Sunday, May 28, 2023
Victory for Property Rights – SCOTUS Narrows Federal Control of Land Use
Overview
The U.S. Supreme Court, on May 25, issued its long-awaited opinion in Sackett v. Environmental Protection Agency, No. 21-454, 2023 U.S. LEXIS 2202 (U.S. Sup. Ct. May 25, 2023), and narrowed the scope of the federal government’s control of land use under the Clean Water Act (CWA) wetland provisions. The Court’s decision restores the original understanding of the wetland rules contained in the 1972 CWA amendments, and essentially restores the Trump-era National Water Protection Rule (NWPR). The Court’s decision is an important one for agricultural producers and landowners in general.
The Sackett decision and its implications for agriculture – it’s the topic of today’s post.
Background
The scope of the federal government’s regulatory authority over wet areas on private land, streams and rivers under the Clean Water Act (CWA) has been controversial for more than 40 years. As part of its interstate commerce power, the Congress has long regulated the navigable waters of the United States. The improvement of navigable waters is the domain of the U.S. Army Corps of Engineers (COE) pursuant to the Rivers and Harbors Act of 1890 (and an 1899 amendment banning private deposits of refuse into navigable waters without a permit). In 1972, under the CWA Amendments of that year, used the concept of “navigable waters” to address water pollution. By attaching federal jurisdiction (vested in the Environmental Protection Agency (EPA)) over water pollution to the concept of navigation, that gave the federal government control upstream to cover not only waters that are navigable, but waters that can impact waters that are navigable. This meant that the concept of pollution was integrated with that of navigation into a single definition that barred the discharge of a “pollutant” (which includes cellar dust) into the navigable waters of the United States. The concept of preserving wetlands was not in mind when the Congress wrote the definition of “a discharge into a navigable water.” Thus, the parameters of the definition became the task of the EPA and the COE. Originally, those parameters were narrow in scope. The COE regulatory position was that a discharge permit was require only if a discharge was into waters that were truly navigable, and that didn’t include wetlands as well as shallow or isolated wetlands.
But environmental activists sued, and many court opinions have been filed attempting to define the scope of the government’s jurisdiction. Ultimately, the courts sided with the environmentalists and the COE and EPA changed their rules to give themselves jurisdiction over streams, mud flats, prairie potholes, or ponds, “the use, degradation, or destruction of which could affect interstate commerce.” The regulatory reach became so broad that in 1985 the EPA’s general counsel approved a regulatory guidance letter stating that a migrating bird flying across state lines that contemplated landing and did land in an isolated wetland was enough to confer jurisdiction! While that interpretation was eventually negated by the courts, the matter led to several high-profile criminal cases leading to incarceration of individuals for polluting navigable waters as a result of depositing dirt on dry ground.
On two occasions, the U.S. Supreme Court attempted to clarify the 1986 regulatory definition of a WOTUS, but in the process of rejecting the regulatory definitions of a WOTUS developed by the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COE), the Court didn’t provide clear direction for the lower courts. See Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers, 531 U.S. 159 (2001); Rapanos v. United States, 547 U.S. 175 (2006). The lower courts have also had immense difficulties in applying the standards set forth by the U.S. Supreme Court.
Particularly with its Rapanos decision, the Court failed to clarify the meaning of the CWA phrase “waters of the United States” and the scope of federal regulation of isolated wetlands. The Court did not render a majority opinion in Rapanos, instead issuing a total of five separate opinions. The plurality opinion, written by Justice Scalia and joined by Justices Thomas, Alito and Chief Justice Roberts, would have construed the phrase “waters of the United States” to include only those relatively permanent, standing or continuously flowing bodies of water that are ordinarily described as “streams,” “oceans,” and “lakes.” In addition, the plurality opinion also held that a wetland may not be considered “adjacent to” remote “waters of the United States” based merely on a hydrological connection. Thus, in the plurality’s view, only those wetlands with a continuous surface connection to bodies that are “waters of the United States” in their own right, so that there is no clear demarcation between the two, are “adjacent” to such waters and covered by permit requirement of Section 404 of the CWA.
Justice Kennedy authored a concurring opinion, but on much narrower grounds. In Justice Kennedy’s view, the lower court correctly recognized that a water or wetland constitutes “navigable waters” under the CWA if it possesses a significant nexus to waters that are navigable in fact or that could reasonably be so made. But, in Justice Kennedy’s view, the lower court failed to consider all of the factors necessary to determine that the lands in question had, or did not have, the requisite nexus. Without more specific regulations comporting with the Court’s 2001 SWANCC opinion, Justice Kennedy stated that the COE needed to establish a significant nexus on a case-by-case basis when seeking to regulate wetlands based on adjacency to non-navigable tributaries, in order to avoid unreasonable application of the CWA. In Justice Kennedy’s view, the record in the cases contained evidence pointing to a possible significant nexus, but neither the COE nor the lower court established a significant nexus. As a result, Justice Kennedy concurred that the lower court opinions should be vacated, and the cases remanded for further proceedings.
Justice Kennedy’s opinion was neither a clear victory for the landowners in the cases or the COE. While he rejected the plurality’s narrow reading of the phrase “waters of the United States,” he also rejected the government’s broad interpretation of the phrase. While the “significant nexus” test of the Court’s 2001 SWANCC opinion required regulated parcels to be “inseparably bound up with the ‘waters’ of the United States,” Justice Kennedy would require the nexus to “be assessed in terms of the statute’s goals and purposes” in accordance with the Court’s 1985 opinion in United States v. Riverside Bayview Homes. 474 U.S. 121 (1985).
The “Clean Water Rule”
The Obama Administration attempted take advantage of the lack of clear guidance on the scope of federally jurisdictional wetland by issuing an expansive WOTUS rule. The EPA/COE regulation was deeply opposed by the farming/ranching and rural landowning communities, and triggered many legal challenges. The courts were, in general, highly critical of the regulation, invalidating it in 28 states by 2019. The CWR became a primary target of the Trump Administration.
The “NWPR Rule”
The Trump Administration essentially rescinded the Obama-era rule and replaced it with its own rule – the “Navigable Waters Protection Rule” (NWPR). 85 Fed. Reg. 22, 250 (Apr. 21, 2020). The NWPR redefined the Obama-era WOTUS rule to include only: “traditional navigable waters; perennial and intermittent tributaries that contribute surface water flow to such waters; certain lakes, ponds, and impoundments of jurisdictional waters; and wetlands adjacent to other jurisdictional waters. In short, the NWPR narrowed the definition of the statutory phrase “waters of the United States” to comport with Justice Scalia’s approach in Rapanos. Thus, the NWPR excluded from CWA jurisdiction wetlands that have no “continuous surface connection” to jurisdictional waters. The rule much more closely followed the Supreme Court’s guidance issued in 2001 and 2006 that did the Obama-era rule, but it was challenged by environmental groups. Indeed, the NWPR has been challenged in 15 cases filed in 11 federal district courts.
2021 developments. In early 2021, the U.S. Court of Appeals for the Tenth Circuit reversed a Colorado trial court that had entered a preliminary injunction barring the NWPR from taking effect in Colorado as applied to the discharge permit requirement of Section 404 of the CWA. The result of the appellate court’s decision is that the NWPR became effective in every state. Colorado v. United States Environmental Protection Agency, 989 F.3d 874 (10th Cir. 2021).
A primary aspect of the litigation involving the NWPR is whether it should apply retroactively or whether it is limited in its application on a prospective basis. For example, in United States v. Lucero, 989 F.2d 1088 (9th Cir. 2021), the defendant, in 2014, operated a business that charged construction companies for the dumping of soil and debris on dry lands near San Francisco Bay. The Environmental Protection Agency (EPA) later claimed that the dry land was a “wetland” subject to the dredge and fill permit requirements of Section 404 of the Clean Water Act (CWA). As a result, the defendant was charged with (and later convicted of) violating the CWA without any evidence in the record that the defendant knew or had reason to know that the dry land was a wetland subject to the CWA.
On further review, the appellate court noted that the CWA prohibits the “knowing” discharge of a pollutant into covered waters without a permit. At trial, the jury instructions did not state that the defendant had to make a “knowing” violation of the CWA to be found guilty of a discharge violation. Accordingly, the appellate court reversed on this point. However, the appellate court ruled against the defendant on his claim that the regulation defining “waters of the United States” was unconstitutionally vague, and that the 2020 Navigable Waters Protection Rule should apply retroactively to his case.
The NWPR was also held to apply prospectively only in United States v. Acquest Transit, LLC, No. 09-cv-555, 2021 U.S. Dist. LEXIS 40143 (W.D. N.Y. Mar. 3, 2021) and United States v. Mashni, No. 2:18-cv-2288-DCN, 2021 U.S. Dist. LEXIS 123345 (S.D. S.C. Jul. 1, 2021).
More recently, a federal district court in South Carolina remanded the NWPR to the EPA. South Carolina Coastal Conservation League, et al. v. Regan, No. 2:20-cv-016787-BHH, 2021 U.S. Dist. LEXIS 132031 (D. S.C. Jul. 15, 2021). The NWPR was being challenged on the scope issue. Even though the NWPR was remanded, the court left the rule intact. That fit with the strategy of present Administration. If the court had invalidated the NWPR, then the Administration would have had to defend the Obama-era rule in court. By not vacating the NWPR allows the current administration to proceed in trying to write a new rule without bothering to defend the Obama-era rule in court.
In Pasqua Yaqui Tribe v. United States Environmental Protection Agency, No. CV-20-TUC-RM, 2021 U.S. Dist. LEXIS 163921 (D. Ariz. Aug. 30, 2021). the court vacated the NWPR. The court’s order did not specify the scope of the vacatur, but the EPA and the COE soon announced that neither agency would implement the NWPR on a nationwide basis, and will rely on the pre-2015 regulatory definition of a WOTUS until a new rule is developed. This all means that projects that have already received a CWA permit based on the NWPR can continue to rely on the permit until it expires. If a project has received an approved jurisdictional determination based on the NWPR may rely on it for five years from the date of issuance regardless of whether the project has already received a CWA permit based on the jurisdictional determination. For projects that have received a preliminary jurisdictional determination after the date of the court’s opinion may continue to rely on it.
Another Revised Rule
On December 7, 2021, the EPA and the COE published a proposed rule redefining a WOTUS in accordance with the pre-2015 definition of the term. 86 FR 69372 (Dec. 7, 2021). Under the proposed rule, EPA stated its intention to define a WOTUS in accordance with the 1986 regulations as further defined by the courts since that time. In addition, the proposed rule would base the existence of a WOTUS on the “significant nexus” standard set forth in prior Supreme Court decisions. As such, a WOTUS would include traditional navigable waters; territorial seas and adjacent wetlands; most impoundments of a WOTUS and wetlands adjacent to impoundments or tributaries that meet either the relatively permanent standard or the significant nexus standard; all waters that are currently used or were used in the past or may be susceptible to use in interstate or foreign commerce, including all waters that are subject to the ebb and flow of the tide. The proposed rule defines “interstate waters” as “all rivers, lakes, and other waters that flow across, or form a part of State boundaries” regardless of whether those waters are also traditionally navigable. A “tributary” is also defined as being a WOTUS if it fits in the “other waters” category via a significant nexus with covered waters or if it is relatively permanent. The EPA and COE further define the “relatively permanent standard” as “waters that are relatively permanent, standing or continuously flowing and waters with a continuous surface connection to such waters.” The “significant nexus standard” is defined as “waters that either alone or in combination with similarly situated waters in the region, significantly affect the chemical, physical, or biological integrity of traditional navigable waters, interstate waters, or the territorial seas (the "foundational waters").” The comment period on the proposed rule expires on February 7, 2022.
On December 30, 2022, the agencies announced the final "Revised Definition of 'Waters of the United States'" rule which will become effective on March 20, 2023. It represents a “change of mind” of the agencies from the positions that they held concerning a water of the United States (WOTUS) and wetlands from just over three years ago. The bottom line is that the new interpretation was extremely unfriendly to agriculture, particularly to farmland owners in the prairie pothole region of the upper Midwest.
As promised, the Final Rule uses a definition that was in place before 2015 (for purposes of the Clean Water Act) for traditional navigable waters, territorial seas, interstate waters, and upstream water resources that “significantly” affect those waters.
Note: Two joint memos were published with the final rule to set forth the delineation of the implementation of roles and responsibilities between the agencies. One is a joint coordination memo to “ensure accuracy and consistency of jurisdictional determinations under the final rule.” The other is a memo with the USDA to provide “clarity on the agencies’ programs under the Clean Water act and the Food Security Act (Swampbuster).”
Adjacency. The EPA wants to restore the “significant nexus” via “adjacency.” This is a big change in the definition of “adjacency.” It doesn’t mean simply “abutting.” Instead, “adjacent” includes a “significant nexus” and a “significant nexus” can be established by “shallow hydrologic subsurface connections” to the “waters of the United States. A “shallow subsurface connection,” the Final Rule states, may be found below the ordinary root zone (below 12 inches), where other wetland delineation factors may not be present. Frankly, that means farm field drain tile.
Specifically, the Final Rule sets forth two kinds of adjacency: 1) the traditional “relatively permanent” standard; and 2) the “significant nexus” standard. The EPA and the COE say the agencies will not assume that all wetlands in a specific geographic area are similarly situated and can be assessed together on a watershed basis in a significant nexus analysis. But it is clear from the Final Rule that the agencies intend to expand jurisdiction over isolated prairie pothole wetlands using the “significant nexus” standard.
Note: The “significant nexus” can be established via a connection to downstream waters by surface water, shallow subsurface water, and groundwater flows and through biological and chemical connections. The Final Rule states that adjacency can be supported by a “pipe, non-jurisdictional ditch… or some other factors that connects the wetland directly to the jurisdictional water.” This appears to be the basis for overturning the NWPR. Consequently, the prairie pothole region is directly in the “bullseye” of the Final Rule.
Prior converted cropland. The agencies say the final rule increases “clarity” on which waters are not jurisdictional – including prior converted cropland. This doesn’t make much sense. Supposedly, the agencies are “clarifying” that prior converted cropland, (which is not a water), is not a water, but it somehow could be a water if the agencies had not clarified it? In addition, the burden is placed on the landowner to prove that prior converted cropland is actually prior converted cropland and therefore not a water.
Ditches and drainage devices. The Final Rule is vague enough to give the government regulatory authority over non-navigable ponds, ditches, and potholes.
The Sackett Litigation
During 2021 another significant case with WOTUS-related issues continued to wind its way through the court system. In Sackett v. Environmental Protection Agency, 8 F.4th 1075 (9th Cir. 2021), the plaintiffs bought a .63-acre lot in 2004 on which they intended to build a home. The lot is near numerous wetlands the water from which flows from a tributary to a creek, and eventually runs into a lake approximately 100 yards from the lot. The lake is 19 miles long and is a WOTUS subject to the CWA which bars the discharge of a pollutant, including rocks and sand into it. The plaintiffs began construction of their home, and the EPA issued a compliance order notifying the plaintiffs that their lot contained wetlands due to adjacency to the lake and that continuing to backfill sand and gravel on the lot would trigger penalties of $40,000 per day. The plaintiff sued and the EPA claimed that its administrative orders weren’t subject to judicial review. Ultimately the U.S. Supreme Court unanimously rejected the EPA’s argument and remanded the case to the trial court for further proceedings. The EPA withdrew the initial compliance order and issued an amended compliance order which the trial court held was not arbitrary or capricious. The plaintiffs appealed and the EPA declined to enforce the order, withdrew it and moved to dismiss the case. However, the EPA still maintained the lot was a jurisdictional wetland subject to the CWA and reserved the right to bring enforcement actions in the future. In 2019, the plaintiffs resisted the EPA’s motion and sought a ruling on the motion to bring finality to the matter. The EPA claimed that the case was moot, but the appellate court disagreed, noting that the withdrawal of the compliance order did not give the plaintiffs final and full relief. On the merits, the appellate court concluded that the lot contained wetlands 30 feet from the tributary, and that under the “significant nexus” test of Rapanos v. United States, 547 U.S. 715 (2006), the lot was a regulable wetland under the CWA as being adjacent to a navigable water of the United States (the lake). On September 22, 2021, the plaintiffs filed a petition with the U.S. Supreme court asking the Court to review the case. The Supreme Court agreed to hear the case and oral argument occurred in early October of 2022.
Supreme Court opinion. On May 25, 2023, the Court unanimously agreed that the Sackett’s lot was not a wetland subject to the CWA. All of the Justices rejected the “significant nexus” test when determining EPA/COE regulatory authority over wetlands. The majority (Alito, Roberts, Thomas, Gorsuch and Barrett), then paired back the expansive EPA regulatory authority under the CWA. They replaced the “significant nexus” test with a new standard – the Scalia standard set forth in the plurality opinion of Rapanos in 2006. They said that the term “waters” in the statute refers only to geological features that are “streams, oceans, rivers and lakes” and to adjacent wetlands that are indistinguishable from those bodies of water due to a continuous surface connection. For the EPA/Corps to successfully assert jurisdiction, it must: 1) establish that the adjacent water body is a relatively permanent body of water connected to interstate navigable water; and 2) that the wet area has a continuous surface connection with that water making it difficult to determine where the water ends, and the wetland begins. Justices Kavanaugh, Sotomayor, Kagan and Jackson disagreed on the basis that the majority's approach was too narrow.
As for the 2023 WOTUS rule, the Supreme Court said it was "inconsistent with the text and structure of the CWA" and that EPA has "no statutory basis to impose a significant nexus test." A redo is in order. With the opinion, the Court restored the original position of the EPA in the 1970s – the CWA only applies to waters traditionally recognized as navigable – those subject to the tide; used for transportation, and natural river meanders. Isolated wetlands were excluded where fill would not affect boats.
What about agency deference? Interestingly, there wasn’t a single mention of deference by any of the Justices (other than Justice Kavanaugh’s retort about the agencies being consistent about “adjacency”). The Court in essence said that the scope of an agency’s authority is not the type of question that courts should defer to the agencies. This sets the Court up for another case (Loper, Bright) that is coming next term on the issue of Chevron deference.
Water quality. The Court’s decision will not likely have any discernable effect on water quality. While the decision does set forth a narrower interpretation of “the waters of the United States” for purposes of the entire CWA, the matter of pollution control is a separate matter. As noted above, navigation and pollution control are two separate issues which the Court’s opinion more clearly distinguishes. Any negative impact on water quality is minimized (if not negated) because of the Supreme Court’s decision in a case from Hawaii in 2020. In that case, the Court held that a “pollutant” that reaches navigable waters after traveling through groundwater requires a federal permit if the discharge into the navigable water is the “functional equivalent’ of a direct discharge from the actual point source into navigable waters. Hawai’i Wildlife Fund, et al. v. County of Maui, 886 F.3d 737 (2018), vac’d and rem’d. by County of Maui v. Hawaii Wildlife Fund, et al., 140 S. Ct. 1462 (2020). That is a broad interpretation of “discharge of pollutants” creating the distinct possibility that a contamination of federal jurisdictional waters could result from activities on land that is not subject to the CWA under the Sackett Court’s definition of a “wetland.”
In addition, the Court’s decision in Sackett applies only to the federal CWA. It has no application to existing state and local regulations. Indeed, many of those rules were already in place before the CWA amendments of 1972, and many of them are significant.
Implications for agriculture. The Sackett opinion has significant ramifications for agriculture. This really solidifies the National Water Protection Rule of 2019 as the correct approach. That rule limited federal jurisdiction to traditional navigable waters and their tributaries. Now streams and ditches and private waters that don’t have a continuous surface connection to navigable waters won’t be subject to the CWA. It will make it more difficult for the EPA or COE to assert regulatory control over private land under the CWA. This eliminates federal control under the CWA over private ponds, as well as ditches and streams where there is no continues flow into a WOTUS.
Also, farmers that are in the farm programs are subject to the Swampbuster rules. A “wetland” is defined differently under Swampbuster. There are two separate definitions. The one at issue in Sackett involves "waters of the United States" contained in 33 U.S.C. Sec. 1362(7) which a "navigable water" must be. To have jurisdiction over those waters the Court is saying that the government must 1) establish that an adjacent water body is a relatively permanent body of water connected to interstate navigable water; and 2) such area has a continuous surface connection with that water making it difficult to determine where the water ends, and the wetland begins.
Swampbuster involves the definition of a wetland contained in 16 U.S.C. 3801(27). So, there are two different definitions of a "wetland" - one for CWA purposes - which ties into the "navigable waters of the United States" definition, and the other one for Swampbuster. This all means that a farmer may not have a wetland that the EPA/COE can regulate under the CWA, but might have a wetland that can’t be farmed without losing farm program benefits.
Conclusion
The Sackett decision is a victory for property rights without any likely discernable impact on water quality. Ironically, if not for the EPA’s belligerence in insisting on its position against the Sacketts and forcing the couple into a lawsuit, the “significant nexus” test would remain. That test has now been unanimously rejected. For once agriculture says, “thanks, EPA”!
May 28, 2023 in Environmental Law | Permalink | Comments (0)
Wednesday, May 17, 2023
Decision to not Review USDA Wetland Certification Upheld – What Does the Grassley Amendment Require?
Overview
The “Swampbuster” rules were enacted as part of the conservation provisions of the 1985 Farm Bill. In general, the rules prohibit the conversion of “wetland” to crop production by producers that are receiving farm program payments. A farmer that is determined to have improperly converted wetland is deemed ineligible for farm program payments. But an exception exists for wetland that was converted to crop production before December 23, 1985 – the effective date of the 1985 Farm Bill.
