, or “detour”, for the employee's own purposes. The traditional view has been that while the employee is on the first leg of a side trip, the employee is engaging in what is often called a “frolic and detour” and is thus not within the scope of employment.  But, as soon as the employee begins to return towards the path of the original business trip, the employee is once again within the scope of employment, no matter how far afield the employee may be at that point.  The recent trend, however, has been to take a less “mechanical” view of the “frolic and detour” problem.  Most courts today hold that the employee is within the scope of business if the deviation is “reasonably foreseeable”.  Under this approach, the employee might be within the scope of employment even while heading toward the object of a personal errand, if the deviation was slight in terms of distance.  But, if the deviation was large and unforeseeable, in terms of miles, then the employee is not within the scope of business even while heading back towards the business goal, at least until returning reasonably near to the original route the employee was supposed to take.

Recent case.  In Moreno v. Visser Ranch, Inc., No. F075822, 2018 Cal. App. LEXIS 1194 (Cal. Ct. App. Dec. 20, 2018), the defendant dairy employed a worker to be on call around the clock to repair equipment on the defendant’s various farms as needed. The worker was in his work vehicle when he was involved in a single vehicle accident. The plaintiff was riding with the worker at the time of the accident. The plaintiff was employed by a third party to perform various services at the dairy and other local farms. On the night of the accident, the worker and third party attended a family function (they were related) not located on farm property. On the way home after the function, the vehicle they were in left the road and rolled over. The plaintiff was not wearing a seat belt and was seriously injured. The plaintiff sued the driver, dairy farm and the auto manufacturer for negligence. The plaintiff also sued the State and the County based on the dangerous condition of the road where the accident occurred (the road was under construction). The dairy moved for summary judgment on the plaintiff’s respondeat superior claim on the basis that the driver was not acting within the scope of employment when the accident occurred. The trial court granted the motion. The trial court also granted summary judgment for the dairy on the issue of liability arising from ownership of the vehicle. The plaintiff was, however, able to recover statutory damages from the driver. On appeal, the appellate court determined that fact issues remained on the respondeat superior claim. Though the worker and the plaintiff were returning from a family function, the driver was on call 24/7 to respond to issues at the dairy farm. In addition, the appellate court determined that a fact issue remained as to whether the worker, was acting within the scope of his employment and benefiting the dairy farm at the time of the accident. The appellate court remanded the case. 

Conclusion

The potential liability of a farm or ranch business for the conduct of persons working for it is an important issue.  Liability often turns on how much control the business exercises over the job tasks.  The liability issue and the ways it can occur for any particular farm or ranch business is a good conversation to have with legal counsel. 

January 16, 2019 in Civil Liabilities | Permalink | Comments (0)

Monday, December 31, 2018

The "Almost Top Ten" Ag Law and Tax Developments of 2018

Overview

2018 was a big year for developments in law and tax that impact farmers, ranchers, agribusinesses and the professionals that provide professional services to them.  It was also a big year in other key areas which are important to agricultural production and the provision of food and energy to the public.  For example, carbon emissions in the U.S. fell to the lowest point since WWII while they rose in the European Union.  Poverty in the U.S. dropped to the lowest point in the past decade, and the unemployment rate became the lowest since 1969 with some sectors reporting the lowest unemployment rate ever.  The Tax Cuts and Jobs Act (TCJA) doubles the standard deduction in 2018 compared to 2017, which will result additional persons having no federal income tax liability and other taxpayers (those without a Schedule C or F business, in particular) having a simplified return.  Wages continued to rise through 2018, increasing over three percent during the third quarter of 2018.  This all bodes well for the ability of more people to buy food products and, in turn, increase demand for agricultural crop and livestock products.  That’s good  news to U.S. agriculture after another difficult year for many commodity prices.

On the worldwide front, China made trade concessions and pledged to eliminate its “Made in China 2025” program that was intended to put China in a position of dominating world economic production.  The North-Korea/South Korea relationship also appears to be improving, and during 2018 the U.S. became a net exporter of oil for the first time since WWII.  While trade issues with China remain, they did appear to improve as 2018 progressed, and the USDA issued market facilitation payments (yes, they are taxed in the year of receipt and, no, they are not deferable as is crop insurance) to producers to provide relief from commodity price drops as a result of the tariff battle. 