Under the Swampbuster rules, “wetland” has: (1) a predominance of hydric soil; (2) is inundated by surface or groundwater at a frequency and duration sufficient to support a prevalence of hydrophytic vegetation typically adapted for life in saturated soil conditions, and (3) under normal circumstances does support a prevalence of such vegetation. 7 C.F.R. §12.2(a). In other words, to be a wetland, a tract must have hydric soils, hydrophytic vegetation and wetland hydrology.
However, there have been several prominent cases in recent years illustrating that the Natural Resources Conservation Service (NRCS) has trouble applying the definition as it attempts to determine whether a particular tract has wetlands. A recent decision of the United States Department of Agriculture (USDA) National Appeals Division (NAD) makes the point.
Congress amended the Swampbuster statute in 1996 to curtail attempts of NRCS to frequently change wetland delineations. The amendment specified that prior wetland delineations could only be changed upon a farmer’s request. That amendment was the subject of a recent case involving a South Dakota farmer.
The 1996 amendment to the Swampbuster rules – that’s the topic of today’s post.
The “Grassley” Amendment
In 1990, the Congress amended the Swampbuster Act to provide a review provision specifying that a prior wetland certification “shall remain valid and in effect…until such time as the person affected by the certification requests review of the certification by the Secretary.” 16 U.S.C. §3822(a)(4). This became known as the “Grassley Amendment” named after Senator Charles Grassley of Iowa. Based on the statutory amendment, the USDA developed a regulation, known as the “Review Regulation,” providing procedural requirements a farmer must follow to make an effective review request. The regulation said a request to review a certification could be made only if a natural event had altered the topography or hydrology of the land or if NRCS believed that the existing certification was erroneous. 7 C.F.R. §12.30(c)(6).
The Foster Case
Facts and trial court decision. In Foster v. United States Department of Agriculture, No. 4:21-CV-04081-RAL, 2022 U.S. Dist. LEXIS 117676 (D. S.D. Jul. 1, 2022), the plaintiff owned farmland containing a .8-acre portion that USDA certified as a “wetland” in 2011 under the Swampbuster provisions of 16 U.S.C. §§3801, 3821-3824. The wetland was about 8.5 inches deep at certain times during the year, particularly in the spring after snow melt and didn’t drain anywhere. The wetland resulted from a tree belt that had been planted in 1936 to prevent soil erosion. Snow accumulated around the tree belt in the winter and melted in the spring with the water collecting in a low spot in of the field before soaking into the ground or evaporating. In about one-half of the crop years, the puddle would dry out in time or planting. The certification meant that the puddle could not be drained so that it and the surrounding land could not be farmed without the loss of federal farm program benefits.
In 2008, Foster request a review of a certification and USDA granted the request simply on the basis of the statute which plainly states that a review of a certification is available upon request. The request was granted even though the regulation was in place at that time. The area was recertified as a wetland in 2011. This was despite Foster having dug two test holes to monitor water levels in the disputed area – one of which was immediately next to the trees. The data Foster collected showed that the trees slowed the drying of the soil in the hole next to the trees. The USDA/NRCS refused the data, claiming that Foster didn’t’ have the expertise to interpret the data. As a result, Foster installed two weather stations and hired an engineering firm to “officially” conclude that the tree belt was slowing the drying of the soil.
Foster challenged the 2011 recertification, but the trial court affirmed the determination as not arbitrary and capricious (the judicial deference standard given administrative agency decisions). The U.S. Court of Appeals for the Eighth Circuit affirmed, and the U.S. Supreme Court declined to review the case. Foster v. Vilsack, 820 F.3d 330 (8th Cir. 2016), cert. den., 137 S. Ct. 620 (2017).
Note: Before Foster’s request for review of the 2011 certification, another South Dakota farmer with a similar set of facts successfully had NRCS remove a wetland label on a .3-acre portion of a field. Like Foster’s situation, the .3-acre portion was impacted by snow caught in a tree belt. Thus, after the court decisions, the question remained as to whether a farmer has a legal obligation to present evidence of changed conditions. The statute contains no such requirement. In 2008, the recertification request was granted with no obligation on Foster’s part to provide evidence of changed conditions. The evidence provided was not requested. Also, published NRCS infiltration rates for the soil type of the depression indicated that the ponding would be gone in less than two weeks (the required inundation period for a wetland finding).
In 2017, Foster again sought a review of the certification under 16 U.S.C. §3822(a)(4) which, as noted, provides for review of a final certification upon request by the person affected by the certification. The USDA/NRCS didn’t respond on the basis that Foster didn’t provide new information that the NRCS hadn’t previously considered. Foster filed for review again in 2020 along with professionally prepared engineering reports from two firms that concluded that the area in question ponded due to the tree belt and was an artificial wetland not subject to Swampbuster.
The USDA denied review in 2020 citing its own regulation of 7 C.F.R. §12.30(c)(6) which required the plaintiff to show how a natural event changed the topography or hydrology of the wetland that caused the certification to no longer be a reliable indicator of site conditions. The plaintiff claimed that new evidence existed that would refute the 2011 certification, and also claimed that 16 U.S.C. §3822(a)(4) provided no restriction on the ability to get a review and, as a result, 7 C.F.R. §12.30(c)(6) violated the due process clause by restricting reviews and was arbitrary and capricious under the Administrative Procedure Act.
The trial court held that 7 C.F.R. §12.30(c)(6) merely restricted when an agency must review a final certification. The trial court also determined that 7 C.F.R. §12.30(c)(6) did not violate the due process clause as the plaintiff did not show any independent source of authority providing him with a right to certification review on request. The USDA’s denials of review were found not to be arbitrary or capricious and that the plaintiff failed to provide any evidence that the natural conditions of the site had changed, which would require a review of the certification. The plaintiff also claimed that the Swampbuster provisions were unconstitutional under the Commerce Clause and the Tenth Amendment.
The trial court rejected the plaintiff’s claims and determined that the statute of limitations on challenging the certification had run. The trial court also held that the USDA was entitled to summary judgment on the plaintiff’s claim that Swampbuster was unconstitutional, holding that the provisions were within the power of the Congress under the spending clause of Article I, Section 8 of the Constitution. The trial court also ruled that Swampbuster did not infringe upon state sovereignty by requiring states to implement a federal program, statute or regulation. The trial court further rejected the plaintiff’s claim that a part of Swampbuster violated the Congressional Review Act, finding that the provision at issue was precluded from judicial review. The court dismissed all the plaintiff’s claims against the USDA and denied the ability for the area to be reviewed again.
The appellate court. Foster filed an appeal with the U.S. Court of Appeals for the Eighth Circuit on August 16, 2022, and the appellate court issued its opinion on May 12, 2023. The appellate court affirmed. The court stated that NRCS noted the engineer’s report and asked the engineering firm to identify any evidence that the NRCS had not fully considered the tree belt at the time of the 2011 recertification decision. The appellate court stated, “Neither Foster nor the engineering firm ever responded to the request.” The court went on to state that the NRCS reviewed the engineering report, compared it to the record, and declined the review request for noncompliance with the regulation.
Note: The court’s statement that the NRCS requested additional evidence is false. The NRCS letter of May 14, 2020, to Foster by State Conservationist Jeffrey Zimprich merely stated that, “Based on the evidence you provided, I am unable to determine that any of the conditions mentioned above for a redetermination apply.” There was no request for additional information from either Foster or the engineering firms.
The appellate court concluded that the regulation was not inconsistent with the Swampbuster Act. There was simply nothing that could be gleaned from the Grassley Amendment as guidance to what constitutes a proper review request. As such the statute was ambiguous and the administrative procedural requirements were permissible. The Grassley Amendment was merely so that farmers had a way to contest new NRCS wetland delineations for Swampbuster purposes. It did not preclude USDA/NRCS from developing procedural requirement to challenge a certification.
The appellate court also affirmed the trial court’s finding with respect to the Congressional Review Act for lack of authority to review the claim. The appellate court also affirmed the trial court’s finding that the NRCS refusal to consider the request was not arbitrary and capricious.
Note: In the concluding paragraph of the appellate court’s opinion, the appellate court stated that, “the NRCS requested Foster’s engineering firm to identify evidence showing the NRCS had failed to consider the tree belt on the Site when it made its prior certification. The record shows no indication that Foster or his engineering firm responded to this request.” Unfortunately, the appellate court offers no support for this assertion and there is no record of such a request ever having been made. What the appellate court bases this statement on is not known.
Conclusion
The Grassley Amendment is clear that can rely on a wetland determination until a new determination is requested. The point of the amendment is to bar NRCS from unilaterally changing a determination once made. A farmer may request a redetermination. While it is reasonable to require that new information bearing on a stie’s wetland status be provided when a redetermination is requested, Foster provided that information in the form of professional engineering reports. Here, NRCS failed to understand the professional reports submitted with the review request and also did not make a clear request for additional information/clarification. Indeed, no request at all was made for additional information. Clearly, the .8-acre depression was the result of snowpack caused by a tree belt and NRCS’ own data showed that the ponding of the depression would be gone in less than two weeks. A regulation that allows a farmer to receive a redetermination upon NRCS admitting it made an error (one of the two possibilities for a review to be granted) makes it highly unlikely that a review would be granted.
In the Foster case, perhaps an en banc review will be requested.
May 17, 2023 in Environmental Law, Regulatory Law | Permalink | Comments (0)
Thursday, April 20, 2023
Bibliography – First Quarter of 2023
The following is a listing by category of my blog articles for the first quarter of 2023.
Bankruptcy
Failure to Execute a Written Lease Leads to a Lawsuit; and Improper Use of SBA Loan Funds
Chapter 12 Bankruptcy – Proposing a Reorganization Plan in Good Faith
Business Planning
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Civil Liabilities
Top Ag Law and Tax Developments of 2022 – Part 1
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Contracts
Top Ag Law and Developments of 2022 – Part 2
Failure to Execute a Written Lease Leads to a Lawsuit; and Improper Use of SBA Loan Funds
Double Fractions in Oil and Gas Conveyances and Leases – Resulting Interpretive Issues
Environmental Law
Here Come the Feds: EPA Final Rule Defining Waters of the United States – Again
Top Ag Law and Developments of 2022 – Part 2
Top Ag Law and Developments of 2022 – Part 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 10 and 9
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 6 and 5
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 4 and 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Estate Planning
Tax Court Opinion – Charitable Deduction Case Involving Estate Planning Fraudster
Happenings in Agricultural Law and Tax
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
RMD Rules Have Changed – Do You Have to Start Receiving Payments from Your Retirement Plan?
Common Law Marriage – It May Be More Involved Than What You Think
The Marital Deduction, QTIP Trusts and Coordinated Estate Planning
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Income Tax
Top Ag Law and Developments of 2022 – Part 3
Top Ag Law and Developments of 2022 – Part 4
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Tax Court Opinion – Charitable Deduction Case Involving Estate Planning Fraudster
Deducting Residual (Excess) Soil Fertility
Deducting Residual (Excess) Soil Fertility – Does the Concept Apply to Pasture/Rangeland? (An Addendum)
Happenings in Agricultural Law and Tax
Summer Seminars
https://lawprofessors.typepad.com/agriculturallaw/2023/03/summer-seminars.html
RMD Rules Have Changed – Do You Have to Start Receiving Payments from Your Retirement Plan?
Registration Now Open for Summer Conference No. 1 – Petoskey, Michigan (June 15-16)
Real Property
Equity “Theft” – Can I Lose the Equity in My Farm for Failure to Pay Property Taxes?
Happenings in Agricultural Law and Tax
Adverse Possession and a “Fence of Convenience”
Double Fractions in Oil and Gas Conveyances and Leases – Resulting Interpretive Issues
Abandoned Rail Lines – Issues for Abutting Landowners
Regulatory Law
Top Ag Law and Developments of 2022 – Part 2
Top Ag Law and Developments of 2022 – Part 4
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 10 and 9
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 8 and 7
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 6 and 5
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 4 and 3
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Foreign Ownership of Agricultural Land
Abandoned Rail Lines – Issues for Abutting Landowners
Secured Transactions
Priority Among Competing Security Interests
Water Law
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Happenings in Agricultural Law and Tax
April 20, 2023 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)
Monday, January 30, 2023
Bibliography - July Through December 2022
Overview
After the first half of 2022, I posted a blog article of a bibliography of my blog articles for the first half of 2022. You can find that bibliography here: Bibliography – January through June of 2022
Bibliography of articles for that second half of 2022 – you can find it in today’s post.
Alphabetical Topical Listing of Articles (July 2022 – December 2022)
Bankruptcy
More Ag Law Developments – Potpourri of Topics
Business Planning
Durango Conference and Recent Developments in the Courts
Is a C Corporation a Good Entity Choice For the Farm or Ranch Business?
What is a “Reasonable Compensation”?
https://lawprofessors.typepad.com/agriculturallaw/2022/08/what-is-reasonable-compensation.html
Federal Farm Programs: Organizational Structure Matters – Part Three
LLCs and Self-Employment Tax – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-one.html
LLCs and Self-Employment Tax – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-two.html
Civil Liabilities
Durango Conference and Recent Developments in the Courts
Dicamba Spray-Drift Issues and the Bader Farms Litigation
Tax Deal Struck? – and Recent Ag-Related Cases
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
More Ag Law Developments – Potpourri of Topics
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Contracts
Minnesota Farmer Protection Law Upheld
Criminal Liabilities
Durango Conference and Recent Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/20Ag Law Summit
https://lawpr22/07/durango-conference-and-recent-developments-in-the-courts.html
Environmental Law
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
More Ag Law Developments – Potpourri of Topics
Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Estate Planning
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
IRS Modifies Portability Election Rule
Modifying an Irrevocable Trust – Decanting
Farm and Ranch Estate Planning in 2022 (and 2023)
Social Security Planning for Farmers and Ranchers
How NOT to Use a Charitable Remainder Trust
Recent Cases Involving Decedents’ Estates
Medicaid Estate Recovery and Trusts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/medicaid-estate-recovery-and-trusts.html
Income Tax
What is the Character of Land Sale Gain?
Deductible Start-Up Costs and Web-Based Businesses
Using Farm Income Averaging to Deal With Economic Uncertainty and Resulting Income Fluctuations
Tax Deal Struck? – and Recent Ag-Related Cases
What is “Reasonable Compensation”?
https://lawprofessors.typepad.com/agriculturallaw/2022/08/what-is-reasonable-compensation.html
LLCs and Self-Employment Tax – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-one.html
LLCs and Self-Employment Tax – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/08/llcs-and-self-employment-tax-part-two.html
USDA’s Emergency Relief Program (Update on Gain from Equipment Sales)
Declaring Inflation Reduced and Being Forgiving – Recent Developments in Tax and Law
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
Extended Livestock Replacement Period Applies in Areas of Extended Drought – IRS Updated Drought Areas
More Ag Law Developments – Potpourri of Topics
IRS Audits and Statutory Protection
https://lawprofessors.typepad.com/agriculturallaw/2022/10/irs-audits-and-statutory-protection.html
Handling Expenses of Crops with Pre-Productive Periods – The Uniform Capitalization Rules
When Can Depreciation First Be Claimed?
Tax Treatment of Crops and/or Livestock Sold Post-Death
Social Security Planning for Farmers and Ranchers
Are Crop Insurance Proceeds Deferrable for Tax Purposes?
Tax Issues Associated With Easement Payments – Part 1
Tax Issues Associated With Easement Payments – Part 2
How NOT to Use a Charitable Remainder Trust
Does Using Old Tractors Mean You Aren’t a Farmer? And the Wind Energy Production Tax Credit – Is Subject to State Property Tax?
Insurance
Tax Deal Struck? – and Recent Ag-Related Cases
Real Property
Tax Deal Struck? – and Recent Ag-Related Cases
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2022/08/ag-law-summit.html
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
More Ag Law Developments – Potpourri of Topics
Ag Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Regulatory Law
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
The Complexities of Crop Insurance
https://lawprofessors.typepad.com/agriculturallaw/2022/07/the-complexities-of-crop-insurance.html
Federal Farm Programs – Organizational Structure Matters – Part One
Federal Farm Programs – Organizational Structure Matters – Part Two
Federal Farm Programs: Organizational Structure Matters – Part Three
USDA’s Emergency Relief Program (Update on Gain from Equipment Sales)
Minnesota Farmer Protection Law Upheld
Ag Law and Tax Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/09/ag-law-and-tax-developments.html
Animal Ag Facilities and Free Speech – Does the Constitution Protect Saboteurs?
Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland
Ag Law Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2022/12/ag-law-developments-in-the-courts.html
Water Law
More Ag Law Developments – Potpourri of Topics
January 30, 2023 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, January 27, 2023
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 2 and 1
Overview
Today’s article concludes my look at the top ag law and tax developments of 2022 with what I view as the top two developments. I began this series by looking at those developments that were significant, but not quite big enough to make the “Top Ten.” Then I started through the “Top Ten.”
The top two ag law and tax developments in 2022 – it’s the topic of today’s post.
Recap
Here’s a bullet-point recap of the top developments of 2022 that I have written about:
- Nuisance law (the continued developments in Iowa) - Garrison v. New Fashion Pork LLP, 977 N.W.2d 67 (Iowa Sup. Ct. 2022).
- Minnesota farmer protection law - Pitman Farms v. Kuehl Poultry, LLC, et al., 48 F.4th 866 (8th Cir. 2022).
- Regulation of ag activities on wildlife refuges - Tulelake Irrigation Dist. v. United States Fish & Wildlife Serv., 40 F.4th 930 (9th Cir. 2022).
- Corps of Engineers jurisdiction over “wetland” - Hoosier Environmental Council, et al. v. Natural Prairie Indiana Farmland Holdings, LLC, et al., 564 F. Supp. 3d 683 (N.D. Ind. 2021).
- U. S. Tax Court’s jurisdiction to review collection due process determination - Boechler, P.C. v. Commissioner, 142 S. Ct. 1493 (2022).
- IRS Failure to Comply with the Administrative Procedure Act - Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022); Green Valley Investors, LLC v. Commissioner, 159 T.C. No. 5 (2022).
- State law allowing unconstitutional searches unconstitutional - Rainwaters, et al. v. Tennessee Wildlife Resources Agency, No. 20-CV-6 (Benton Co. Ten. Dist. Ct. Mar. 22, 2022).
- No. 10 – USDA’s Emergency Relief Program and the definition of “farm income.”
- No. 9 - USDA decision not to review wetland determination upheld - Foster v. United States Department of Agriculture, No. 4:21-CV-04081-RAL, 2022 U.S. Dist. LEXIS 117676 (D. S.D. Jul. 1, 2022).
- No. 8 - Dicamba drift damage litigation - Hahn v. Monsanto Corp., 39 F.4th 954 (8th Cir. 2022), reh’g. den., 2022 U.S. App. LEXIS 25662 (8th Cir. Sept. 2, 2022).
- No. 7 – The misnamed “Inflation Reduction Act.”
- No. 6 – Caselaw and legislative developments concerning “ag gag” provisions.
- No. 5 - WOTUS final rule.
- No. 4 – Economic issues
- No. 3 – Endangered Species Act regulations
No. 2 – California Proposition 12
National Pork Producers Council, et al. v. Ross, 6 F.4th 1021 (9th Cir. Jul. 28, 2021), cert. granted, 142 S. Ct. 1413 (2022)
In a huge blow to pork producers (and consumers of pork products) nationwide, the U.S. Court of Appeals for the Ninth Circuit has upheld California’s Proposition 12 in 2021. Proposition 12 requires any pork sold in California to be raised in accordance with California’s housing requirements for hogs. This means that any U.S. hog producer, by January 1, 2022, was required to upgrade existing facilities to satisfy California’s requirements if desiring to market pork products in California. In early 2022, the U.S. Supreme Court announced that it would review the Ninth Circuit’s opinion.
While each state sets its own rules concerning the regulation of agricultural production activities, the legal question presented in this case is whether one state can override other states’ rules. The answer to that question involves an analysis of the Commerce Clause and the “Dormant” Commerce Clause.
The Commerce Clause. Article I Section 8 of the U.S. Constitution provides in part, “the Congress shall have Power...To regulate Commerce with foreign Nations and among the several states, and with the Indian Tribes.” The Commerce Clause, on its face, does not impose any restrictions on states in the absence of congressional action. However, the U.S. Supreme Court has interpreted the Commerce Clause as implicitly preempting state laws that regulate commerce in a manner that disrupts the national economy. This is the judicially-created doctrine known as the “dormant” Commerce Clause.
The “Dormant” Commerce Clause. The dormant Commerce Clause is a constitutional law doctrine that says Congress's power to "regulate Commerce ... among the several States" implicitly restricts state power over the same area. In general, the Commerce Clause places two main restrictions on state power – (1) Congress can preempt state law merely by exercising its Commerce Clause power by means of the Supremacy Clause of Article VI, Clause 2 of the Constitution; and (2) the Commerce Clause itself--absent action by Congress--restricts state power. In other words, the grant of federal power implies a corresponding restriction of state power. This second limitation has come to be known as the "Dormant" Commerce Clause because it restricts state power even though Congress's commerce power lies dormant. Willson v. Black Bird Creek Marsh Co., 27 U.S. 245 (1829). The label of “Dormant Commerce Clause” is really not accurate – the doctrine applies when the Congress is dormant, not the Commerce Clause itself.
Rationale. The rationale behind the Commerce Clause is to protect the national economic market from opportunistic behavior by the states - to identify protectionist actions by state governments that are hostile to other states. Generally, the dormant Commerce Clause doctrine prohibits states from unduly interfering with interstate commerce. State regulations cannot discriminate against interstate commerce. If they do, the regulations are per se invalid. See, e.g., City of Philadelphia v. New Jersey, 437 U.S. 617 (1978). Also, state regulations cannot impose undue burdens on interstate commerce. See, e.g., Kassel v. Consolidated Freightways Corp., 450 U.S. 662 (1981). Under the “undue burden” test, state laws that regulate evenhandedly to effectuate a local public interest are upheld unless the burden imposed on commerce is clearly excessive in relation to the local benefits.
The Court has never held that discrimination between in-state and out-of-state commerce, without more, violates the dormant Commerce Clause. Instead, the Court has explained that the dormant Commerce Clause is concerned with state laws that both discriminate between in-state and out-of-state actors that compete with one another, and harm the welfare of the national economy. Thus, a discriminatory state law that harms the national economy is permissible if in-state and out-of-state commerce do not compete. See, e.g., General Motors Corp. v. Tracy, 117 S. Ct. 811, 824-26 (1997). Conversely, a state law that discriminates between in-state and out-of-state competitors is permissible if it does not harm the national economy. H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525 (1949).
California Proposition 12 Litigation
In 2018, California voters passed Proposition 12. Proposition 12 bans the sale of whole pork meat (no matter where produced) from animals confined in a manner inconsistent with California’s regulatory standards. Proposition 12 established minimum requirements on farmers to provide more space for egg-laying hens, breeding pigs, and calves raised for veal. Specifically, the law requires that covered animals be housed in confinement systems that comply with specific standards for freedom of movement, cage-free design and minimum floor space. The law identifies covered animals to include veal calves, breeding pigs and egg-laying hens. The implementing regulations prohibit a farm owner or operator from knowingly causing any covered animal to be confined in a cruel manner, as specified, and prohibits a business owner or operator from knowingly engaging in the sale within the state of shell eggs, liquid eggs, whole pork meat or whole veal meat, as defined, from animals housed in a “cruel manner.” In addition to general requirements that prohibit animals from being confined in a manner that prevents lying down, standing up, fully extending limbs or turning around freely, the measure added detailed confinement space standards for farms subject to the law. The alleged reason for the law was to protect the health and safety of California consumers and decrease the risk of foodborne illness and the negative fiscal impact on California.
In late 2019, several national farm organizations challenged Proposition 12 and sought a declaratory judgment that the law was unconstitutional under the dormant Commerce Clause. The plaintiffs also sought a permanent injunction preventing Proposition 12 from taking effect. The plaintiffs claimed that Proposition 12 impermissibly regulated out-of-state conduct by compelling non-California producers to change their operations to meet California’s standards. The plaintiffs also alleged that Proposition 12 imposed excessive burdens on interstate commerce without advancing any legitimate local interest by significantly increasing operation costs without any connection to human health or foodborne illness. The trial court dismissed the plaintiffs’ complaint. National Pork Producers Council, et al. v. Ross, No. 3:19-cv-02324-W-AHG (S.D. Cal. Apr. 27, 2020).
On appeal, the plaintiffs focused their argument on the allegation that Proposition 12 has an impermissible extraterritorial effect of regulating prices in other states and, as such, is per se unconstitutional. This was a tactical mistake for the plaintiffs. The appellate court noted that existing Supreme Court precedent on the extraterritorial principle applied only to state laws that are “price control or price affirmation statutes.” National Pork Producers Council, et al. v. Ross, No. 20-55631, 2021 U.S. App. LEXIS 22337 (9th Cir. Jul. 28, 2021). Thus, the extraterritorial principle does not apply to a state law that does not dictate the price of a product and does not tie the price of its in-state products to out-of-state prices. Because Proposition 12 was neither a price control nor a price-affirmation statute (it didn’t dictate the price of pork products or tie the price of pork products sold in California to out-of-state prices) the law didn’t have the extraterritorial effect of regulating prices in other states.
The appellate court likewise rejected the plaintiffs’ claim that Proposition 12 has an impermissible indirect “practical effect” on how pork is produced and sold outside California. Id. Upstream effects (e.g., higher production costs in other states) the appellate court concluded, do not violate the dormant Commerce Clause. The appellate court pointed out that a state law is not impermissibly extraterritorial unless it regulates conduct that is wholly out of state. Id. Because Proposition 12 applied to California and non-California pork production the higher cost of production was not an impermissible effect on interstate commerce.
The appellate court also concluded that inconsistent regulation from state-to-state was permissible because the plaintiffs had failed to show a compelling need for national uniformity in regulation at the state level. Id. In addition, the appellate court noted that the plaintiffs had not alleged that Proposition 12 had a discriminatory effect on interstate commerce.
Simply put, the appellate court rejected the plaintiffs’ challenge to Proposition 12 because a law that increases compliance costs (projected at a 9.2 percent increase in production costs that would e passed on to consumers) is not a substantial burden on interstate commerce in violation of the dormant Commerce Clause.
As noted above, the U.S. Supreme court decided to review the Ninth Circuit’s opinion. Unfortunately, the Supreme Court has been careless in applying the anti-discrimination test, and in many cases, neither of the two requirements--interstate competition or harm to the national economy--is ever mentioned. See, e.g., Hughes v. Oklahoma, 441 U.S. 322 (1979). The reason interstate competition goes unstated is obvious – in most cases the in-state and out-of-state actors compete in the same market. But, the reason that the second requirement, harm to the national economy, goes unstated is because the Court simply assumes the issue away. The Supreme Court’s decision in 2023 is a highly anticipated one for agriculture and the dormant Commerce Clause analysis and application in general.
No. 1 – The “Major Questions” Doctrine
West Virginia, et al. v. Environmental Protection Agency, et al., 142 S. Ct. 2587 (2022)
Clearly, the biggest development of 2022 that has the potential to significantly impact agriculture and the economy in general is the Supreme Court’s opinion involving the Environmental Protection Agency’s (EPA’s) regulatory authority under the Clean Air Act (CAA). The Court invoked the “major question” doctrine to pair back unelected bureaucratic agency authority and return policy-making power to citizens through their elected representatives. The future impact of the Court’s decision is clear. When federal regulations amount to setting nationwide policy and when state regulations do the same at the state level, the regulatory bodies may be successfully challenged in court.
The case involved the U.S. Supreme Court’s review of the EPA’s authority to regulate greenhouse gas emissions from existing power plants under the CAA. The case arose from the EPA’s regulatory development of the Clean Power Plan (CPP) in 2015 which, in turn, stemmed from then-President Obama’s 2008 promise to establish policy that would bankrupt the coal industry. The EPA claimed it had authority to regulate CO2 emissions from coal and natural-gas-fired power plants under Section 111 of the CAA. Under that provision, the EPA determines emission limits. But EPA took the position that Section 111 empowered it to shift energy generation at the plants to “renewable” energy sources such as wind and solar. Under the CPP, existing power plants could meet the emission limits by either reducing electricity production or by shifting to “cleaner” sources of electricity generation. The EPA admitted that no existing coal plant could satisfy the new emission standards without a wholesale movement away from coal, and that the CPP would impose billions in compliance costs, raise retail electricity prices, require the retirement of dozens of coal plants and eliminate tens of thousands of jobs. In other words, the CPP would keep President Obama’s 2008 promise by bypassing the Congress through the utilization of regulatory rules set by unelected, unaccountable bureaucrats.
The U.S. Supreme Court stayed the CPP in 2016 preventing it from taking effect. The EPA under the Trump Administration repealed the CPP on the basis that the Congress had not clearly delegated regulatory authority “of this breadth to regulate a fundamental sector of the economy.” The EPA then replaced the CPP with the Affordable Clean Energy (ACE) rule. Under the ACE rule, the focus was on regulating power plant equipment to require upgrades when necessary to improve operating practices. Numerous states and private parties challenged the EPA’s replacement of the CPP with the ACE. The D.C. Circuit Court vacated the EPA’s repeal of the CPP, finding that the CPP was within the EPA’s purview under Section 7411 of the CAA – the part of the CAA that sets standards of performance for new sources of air pollution. American Lung Association v. Environmental Protection Agency, 985 F.3d 914 (D.C. Cir. 2021). The Circuit Court also vacated the ACE and purported to resurrect the CPP. In the fall of 2021, the U.S. Supreme Court agreed to hear the case.
The Supreme Court reversed, framing the issue as whether the EPA had the regulatory authority under Section 111 of the CAA to restructure the mix of electricity generation in the U.S. to transition from 38 percent coal to 27 percent coal by 2030. The Supreme Court said EPA did not, noting that the case presented one of those “major questions” because under the CPP the EPA would tremendously expand its regulatory authority by enacting a regulatory program that the Congress had declined to enact. While the EPA could establish emission limits, the Supreme Court held that the EPA could not force a shift in the power grid from one type of energy source to another. The Supreme Court noted that the EPA admitted that did not have technical expertise in electricity transmission, distribution or storage. Simply put, the Supreme Court said that devising the “best system of emission reduction” was not within EPA’s regulatory power.
Clearly, the Congress did not delegate administrative agencies the authority to establish energy policy for the entire country. While the Supreme Court has never precisely defined the boundaries and scope of the major question doctrine, when the regulation is more in line with what should be legislative policymaking, it will be struck down. The Supreme Court’s decision is also broad enough to have long-lasting consequences for rulemaking by all federal agencies including the USDA/FSA. The decision could also impact the Treasury Department’s promulgation of tax regulations.
The Supreme Court’s decision returns power to the Congress that it has ceded over the years to administrative agencies and the Executive branch concerning matters of “vast economic and political significance.” But it’s also likely that the Executive branch and the unelected bureaucrats of the administrative state will likely attempt to push the envelope and force the courts to push back. It’s rare that the Executive branch and administrative agencies voluntarily return power to elected representatives as was done in numerous instances from 2017 through 2020.
Conclusion
Agricultural law and tax issues were many and varied in 2022. In 2023, the U.S. Supreme Court will issue opinions in the California Proposition 12 case and the Sackett case involving the scope of the federal government’s jurisdiction over wetlands. Also, there has been a major development in the Tax Court involving tax issues associated with deferred grain contracts that has resulted in a settlement with IRS, the terms of which cannot be disclosed at this time. If 2022 showed a trend with USDA it is that the USDA will continue several “hardline” positions against farmers – a narrow definition of farm income; broad regulatory control over wet areas in fields; and ceding regulatory authority to the EPA and the COE. The U.S. Supreme Court is also anticipated to issue on opinion with potentially significant implications for Medicaid planning.
Of course, the expanding war against Russia being fought in Ukraine will continue to dominate ag markets throughout 2023. At home, the general economic data is not good and that will have implications in 2023 for farmers and ranchers. On January 26, the U.S Bureau of Economic Analysis issued a report (https://www.bea.gov/) showing that the U.S. economy grew by 2.9 percent in the fourth quarter of 2022 and 2.1 percent for all of 2022. But, the report also showed that economic growth in the economy is slowing. Business investment grew by a mere 1.4 percent in the fourth quarter of 2022, consisting almost entirely of inventory growth. That will mean that businesses will be forced to sell off inventories at discounts, which will lower business profits and be a drag on economic growth in 2023. Nonresidential investment was down 26.7 percent due to the increase in home prices, increased interest rates and a drop in real income. On that last point, real disposable income dropped $1 trillion in 2022, the largest drop since 1932 - the low point of the Great Depression. Personal savings also dropped by $1.6 trillion in 2022. This is a "ticking timebomb" that is not sustainable because it means that consumers are depleting cash reserves. This indicates that spending will continue to slow in 2023 and further stymie economic growth - about two-thirds of GDP is based on consumer spending. Relatedly, the Dow was down 8.8 percent for 2022, the worst year since 2008. 2022 also saw a reduction in the pace of international trade. Imports dropped more than exports which increases GDP, giving the illusion that the economy is better off.
Certainly, 2023 will be another very busy year for rural practitioners and those dealing with legal and tax issues for farmers and ranchers.
January 27, 2023 in Civil Liabilities, Environmental Law, Income Tax, Regulatory Law, Water Law | Permalink | Comments (0)
Wednesday, January 25, 2023
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 4 and 3
Overview
Today’s article is another installment on what I believe to be the Top 10 developments in agricultural law and agricultural taxation of 2022. Today, I look at developments number four and three.
No. 4– Economic Issues
In general. Economic issues impact daily decision-making for farmers and ranchers. These issues also impact tax and financial planning. During 2022, economic issues impacted farms and ranches to a great degree. Price inflation triggered by economic policies increased the price of fossil fuels which, along with other polices produced wage inflation. In addition, massive deficit spending resulted in a quintupled the money supply which created excess demand that further increased inflation. In addition, poor policy past policy choices by the Federal Reserve kept interest rates at artificially low levels further increasing demand and increasing inflation. Beginning in the first half of 2022, the Federal Reserve started to increase interest rates to decrease demand and reduce inflation. However, further deficit spending by the Congress enacted into law in August of 2022 will largely offset the impact of the Federal Reserve’s interest rate increases with the result that, as of the end of 2022, inflation was anticipated to continue with the possibility of decreased demand, a scenario not unlike the economic situation of the late 1970s.
All of these political/economic choices have implications for farmers and ranchers. Crop production, energy issues, monetary policy, issues in the meat sector, water issues west of the sixth Principal Meridian, and unanticipated outside shocks have farm-level impacts that professional advisors and counselors need to account for when representing farm and ranch clients.
Specific points. Several specific economic points from 2022 are listed below.
- The war in Ukraine has had a major impact on global grain trade and created additional issues for U.S. farmers and ranchers. Russia and Ukraine are leading exporters of food grains. One estimate is that worldwide food and feed prices could rise by 22 percent which could, in turn, cause a surge in malnutrition in developing nations. Since the war started, total world food output has decreased, resulting in a sharp drop in food exports from exporting countries. Other food exporting countries have announced new limitations on food exports (or are exploring bans) to preserve domestic supplies. This will have an impact on international grain markets and will likely have serious implications for the world’s wheat supply. The extent of such disruptions remained unknown at the end of 2022.
- The demand for beef remained strong in 2022. But, a major issue was the disconnect between beef demand and the beef producer. This fact, along with significant drought in much of the major cattle producing areas signaled producers to decrease herd size. During 2022, the Congress was considering legislation focused on providing more robust and transparent marketing of live cattle.
- Pork demand was not as impressive of beef, but improved during 2022. Export demand dropped primarily due to China which cased U.S. pork production to decline along with pork values.
- Poultry, demand remained strong and flock sizes decreased largely because of the presence of Avian Flu. Toward the latter part of 2022, retail egg prices increased substantially.
- Water issues. West of the Sixth Principal Meridian, access to water is critical for the success of many farming and ranching operations. During 2022, a dispute continued to brew between Colorado and Nebraska over water in northeast Colorado that Nebraska lays claim to under a Compact entered into almost 100 years ago. Water access and availability will continue to be key to profitability of farms and ranches in the Plains and the West.
- Land values; machinery and input costs. Farm and ranchland values remained strong during 2022, and input, machinery costs and land values continued to outpace inflation. For those farmers that were able to pre-pay input expenses in 2021 for 2022 crops, much of the price increase of inputs could be blunted until another round of inputs were needed in late 2022 for the 2023 crop. Also, many short-term loans were locked in before interest rates began rising. That story will also likely be different in early 2023 when those loans are redone.
During 2023, the biggest risks to agriculture will continue to be from outside the sector. Unexpected catastrophic events such as the war in Ukraine, whether (or when) China will invade Taiwan, domestic monetary and fiscal policy, political developments at home and abroad, and government regulation of key segments of the economy that impact agricultural activities remain the biggest unknown variables to the profitability of farming and ranching operations and agribusinesses.
No. 3 – Endangered Species Act regulations
In early 2022, the Environmental Protection Agency (EPA) announced a new policy regarding its Endangered Species Act (ESA) responsibilities under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). The ESA requires federal agencies to determine whether an agency action “may affect” any species or habitat protected or designated under the ESA. If an agency determines that the an action is “likely to adversely affect” protected species or habitat, the agency must consult with the U.S. Fish and Wildlife Service (USFWS) and the National Marine Fisheries Service to determine mitigation measures. The EPA administers the FIFRA, and the EPA now considers practically every decision it makes under FIFRA to require consultation in accordance with the ESA. In late 2022, the EPA published its policy plan focusing on ESA mitigation for FIFRA pesticide registration reviews.
During 2022, additional ESA regulations were changed or modified, many of which will potentially negatively impact agricultural activities on private land. For instance, “habitat” is no longer specifically defined, and the Critical Habitat Exclusion Rule was rescinded. This will make it easier for the USFWS to designate critical habitat for protected species under the ESA. Much critical habitat is on private property. The USFWS also continued the process of revising its Listing Rule.
Upon enactment in 1973, the ESA barred the “taking” of endangered species. The “taking” prohibition only extended to “threatened” species if the Interior Department deemed it necessary and advisable for the conservation of the species. In 1975, the Interior Department, contrary to the statute, issued a “blanket rule” extending the prohibition to all threatened species, unless it adopted a special rule relaxing the prohibition for a particular species. In essence, the blanket rule provided no meaningful distinction between regulations for species that are listed as threatened or endangered.
The Trump Administration restored the ESA’s distinction between the regulation of endangered and threatened species by repealing the blanket rule. The move aligned the practice of the Interior Department with that of the Commerce Department (which manages marines species and never had a blanket rule). The change applied prospectively only, and no species lost any protection due to the change. The restoration of regulatory distinctions between endangered and threatened species is designed to better align the incentives of landowners with the interests of rare species. By repealing the blanket rule, burdens imposed on landowners will increase if species decline and relax as they recover.
While the blanket rule remained in effect during 2022, the USFWS is in the process of rescinding the rule. Expect legal challenges to this action which is contrary to the statute and congressional intent to happen once the rule is formally rescinded.
Conclusion
Next time I will look at developments two and one.
January 25, 2023 in Environmental Law, Regulatory Law | Permalink | Comments (0)
Monday, January 23, 2023
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 6 and 5
Overview
Today’s article is another installment on what I believe to be the Top 10 developments in agricultural law and agricultural taxation of 2022. Today, I look at developments number six and five.
No. 6 – Caselaw and Legislative Developments on “Ag Gag” Provisions
2022 saw further developments in the courts and in state legislatures involving legislative attempts to provide a level of protection to livestock facilities is to bar access to an animal production facility under false pretenses. At their core, the laws attempt to prohibit a person having the intent to harm a livestock production facility from gaining access to the facility (such as via employment) to then commit illegal acts on the premises. See, e.g., Iowa Code §717A.3A. Laws that bar lying and trespass coupled with the intent to do physical harm to an animal production facility should not be constitutionally deficient. Laws that go beyond those confines may be.
In Animal Legal Defense Fund, et al. v. Reynolds, et al., No. 4:21-cv-00231-SMR-HCA (S.D. Iowa. Sept. 26, 2022), the plaintiffs (animal rights activist groups) claimed the statute violated their First Amendment rights by hindering them from gaining access to farms and dairies under false pretenses of seeking a job to be able to take pictures and/or videos without the property owner’s consent. The defendants asserted that the case should be dismissed for lack of standing and lack of ripeness.
The Court (the same judge that ruled earlier in 2022 on another variant of the Iowa laws) held that the plaintiffs had standing because their organizational objectives would be hindered, and that an arrest is not required before a criminal statute can be challenged. The Court noted that the statute prohibited video recordings (which the court asserted was protected “speech”) while trespassing which the plaintiffs considered important to broadcasting their negative messages about animal agriculture to the public. More specifically, the court determined that the statute singled out conduct (that the plaintiffs contemplated) by expanding the penalty for conduct already prohibited by law and was not limited to specific uses of a camera. Accordingly, the court determined that the statute was an unconstitutional restriction on the free speech rights of trespassers apparently on the basis that regulating free speech on private property would create a “slippery slope” for not allowing people to record politicians or express views about the Government. In addition, any recording, production, editing, and publication of the videos is protected speech. The court granted summary judgment to the plaintiffs.
According to the court’s view, it seems practically impossible for farmers to protect their farming operations from those who intend to inflict harm via protected “speech.” Is the court saying that there is a constitutional right to trespass? If so, that is flatly contrary to the recent U.S. Supreme Court opinion of Cedar Point Nursery, et al. v. Hassid, et al., No. 20-107, 2021 U.S. LEXIS 3394 (U.S. Sup. Ct. Jun. 23, 2021).
Note: Interestingly (and hypocritically) the Iowa federal district court’s website contains the following information: “To be admitted into the courthouse, you must present a government issued photo identification. Please be aware the following items are NOT allowed in the courthouse: cell phones, cameras, other electronic devices (including Apple watches), recording devices,…”.
Note: Iowa Code §716.7A, the Food Operation Trespass Law, remains in effect. That law, effective on June 20, 2020, treats as an aggravated misdemeanor a first offense of entering or remaining on the property of a food operation without the consent of a person who has real or apparent authority to allow the person to enter or remain on the property. A subsequent offense is a Class D felony. This statutory provision was upheld as constitutional by an Iowa county district court judge in early 2022.
Tenth Circuit. In Animal Legal Defense Fund, et al. v. Kelly, 9 F.4th 1219 (10th Cir. 2021), pet. for cert. filed, (U.S. Sup. Ct. Nov. 17, 2021), the court construed the Kansas provision that makes it a crime to take pictures or record videos at a covered facility “without the effective consent of the owner and with the intent to damage the enterprise.” The plaintiffs claimed that the law violated their First Amendment free speech rights. The State claimed that what was being barred was conduct rather than speech and that, therefore, the First Amendment didn’t apply. But, the court tied conduct together with speech to find a constitutional violation – it was necessary to lie to gain access to a covered facility and consent to film activities. As such, the law regulated protected speech (lying with intent to cause harm to a business) and was unconstitutional. The court determined that the State failed to prove that the law narrowly tailored to a compelling state interest in suppressing the “speech” involved. The dissent pointed out (correctly and consistently with the Eighth Circuit) that “lies uttered to obtain consent to enter the premises of an agricultural facility are not protected speech.” The First Amendment does not protect a fraudulently obtained consent to enter someone else’s property.