So, on an economic and policy front, 2019 appears to bode well for agriculture.  But, looking back on 2018, of the many ag law and tax developments of 2018, which ones were important to the ag sector but just not quite of big enough significance nationally to make the “Top Ten”?  The almost Top Ten – that’s the topic of today’s post.

The “Almost Top Ten” - No Particular Order

Syngenta litigation settles.  Of importance to many corn farmers, during 2018 the class action litigation that had been filed a few years ago against Syngenta settled.  The litigation generally related to Syngenta's commercialization of genetically-modified corn seed products known as Viptera and Duracade (containing the trait MIR 162) without approval of such corn by China, an export market. The farmer plaintiffs (corn producers), who did not use Syngenta's products, claimed that Syngenta's commercialization of its products caused the genetically-modified corn to be commingled throughout the corn supply in the United States; that China rejected imports of all corn from the United States because of the presence of MIR 162; that the rejection caused corn prices to drop in the United States; and that corn farmers were harmed by that market effect.  In April of 2018, the Kansas federal judge handling the multi-district litigation preliminarily approved a nationwide settlement of claims for farmers, grain elevators and ethanol plants.  The proposed settlement involved Syngenta paying $1.5 billion to the class.  The class included, in addition to corn farmers selling corn between September of 2013 and April of 2018, grain elevators and ethanol plants that met certain definition requirements.  Those not opting out of the class at that point are barred from filing any future claims against Syngenta arising from the presence of the MIR 162 trait in the corn supply.  Parties opting out of the class can't receive any settlement proceeds, but can still file private actions against Syngenta.  Parties remaining in the class had to file claim forms by October of 2018.   The court approved the settlement in December of 2018, and payments to the class members could begin as early as April of 2019. 

Checkoff programs.  In 2018, legal challenges to ag “checkoff” programs continued.  In 2017, a federal court in Montana enjoined the Montana Beef Checkoff.  In that case, Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America v. Perdue, No. CV-16-41-GF-BMM, 2017 U.S. Dist. LEXIS 95861 (D. Mont. Jun. 21, 2017), the plaintiff claimed that the federal law requiring funding of the Montana Beef Council (MBC) via funds from the federal beef checkoff was unconstitutional.  The Beef Checkoff imposes a $1.00/head fee at the time cattle are sold. The money generated funds promotional campaigns and research, and state beef councils can collect the funds and retain half of the collected amount with the balance going to the Cattleman’s Beef Production and Research Board (Beef Board). But, a producer can direct that all of the producer’s assessment go to the Beef Board. The plaintiff claimed that the use of the collected funds violated their First Amendment rights by forcing them to pay for “speech” with which they did not agree. The defendant (USDA) motioned to dismiss, but the Magistrate Judge denied the motion. The court determined that the plaintiffs had standing, and that the U.S. Supreme Court had held in prior cases that forcing an individual to fund a private message that they did not agree with violated the First Amendment. Any legal effect of an existing “opt-out” provision was not evaluated. The court also rejected the defendant’s claim that the case should be delayed until federal regulations with respect to the opt-out provision was finalized because the defendant was needlessly dragging its heels on developing those rules and had no timeline for finalization. The court entered a preliminary injunction barring the MBC from spending funds received from the checkoff. On further review by the federal trial court, the court adopted the magistrate judge’s decision in full. The trial court determined that the plaintiff had standing on the basis that the plaintiff would have a viable First Amendment claim if the Montana Beef Council’s advertising involves private speech, and the plaintiff did not have the ability to influence the advertising of the Montana Beef Council. The trial court rejected the defendant’s motion to dismiss for failure to state a claim on the basis that the court could not conclude, as a matter of law, that the Montana Beef Council’s advertisements qualify as government speech. The trial court also determined that the plaintiff satisfied its burden to show that a preliminary injunction would be appropriate. 