Note: On April 25, 2022, the U.S. Supreme Court declined to hear the case. Kelly v. Animal Legal Defense Fund, cert. den., 142 S. Ct. 2647 (2022).
No. 5 – WOTUS Final Rule
On December 30, 2022, the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COA). On December 30, 2022, the agencies announced the final "Revised Definition of 'Waters of the United States'" rule which will become effective on March 20, 2023. It represents a “change of mind” of the agencies from the positions that they held concerning a water of the United States (WOTUS) and wetlands from just over three years ago. The bottom line is that the new interpretation is extremely unfriendly to agriculture, particularly to farmland owners in the prairie pothole region of the upper Midwest.
As promised, the Final Rule uses a definition that was in place before 2015 (for purposes of the Clean Water Act) for traditional navigable waters, territorial seas, interstate waters, and upstream water resources that “significantly” affect those waters.
Note: Two joint memos were published with the final rule to set forth the delineation of the implementation of roles and responsibilities between the agencies. One is a joint coordination memo to “ensure accuracy and consistency of jurisdictional determinations under the final rule.” The other is a memo with the USDA to provide “clarity on the agencies’ programs under the Clean Water act and the Food Security Act (Swampbuster).”
Adjacency. The EPA wants to restore the “significant nexus” via “adjacency.” This is a big change in the definition of “adjacency.” It doesn’t mean simply “abutting.” Instead, “adjacent” includes a “significant nexus” and a “significant nexus” can be established by “shallow hydrologic subsurface connections” to the “waters of the United States. A “shallow subsurface connection,” the Final Rule states, may be found below the ordinary root zone (below 12 inches), where other wetland delineation factors may not be present. Frankly, that means farm field drain tile.
Specifically, the Final Rule sets forth two kinds of adjacency: 1) the traditional “relatively permanent” standard; and 2) the “significant nexus” standard. The EPA and the COE say the agencies will not assume that all wetlands in a specific geographic area are similarly situated and can be assessed together on a watershed basis in a significant nexus analysis. But it is clear from the Final Rule that the agencies intend to expand jurisdiction over isolated prairie pothole wetlands using the “significant nexus” standard.
Note: The “significant nexus” can be established via a connection to downstream waters by surface water, shallow subsurface water, and groundwater flows and through biological and chemical connections. The Final Rule states that adjacency can be supported by a “pipe, non-jurisdictional ditch,… or some other factors that connects the wetland directly to the jurisdictional water.” This appears to be the basis for overturning the NWPR. Consequently, the prairie pothole region is directly in the “bullseye” of the Final Rule.
Prior converted cropland. The agencies say the final rule increases “clarity” on which waters are not jurisdictional – including prior converted cropland. This doesn’t make much sense. Supposedly, the agencies are “clarifying” that prior converted cropland, (which is not a water), is not a water, but it somehow could be a water if the agencies had not clarified it? In addition, the burden is placed on the landowner to prove that prior converted cropland is actually prior converted cropland and therefore not a water.
Ditches and drainage devices. The Final Rule is vague enough to give the government regulatory authority over non-navigable ponds, ditches, and potholes.
The U.S. Supreme Court. A case is presently pending before the U.S. Supreme Court involving the definition of a WOTUS. In Sackett v. Environmental Protection Agency, 8 F.4th 1075 (9th Cir. 2021), cert, granted, 142 S. Ct. 896 (2022). The issue in the case is whether the U.S. Circuit Court of Appeals for the Ninth Circuit used the proper test for determining whether wetlands are “waters of the United States” under the CWA. Oral argument occurred in early October of 2022. The Court’s opinion is anticipated sometime before mid-March of 2023, but the issuance of the Final Rule may cause that to be delayed. In any event, the Supreme Court will have the final say on what a WOTUS rather than the COE or the EPA.
Conclusion
Next time I will look at developments four and three.
January 23, 2023 in Environmental Law, Regulatory Law | Permalink | Comments (0)
Monday, January 16, 2023
Top Ten Agricultural Law and Tax Developments of 2022 – Numbers 10 and 9
Overview
With this post, I begin the trek through what I believe to be the Top 10 developments in agricultural law and agricultural taxation of 2022. Today, I look at developments No. 10 and nine.
No. 10 – USDA’s Emergency Relief Program
Background. The Extending Government Funding and Delivering Emergency Assistance Act was signed into law on September 30, 2021. This legislation includes $10 billion for farmers impacted by weather disasters during calendar years 2020 and 2021. It directs $750 million to assist livestock producers for losses incurred due to drought or wildfires in calendar year 2021 through the Emergency Livestock Relief Program (ELRP). Through the Emergency Relief Program (ERP), the legislation also provides funding for noninsured crop losses incurred.
The United States Department of Agriculture (USDA) released information in August of 2022 involving the question of whether income from the sale of farm equipment counted as farm income for purposes of the ERP. The issue is an important one because an enhanced payment limit might be at stake.
ERP payments may only be made to a producer with a crop eligible for federal crop insurance or the noninsurance crop disaster assistance program (NAP). The crop for which the recovery is sought must have been subject to a qualifying disaster, which is defined broadly. As a type of qualifying disaster, droughts are rated in accordance with the U.S. Drought Monitor, which publishes a list of qualifying counties.
An ERP payment is not made to any producer that did not receive a crop insurance or NAP payment in 2020 or 2021. Because of this requirement, crop insurance premiums that an ERP recipient has paid are reimbursed by recalculating the ERP payment based on the ERP payment rate of 85% and then backing out the crop insurance payment based on coverage level.
In addition, the ERP requires that the producer receiving a payment obtain either NAP or crop insurance for the next crop years. Also, a producer that received prevented planting payments can qualify for ERP Phase 1 payments based on elected coverage.
Note. ERP payments are for damages occurring in 2020 and 2021, so if they were received in 2022 they are not deferrable to 2023.
Payment limit. The ERP payment limit is $125,000 for specialty crops. For all other crops, ERP imposes a limit of $125,000 combined for ERP Phases 1 and 2. However, for an applicant with “average adjusted gross farm income” (average adjusted gross income (AGI)) based on the immediate three prior years but skipping the first year back (e.g., in 2022, tax years 2018, 2019, and 2020 are used to compute the percentage) that is comprised of more than 75% from farming activities (the “75% test”), the normally applicable $900,000 AGI limit is dropped, and the payment limit goes to $900,000 for specialty crops and $250,000 for all other crops. There are separate payment limits for 2020 and 2021.
Definition of farm income. Farm income for ERP purposes includes the following.
- Net income from Schedule F, Profit or Loss From Farming
- Pass-through income from farming activities
- Wages from a farming entity
- Interest charge domestic international sales corporation (IC-DISC) income from an entity that materially participates in farming (has a majority of gross receipts from farming)
- Income from packing, storing, processing, transporting and shedding of farm products
- Gains from the sale of farm equipment, but only if farm income is at least two-thirds of overall AGI (excluding gains from equipment sales and the sale of farm inputs).
Observation. Under the Tax Cuts and Jobs Act (TCJA), for tax years after 2017, a trade-in of farm equipment is treated as a sale that is reported on Form 4797, Sales of Business Property. As a result, many farmers may have little income reported on Schedule F for a tax year that they incurred a large gain from trading in farm equipment reported as having been sold on Form 4797. Thus, sale of farm equipment could cause such a farmer not to receive an additional ERP payment.
The same rule likely applies to income from custom farming or harvesting services and the income derived from providing seed to farmers (offset by allocated expenses).
No. 9 – Decision to not Review USDA Wetland Certification Upheld
Foster v. United States Department of Agriculture, No. 4:21-CV-04081-RAL, 2022 U.S. Dist. LEXIS 117676 (D. S.D. Jul. 1, 2022)
The plaintiff owned farmland with a .8-acre portion that USDA certified as a “wetland” in 2011 under the Swampbuster provisions of 16 U.S.C. §§3801, 3821-3824. The wetland was about 8.5 inches deep at certain times during the year, particularly in the spring after snow melt. The wetland resulted from a tree belt that had been planted in 1936 to prevent soil erosion. Snow accumulated around the tree belt in the winter and melted in the spring with the water collecting in a low spot in of the field before soaking into the ground or evaporating. In about one-half of the crop years, the puddle would dry out in time or planting. In other years it had to be drained to plant crops. The certification meant that the puddle could not be drained so that it and the surrounding land could not be farmed without the loss of federal farm program benefits.
The plaintiff sought a review of the certification under 16 U.S.C. §3822(a)(4) which provides for review of a final certification upon request by the person affected by the certification. The USDA denied review in 2020 citing its own regulation of 7 C.F.R. §12.30(c)(6) which required the plaintiff to show how a natural event changed the topography or hydrology of the wetland that caused the certification to no longer be a reliable indicator of site conditions. The plaintiff claimed that new evidence existed that would refute the 2011 certification, and also claimed that 16 U.S.C. §3822(a)(4) provided no restriction on the ability to get a review and, as a result, 7 C.F.R. §12.30(c)(6) violated the due process clause by restricting reviews and was arbitrary and capricious under the Administrative Procedure Act.
The trial court held that 7 C.F.R. §12.30(c)(6) merely restricted when an agency must review a final certification. The trial court also determined that 7 C.F.R. §12.30(c)(6) did not violate the due process clause as the plaintiff did not show any independent source of authority providing him with a right to certification review on request. The USDA’s denials of review were found not to be arbitrary or capricious and that the plaintiff failed to provide any evidence that the natural conditions of the site had changed, which would require a review of the certification. The plaintiff also claimed that the Swampbuster provisions were unconstitutional under the Commerce Clause and the Tenth Amendment.
The trial court rejected the plaintiff’s claims and determined that the statute of limitations on challenging the certification had run. The trial court also held that the USDA was entitled to summary judgment on the plaintiff’s claim that Swampbuster was unconstitutional, holding that the provisions were within the power of the Congress under the spending clause of Article I, Section 8 of the Constitution. The trial court also ruled that Swampbuster did not infringe upon state sovereignty by requiring states to implement a federal program, statute or regulation. The trial court further rejected the plaintiff’s claim that a part of Swampbuster violated the Congressional Review Act, finding that the provision at issue was precluded from judicial review. The court dismissed all the plaintiff’s claims against the USDA and denied the ability for the area to be reviewed again.
Note: The trial court’s ruling seems incorrect and the plaintiff docketed an appeal with the U.S. Court of Appeals for the Eighth Circuit on August 16. No. 22-2729. The Constitution limits what the government can regulate, including water that doesn’t drain anywhere. In addition, the U.S. Supreme Court has said the government cannot force people to waive a constitutional right as a condition of getting federal benefits such as federal farm program payments.
Conclusion
In the next installment I will look at some more of the Top Ten of 2022.
January 16, 2023 in Environmental Law, Regulatory Law | Permalink | Comments (0)
Monday, January 9, 2023
Top Ag Law and Tax Developments of 2022 – Part 3
Overview
Today’s blog article continues the series that began earlier this week reviewing the top ag law and tax developments of 2022. I am working my way through those developments that were significant, but not quite of national significance to make the “Top Ten” of 2022.
More ag law and tax developments of 2022 – it’s the topic of today’s post.
Tax Court has Equitable Jurisdiction to Review CDP Determination
Boechler, P.C. v. Commissioner, 142 S. Ct. 1493 (2022)
The petitioner, a two-person North Dakota law firm, was assessed an “intentional disregard” penalty. The IRS notified them of an intent to levy. They requested and received a CDP (Collection Due Process) hearing, in which appeals sustained the proposed levy. I.R.C. §6330(d)(1) requires a Tax Court petition to be filed within 30 days, but the firm filed one day late. The Tax Court dismissed the petition for lack of jurisdiction. The Eighth Circuit affirmed on the ground that the statutory requirement for filing was jurisdictional and thus could not be waived. In a unanimous decision, the U.S. Supreme Court ruled that the 30-day period was not a jurisdictional requirement largely due to lack of clarity in I.R.C. §6330(d)(1). Moreover, the Supreme Court reasoned that its decision preserved the possibility for a court to apply equitable tolling to benefit taxpayers in this context, who often acted without counsel. While the application of equitable tolling would depend on further proceedings, the law firm will get the chance to make its case.
Comment: Although the Supreme Court’s decision does not create greater clarity, it may avoid some injustice. Eighth Circuit Judge Kelly wrote a concurring opinion in which he stated that a jurisdictional approach is a “drastic” measure that may impose a disproportionate burden on low-income taxpayers. This concurring opinion may have been what convinced the U.S. Supreme Court to hear the case.
Additional Note: In late 2022, the Tax Court addressed the issue of the right to judicial review of an IRS deficiency proceeding in accordance with I.R.C. §6213(a). In Hallmark Research Collective v. Comr., 159 T.C. No. 6 (2022), the petition was electronically filed one day late. The Tax Court held that the statute was clear in specifying that the IRS must issue a deficiency notice and that the taxpayer must respond by filing a Tax Court petition within a 90-day time limit. As such, the 90-day time limit is a prerequisite of jurisdiction. The court concluded that deficiency proceedings are based in statute and cannot be equitably tolled.
COE Improperly Declined Jurisdiction
Hoosier Environmental Council, et al. v. Natural Prairie Indiana Farmland Holdings, LLC, et al., 564 F. Supp. 3d 683 (N.D. Ind. 2021)
Note: I’m reaching back into 2021 to grab this case. I didn’t see it until early in 2022, and it should have been on last year’s list. But, nevertheless, I want to include it as a significant development for 2022 albeit it was a 2021 federal court decision from Indiana.
This case involved the issue of the U.S. Army Corps of Engineers (COE) deciding not to regulate a wet area on a farm and whether the decision not to exercise jurisdiction was done properly. The court’s decision is instructive on the procedure for determining the existence of a wetland, what “prior converted cropland is” and how the agency should properly decline to regulate
The defendant acquired farmland to build and operate a concentrated animal feeding operation (CAFO) with over 4,350 dairy cows. The COE inspected the property and concluded that much of the land was not subject to the Clean Water Act (CWA). The plaintiffs, two environmental groups, sued alleging that the defendant violated the CWA and that the COE’s administrative jurisdictional determination violated the Administrative Procedures Act (APA). The land at issue was drained in the early 1900's via the creation of several large ditches and drainage canals to move surface water into the Kankakee River 9.5 miles downstream. The CAFO was constructed on what had been a lakebed over a century ago, and two of the drainage ditches are on the defendant’s land.
Note: The lake was totally drained in the early 1990s to make farmland. Vested with that is the right to maintain the drain. See, e.g., Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999). It is immaterial what the size of the lake was or whether it was where a marsh was at some time in the past. The land at issue was completely transformed to farmland long before the defendant acquired the land at issue.
The primary issue before the court was whether the COE’s determination that the land was prior converted wetland (and therefore not subject to COE regulation) was arbitrary and capricious. The court examined the record to determine if the COE followed its own guidance for delineating wetlands. The court noted that the administrative record lacked any description of the prior drainage system (the series of medial and lateral ditches transecting the property before defendant’s alterations), the defendant’s new drainage system, how these systems were designed to function, and whether they were effective in removing wetland hydrology from the area.
Note: While the plaintiffs made much ado about the COE’s lack of consideration of the hydrology of the land before the farm’s alterations, that is largely an irrelevant point. Famers are entitled to maintain the “wetland and farming regime” on the land and may engage in whatever drainage activities necessary to keep that historic farming activity and production. The land in question had been converted to farmland many decades earlier and had been constantly maintained in that status.
The court examined aerial photographs, noting that there was an absence of data identified in the COE’s “Midwest Supplement” to assess the relevant drainage factors, including how the existing and current drainage systems were designed to function, whether they were effective in removing wetland hydrology from the area, and when any conversion occurred. The absence of these sources, coupled with an absence of any meaningful discussion of the hydrology of the site before the defendant’s alterations, led the court to believe that the COE failed to follow the procedures outlined in its own guidance in deciding the land was prior converted cropland. The COE also reviewed 14 aerial photographs that spanned from 1938 to 2017. Those photos showed the presence of row cropping and offered no evidence of potential wetlands. Relying on aerial photographs, the COE expert’s determination, and a determination of the Natural Resources Conservation Service to conclude that wetlands did not exist, was certainly appropriate.
Note: In addition, the court’s analysis on this point seems suspect. The COE did not need to find and document all three factors. The hydrology had been materially altered to enable consistent row crop farming. In that situation wetland hydrology is not present, and the area in question is not a wetland. As a result, other levees, systems, or dams do not alter area hydrology because there is no wetland hydrology present to alter. The court referred to the COE’s 1987 Manual for its conclusion that the COE didn’t follow its own procedures. However, the 1987 Manual was established to evaluate recent alterations to undisturbed wetland. The court incorrectly applied this standard to materially hydrologically altered wetland where the alteration had occurred a century earlier. As such, the land in issue was prior converted wetland. The court incorrectly applied the standards of the 1987 Manual to the facts before it involving alterations that occurred over 100 years ago.
The court also determined that there was no indication in the record that the aerial photographs were used to assess hydrology characteristics of the defendant’s land before alterations were made, how the drainage systems were designed to function, and how effectively and efficiently they could convert land from wetland to upland. Further, the court noted there was also no explanation why the COE skipped these steps. The COE took the position that its review of aerial photographs was sufficient to determine the land’s normal circumstances. The court disagreed, determining that the evidence did not support the COE’s claim that its decision was based on identified relevant factors. Instead, the court concluded that the COE made impermissible post hoc justifications. If reliance on its own manuals was not warranted in this situation, the court stated, the COE needed to provide a rationale. As such, the court determined that the evidence did not support the COE’s argument that its decision was rationally based on the relevant wetland hydrological factors before concluding the land was prior converted cropland. Absent that rationale, the COE’s determination of wetland status of the defendant’s farmland was arbitrary and capricious.
Note: The COE followed its correct procedure in this case contained in the Midwest Supplement and also accepted a prior USDA determination as to the land’s status for federal farm program purposes. The ditches and drains that were legally installed successfully removed wetland hydrology. The COE did not deviate from its own regulatory guidance and procedures, but the court assumed that it did. There was no need for the COE to find and document all three wetland characteristic factors. The elimination of wetland hydrology eliminates the possibility that the land was a wetland.
Concerning the lateral ditch, the plaintiffs claimed that the record did not support the COE’s conclusion that the lateral ditches were irrigation canals that drained uplands and lacked relatively permanent flow. The plaintiffs pointed to a lack of administrative record and the claimed failure of the COE to follow the relevant factors that it lists in its Approved Jurisdictional Determination Form. The court also held that the COE’s finding of non-jurisdiction over the lateral ditches was arbitrary and capricious.
The court remanded the case to the COE to conduct a more thorough investigation of the defendant’s tract.
Note: For farmers, the case is a frustrating one. At issue was land that had been farmed for over 80 years and the right to continue to farm consistent with the historic drainage of the property was caught up in bureaucratic red tape. The court’s expansive view of standing and lack of understanding of the actual science behind the hydrology and geographic facts of the case created a problem for a dairy operation that should have never happened. What was involved in the case were shallow ditches dug into prior converted wetland. That is an activity that the Clean Water Act does not regulate.
Conclusion
I will continue my journey through the top developments in ag law and tax in a subsequent post.
January 9, 2023 in Environmental Law, Income Tax | Permalink | Comments (0)
Friday, January 6, 2023
Top Ag Law and Developments of 2022 – Part 2
Overview
Today’s blog article continues the series that began earlier this week reviewing the top ag law and tax developments of 2022. I am working my way through those developments that were significant, but not quite of national significance to make the “Top Ten” of 2022.
More ag law and tax developments of 2022 – it’s the topic of today’s post.
Regulation of Agricultural Activities on Wildlife Refuges
Tulelake Irrigation Dist. v. United States Fish & Wildlife Serv., 40 F.4th 930 (9th Cir. 2022)
This case involves the management of six national wildlife refuges in the Klamath Basin encompassing over 200,000 acres. The court faced the specific question of whether the federal government can regulate agricultural activities on leased land within the refuges. The plaintiffs, an irrigation district and associated agricultural groups, sued the defendant, U.S. Fish and Wildlife Service, claiming the defendant violated environmental laws by regulating leased farmland in the Tule Lake and Klamath Refuge. The trial court granted summary judgment in favor of the defendant. The plaintiffs appealed. The appellate court noted that the Kuchel Act and the Refuge Act allow the defendant to determine the proper land management practices to protect the waterfowl management of the area. Under the Refuge Act, the defendant was required to issue an Environmental Impact Statement (EIS) and Comprehensive Conservation Plan (CCP). The defendant did issue an EIS and CCP for the Tule Lake and Klamath Refuge area, which included modifications to the agricultural use on the leased land within the region. The EIS/CCP required the leased lands to be flooded post-harvest, restricted some harvesting methods, and prohibited post-harvest field work, which the plaintiffs claimed violated their right to use the leased land. The plaintiffs argued that the language, “consistent with proper waterfowl management,” within the Kuchel Act was “nonrestrictive” and was not essential to the meaning of the Act. The appellate court held it was improper to read just that portion of the Act without considering the rest of the Act to understand the intent. The appellate court found the Kuchel Act was unambiguous and required the defendant to regulate the leased land to ensure proper waterfowl management. The Refuge Act allows the defendant to regulate the uses of the leased land, but the plaintiffs argued the agricultural practices were a “purpose” rather than a “use” so the defendant could not regulate it under the Refuge Act. The appellate court found the agricultural activity on the leased land was not a “purpose” equal to waterfowl management. The appellate court also held the language of the Act was unambiguous and determined that agricultural activities on the land were to be considered a use that the defendant could regulate. As such, the conditions needed to benefit waterfowl trumped ag considerations under both the Refuge Act and the Kuchel Act and, as the court stated, if the defendant determined that “an ag use is not consistent with proper waterfowl management, the Service must be allowed to restrict agricultural use. Accordingly, the appellate court affirmed the trial court’s award of summary judgment for the defendant.
Minnesota Farmer Protection Law Upheld
Pitman Farms v. Kuehl Poultry, LLC, et al., 48 F.4th 866 (8th Cir. 2022)
In early 1988, the Minnesota Legislature directed the Minnesota Department of Agriculture (MDA) to put together a task force to study the issue of agricultural contract production and recommend to the legislature how it might provide additional legal and economic protection to contract growers. The MDA’s Final Report was issued in February of 1990. During the 1990 legislative session, the Minnesota legislature approved various economic protections for farmers based on the task force recommendations focusing particularly on parent liability. As signed into law, MN Stat. §17.93 provides as follows:
“Parent company liability. If an agricultural contractor is the subsidiary of another corporation, partnership, or association, the parent corporation, partnership or association is liable to a seller for the amount of any unpaid claim or contract performance claim if the contractor fails to pay or perform according to the terms of the contract.”
In addition, MN Stat. §17.90 specified as follows:
“’Producer” means a person who produces or causes to be produced an agricultural commodity in a quantity beyond the person’s own family use and: (1) is able to transfer title to another; or (2) provides management input for the production of an agricultural commodity.”
The MDA then prepared at “statement of need and reasonableness” (SONAR) to implement the new statutory provision. The SONAR referred to the legislation as the “Producer Protection Act” (PPA) and the MDA’s implementing rule (MN Rule 1572.0040) for MN Stat §17.93 which went into effect on March 4, 1991, read as follows:
“A corporation, partnership, sole proprietorship, or association that through ownership of capital stock, cumulative voting rights, voting trust agreements, or any other plan, agreement, or device, owns more than 50 percent of the common or preferred stock entitled to vote for directors of a subsidiary corporation or provides more than 50 percent of the management or control of a subsidiary is liable to a seller of agricultural commodities for any unpaid claim or contract performance claim of that subsidiary.”
During the same 1990 legislative session the Minnesota legislature approved, and the governor signed into law MN Stat. §27.133. This new law stated as follows:
“Parent company liability. If a wholesale produce dealer is a subsidiary of another corporation, partnership, or association, the parent corporation, partnership, or association is liable to a seller for the amount of any unpaid claim or contract performance claim if the wholesale produce dealer fails to pay or perform in according to the terms of the contract and this chapter.”
Concerning this provision, the legislature stated, “It is therefore declared to be the policy of the legislature that certain financial protection be afforded those who are producers on the farm….”
Also, under both MN Stat. §17.93 and MN Stat. §27.133, “contractor” and “wholesale produce dealer” were defined as “persons” and “person” was to be applied to corporations, partnerships and other unincorporated associations.” MN Stat. §665.44, sub. 7.
In 2017, the defendants entered into chicken production contracts with Prairie’s Best Farm, Inc. to grow chickens in exchange for monthly payments and bi-monthly bonus payments. In late 2017, Simply Essentials bought the assets of Prairie’s Best and assumed the grower contracts. Simply Essentials, incorporated in Delaware and headquartered in California, was the subsidiary of the plaintiff, Pitman Farms, which owned more than 50 percent of Simply Essentials. Shortly thereafter, the plaintiff bought Simply Essentials’ membership interests and became its sole owner. In 2019, Simply Essentials encountered financial trouble, ceased processing activities and notified the defendants that it was terminating the contracts effective three months later. The defendants’ demands for payment in excess of $6 million from the plaintiff for breach of contract failed. Both parties sought a declaratory judgment concerning the application of the PPA to the contracts.
The plaintiff claimed that the PPA did not apply because the defendants were not “sellers” and, even if they were, the PPA didn’t apply because Simply Essentials was an LLC rather than a “corporation, partnership, or association. The plaintiff also asserted that the PPA’s parent company liability provisions didn’t apply to it because Delaware law applied, and that applying Minnesota law would violate the Dormant Commerce Clause. The defendant’s counterclaim made the opposite arguments.
The trial court ruled for the plaintiff, finding that the PPA did not apply by its terms because the defendants were not “sellers” and because Simply Essentials was an LLC rather than a “corporation, partnership, or association.”
On appeal, the appellate court unanimously reversed. The appellate court read the various statutes together to determine the legislature’s purpose and intent. The appellate court noted that the parent company liability statute of MN Stat. §27.133, the PPA of §§17.90-17.98 and the MDA’s implementing rule all arose from the same legislative session, addressed the same issue, and contained nearly identical language. Accordingly, the appellate court determined that the trial court should have looked to MN Stat. §27.133 when construing the meaning of “seller” contained in MN Stat. §17.93 and in MDA Rule 1572.0040. When the various provisions were taken together, the appellate court determined that “seller” can include “producer” under the PPA and the MDA’s implementing regulation.
The appellate court also concluded that the trial court erred in finding that “seller” was limited to transferors of title. Because the defendants did not have title to the chickens and could not therefore transfer title, the trial court held that the PPA did not apply. The appellate court held that such a construction was plainly contrary to the legislature’s intent in creating the PPA which was to provide financial protections to agricultural producers in general and not merely agricultural commodity sellers. Further, because the appellate court determined that “seller” included “producer,” the defendants were covered by the PPA as providing management services in accordance with MN Stat. §17.90 (2) for the growing of the chickens under contract. In addition, the appellate court held that the growers were also “sellers” for purposes of the parent company liability provision of MN Stat. §27.133.
The plaintiff also asserted that “subsidiary of another corporation, partnership or association” contained in MN Stat. §17.93 and §27.133 meant that both the parent and the subsidiary had to be either a corporation, partnership or an association. The trial court agreed with this interpretation. The appellate court also agreed but pointed out that LLCs (which Simply Essentials was) did not exist in Minnesota when the PPA was enacted and, as such, the legislature had not purposefully excluded them from the statute. The appellate court also noted that an LLC had been found to be a “person” for purposes of the Minnesota Human Rights Act. That law defined “person” to include a partnership, association, or corporation. In addition, an unpublished decision of the Minnesota Court of Appeals had previously held that an LLC was an “association” for purposes of a Minnesota oil transportation statute. Thus, there was no apparent reason why the legislature would have singled out LLCs to not be covered under the parent company liability provisions of the PPA.
The appellate court also noted the strong public policy statement of the Minnesota legislature in enacting the PPA – to protect producers of agricultural commodities from economic harm due to parent business entities using their organizational form to avoid liability for their subsidiaries’ actions.
Conclusion
I will continue my journey through the top developments in ag law and tax in a subsequent post.
January 6, 2023 in Contracts, Environmental Law, Regulatory Law | Permalink | Comments (0)
Monday, January 2, 2023
Here Come the Feds: EPA Final Rule Defining Waters of the United States – Again
Overview
On December 30, 2022, the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COA). On December 30, 2022, the agencies announced the final "Revised Definition of 'Waters of the United States'" rule which will be effective 60 days after it is published in the Federal Register. It represents a “change of mind” of the agencies from the positions that they held concerning a water of the United States (WOTUS) and wetlands from just over three years ago. The bottom line is that the new interpretation is extremely unfriendly to agriculture, particularly to farmland owners in the prairie pothole region of the upper Midwest.
Background
The scope of the federal government’s Clean Water Act (CWA) regulatory authority over wet areas on private land, streams and rivers has been controversial for more than 40 years. The CWA bars the discharge of a “pollutant” into the “navigable waters of the United States without a federal discharge permit. A “pollutant” is defined as “dredged spoil, solid waste, incinerator residue, sewage, garbage, sewage sludge, munitions, chemical wastes, biological materials, radioactive materials, heat, wrecked or discarded equipment, rock, sand, cellar dirt and industrial, municipal, and agricultural waste.”
Note: The legislative history of the CWA reveals that the Congress was not thinking about preserving wetlands when the definition of a “pollutant” was written. Instead, it blended together (under the umbrella of “pollution”) the COE’s responsibility to protect navigation with the EPA’s responsibility to prevent contamination. This is the genesis of upstream regulation that environmental groups and numerous courts latched onto. Routine farming activities were exempted from the discharge permit requirement.
Many court opinions have been filed attempting to define the scope of the government’s jurisdiction. On two occasions, the U.S. Supreme Court attempted to clarify matters, but in the process of rejecting the regulatory definitions of a WOTUS proffered by the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COE) didn’t provide clear direction for the lower courts. See Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers, 531 U.S. 159 (2001); Rapanos v. United States, 547 U.S. 175 (2006).
Particularly with its Rapanos decision, the Court failed to clarify the meaning of the CWA phrase “waters of the United States” and the scope of federal regulation of isolated wetlands. The Court did not render a majority opinion in Rapanos, instead issuing a total of five separate opinions. The plurality opinion, written by Justice Scalia and joined by Justices Thomas, Alito and Chief Justice Roberts, would have construed the phrase “waters of the United States” to include only those relatively permanent, standing or continuously flowing bodies of water that are ordinarily described as “streams,” “oceans,” and “lakes.” In addition, the plurality opinion also held that a wetland may not be considered “adjacent to” remote “waters of the United States” based merely on a hydrological connection. Thus, in the plurality’s view, only those wetlands with a continuous surface connection to bodies that are “waters of the United States” in their own right, so that there is no clear demarcation between the two, are “adjacent” to such waters and covered by permit requirement of Section 404 of the CWA.
Justice Kennedy authored a concurring opinion, but on much narrower grounds. In Justice Kennedy’s view, the lower court correctly recognized that a water or wetland constitutes “navigable waters” under the CWA if it possesses a significant nexus to waters that are navigable in fact or that could reasonably be so made. But, in Justice Kennedy’s view, the lower court failed to consider all of the factors necessary to determine that the lands in question had, or did not have, the requisite nexus. Without more specific regulations comporting with the Court’s 2001 SWANCC opinion, Justice Kennedy stated that the COE needed to establish a significant nexus on a case-by-case basis when seeking to regulate wetlands based on adjacency to non-navigable tributaries, in order to avoid unreasonable application of the CWA. In Justice Kennedy’s view, the record in the cases contained evidence pointing to a possible significant nexus, but neither the COE nor the lower court established a significant nexus. As a result, Justice Kennedy concurred that the lower court opinions should be vacated, and the cases remanded for further proceedings.
Justice Kennedy’s opinion was neither a clear victory for the landowners in the cases or the COE. While he rejected the plurality’s narrow reading of the phrase “waters of the United States,” he also rejected the government’s broad interpretation of the phrase. While the “significant nexus” test of the Court’s 2001 SWANCC opinion required regulated parcels to be “inseparably bound up with the ‘waters’ of the United States,” Justice Kennedy would require the nexus to “be assessed in terms of the statute’s goals and purposes” in accordance with the Court’s 1985 opinion in United States v. Riverside Bayview Homes. 474 U.S. 121 (1985).
The “WOTUS Rule”. The Obama Administration attempted take advantage of the lack of clear guidance on the scope of federally jurisdictional wetland by dramatically expanding the federal government’s reach by issuing an expansive WOTUS rule. The EPA/COE regulation was deeply opposed by the farming/ranching and rural landowning communities and triggered many legal challenges. The rule was challenged by over 30 states and the courts were, in general, highly critical of the regulation and it became a primary target of the Trump Administration.
The “NWPR Rule”. The Trump Administration essentially rescinded the Obama-era rule with its own rule – the “Navigable Waters Protection Rule” (NWPR). 85 Fed. Reg. 22, 250 (Apr. 21, 2020). The NWPR redefined the Obama-era WOTUS rule to include only: “traditional navigable waters; perennial and intermittent tributaries that contribute surface water flow to such waters; certain lakes, ponds, and impoundments of jurisdictional waters; and wetlands adjacent to other jurisdictional waters. In short, the NWPR narrowed the definition of the statutory phrase “waters of the United States” to comport with Justice Scalia’s approach in Rapanos. Thus, the NWPR excludes from CWA jurisdiction wetlands that have no “continuous surface connection” to jurisdictional waters. The rule much more closely followed the Supreme Court’s guidance issued in 2001 and 2006 that did the Obama-era rule, but it was challenged by environmental groups. Indeed, the NWPR has been challenged in 15 cases filed in 11 federal district courts.
In early 2020, the U.S. Court of Appeals for the Tenth Circuit reversed a Colorado trial court that had entered a preliminary injunction barring the NWPR from taking effect in Colorado as applied to the discharge permit requirement of Section 404 of the CWA. The result of the appellate court’s decision was that the NWPR became effective in every state. Colorado v. United States Environmental Protection Agency, 989 F.3d 874 (10th Cir. 2021).
Later, a federal district court in South Carolina remanded the NWPR to the EPA. South Carolina Coastal Conservation League, et al. v. Regan, No. 2:20-cv-016787-BHH (D. S.C. Jul. 15, 2021). The NWPR was being challenged on the scope issue. Even though the NWPR was remanded, the court left the rule intact. That fit with the strategy of present Administration. If the court had invalidated the NWPR, then the Administration would have had to defend the indefensible Obama-era rule in court. That wouldn’t have turned out well for the Administration. In addition, the opinion not vacating the NWPR allowed the Administration to proceed in trying to write a new rule without bothering to defend the Obama-era rule in court.
Another definition. On December 7, 2021, the EPA and the COE published a proposed rule redefining a “water of the United States” (WOTUS) in accordance with the pre-2015 definition of the term. 86 FR 69372 (Dec. 7, 2021). Under the proposed rule, EPA stated its intention to define a WOTUS in accordance with the 1986 regulations as further defined by the courts since that time. In addition, the agencies said that the proposed rule would base the existence of a WOTUS on the “significant nexus” standard set forth in prior Supreme Court decisions. As such, a WOTUS would include traditional navigable waters; territorial seas and adjacent wetlands; most impoundments of a WOTUS and wetlands adjacent to impoundments or tributaries that meet either the relatively permanent standard or the significant nexus standard; all waters that are currently used or were used in the past or may be susceptible to use in interstate or foreign commerce, including all waters that are subject to the ebb and flow of the tide.
The proposed rule defines “interstate waters” as “all rivers, lakes, and other waters that flow across, or form a part of State boundaries” regardless of whether those waters are also traditionally navigable. A “tributary” is also defined as being a WOTUS if it fits in the “other waters” category via a significant nexus with covered waters or if it is relatively permanent. The EPA and COE further define the “relatively permanent standard” as “waters that are relatively permanent, standing or continuously flowing and waters with a continuous surface connection to such waters.” The “significant nexus standard” is defined as “waters that either alone or in combination with similarly situated waters in the region, significantly affect the chemical, physical, or biological integrity of traditional navigable waters, interstate waters, or the territorial seas (the "foundational waters").”
Final Rule
The agencies announced their Final Rule on December 30, 2022. It will become effective 60 days after it is published in the Federal Register. As promised, the Final Rule uses a definition that was in place before 2015 (for purposes of the Clean Water Act) for traditional navigable waters, territorial seas, interstate waters, and upstream water resources that “significantly” affect those waters.
Note: Going back to before 2015 is interesting. It was in 2015 that the Obama Administration was going to “clarify” everything, and the result was to greatly expand control over private property. As noted above, this “clarification” resulted in more than 30 states suing the federal government and an injunction was imposed. Also as noted above, the EPA and the COE under the Trump administration then pursued a long, careful rulemaking procedure which brought actual clarity to the definition. It’s that clarity that has now been completely overturned, supposedly for “clarity’s” sake.
Two joint memos were published with the final rule to set forth the delineation of the implementation of roles and responsibilities between the agencies. One is a joint coordination memo to “ensure accuracy and consistency of jurisdictional determinations under the final rule.” The other is a memo with the USDA to provide “clarity on the agencies’ programs under the Clean Water act and the Food Security Act (Swampbuster).”
Adjacency. The EPA wants to restore the “significant nexus” via “adjacency.” This is a big change in the definition of “adjacency.” It doesn’t mean simply “abutting.” Instead, “adjacent” includes a “significant nexus” and a “significant nexus” can be established by “shallow hydrologic subsurface connections” to the “waters of the United States. A “shallow subsurface connection,” the Final Rule states, may be found below the ordinary root zone (below 12 inches), where other wetland delineation factors may not be present. Frankly, that means farm field drain tile.
Note: Farmers needs to pay attention to this, despite what USDA will undoubtedly say about it – the USDA’s Natural Resource Conservation Service (NRCS) is now completely under the thumb of the EPA and the COE (particularly because the practice of mitigation banking under the CWA will cease). Practically every tile for every tile-drained farmed wetland connects to an open ditch which is a WOTUS. This effectively disqualifies farmed wetland from being an isolated wetland –[these terms means specific things under the regulations]. The only wetland that will qualify as an isolated wetland (no hydrological connection to a WOTUS) will be those that don’t overflow and don’t have drain tile.
Specifically, the Final Rule sets forth two kinds of adjacency: 1) the traditional “relatively permanent” standard; and 2) the “significant nexus” standard. The EPA and the COE say the agencies will not assume that all wetlands in a specific geographic area are similarly situated and can be assessed together on a watershed basis in a significant nexus analysis. But it is clear from the Final Rule that the agencies intend to expand jurisdiction over isolated prairie pothole wetlands using the “significant nexus” standard.
Note: The “significant nexus” can be established via a connection to downstream waters by surface water, shallow subsurface water, and groundwater flows and through biological and chemical connections. The Final Rule states that adjacency can be supported by a “pipe, non-jurisdictional ditch,… or some other factors that connects the wetland directly to the jurisdictional water.” This appears to be the basis for overturning the NWPR. Consequently, the prairie pothole region is directly in the “bullseye” of the Final Rule.
Prior Converted Cropland. The agencies say the final rule increases “clarity” on which waters are not jurisdictional – including prior converted cropland. This doesn’t make much sense. Supposedly, the agencies are “clarifying” that prior converted cropland, (which is not a water), is not a water, but it somehow could be a water if the agencies had not clarified it? In addition, the burden is placed on the landowner to prove that prior converted cropland is actually prior converted cropland and therefore not a water.
Ditches and drainage devices. The Final Rule is vague enough to give the government regulatory authority over non-navigable ponds, ditches, and potholes. On the ditch/drainage device maintenance issue, there is also no recognition that the agencies will follow the opinion of the U.S. Circuit Court of Appeals for the Eighth Circuit in Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999). In Barthel, the court ruled that a landowner can do whatever is necessary with respect to an existing drainage device to maintain the “historic wetland and farming regime” for the farm. While Barthel is a Swampbuster case, it is relevant with respect to the Final Rule given that the USDA is now basically subservient to the EPA and the COE.
The U.S. Supreme Court
It is rather presumptuous of the CWA and the COE to develop a Final Rule before the U.S. Supreme Court issues its opinion in a case presently pending involving the definition of a WOTUS. In Sackett v. Environmental Protection Agency, 8 F.4th 1075 (9th Cir. 2021), cert, granted, 142 S. Ct. 896 (2022). The issue in the case is whether the U.S. Circuit Court of Appeals for the Ninth Circuit used the proper test for determining whether wetlands are “waters of the United States” under the CWA. The plaintiffs bought a .63-acre lot in 2004 on which they intended to build a home. The lot is near numerous wetlands the water from which flows from a tributary to a creek, and eventually runs into a lake approximately 100 yards from the lot. The lake is 19 miles long and is a navigable water subject to the CWA. The plaintiffs began construction of their home, and the Environmental Protection Agency (EPA) issued a compliance order notifying the plaintiffs that their lot contained wetlands due to adjacency to the lake and that continuing to backfill sand and gravel on the lot would trigger penalties of $40,000 per day. The plaintiffs sued and the EPA claimed that its administrative orders weren’t subject to judicial review.
Ultimately the U.S. Supreme Court unanimously rejected the EPA’s argument and remanded the case to the trial court for further proceedings. The EPA withdrew the initial compliance order and issued an amended compliance order which the trial court held was not arbitrary or capricious. The plaintiffs appealed and the EPA declined to enforce the order, withdrew it and moved to dismiss the case. However, the EPA still maintained the lot was a jurisdictional wetland subject to the CWA and reserved the right to bring enforcement actions in the future. In 2019, the plaintiffs resisted the EPA’s motion and sought a ruling on the motion to bring finality to the matter. The EPA claimed that the case was moot, but the appellate court disagreed, noting that the withdrawal of the compliance order did not give the plaintiffs final and full relief. On the merits, the appellate court noted that the lot contained wetlands 30 feet from the tributary, and that under the “significant nexus” test of Rapanos v. United States, 547 U.S. 715 (2006), the lot was a regulable wetland under the CWA as being adjacent to a navigable water of the United States (the lake).
The U.S. Supreme Court agreed to hear the case and oral argument occurred in early October of 2022. The Court’s opinion is anticipated sometime before mid-March of 2023, but the issuance of the Final Rule may cause that to be delayed. In any event, the Supreme Court will have the final say on what a WOTUS rather than the COE or the EPA.