The USDA appealed the trial court’s decision, but the U.S. Court of Appeals for the Ninth Circuit affirmed the trial court in 2018.  Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America v. Perdue, 718 Fed. Appx. 541 (9th Cir. 2018).  Later in 2018, as part of the 2018 Farm Bill debate, a provision was proposed that would have changed the structure of federal ag checkoff programs.  It did not pass, but did receive forty percent favorable votes.    

GIPSA rules withdrawn.  In the fall of 2016, the USDA sent to the Office of Management and Budget (OMB) an interim final rule and two proposed regulations setting forth the agency’s interpretation of certain aspects of the Packers and Stockyards Act (PSA) involving the buying and selling of livestock and poultry. The proposals generated thousands of comments, with ag groups and producers split in their support. The proposals concern Section 202 of the PSA (7 U.S.C. §§ 192 (a) and (e)) which makes it unlawful for any packer who inspects livestock, meat products or livestock products to engage in or use any unfair, unjustly discriminatory or deceptive practice or device, or engage in any course of business or do any act for the purpose or with the effect of manipulating or controlling prices or creating a monopoly in the buying, selling or dealing any article in restraint of commerce. The “effect” language of the statute would seem to eliminate any requirement that the producer show that the packer acted with the intent to control or manipulate prices. However, the federal courts have largely interpreted the provision to require a plaintiff to show an anti-competitive effect in order to have an actionable claim. 

The interim final rule and the two proposed regulations stemmed from 2010.  In that year, the Obama administration’s USDA issued proposed regulations providing guidance on the handling of antitrust-related issues under the PSA. 75 Fed. Reg. No. 119, 75 FR 35338 (Jun. 22, 2010).  Under the proposed regulations, "likelihood of competitive injury" was defined as "a reasonable basis to believe that a competitive injury is likely to occur in the market channel or marketplace.” It included, but was not limited to, situations in which a packer, swine contractor, or live poultry dealer raises rivals' costs, improperly forecloses competition in a large share of the market through exclusive dealing, restrains competition, or represents a misuse of market power to distort competition among other packers, swine contractors, or live poultry dealers. It also includes situations “in which a packer, swine contractor, or live poultry dealer wrongfully depresses prices paid to a producer or grower below market value, or impairs a producer's or grower's ability to compete with other producers or growers or to impair a producer's or grower's ability to receive the reasonably expected full economic value from a transaction in the market channel or marketplace." According to the proposed regulations, a “competitive injury” under the PSA occurs when conduct distorts competition in the market channel or marketplace. The scope of PSA §202(a) and (b) was stated to depend on the nature and circumstances of the challenged conduct. The proposed regulations specifically noted that a finding that a challenged act or practice adversely affects or is likely to affect competition is not necessary in all cases. The proposed regulations also specified that a PSA violation could occur without a finding of harm or likely harm to competition, contrary to numerous court opinions on the issue.

On April 11, 2017, the USDA announced that it was delaying the effective date of the interim final rule for 180 days, until October 19, 2017, with the due date for public comment set at June 12, 2017.  However, on October 17, 2017, the USDA withdrew the interim rule.  The withdrawal of the interim final rule and two proposed regulations was challenged in court.  On December 21, 2018, the U.S. Court of Appeals for the Eighth Circuit denied review of the USDA decision.  In Organization for Competitive Markets v. United States Department of Agriculture, No. 17-3723, 2018 U.S. App. LEXIS 36093 (8th Cir. Dec. 21, 2018), the court noted that the USDA had declined to withdraw the rule and regulations because the proposal would have generated protracted litigation, adopted vague and ambiguous terms, and potentially bar innovation and stimulate vertical integration in the livestock industry that would disincentivize market entrants.  Those concerns, the court determined, were legitimate and substantive.  The court also rejected the plaintiff’s argument that the court had to compel agency action.  The matter, the court concluded, was not an extraordinary situation.  Thus, the USDA did not unlawfully withhold action. 