Note: EPA says the Final Rule reflects prior Supreme Court decisions and will provide “clarity” on which waters are jurisdictional and which ones are not. How can EPA provide “clarity” when the Supreme Court hasn’t yet said what a WOTUS is? The role of an administrative agency is to take a statute, or a court decision construing a statute and then write a rule defining the boundaries of the definition - in this instance, that of a WOTUS.
Conclusion
The definition of a WOTUS has become a political football. This constant flip-flopping of definitions lends a lack of credibility to the COE and the EPA on the issue. Didn’t these same agencies believe the 2019 NWPR was good? The Final Rule represents the agencies’ stealth techniques to extend the government’s reach over wetlands on private property. There is absolutely no chance that the Final Rule is fair to farmers.
January 2, 2023 in Environmental Law | Permalink | Comments (0)
Monday, December 5, 2022
Ag Law Developments in the Courts
Overview
It’s been a while since I did a blog article on recent court developments involving farmers, ranchers rural landowners and agribusinesses. I have been on the road just about continuously for the last couple of months and nine more events remain between now and Christmas. But, let me take a moment today (and later this week) to provide a summary of some recent court cases involving agriculture.
Recent court opinions involving agriculture – it’s the topic of today’s post.
Jumping Mouse Habitat Designation Upheld
Northern New Mexico Stockman’s Association, et al. v. United States Fish and Wildlife Service, 494 F.Supp.3d 850 (D. N.M. 2020), aff’d., 30 F.4th 1210 (10th Cir. 2022)
In 2014, the U.S. Fish and Wildlife Service (USFWS) listed the New Mexico Meadow Jumping Mouse as an endangered species based on substantial habitat loss and fragmentation from grazing, water management, drought and wildfire. Accordingly, in 2016, the USFWS designated 14,000 acres along 170 miles of streams and waterways in New Mexico, Arizona and Colorado as critical habitat for the mouse. The U.S. Forest Service erected fencing around some streams and watering holes in the Santa Fe and Lincoln National Forests that were in the designated area The plaintiffs, two livestock organizations, with members that graze cattle in those national forests, sued in 2018 claiming that the USFWS failed to sufficiently consider the economic impact of the critical habitat designation. The trial court dismissed the case, finding that the USFWS was justified in its decision. The trial court also determined that the USFWS need not compensate the plaintiffs for the reduction in value of the plaintiffs’ water rights. The trial court reasoned that the USFWS need not consider all of the economic impacts associated with the mouse’s listing when designating critical habitat, only the incremental costs of the designation itself. The court cited the nine-month annual hibernation period of the mouse giving it only a short time to breed and gain weight for the winter and, as such, the mouse’s habitat needed to remain ideal with tall, dense grass and forage around flowing streams in the designated area. On appeal, the appellate court affirmed. The appellate court held that the assessment method of the USFWS for determining the economic impacts of the critical habitat designation on the water rights of the plaintiffs’ members was adequately considered, and that the USFWS had reasonably supported its decision not to exclude certain areas from the critical habitat designation.
Court Reduces Dicamba Drift Damage Award; Case Continues on Punitive Damages Issue
Hahn v. Monsanto Co., 39 F.4th 954 (8th Cir. 2022)
The plaintiff claimed that his peach orchard was destroyed after the defendants (Monsanto and BASF) conspired to develop and market dicamba-tolerant seeds and dicamba-based herbicides. The plaintiff claimed that the damage to the peaches occurred when dicamba drifted from application to neighboring fields. The plaintiff claimed that the defendants released 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," or prone to drift. While many cases had previously been filed on the dicamba drift issue, the plaintiff did not join the other litigation because it focused on damages to soybean crops. Monsanto moved to dismiss the claims for failure to warn; negligent training; violation of the Missouri Crop Protection Act; civil conspiracy; and joint liability for punitive damages. BASF moved to dismiss those same counts except the claims for failure to warn. The trial court granted the motion to dismiss in part. Monsanto argued that the failure to warn claims were preempted by the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), but the plaintiff claimed that no warning would have prevented the damage to the peaches. The trial court determined that the plaintiff had adequately plead the claim and denied the motion to dismiss this claim. Both Monsanto and BASF moved to dismiss the negligent training claim, but the trial court refused to do so. However, the trial court did dismiss the claims based on the Missouri Crop Protection Act, noting that civil actions under this act are limited to “field crops” which did not include peaches. The trial court did not dismiss the civil conspiracy claim based on concerted action by agreement but did dismiss the aiding and abetting portion of the claim because that cause of action is no recognized under Missouri tort law. The parties agreed to a separate jury determination of punitive damages for each defendant. Bader Farms, Inc. v. Monsanto Co., et al., No. MDL No. 1:18md2820-SNLJ, 2019 U.S. Dist. LEXIS 114302 (E.D. Mo. July 10, 2019). The jury found that Monsanto had negligently designed or failed to warn for 2015 and 2016 and the both defendants had done so for 2017 to the present. The jury awarded the plaintiff $15 million in compensatory damages and $250 million in punitive damages against Monsanto for 2015 and 2016. The jury also found that the defendants were acting in a joint venture and in a conspiracy. The plaintiff submitted a proposed judgment that both defendants were responsible for the $250 million punitive damages award. BASF objected, but the trial court found the defendants jointly liable for the full verdict in light of the jury’s finding that the defendants were in a joint venture. Bader Farms, Inc. v. Monsanto Co., et al., MDL No. 1:18-md-02820-SNJL, 2020 U.S. Dist. LEXIS 34340 (E.D. Mo. Feb. 28, 2020). BASF then moved for a judgment as a matter of law on punitive damages or motion for a new trial or remittitur (e.g., asking the court to reduce the damage award), and Monsanto moved for a judgment as a matter of law or a new trial. The trial court, however, found both defendants jointly liable, although the court lowered the punitive damages to $60 million after determining a lack of actual malice. The trial court did uphold the $15 million compensatory damage award upon finding that the correct standard under Missouri law was applied to the farm’s damages. Bader Farms, Inc. v. Monsanto Co, et al., MDL No. 1:18md2820-SNLJ, 2020 U.S. Dist. LEXIS 221420 (E.D. Mo. Nov. 25, 2020). The defendants filed a notice of appeal on December 22, 2020.
On appeal, the appellate court affirmed the trial court on the causation issue noting that the defendant retained direct contact with the farmers and exercised some degree of control over their actions. As such, the defendant was aware of the foreseeable consequences that could come from not controlling the farmers’ actions more closely. On the compensatory damage issue, the defendant argued that compensatory damages should be measured by the difference in the value of the orchard before and after the damage. The appellate court disagreed, noting that such a calculation only applied when the victim is the owner of the land and not a tenant as was the plaintiff. Thus, compensatory damages were properly measured by lost profits. The defendant argued the damages were speculative, but the court found that Bader Farms had provided years of financial statements to show the usual costs and profits associated with farming the orchard. The appellate court determined that there was no doubt the defendant had full control over the critical aspects of the project. In 2007, BASF had relinquished their rights to the seed technology to the defendant, so they could not control something they had no rights to. The appellate court also affirmed the finding that BASF and Monsanto had engaged in a civil conspiracy by agreeing to sell products unlawfully and enabling the widespread use of a product that was illegal to spray during the growing season. As members of the civil conspiracy, BASF was correctly found to be severally liable for the damages. The appellate court also found that Bader Farms provided clear and convincing evidence that the companies had acted with reckless indifference, but the two had different degrees of culpability. The trial court should have assessed the punitive damages of the Monsanto and BASF separately. Thus, the appellate court affirmed in part and reversed and remanded the punitive damages judgment to the trial court.
Court Decides to Resolve Property Dispute by Requiring Parties to Use the Existing Property Line
Barlow v. Saxon Holdings Trust, No. SD37361, 2022 Mo. App. LEXIS 657 (Mo. Ct. App. Oct. 21, 2022)
The plaintiff and her husband purchased land in 1987 by warranty deed that included the language, “running thence Southwesterly along the fence 40 rods.” At the time the plaintiff purchased the property, a fence that ran north to south existed and the plaintiff believed and acted like she owned the land up to that fence. The defendant purchased the neighboring land in 2011 and executed a warranty deed that included the language, “beginning at the NE corner of the NE ¼ of said Section 23 and running SW 40 rods.” In the spring of 2020, the defendant hired a surveyor who informed the defendant that his property extended onto the plaintiff’s property to the “40-rod line.” The defendant put up an electric fence on the disputed property to claim it. In response the plaintiff hired a surveyor who determined the property line was on the original fence line. The plaintiff sued to quiet title. The trial court found ambiguity between the deeds and resolved the ambiguity in favor of the plaintiff and held the plaintiff had adversely possessed the land. The defendant appealed. The appellate court recognized that the deeds individually did not show patent ambiguity, but the difference between the two on the location of property line did create an ambiguity. The appellate court determined that one way to resolve the ambiguity would be to have the parties continue to occupy the land the way they had in accordance with one of the deeds or constructions. This was the trial court’s approach, and the appellate court affirmed the trial court on this point. The appellate court also noted that the trial court had found the plaintiff’s surveyor credible, and that credibility of a witness was a determination to be left to the trial court’s discretion that the appellate court would not disturb. The appellate court affirmed the trial court’s resolution of the deed in favor of the plaintiff and determined it need not address the adverse possession claim.
Oil and Gas Lease on Disputed Property Invalidates Adverse Possession
Cottrill v. Quarry Enterprises, LLC, No. 2022 CA 00011, 2022 Ohio App. LEXIS 3191 (Ohio Ct. App. Sept. 27, 2022)
The plaintiff claimed that she had successfully adversely possessed the defendant’s property by receiving title to the property in 1971 from her mother and caring for the land by mowing and maintaining it and using it for recreational events for herself and family. The trial court granted summary judgment for the defendant, finding that the plaintiff failed to establish exclusive possession over the land due to an existing oil and gas lease that the defendant had executed. The plaintiff appealed, claiming that the lease did not invalidate her exclusive use. To show exclusive use, the plaintiff did not have to be the only person who used the land but needed to be the only person who asserted their right to possession over the land. The appellate court found that the oil and gas that existed on the property began in 1958. For the entirety of the time that the plaintiff claimed she had adversely possessed the property, the oil and gas company had the right of possession over the land in dispute, invalidating the plaintiff’s claim.
December 5, 2022 in Civil Liabilities, Environmental Law, Real Property, Regulatory Law | Permalink | Comments (0)
Wednesday, October 12, 2022
Court Says COE Acted Arbitrarily When Declining Jurisdiction Over Farmland
Overview
An issue that troubles many farmers and ranchers is the federal government’s regulation of farmland and farming activities. Two primary regulatory agencies are the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COE). They have jurisdiction to regulate the “waters of the United States” (WOTUS) and the scope of that jurisdiction has been a big issue for many years and has generated innumerable court decisions.
A recent case involved the issue of the COE deciding not to regulate a wet area on a farm and whether the decision not to exercise jurisdiction was done properly. The court’s decision is instructive on the procedure for determining the existence of a wetland, what “prior converted cropland is” and how the agency should properly decline to regulate
The COE’s regulation of farmland - it’s the topic of today’s post.
Background
Facts of the case. In Hoosier Environmental Council, et al. v. Natural Prairie Indiana Farmland Holdings, LLC, et al., 564 F. Supp. 3d 683 (N.D. Ind. 2021), the defendant acquired farmland to build and operate a concentrated animal feeding operation (CAFO) with over 4,350 dairy cows. The COE inspected the property and concluded that much of the land was not subject to the Clean Water Act. The plaintiffs, two environmental groups sued alleging that the defendant violated the Clean Water Act (CWA) and that the COE’s administrative jurisdictional determination violated the Administrative Procedures Act (APA). The land at issue was drained in the early 1900's via the creation of several large ditches and drainage canals to move surface water into the Kankakee River 9.5 miles downstream. The CAFO was constructed on what had been a lakebed over a century ago, and two of the drainage ditches are on the defendant’s land.
Note: The lake was totally drained in the early 1990s to make farmland. Vested with that is the right to maintain the drain. See, e.g., Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999). It is immaterial what the size of the lake was or whether it was where a marsh was at some time in the past. The land at issue was completely transformed to farmland long before the defendant acquired the land at issue.
The plaintiffs claimed that the defendant filled nearly half a mile of one ditch and installed drainage tile to drain excess water, filled and tiled various lateral ditches attached or near both ditches. After the alterations the plaintiffs contacted the COE to determine if the ditches, lateral ditches and land were subject to federal regulation. The COE investigated and determined that neither the defendant’s land nor the lateral ditches were jurisdictional wetlands but did conclude that the two drainage ditches were jurisdictional.
The plaintiffs sought judicial review of the COE’s determination to not regulate the defendant’s land or lateral ditches. The plaintiff asserted that the defendant’s filling and tiling activities required CWA permits for dredged or fill material, and a pollution discharge permit. The plaintiffs claimed that the manipulation of the hydrology and drainage at the CAFO site would degrade the nature and wildlife areas and waters and diminish their ability to continue using and enjoying them. The plaintiffs also claimed that the COE’s wetland determination was arbitrary and capricious because the agency made its conclusion without relying on the relevant wetland factors articulated in the COE’s technical guidance manuals. The COE asserted that its guidance’s procedures weren’t applicable and that the administrative record supported its decision.
Standing. The court determined that the plaintiffs had standing to sue because their members have been and would continue to be injured by the defendant’s activities, and that the plaintiffs’ restorative activities on an adjacent downstream tract that the plaintiffs’ members use for various recreational activities would be harmed. The court also pointed out that at least three members got their water from downstream private wells. The plaintiffs’ “wetland scientist and drainage expert” provided an opinion that the COE’s decision to not assert jurisdiction and the defendant’s continued hydrological changes to the property would “result in a loss of stream and wetland functions on the dairy’s property that would alter hydrology and water quality downstream within Kankakee Sands.”
The court’s opinion gave no indication of the COE’s response to the opinion of the plaintiffs’ expert. Given the recited facts of the case, hydrologic changes by the dairy’s activities would have no impact on the Kankakee Sands, a nearby 10,000-acre restored tallgrass prairie. The topography shows that the site does not drain onto the Kankakee Sands. Instead, the area drains into the Bogus Island Ditch which is well downstream from the dairy. In addition, state law waste management plans protect the drinking water wells at issue from contamination. Also, there is no public access to the ditches. A “wetland and erosion scientist” directly attributed the consequences of the COE’s decision and the prior and ongoing activities of the dairy to “a loss of stream and wetland functions on the dairy’s property that will alter hydrology and water quality downstream within Kankakee Sands.” But this assertion seems far-fetched. Filling a small ditch that doesn’t drain into the Kankakee Sands will have no material effect.
Note: If the Congress intended this result, then a court could extend standing to environmental groups for drainage improvement projects on agricultural land. However, the Congress did not intend that to occur.
The court stated that the plaintiffs had explained that the dairy’s discharges created “reasonable concerns” and that were “fairly traceable” to the dairy’s actions. However, what the plaintiffs complained about was the filling of a ditch and the replacement of its function with a tile. “Reasonable concerns” are not relevant for a jurisdictional determination. The issue is whether there is a hydrological connection between Kankakee Sands and the ditch fill at the dairy.
What is a “Wetland”?
Before diving into the court’s “analysis,” a brief sidestep is necessary. When the Congress created the CWA, it failed to provide a definition of a “wetland,” instead leaving the matter up to the administrative agencies responsible for implementing the law. Under the COE’s rules, a wetland requires a finding of the presence of hydrophytic vegetation, hydric soil and wetland hydrology under a subject tract’s “normal circumstances.” Under the COE’s initial procedures for delineating a wetland, it must determine that a site has been altered, and determine when the alteration occurred and characterize the land as it existed before the alterations.
“Prior converted cropland” is wetland that was manipulated and cropped before December 23, 1985, which no longer contains key wetland indicators. 33 C.F.R. § 328.3(a)(8); 7 C.F.R. § 12.2(a)(8); COE Regulatory Guidance Letter 90-07 ¶5(a). A “farmed wetland” is a wetland that was manipulated and cropped before December 23, 1985, but which still contains key wetland indicators. 7 C.F.R. § 12.2(a)(4); COE Regulatory Guidance Letter 90-07 ¶5(b). A farmed wetland could still be a jurisdictional wetland, but prior converted cropland is non-jurisdictional. 33 C.F.R. § 328.3(a)(8). Thus, when recent alterations are present on agricultural land, before the COE can decide which delineation methodology to use, a detailed assessment of the changes in the hydrology, vegetation, and soil must occur. However, in this instance, the COE noted that the land in question had been drained nearly 100 years ago and continuously row cropped since 1939 (well before the effective date of the 1985 Farm Bill), its normal circumstance was as farmland that did not contain wetland indicators and was, therefore, non-jurisdictional prior converted cropland. While hydric soil was present, to find a jurisdictional wetland, all three indicators must be present.
Note: In its original version, the COE’s 1987 Manual defined “normal circumstances” as what vegetation is commonly present, not what would exist if the land was not disturbed. This was later changed by “notes” added to the 1987 Manual when the Congress outlawed the 1989 Manual. Those explanatory notes changed “normal circumstances” to mean vegetation that would exist if the land was not disturbed and planted. The COE uses reference sites with similar hydrology and soils. If wetland vegetation exists, the COE assumes that it exists on the disturbed tract. However, hydrology still must be present for a wetland to be deemed to exist (as much as the bureaucracy wishes it did not). B & D Land and Livestock Co. v. Veneman, 231 F. Supp. 2d 895 (N.D. Iowa 2002).
The Court’s Analysis
The primary issue before the court was whether the COE’s determination that the land was prior converted wetland (and therefore not subject to COE regulation) was arbitrary and capricious. The court examined the record to determine if the COE followed its own guidance for delineating wetlands. The court noted that the administrative record lacked any description of the prior drainage system (the series of medial and lateral ditches transecting the property before defendant’s alterations), the defendant’s new drainage system, how these systems were designed to function, and whether they were effective in removing wetland hydrology from the area.
Note: While the plaintiffs made much ado about the COE’s lack of consideration of the hydrology of the land before the farm’s alterations, that is largely an irrelevant point. Famers are entitled to maintain the “wetland and farming regime” on the land and may engage in whatever drainage activities necessary to keep that historic farming activity and production. The land in question had been converted to farmland many decades earlier and had been constantly maintained in that status.
The court examined aerial photographs, noting that there was an absence of data identified in the COE’s “Midwest Supplement” to assess the relevant drainage factors, including how the existing and current drainage systems were designed to function, whether they were effective in removing wetland hydrology from the area, and when any conversion occurred. The absence of these sources, coupled with an absence of any meaningful discussion of the hydrology of the site before the defendant’s alterations, led the court to believe that the COE failed to follow the procedures outlined in its own guidance in deciding the land was prior converted cropland. The COE also reviewed 14 aerial photographs that spanned from 1938 to 2017. Those photos showed the presence of row cropping and offered no evidence of potential wetlands. Relying on aerial photographs, the COE expert’s determination and a determination of the Natural Resources Conservation Service to conclude that wetlands did not exist was certainly appropriate.
Note: In addition, the court’s analysis on this point is suspect. The COE did not need to find and document all three factors. The hydrology had been materially altered to enable consistent row crop farming. In that situation wetland hydrology is not present, and the area in question is not a wetland. As a result, other levees, systems or dams do not alter area hydrology because there is not wetland hydrology present to alter. The court referred to the COE’s 1987 Manual for its conclusion that the COE didn’t follow its own procedures. However, the 1987 Manual was established to evaluate recent alterations to undisturbed wetland. The court incorrectly applied this standard to materially hydrologically altered wetland where the alteration had occurred a century earlier. As such, the land in issue was prior converted wetland. The court incorrectly applied the standards of the 1987 Manual to the facts before it involving alterations that occurred over 100 years ago.
The court also determined that there was no indication in the record that the aerial photographs were used to assess hydrology characteristics of the defendant’s land before alterations were made, how the drainage systems were designed to function, and how effectively and efficiently they could convert land from wetland to upland. Further, the court noted there was also no explanation why the COE skipped these steps. The COE took the position that its review of aerial photographs was sufficient to determine the land’s normal circumstances. The court disagreed, determining that the evidence did not support the COE’s claim that its decision was based on identified relevant factors. Instead, the court concluded that the COE made impermissible post hoc justifications. If reliance on its own manuals was not warranted in this situation, the court stated, the COE needed to provide a rationale. As such, the court determined that the evidence did not support the COE’s argument that its decision was rationally based on the relevant wetland hydrological factors before concluding the land was prior converted cropland. Absent that rationale, the COE’s determination of wetland status of the defendant’s farmland was arbitrary and capricious.
Note: The COE followed its correct procedure in this case contained in the Midwest Supplement and also accepted a prior USDA determination as to the land’s status for federal farm program purposes. The ditches and drains that were legally installed successfully removed wetland hydrology. The COE did not deviate from its own regulatory guidance and procedures, but the court assumed that it did. There was no need for the COE to find and document all three wetland characteristic factors. The elimination of wetland hydrology eliminates the possibility that the land was a wetland.
Concerning the lateral ditch, the plaintiffs claimed that the record did not support the COE’s conclusion that the lateral ditches were irrigation canals that drained uplands and lacked relatively permanent flow. The plaintiffs pointed to a lack of administrative record and the claimed failure of the COE to follow the relevant factors that it lists in its Approved Jurisdictional Determination Form. The court also held that the COE’s finding of non-jurisdiction over the lateral ditches was arbitrary and capricious.
The court remanded the case to the COE conduct a more thorough investigation of the defendant’s tract.