No ”clawback.”   In a notice of proposed rulemaking, the U.S Treasury Department eliminated concerns about the imposition of an increase in federal estate tax for decedents dying in the future at a time when the unified credit applicable exclusion amount is lower than its present level and some (or all) of the higher exclusion amount had been previously used. The Treasury addressed four primary questions. On the question of whether pre-2018 gifts on which gift tax was paid will absorb some or all of the 2018-2025 increase in the applicable exclusion amount (and thereby decrease the amount of the credit available for offsetting gift taxes on 2018-2025 gifts), the Treasury indicated that it does not. As such, the Treasury indicated that no regulations were necessary to address the issue. Similarly, the Treasury said that pre-2018 gift taxes will not reduce the applicable exclusion amount for estates of decedents dying in years 2018-2025.

The Treasury also stated that federal gift tax on gifts made after 2025 will not be increased by inclusion in the tax computation a tax on gifts made between 2018 and 2015 that were sheltered from tax by the increased applicable exclusion amount under the TCJA.  The Treasury concluded that this is the outcome under current law and needed no regulatory “fix.” As for gifts that are made between 2018-2025 that are sheltered by the applicable exclusion amount, the Treasury said that those amounts will not be subject to federal estate tax in estates of decedents dying in 2026 and later if the applicable exclusion amount is lower than the level it was at when the gifts were made. To accomplish this result, the Treasury will amend Treas. Reg. §20.2010-1 to allow for a basic exclusion amount at death that can be applied against the hypothetical gift tax portion of the estate tax computation that is equal to the higher of the otherwise applicable basic exclusion amount and the basic exclusion amount applied against prior gifts.

The Treasury stated that it had the authority to draft regulations governing these questions based on I.R.C. §2001(g)(2). The Treasury, in the Notice, did not address the generation-skipping tax exemption and its temporary increase under the TCJA through 2025 and whether there would be any adverse consequences from a possible small exemption post-2025. Written and electronic comments must be received by February 21, 2019. A public hearing on the proposed regulations is scheduled for March 13, 2019. IRS Notice of Proposed Rulemaking, REG-106706-18, 83 FR 59343 (Nov. 23, 2018).

Conclusion

These were significant developments in the ag law and tax arena in 2018, but just not quite big enough in terms of their impact sector-wide to make the “Top Ten” list.  Wednesday’s post this week will examine the “bottom five” of the “Top Ten” developments for 2018. 

December 31, 2018 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Friday, November 9, 2018

Developments in Ag Law and Tax

Overview

Legal developments impacting rural landowners, producers and agribusinesses continue to occur.  The same can be said for tax developments that impact practitioners and their client base.  It’s a never-ending stream.

In today’s post, I examine just a few of the recent developments from the courts of relevance.

Debtor Can Convert Chapter 12 Case to Chapter 11 

Can a Chapter 12 bankruptcy case be converted to Chapter 11?  That was the issue in In re Cardwell, No. 17-50307-rlj12, 2018 Bankr. LEXIS 3089 (Bankr. N.D. Tex. Oct. 3, 2018).  The debtor, an elderly widowed woman, owned three tracts of farmland that she leased out for farming purposes.  The tracts served as collateral for loans taken out by her children and grandchildren. The debtor sued a bank and the spouse of a granddaughter for “improprieties on the loans and liens.” The debtor filed Chapter 12, but the bank moved to dismiss the case on the basis that the debtor was not a ‘family farmer.” The debtor then moved to convert the case to Chapter 11. The bank objected, claiming that a Chapter 12 case cannot be converted to a Chapter 11.

While the court noted that there is some authority for that proposition, the court also noted that there is no explicit statutory language that bars a Chapter 12 from being converted to a Chapter 11 and that the courts are split on the issue. Ultimately, the court concluded that 11 U.S.C. §1208(e) allowed for conversion if the proceeding was in good faith and conversion would not be inequitable or prejudicial to creditors. The court also noted that if it dismissed the debtor’s Chapter 12 case, the debtor could simply refile the matter as a Chapter 11 case. The court saw no point in requiring that procedural step as there was no explicit statutory language requiring dismissal and refiling. The court also noted that upon conversion the automatic stay would remain in place, and that the debtor would actually have a more difficult time getting her reorganization plan confirmed as part of a Chapter 11 case as compared to a Chapter 12 case. 

Federal Law Preempts Kansas Train Roadway Blockage Law

Burlington Northern Santa Fe Railway (BNSF) operates trains through the town of Bazaar in Chase County, Kansas. At issue State of Kansas v. Burlington Northern Santa Fe Railway Company, No. 118,095, 2018 Kan. App. LEXIS 63 (Kan. Ct. App. Nov. 2, 2018), were two railroad crossings where the main line and the side tracks crossed county and town roads. The side track is used to change crews or let other trains by on the main line. Early one morning, the Chase County Sheriff received a call that a train was blocking both intersections. The Sheriff arrived on scene two hours later and spoke with a BNSF employee. This employee said that he was checking the train but did not state when the train would move. The Sheriff then called BNSF three times. The train remained stopped on both crossings for approximately four hours. The Sheriff issued two citations (one for each engine) under K.S.A. 66-273 for blocking the crossings for four hours and six minutes. K.S.A. 66-273 prohibits railroad companies and corporations operating a railroad in Kansas from allowing trains to stand upon any public roadway near any incorporated or unincorporated city or town in excess of 10 minutes at any one time without leaving an opening on the roadway of at least 30 feet in width. BNSF moved to dismiss the citation, but the trial court rejected the motion.

During the trial, many citizens presented evidence that they could not get to work that day, and a service technician could not reach a home that did not have hot water and was having heating problems. BNSF presented train logs for one of the engines. These logs showed that one engine was stopped in Bazaar for only 8 minutes to change crews and was not in Bazaar at 9:54 a.m. The Sheriff later conceded that he might have been mistaken about the numbers on the engines for the citations. There were no train logs for the other engine. BNSF also stated there could be other alternatives from blocking the crossings but uncoupling the middle of the train would be time consuming and unsafe.

The trial court ruled against BNSF and entered a fine of $4,200 plus court costs. On appeal, BNSF claimed that the Interstate Commerce Commission Termination Act (ICCTA) and Federal Railroad Safety Act (FRSA) preempted Kansas law, and that the evidence presented was not sufficient to prove a violation of Kansas law. The appellate court agreed, holding that the ICCTA, by its express terms contained in 49 U.S.C. 10501(b), preempted Kansas law. While the appellate court noted that the Kansas statute served an “admirable purpose,” it was too specific in that it applied only to railroad companies rather than the public at large. Also, the statute had more than a remote or incidental effect on railway transportation. As a result, the Kansas law infringed on the Surface Transportation Board’s exclusive jurisdiction to regulate the railways in the United States. The appellate court noted that the Surface Transportation Board was created by the ICCTA and given exclusive jurisdiction over the construction, acquisition, operation, abandonment, or discontinuance of railroad tracks and facilities. In addition, the appellate court noted that the Congress expressly stated that the remedies with respect to regulation of rail transportation set forth in the ICCTA are exclusive and preempt other remedies provided under federal or state law. The appellate court did not consider BNSF’s other arguments. 

Groundwater Is Not a “Point Source” of Pollution Under the CWA

The defendant in Tennessee Clean Water Network v. Tennessee Valley Authority, No. 17-6155, 2018 U.S. App. LEXIS 27237 (6th Cir. Sept. 24, 2018), is a utility that burns coal to produce energy.  It also produces coal ash as a byproduct. The coal ash is discharged into man-made ponds. The plaintiffs, environmental activist groups, claimed that the chemicals from the coal ash in the ponds leaked into surrounding groundwater where it was then carried to a nearby lake that was subject to regulation under the Clean Water Act (CWA). The plaintiffs claimed that the contamination of the lake without a discharge permit violated the CWA and the Resource Conservation and Recovery Act (RCRA).