Conclusion
The court’s decision correctly points out that administrative agencies must follow their own rules and procedures in delineating wetlands. Even a finding of non-jurisdiction based on prior converted cropland status must be supported by the administrative record and be sufficient to allow a court to determine that the agency followed the proper process. That much is certainly true. The COE did follow the correct procedure in this case or declined to assert jurisdiction. Unfortunately, the court’s opinion reveals a lack of understanding of the process for delineating wetlands and wetland hydrology. As part of its finding that the COE acted in an arbitrary and capricious manner in reaching its conclusion that the land in issue was prior converted wetland, the court stated that ditches and drainage tile impact hydrology in different ways. This is not correct, and it influenced the court’s conclusion that the COE used an inappropriate delineation methodology without explanation, which was arbitrary. However, ditches and drainage tile lines affect groundwater drawdowns identically based upon depth. Once the COE determined that wetland hydrology wasn’t present, the matter was over. There was no wetland.
Aside from the questionable grant of standing, the court waded deep into a subject that is highly technical and which it did not understand sufficiently to be able to sort out proper wetland delineation procedures. Perhaps the same can be said for the dairy’s lawyers – it’s difficult to imagine how the briefs filed on behalf of the dairy didn’t provide some sort of an indication in the court’s opinion of guidance on how the COE delineates wetlands and that the COE’s decision-making process was not arbitrary and capricious.
For farmers, the case is a frustrating one. At issue was land that had been farmed for over 80 years and the right to continue to farm consistent with the historic drainage of the property was caught up in bureaucratic red tape. The court’s expansive view of standing and lack of understanding of the actual science behind the hydrology and geographic facts of the case created a problem for a dairy operation that should have never happened. What was involved in the case were shallow ditches dug into prior converted wetland. That is an activity that the CWA does not regulate.
October 12, 2022 in Environmental Law, Regulatory Law | Permalink | Comments (0)
Thursday, October 6, 2022
More Ag Law Developments – Potpourri of Topics
Overview
The courts have continued to issue decisions of relevance to farmers, ranchers and rural landowners. In today’s post, I take a look at some of them from around the country. From property rights to income tax to bankruptcy to herbicide crop damage and landowners disputing over drainage – it’s covered below.
Court Says Public Has Right to Use Private Riverbeds
Adobe Whitewater Club of N.M. v. N.M. State Game Comm'n., No. S-1-SC-38195, 2022 N.M. LEXIS 34 (N.M. Sup. Ct. Sept. 1, 2022)
The plaintiffs, various environmental and recreation groups, sued the New Mexico State Gaming Commission (Commission), claiming a regulation of the Commission violated the public’s right to use parts of New Mexico’s rivers. In 2017, the Commission, promulgated a regulation that outlined a process for landowners to obtain a certificate allowing them to close public access to segments of public water flowing over private property. The plaintiffs challenged the regulation as unconstitutional. Article XVI, Section 2 of the New Mexico state constitution states, “the unappropriated water of every natural stream, perennial or torrential, within the state of New Mexico, is hereby declared to belong to the public.” The issue was whether the public’s right to use the public waters included the right to use the privately owned waterbeds. The New Mexico Supreme Court determined that riverbeds were considered navigable waterways and were subject to the “public trust doctrine.” The private landowners along the riverbed intervened in the lawsuit and claimed the public would be considered trespassers on their land and they could exclude the trespassers. The Court disagreed, finding that the public has the right to use private land when reasonably necessary to gain access to or enjoy public rivers. The Court stated, “A determination of navigability only goes to who has title to the bed below the public water, not to the scope of the public use.” As such the court concluded that the public had access to such rivers to float, wade, fish and engage in other recreational activities that would have a minimal impact on the rights of private property owners. In addition, the Court held that such waters are and always have been public. Accordingly, the Court invalidated the Commission’s regulation.
Retained Ownership of Minable Surface Negates Conservation Easement Deduction.
C.C.A. 202236010 (Sept. 9, 2022)
The Chief Counsel’s office of IRS has taken the position that a conservation easement donation is invalid if the donor owns both the surface estate of the land burdened by the easement as well as a qualified mineral interest that has never been separated from the surface estate, and the deed retains any possibility of surface mining to extract subsurface minerals. In that instance, the conservation easement doesn’t satisfy I.R.C. §170(h). The IRS said the result would be the same even if the donee would have to approve the surface-mining method because the donated easement would not be donated exclusively for conservation purposes in accordance with I.R.C. §170(h)(5). The IRS pointed out that Treas. Reg. §1.170A-14(g)(4) states that a donated easement does not protect conservation purposes in perpetuity if any method of mining that is inconsistent with the particular conservation purposes of the contribution is permitted at any time. But, the IRS pointed out that a deduction is allowed if the mining method at issue has a limited, localized impact on the real estate and does not destroy significant conservation interests in a manner that can’t be remedied. Surface mining, however, is specifically prohibited where the ownership of the surface estate and the mineral interest has never been separated. On the specific facts involved, the IRS determined that the donated easement would not be treated at being made exclusively for conservation purposes because the donee could approve surface mining of the donor’s subsurface minerals.
Family Farms Not Part of Bankruptcy Estate.
Ries v. Archer (In re Archer), Nos. 17-20045-RLJ-7, 19-02001, 2022 Bankr. LEXIS 2250 (Bankr. N.D. Tex. Aug. 12, 2022)
A chapter 7 trustee sought a declaration that certain farm ground was a part of the bankrupt estate. The debtors, a married couple, had eight children, who all but one became medical doctors. The debtors had funded their children’s education throughout their lives with funds derived from the family farm. They owned 14 sections of land in Moore County, Texas, (northwest Texas) comprising what was referred to as the “Moore County Farm.” Although, the deed from 1988 for the land listed the defendant’s children’s IRA as the grantee-buyer of the land, the children did not have IRAs at the time or played any part in purchasing the land. The children were not given any right to manage or operate the Moore County Farm so long as the debtors were mentally competent. Beginning in 1998, the USDA and CRP program began making payments to some of the defendant’s children and in 2007 farmers who rented land from the Moore County Farm began to pay some of the children. The children began to open accounts and lines of credit associated with the expenses of the Moore County Farm. From 2005 to 2017, the debtors instructed some of their children to apply as “New Producers” to the Federal Crop Insurance Program. Through this program they were provided with favorable crop insurance as “managers” of a farm, but none of the children had managerial control. Ultimately, the children were charged with and convicted of insurance fraud. Along with the 1988 deed, the debtors executed a warranty deed for the Moore County Farm to some of the children in 2006 and later transferred the farm to the children’s IRAs. In 2008, one of the defendant’s children purchased 670 acres in Randall County, referred to as the “Randall County Farm”. The debtors ultimately had primary authority and control of the farming operations of the Randall County Farm along with the Moore County Farm and had full control over the finances and accounting of the farms. The children did pay for some of the expenses on the Randall County Farm, but overall, the debtors operated the two farms as one entity. There were no further legal issues until 2011 when one of the debtors’ cows was hit by a motorist who sustained serious injuries because of the accident and filed suit. The court awarded the man $8.95 million in damages to be paid by the debtors. The debtors then filed Chapter 7 bankruptcy. The bankruptcy court noted that the children had shared significant responsibilities over the Moore County Farm with their father and that their father wanted to pass the property to his children through the deeds. The court concluded that just because the debtors continued to run the farm did not mean they did not want to ultimately gift the land to the children. The bankruptcy trustee argued this was another scam set up by the family, but the court was not convinced given the common desire of parents to devise property to their children. The evidence showed that the debtors’ intent was for the children to own the farms and operate them for enjoyment. Based on these considerations, the court concluded that the Moore County Farm was not part of the bankruptcy estate. The trustee claimed that the Randall County Farm should have been a part of the estate. Because one of the children who purchased the land negotiated a conservation plan with the USDA, received CRP payments, and paid for the farm expenses, the child was the true owner of the Randall County Farm and could not be considered part of the bankruptcy estate.
FIFRA Doesn’t Preempt State-Based Warranty Claims
Kissan Berry Farm v. Whatcom Farmers Cooperative, et al., No. 82774-0-I, 2022 Wash. App. LEXIS 1766 (Wash. Ct. App. Sept. 6, 2022)
The plaintiffs, five state of Washington red raspberry farms, claimed that the use of herbicide Callisto in 2012 killed their berry plants causing more than $2.5 million in lost production for 2012 and two following crop years. Callisto’s use was recommended by an agronomist working on behalf of. the defendant. Callisto’s maker, Syngenta was also named in the suit. Callisto’s label stated that it was safe for use on red raspberries. The label also indicated that usage could result in some crop damage and that compensation for crop damage was limited to the price of the herbicide. The plaintiffs asserted that Syngenta and the agronomist had made various warranties that Callisto was safe for use on red raspberries. Syngenta’s position that the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) preempted the farmers’ claims. The trial court agreed on the basis that the plaintiffs’ claims would have required Syngenta to change the product label due to state law. The appellate court reversed based on Bates v. Dow Agrosciences LLC, 544 U.S. 431 (2005). Under Bates, state law cannot require a change to a federally approved label, but state-based claims for breach of warranty are not preempted. the Supreme Court found that a pesticide manufacturer who is found liable for state law breach of express warranty claims is not then induced to change their federally registered pesticide label.
Comparative Fault for Unmaintained Waterway
Watters v. Medinger, No. 21-1076, 2022 Iowa App. LEXIS 667 (Iowa Ct. App. Aug. 31, 2022)
The parties had been in various legal spats involving farmland for over a decade. The plaintiff owned farmland adjacent to the defendant that contained waterways. The plaintiff sued the defendant claiming the defendant altered his land in various ways causing extreme degradation and erosion along the plaintiff’s waterways. The trial court determined that the plaintiff was contributorily negligent for failing to maintain or mow around the waterways, which allowed for ragweed to grow. The ragweed destroyed the grass along the waterway, which meant the water would flood quicker than it would have if grass could absorb some of the moisture. The trial court found that the defendant’s construction of a new cattle shed and addition of drain tiles did cause damage to the plaintiff’s property, but the at that time the plaintiff had already stopped properly maintaining the waterway. The trial court awarded the plaintiff $2,000 in damages to repair the damage caused by the erosion. The plaintiff appealed claiming that the damage award was insufficient. The appellate court reviewed the plaintiff’s argument that the jury instruction was improper regarding comparative fault. The plaintiff tried to argue that he could not repair any part of the erosion until the drainage issues were solved. The appellate court held the plaintiff failed to address the failure to maintain the waterway before the draining issues arose. A farm tenant testified that the plaintiff’s property was already in “tough shape” before the defendant made any changes to his property. The appellate court held the comparative fault instruction was proper, because there was “a causal connection between the plaintiff’s fault and the claimed damages.” Further, the appellate court held the award of damages was sufficient because the jury settled on an amount within the range of evidence based on expert testimony. Just because the amount was at the low end of the range did not mean the amount was insufficient. The appellate court affirmed the trial court’s decision to deny the plaintiff’s motion for a new trial.
Conclusion
Agricultural law and taxation is a very dynamic discipline. There is never a dull moment -more fodder for my radio shows and TV interviews, and content for my books and seminars.
October 6, 2022 in Bankruptcy, Civil Liabilities, Environmental Law, Income Tax, Real Property, Water Law | Permalink | Comments (0)
Sunday, September 11, 2022
September 30 Ag Law Summit in Omaha (and Online)
Overview
On September 30, Washburn Law School with cooperating partner Creighton Law School will conduct the second annual Ag Law Summit. The Summit will be held on the Creighton University campus in Omaha, Nebraska. Last September Washburn Law School conducted it’s first “Ag Law Summit” and held it at Mahoney State Park in Nebraska. This year the Summit returns in collaboration with Creighton University School of Law. The Summit will be held at Creighton University on September 30 and will also be broadcast live online.
The Summit will cover various topics of relevance to agricultural producers and the tax and legal counsel that represent them.
The 2022 Ag Law Summit – it’s the topic of today’s post.
Agenda
Developments in agricultural law and taxation. I will start off the day with a session surveying the major recent ag law and tax developments. This one-hour session will update attendees on the big issues facing ag clients and provide insight concerning the issues that look to be on the horizon in the legal and tax world. There have been several major developments involving agricultural that have come through the U.S Supreme Court in recent months. I will discuss those decisions and the implications for the future. Several of them involve administrative law and could have a substantial impact on the ability of the federal government to micro-manage agricultural activities. I will also get into the big tax developments of the past year, including the tax provisions included in the recent legislation that declares inflation to be reduced!
Death of a farm business owner. After my session, Prof. Ed Morse of Creighton Law School will examine the tax issues that arise when a farm business owner dies. Income tax basis and the impact of various entity structures will be the focus of this session along with the issues that arise upon transitioning ownership to the next generation and various tax elections. The handling of tax attributes after death will be covered as will some non-tax planning matters when an LLC owner dies. There are also entity-specific issues that arise when a business owner dies, and Prof. Morse will address those on an entity-by-entity basis. The transition issue for farmers and ranchers is an important one for many. This session will be a good one in laying out the major tax and non-tax considerations that need to be laid out up front to help the family achieve its goals post-death.
Governing documents for farm and ranch business entities. After a morning break Dan Waters with Lamson Dugan & Murray in Omaha will take us up to lunch with a technical session on the drafting of critical documents for farm and ranch entities. What should be included in the operative agreements? What is the proper wording? What provisions should be included and what should be avoided? This session picks up on Prof. Morse’s presentation and adds in the drafting elements that are key to a successful business succession plan for the farm/ranch operation.
Fence law issues. After a provided lunch, Colten Venteicher who practices in Gothenburg, NE, will address the issues of fence line issues when ag land changes hands. This is an issue that seems to come up over and over again in agriculture. The problems are numerous and varied. This session provides a survey of applicable law and rules and practical advice for helping clients resolve existing disputes and avoid future ones.
Farm economics. Following the afternoon break, a presentation on the current economy and economic situation facing ag producers, ag businesses and consumers will be presented by Darrell Holaday. Darrell is an ag economist and his firm, Advanced Market Concepts, provides marketing plans for ag producers. What are the economic projections for the balance of 2022 and into 2023 that bear on tax and estate planning for farmers and ranchers? How will the war in Ukraine continue to impact agriculture in the U.S.? This will be a key session, especially with the enactment of legislation that will add fuel to the current inflationary fire – unless of course, the tax increases in the legislation slow the economy enough to offset the additional spending.
Ethics. I return to close out the day with a session of ethics focused on asset protection planning. There’s a right way and a wrong way to do asset protection planning. This session guides the practitioner through the proper approach to asset protection planning, client identification, and the pitfalls if the “stop signs” are missed.
Online. The Summit will be broadcast live online and will be interactive to allow you the ability to participate remotely.
Reception
For those attending in person, a reception will follow in the Harper Center Ballroom on the Creighton Campus.
Conclusion
If your tax or legal practice involves ag clients, the Ag Law Summit is for you. As noted, you can also attend online if you can’t be there in person. If you are a student currently in law school or thinking about it, or are a student in accounting, you will find this seminar beneficial.
I hope to see you in Omaha on September 30 or see that you are with us online.
You can learn more about the Summit and get registered at the following link: https://www.washburnlaw.edu/employers/cle/aglawsummit.html
September 11, 2022 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)
Monday, September 5, 2022
Bibliography – January through June of 2022
Overview
Periodically I post an article containing the links to all of my blog articles that have been recently published. Today’s article is a bibliography of my articles from the beginning of 2022 through June. Hopefully this will aid your research of agricultural law and tax topics.
A bibliography of articles for the first half of 2022 – it’s the content of today’s post.
Bankruptcy
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
Other Important Developments in Agricultural Law and Taxation
Recent Court Cases of Importance to Agricultural Producers and Rural Landowners
Business Planning
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Should An IDGT Be Part of Your Estate Plan?
Farm Wealth Transfer and Business Succession – The GRAT
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance – Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Intergenerational Transfer of the Farm/Ranch Business – The Buy-Sell Agreement
IRS Audit Issue – S Corporation Reasonable Compensation
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
S Corporation Dissolution – Part 1
https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-1.html
S Corporation Dissolution – Part Two; Divisive Reorganization Alternative
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
Durango Conference and Recent Developments in the Courts
Civil Liabilities
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
Agritourism
https://lawprofessors.typepad.com/agriculturallaw/2022/03/agritourism.html
Animal Ag Facilities and the Constitution
When Is an Agricultural Activity a Nuisance?
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Durango Conference and Recent Developments in the Courts
Dicamba Spray-Drift Issues and the Bader Farms Litigation
Tax Deal Struck? – and Recent Ag-Related Cases
Contracts
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
What to Consider Before Buying Farmland
Elements of a Hunting Use Agreement
https://lawprofessors.typepad.com/agriculturallaw/2022/02/elements-of-a-hunting-use-agreement.html
Ag Law (and Medicaid Planning) Court Developments of Interest
Cooperatives
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Criminal Liabilities
Animal Ag Facilities and the Constitution
Is Your Farm or Ranch Protected From a Warrantless Search?
Durango Conference and Recent Developments in the Courts
Environmental Law
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
“Top Tan” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1
The “Almost Top Ten” (Part 3) – New Regulatory Definition of “Habitat” under the ESA
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
Estate Planning
Other Important Developments in Agricultural Law and Taxation
Other Important Developments in Agricultural Law and Taxation (Part 2)
The “Almost Top Ten” (Part 4) – Tax Developments
The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]
Nebraska Revises Inheritance Tax; and Substantiating Expenses
https://lawprofessors.typepad.com/agriculturallaw/2022/02/recent-developments-in-ag-law-and-tax.html
Tax Consequences When Farmland is Partitioned and Sold
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Should An IDGT Be Part of Your Estate Plan?
Farm Wealth Transfer and Business Succession – The GRAT
Family Settlement Agreement – Is it a Good Idea?
Registration Open for Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Proposed Estate Tax Rules Would Protect Against Decrease in Estate Tax Exemption
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Ag Law (and Medicaid Planning) Court Developments of Interest
Joint Tenancy and Income Tax Basis At Death
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
IRS Modifies Portability Election Rule
Income Tax
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 10 and 9
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 8 and 7
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 2 and 1
The “Almost Top Ten” (Part 4) – Tax Developments
The “Almost Top 10” of 2021 (Part 7) [Medicaid Recovery and Tax Deadlines]
Purchase and Sale Allocations Involving CRP Contracts
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
What’s the Character of the Gain From the Sale of Farm or Ranch Land?
Proper Tax Reporting of Breeding Fees for Farmers
Nebraska Revises Inheritance Tax; and Substantiating Expenses
https://lawprofessors.typepad.com/agriculturallaw/2022/02/recent-developments-in-ag-law-and-tax.html
Tax Consequences When Farmland is Partitioned and Sold
Expense Method Depreciation and Leasing- A Potential Trap
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
income Tax Deferral of Crop Insurance Proceeds
What if Tax Rates Rise?
https://lawprofessors.typepad.com/agriculturallaw/2022/03/what-if-tax-rates-rise.html
Registration Open for Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Captive Insurance – Part One
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-one.html
Captive Insurance – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2022/03/captive-insurance-part-two.html
Captive Insurance – Part Three
https://lawprofessors.typepad.com/agriculturallaw/2022/04/captive-insurance-part-three.html
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
IRS Audit Issue – S Corporation Reasonable Compensation
Missed Tax Deadline & Equitable Tolling
https://lawprofessors.typepad.com/agriculturallaw/2022/04/missed-tax-deadline-equitable-tolling.html
Summer 2022 Farm Income Tax/Estate and Business Planning Conferences
Joint Tenancy and Income Tax Basis At Death
Tax Court Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2022/05/tax-court-caselaw-update.html
Deducting Soil and Water Conservation Expenses
Correcting Depreciation Errors (Including Bonus Elections and Computations)
When Can Business Deductions First Be Claimed?
Recent Court Decisions Involving Taxes and Real Estate
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
Tax Issues with Customer Loyalty Reward Programs
S Corporation Dissolution – Part 1
https://lawprofessors.typepad.com/agriculturallaw/2022/06/s-corporation-dissolution-part-1.html
S Corporation Dissolution – Part Two; Divisive Reorganization Alternative
Farm/Ranch Tax, Estate and Business Planning Conference August 1-2 – Durango, Colorado (and Online)
What is the Character of Land Sale Gain?
Deductible Start-Up Costs and Web-Based Businesses
Using Farm Income Averaging to Deal with Economic Uncertainty and Resulting Income Fluctuations
Tax Deal Struck? – and Recent Ag-Related Cases
Insurance
Tax Deal Struck? – and Recent Ag-Related Cases
Real Property
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 4 and 3
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
What to Consider Before Buying Farmland
Elements of a Hunting Use Agreement
https://lawprofessors.typepad.com/agriculturallaw/2022/02/elements-of-a-hunting-use-agreement.html
Animal Ag Facilities and the Constitution
Recent Court Decisions Involving Taxes and Real Estate
Recent Court Cases of Importance to Agricultural Producers and Rural Landowners
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Tax Deal Struck? – and Recent Ag-Related Cases
Regulatory Law
The “Almost Top 10” of 2021 (Part 5)
https://lawprofessors.typepad.com/agriculturallaw/2022/01/the-almost-top-10-of-2021-part-5.html
The “Almost Top 10” of 2021 (Part 6)
https://lawprofessors.typepad.com/agriculturallaw/2022/02/the-almost-top-10-of-2021-part-6.html
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2022/02/ag-law-and-tax-potpourri.html
Animal Ag Facilities and the Constitution
Pork Production Regulations; Fake Meat; and Tax Proposals on the Road to Nowhere
Farm Economic Issues and Implications
https://lawprofessors.typepad.com/agriculturallaw/2022/04/farm-economic-issues-and-implications.html
Ag Law (and Medicaid Planning) Court Developments of Interest
Wisconsin Seminar and…ERP (not Wyatt) and ELRP
More Ag Law Court Developments
https://lawprofessors.typepad.com/agriculturallaw/2022/06/more-ag-law-court-developments.html
Ag Law-Related Updates: Dog Food Scam; Oil and Gas Issues
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
The Complexities of Crop Insurance
https://lawprofessors.typepad.com/agriculturallaw/2022/07/the-complexities-of-crop-insurance.html
Secured Transactions
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 6 and 5
Water Law
“Top Ten” Agricultural Law and Tax Developments of 2021 – Numbers 4 and 3
Durango Conference and Recent Developments in the Courts
September 5, 2022 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)
Saturday, August 20, 2022
Ag Law Summit
Overview
Last September Washburn Law School conducted it’s first “Ag Law Summit” and held it at Mahoney State Park in Nebraska. This year the Summit returns in collaboration with Creighton University School of Law. The Summit will be held at Creighton University on September 30, and will also be broadcast live online.