The trial court had dismissed the RCRA claim, but the appellate court reversed that determination and remanded the case on that issue. On the CWA claim, the trial court ruled as a matter of law that the CWA applies to discharges of pollutants from a point source through hydrologically connected groundwater to navigable waters where the connection is "direct, immediate, and can generally be traced." The trial court held that the defendant’s facility was a point source because it "channel[s] the flow of pollutants . . . by forming a discrete, unlined concentration of coal ash," and that the Complex is also a point source because it is "a series of discernible, confined, and discrete ponds that receive wastewater, treat that wastewater, and ultimately convey it to the Cumberland River." The trial court also determined that the defendant’s facility and the ponds were hydrologically connected to the Cumberland River by groundwater. As for the defendant’s facility, the trial court held that "[f]aced with an impoundment that has leaked in the past and no evidence of any reason that it would have stopped leaking, the Court has no choice but to conclude that the [defendant’s facility] has continued to and will continue to leak coal ash waste into the Cumberland River, through rainwater vertically penetrating the Site, groundwater laterally penetrating the Site, or both." The trial court determined that the physical properties of the terrain made the area “prone to the continued development of ever newer sinkholes or other karst features." Thus, based on the contaminants flowing from the ponds, the court found defendant to be in violation of the CWA. The trial court also determined that the leakage was in violation of the defendant “removed-substances” and “sanitary-sewer” overflow provisions. The trial court ordered the defendant to "fully excavate" the coal ash in the ponds (13.8 million cubic yards in total) and relocate it to a lined facility.

On further review, the appellate court reversed. The appellate court held that the CWA does not apply to point source pollution that reaches surface water by means of groundwater movement. The appellate court rejected the plaintiffs’ assertion that mere groundwater is equivalent to a discernable point source through which pollutants travel to a CWA-regulated body of water. The appellate court noted that, to constitute a “conveyance” of groundwater governed by the CWA, the conveyance must be discernible, confined and discrete. While groundwater may constitute a conveyance, the appellate court reasoned that it is neither discernible, confined, nor discrete. Rather, the court noted that groundwater is a “diffuse” medium that “travels in all directions, guided only by the general pull of gravity.” In addition, the appellate court noted that the CWA regulates only “the discharge of pollutants ‘to navigable waters from any point source.’” In so holding, the court rejected the holdings in Hawai’i Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018) and Upstate Forever, et al. v. Kinder Morgan Energy Partners, LP, et al., 887 F.3d 637 (4th Cir. 2018). 

Cash Gifts to Pastor Constituted Taxable Income

In Felton v. Comr., T.C. Memo. 2018-168, the petitioner was the pastor of a church and the head of various church related ministries in the U.S. and abroad, got behind on his tax filings and IRS audited years 2008 and 2009. While most issues were resolved, the IRS took the position that cash and checks that parishioners put in blue envelopes were taxable income to the petitioner rather than gifts. The amounts the petitioner received in blue envelopes were $258,001 in 2008 and $234,826 in 2009. There was no question that the church was run in a businesslike manner. While the church board served in a mere advisory role, the petitioner did follow church bylaws and never overrode the board on business matters. As for contributions to the church, donated funds were allocated based on an envelope system with white envelopes used for tithes and offerings for the church. The white envelopes also included a line marked “pastoral” which would be given directly to the petitioner. The amounts in white envelopes were tracked and annual giving statements provided for those amounts.

The petitioner reported as income the amounts provided in white envelopes that were designated as “pastoral.” Amount in gold envelopes were used for special programs and retreats, and were included in a donor’s annual giving statement. Amounts in blue envelopes (which were given out when asked for) were treated as pastoral gifts and the amounts given in blue envelopes were not included in the donor’s annual giving statement and the donor did not receive any tax deduction for the gifted amounts. Likewise, the petitioner did not include the amounts given in blue envelopes in income. The IRS took the position that the amounts given by means of the blue envelopes were taxable income to the petitioner. The Tax Court agreed, noting that the petitioner was not retiring or disabled. The court also noted that the petitioner received a non-taxable parsonage allowance of $78,000 and received only $40,000 in white envelope donations. The court also upheld the imposition of a penalty because the petitioner, who self-prepared his returns, made no attempt to determine the proper tax reporting of the donations. 

Conclusion

The developments keep rolling in.  There will be more to write about in a subsequent post.

November 9, 2018 in Bankruptcy, Civil Liabilities, Environmental Law, Income Tax | Permalink | Comments (0)