The Summit will cover various topics of relevance to agricultural producers and the tax and legal counsel that represent them.
The 2022 Ag Law Summit – it’s the topic of today’s post.
Agenda
Survey of ag law and tax. I will start off the day with a session surveying the major recent ag law and tax developments. This one-hour session will update attendees on the big issues facing ag clients and provide insight concerning the issues that look to be on the horizon in the legal and tax world.
Tax issues upon death of a farmer. After my session, Prof. Ed Morse of Creighton Law School will examine the tax issues that arise when a farm business owner dies. Income tax basis and the impact of various entity structures will be the focus of this session along with the issues that arise upon transitioning ownership to the next generation and various tax elections.
Farm succession planning drafting language. After a morning break Dan Waters, and estate planning attorney in Omaha, NE, will take us up to lunch with a technical session on the drafting of critical documents for farm and ranch entities. What should be included in the operative agreements? What is the proper wording? What provisions should be included and what should be avoided? This session picks up on Prof. Morse’s presentation and adds in the drafting elements that are key to a successful business succession plan for the farm/ranch operation.
Fences and boundaries. After a provided lunch, Colten Venteicher who practices in Gothenburg, NE, will address the issues of fence line issues when ag land changes hands. This is an issue that seems to come up over and over again in agriculture. The problems are numerous and varied. This session provides a survey of applicable law and rules and practical advice for helping clients resolve existing disputes and avoid future ones.
The current farm economy and future projections. Following the afternoon break, a presentation on the current economy and economic situation facing ag producers, ag businesses and consumers will be presented by Darrell Holaday. Darrell is an economist and his firm, Advanced Market Concepts, provides marketing plans for ag producers. What are the economic projections for the balance of 2022 and into 2023 that bear on tax and estate planning for farmers and ranchers? This will be a key session, especially with the enactment of legislation that will add fuel to the current inflationary fire – unless of course, the tax increases in the legislation slow the economy enough to offset the additional spending.
Ethics. I return to close out the day with a session of ethics focused on asset protection planning. There’s a right way and a wrong way to do asset protection planning. This session guides the practitioner through the proper approach to asset protection planning, client identification, and the pitfalls if the “stop signs” are missed.
Reception
For those attending in person, a reception will follow in the Harper Center Ballroom on the Creighton Campus.
Conclusion
If your tax or legal practice involves ag clients, the Ag Law Summit is for you. As noted, you can also attend online if you can’t be there in person. If you are a student currently in law school or thinking about it, or are a student in accounting, you will find this seminar beneficial.
I hope to see you in Omaha on September 30 or see that you are with us online.
You can learn more about the Summit and get registered at the following link: https://www.washburnlaw.edu/employers/cle/aglawsummit.html
August 20, 2022 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)
Monday, July 11, 2022
Constitutional Limit on Government Agency Power – The “Major Questions” Doctrine
Overview
In late June, the U.S. Supreme Court issued an opinion in a case involving the Environmental Protection Agency’s (EPA’s) regulatory authority under the Clean Air Act (CAA). The Court, as it has in several recent cases, invoked the “major question” doctrine to pair back unelected bureaucratic agency authority and return policy-making power to citizens through their elected representatives.
The Court’s decision is important to agriculture. Many government agencies regulate agricultural activities. When federal regulations amount to setting nationwide policy and when state regulations do the same at the state level, the regulatory bodies may be successfully challenged in court.
The scope of government agency regulatory authority – it’s the topic of today’s post.
Background
Government regulation. A significant amount of governmental regulation of economic activity is conducted by and through administrative agencies that promulgate regulations and make decisions. This is particularly true concerning the regulation of agricultural activities. This form of regulation occurs outside both the legislatures and the courts, where most of conventional lawmaking occurs. Consequently, with much of administrative law, the administrative agency that writes the regulation at issue serves as judge and jury over disputed matters involving those same regulations via the administrative review process – a process that must reach a final determination before judicial review is available. This raises fundamental questions of fairness. In exercising their rule-making power, agencies of government cannot go beyond the authority provided by the legislative body. This is the precise point that the U.S. Supreme Court recently dealt with.
At the federal level, the Congress enacts basic enabling legislation, but leaves the particular administrative agency (such as the USDA, EPA or FDA, for example) to implement and administer congressionally created programs. As a result, the enabling legislation tends to be vague with the administrative agencies (such as the USDA) needing to fill in the specific provisions by promulgating regulations. The procedures that administrative agencies must follow in promulgating rules and regulations, and the rights of individuals affected by administrative agency decisions are specified in the Administrative Procedures Act (APA). 5 U.S.C. §§ 500 et seq. (2008). The APA constitutes the operative law for many of the relationships between farmers and ranchers and the government.
Standard of review and deference. Courts generally consider only whether the administrative agency acted rationally and within its statutory authority. Consequently, a particular farmer or rancher bears the burden of insuring that the record is adequate for the appeal of the issues involved before the matter leaves the administrative process. Otherwise, an appeal of an administrative agency's decision must be based solely on arguments that the agency acted arbitrarily, capriciously, beyond legal authority or that it abused its discretion. Prevailing in court on this type of a claim can be quite difficult. However, in Christensen v. Harris County, 529 U.S. 576 (2000), the U.S. Supreme Court ruled that statutory interpretations made by governmental agencies in pronouncements that do not have the force of law, such as opinion letters, policy statements, agency manuals, and enforcement guidelines, are not entitled to such great deference. This is a significant case for the agricultural sector because the USDA often interpretates the laws they administer in formats that do not have the force of law.
Similarly, in another case the court noted than an agency is not entitled to deference simply because it is a governmental agency. Meister v. United States Department of Agriculture, 623 F.3d 363 (6th Cir. 2010). involved a claim that the U.S. Forest Service had failed to comply with its own regulations and a federal statute in developing its 2006 management plan for national forests in northern Michigan. The court specifically noted that agency deference was not automatic. Instead, the agency must apply the relevant statutory and regulatory authority.
The “major questions” doctrine. In several decisions, the U.S. Supreme Court has held that if a government agency is, in essence, setting national policy via regulation, the “arbitrary and capricious” level of deference normally accorded to the agency under the rule of Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), will not apply. Instead, the agency’s action must be supported by clear statutory authorization from the Congress. See Utility Air Regulatory Group v. Environmental Protection Agency, 573 U.S. 302 (2014). This is known as the “major questions” doctrine. It’s a doctrine that has been around for about 30 years and has been utilized in numerous cases involving the Federal Communication Commission, the Food and Drug Administration, the IRS, the Centers for Disease Control, the Occupational Safety and Health Administration, the conduct of the U.S. Attorney General as well as the EPA. Each case involves the Court determining that agency action involves a matter significant enough on a national scale for the Court to invoke the doctrine, either on the basis that the Congress had not given the agency the authority to regulate the particular matter at issue, or because the agency’s interpretation was unreasonable due to lack of clear authority from the Congress.
Recent U.S. Supreme Court Opinion
In West Virginia, et al. v. Environmental Protection Agency, et al., No. 20-1530, 2022 U.S. LEXIS 3268 (U.S. Jun. 30, 2022), the U.S. Supreme Court was asked to review the EPA’s authority to regulate greenhouse gas emissions from existing power plants under the CAA. The case arose from the EPA’s regulatory development of the Clean Power Plan (CPP) in 2015 which, in turn, stemmed from then-President Obama’s 2008 promise to establish policy that would bankrupt the coal industry. The EPA claimed it had authority to regulate CO2 emissions from coal and natural-gas-fired power plants under Section 111 of the CAA. Under that provision, the EPA determines emission limits. But EPA took the position that Section 111 empowered it to shift energy generation at the plants to “renewable” energy sources such as wind and solar. Under the CPP, existing power plants could meet the emission limits by either reducing electricity production or by shifting to “cleaner” sources of electricity generation. The EPA admitted that no existing coal plant could satisfy the new emission standards without a wholesale movement away from coal, and that the CPP would impose billions in compliance costs, raise retail electricity prices, require the retirement of dozens of coal plants and eliminate tens of thousands of jobs. In other words, the CPP would keep President Obama’s 2008 promise by bypassing the Congress through the utilization of regulatory rules set by unelected, unaccountable bureaucrats.
The U.S. Supreme Court stayed the CPP in 2016 preventing it from taking effect. The EPA under the Trump Administration repealed the CPP on the basis that the Congress had not clearly delegated regulatory authority “of this breadth to regulate a fundamental sector of the economy.” The EPA then replaced the CPP with the Affordable Clean Energy (ACE) rule. Under the ACE rule, the focus was on regulating power plant equipment to require upgrades when necessary to improve operating practices. Numerous states and private parties challenged the EPA’s replacement of the CPP with the ACE. The D.C. Circuit Court vacated the EPA’s repeal of the CPP, finding that the CPP was within the EPA’s purview under Section 7411 of the CAA – the part of the CAA that sets standards of performance for new sources of air pollution. American Lung Association v. Environmental Protection Agency, 985 F.3d 914 (D.C. Cir. 2021). The Circuit Court also vacated the ACE and purported to resurrect the CPP. In the fall of 2021, the U.S. Supreme Court agreed to hear the case.
The Supreme Court reversed, framing the issue as whether the EPA had the regulatory authority under Section 111 of the CAA to restructure the mix of electricity generation in the U.S. to transition from 38 percent coal to 27 percent coal by 2030. The Supreme Court said EPA did not, noting that the case presented one of those “major questions” because under the CPP the EPA would tremendously expand its regulatory authority by enacting a regulatory program that the Congress had declined to enact. While the EPA could establish emission limits, the Supreme Court held that the EPA could not force a shift in the power grid from one type of energy source to another. The Supreme Court noted that the EPA admitted that did not have technical expertise in electricity transmission, distribution or storage. Simply put, the Supreme Court said that devising the “best system of emission reduction” was not within EPA’s regulatory power.
Conclusion
Clearly, the Congress did not delegate administrative agencies the authority to establish energy policy for the entire country. While the Supreme Court has never precisely defined the boundaries and scope of the major question doctrine, when the regulation is more in line with what should be legislative policymaking, it will be struck down. The Supreme Court’s decision is also broad enough to have long-lasting consequences for rulemaking by all federal agencies including the USDA/FSA. The decision could also impact the Treasury Department’s promulgation of tax regulations.
The Supreme Court’s decision returns power to the Congress that it has ceded over the years to administrative agencies and the Executive branch concerning matters of “vast economic and political significance.” But, it’s also likely that the Executive branch and the unelected bureaucrats of the administrative state will likely attempt to push the envelope and force the courts to push back. It’s rare that the Executive branch and administrative agencies voluntarily return power to elected representatives as was done in numerous instances from 2017 through 2020.
July 11, 2022 in Environmental Law, Regulatory Law | Permalink | Comments (0)
Sunday, May 22, 2022
2021 Bibliography
Overview
In the past, I have posted bibliographies of my articles by year to help readers researching the various ag tax and ag law topics that I write about. The blog articles are piling up, with more 750 available for you to read and use for your research for clients (and yourself). The citations contained in the articles are linked so that you can go directly to the source. I trust that you find that feature helpful to save you time (and money) in representing clients.
Today, I provide you with the bibliography of my 2021 articles (by topic) as well as the links to the prior blogs containing past years. Many thanks to my research assistant, Kennedy Mayo, for pulling this together for me.
Prior Years
Here are the links to the bibliographies from prior years:
Ag Law and Taxation 2020 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/01/ag-law-and-taxation-2020-bibliography.html
Ag Law and Taxation – 2019 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/02/ag-law-and-taxation-2019-bibliography.html
Ag Law and Taxation – 2018 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/03/ag-law-and-taxation-2018-bibliography.html
Ag Law and Taxation – 2017 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/04/ag-law-and-taxation-2017-bibliography.html
Ag Law and Taxation – 2016 Bibliography
https://lawprofessors.typepad.com/agriculturallaw/2021/04/ag-law-and-taxation-2016-bibliography.html
2021 Bibliography
Below are the links to my 2021 articles, by category:
BANKRUPTCY
The “Almost Tope Ten” Ag Law and Ag Tax Developments of 2020
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
What’s an “Asset” For Purposes of a Debtor’s Insolvency Computation?
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Is a Tax Refund Exempt in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2021/06/is-a-tax-refund-exempt-in-bankruptcy.html
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html
Montana Conference and Ag Law Summit (Nebraska)
Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities (Update)
BUSINESS PLANNING
For Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
C Corporate Tax Planning; Management Fees and Reasonable Compensation – A Roadmap of What Not to Do
Will the Estate Tax Valuation Regulations Return?
June National Farm Tax and Estate/Business Planning Conference
August National Farm Tax and Estate/Business Planning Conference
C Corporation Compensation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/03/c-corporation-compensation-issues.html
Planning for Changes to the Federal Estate and Gift Tax System
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan
Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance
Ohio Conference -June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
Montana Conference and Ag Law Summit (Nebraska)
Farm Valuation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html
The Illiquidity Problem of Farm and Ranch Estates
When Does a Partnership Exist?
https://lawprofessors.typepad.com/agriculturallaw/2021/09/when-does-a-partnership-exist.html
Gifting Assets Pre-Death – Part One
https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-assets-pre-death-part-one.html
Gifting Assets Pre-Death (Entity Interests) – Part Two
Gifting Pre-Death (Partnership Interests) – Part Three
The Future of Ag Tax Policy – Where Is It Headed?
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud
Fall 2021 Seminars
https://lawprofessors.typepad.com/agriculturallaw/2021/09/fall-2021-seminars.html
Corporate-Owned Life Insurance – Impact on Corporate Value and Shareholder’s Estate
Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2021/10/caselaw-update.html
S Corporations – Reasonable Compensation; Non-Wage Distributions and a Legislative Proposal
2022 Summer Conferences – Save the Date
https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html
CIVIL LIABILITIES
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Three
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Prescribed Burning Legal Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html
Damaged and/or Destroyed Trees and Crops – How is the Loss Measured?
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Mailboxes and Farm Equipment
https://lawprofessors.typepad.com/agriculturallaw/2021/07/mailboxes-and-farm-equipment.html
Statutory Immunity From Liability Associated With Horse-Related Activities
CONTRACTS
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Deed Reformation – Correcting Mistakes After the Fact
Considerations When Buying Farmland
https://lawprofessors.typepad.com/agriculturallaw/2021/11/considerations-when-buying-farmland.html
Recent Court Decisions of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html
The Potential Peril Associated With Deferred Payment Contracts
COOPERATIVES
Continuing Education Events and Summer Conferences
Final Ag/Horticultural Cooperative QBI Regulations Issued
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
CRIMINAL LIABILITIES
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud
Recent Court Decisions of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html
ENVIRONMENTAL LAW
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
Court and IRS Happenings in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html
Valuing Ag Real Estate With Environmental Concerns
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html
No Expansion of Public Trust Doctrine in Iowa – Big Implications for Agriculture
Key “Takings” Decision from SCOTUS Involving Ag Businesses
Montana Conference and Ag Law Summit (Nebraska)
Navigable Waters Protection Rule – What’s Going on with WOTUS?
ESTATE PLANNING
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
What Now? – Part Two
https://lawprofessors.typepad.com/agriculturallaw/2021/02/what-now-part-two.html
Will the Estate Tax Valuation Regulations Return?
June National Farm and Tax and Estate/Business Planning Conference
August National Farm Tax and Estate/Business Planning Conference
Farmland in an Estate – Special Use Valuation and the 25 Percent Test
The Revocable Living Trust – Is it For You?
Summer Conferences – NASBA Certification! (and Some Really Big Estate Planning Issues – Including Basis)
Court Developments of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Planning for Changes to the Federal Estate and Gift Tax System
The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan
The Revocable Trust – What Happens When the Grantor Dies?
Intergenerational Transfer of Family Businesses with Split-Dollar Life Insurance
Ohio Conference –June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
Reimbursement Claims in Estates; Drainage District Assessments
Montana Conference and Ag Law Summit (Nebraska)
Farm Valuation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html
The Illiquidity Problem of Farm and Ranch Estates
Planning to Avoid Elder Abuse
https://lawprofessors.typepad.com/agriculturallaw/2021/08/planning-to-avoid-elder-abuse.html
Gifting Assets Pre-Death – Part One
https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-assets-pre-death-part-one.html
Gifting Assets Pre-Death (Entity Interests) – Part Two
The Future of Ag Tax Policy – Where Is It Headed?
Estate Planning to Protect Assets From Creditors – Dancing On the Line Between Legitimacy and Fraud
Tax Happenings – Present Status of Proposed Legislation (and What You Might Do About It)
Corporate-Owned Life Insurance – Impact on Corporate Value and Shareholder’s Estate
Tax (and Estate Planning) Happenings
https://lawprofessors.typepad.com/agriculturallaw/2021/11/tax-and-estate-planning-happenings.html
Selected Tax Provisions of House Bill No. 5376 – and Economic Implications
2022 Summer Conferences – Save the Date
https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html
INCOME TAX
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two
The “Top Ten” Agricultural Law and Ag Tax Developments of 2020 – Part One
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Four
Final Ag/Horticultural Cooperative QBI Regulations Issued
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
Deducting Start-Up Costs – When Does the Business Activity Begin?
What Now? – Part One
https://lawprofessors.typepad.com/agriculturallaw/2021/02/what-now-part-one.html
C Corporate Tax Planning; Management Fees and Reasonable Compensation – A Roadmap of What Not to Do
Where’s the Line Between Start-Up Expenses, the Conduct of a Trade or Business and Profit Motive?
June National Farm Tax and Estate/Business Planning Conference
Selling Farm Business Assets – Special Tax Treatment (Part One)
Tax Update Webinar
https://lawprofessors.typepad.com/agriculturallaw/2021/03/tax-update-webinar.html
Selling Farm Business Assets – Special Tax Treatment (Part Two)
Selling Farm Business Assets – Special Tax Treatment (Part Three)
August National Farm Tax and Estate/Business Planning Conference
Court and IRS Happenings in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html
C Corporation Compensation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/03/c-corporation-compensation-issues.html
Tax Considerations When Leasing Farmland
Federal Farm Programs and the AGI Computation
Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/04/tax-potpourri.html
What’s an “Asset” For Purposes of a Debtor’s Insolvency Computation?
Summer Conferences – NASBA Certification! (and Some Really Big Estate Planning Issues – Including Basis)
Court Developments of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
The “Mis” STEP Act – What it Means To Your Estate and Income Tax Plan
The Revocable Trust – What Happens When the Grantor Dies?
Ohio Conference -June 7-8 (Ag Economics) What’s Going On in the Ag Economy?
What’s the “Beef” With Conservation Easements?
Is a Tax Refund Exempt in Bankruptcy?
https://lawprofessors.typepad.com/agriculturallaw/2021/06/is-a-tax-refund-exempt-in-bankruptcy.html
Tax Court Happenings
https://lawprofessors.typepad.com/agriculturallaw/2021/06/tax-court-happenings.html
IRS Guidance On Farms NOLs
https://lawprofessors.typepad.com/agriculturallaw/2021/07/irs-guidance-on-farm-nols.html
Montana Conference and Ag Law Summit (Nebraska)
Tax Developments in the Courts – The “Tax Home”; Sale of the Home; and Gambling Deductions
Recovering Costs in Tax Litigation
https://lawprofessors.typepad.com/agriculturallaw/2021/07/recovering-costs-in-tax-litigation.html
Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/08/tax-potpourri.html
Weather-Related Sales of Livestock
https://lawprofessors.typepad.com/agriculturallaw/2021/08/weather-related-sales-of-livestock.html
Ag Law Summit
https://lawprofessors.typepad.com/agriculturallaw/2021/08/ag-law-summit.html
Livestock Confinement Buildings and S.E. Tax
When Does a Partnership Exist?
https://lawprofessors.typepad.com/agriculturallaw/2021/09/when-does-a-partnership-exist.html
Recent Tax Developments in the Courts
https://lawprofessors.typepad.com/agriculturallaw/2021/09/recent-tax-developments-in-the-courts.html
Gifting Assets Pre-Death – Part One
https://lawprofessors.typepad.com/agriculturallaw/2021/09/gifting-assets-pre-death-part-one.html
Gifting Pre-Death (Partnership Interests) – Part Three
The Future of Ag Tax Policy – Where Is It Headed?
Tax Happenings – Present Statute of Proposed Legislation (and What You Might Do About It)
Fall 2021 Seminars
https://lawprofessors.typepad.com/agriculturallaw/2021/09/fall-2021-seminars.html
Extended Livestock Replacement Period Applies in Areas of Extended Drought – IRS Updated Drought Areas
Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities (Update)
Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2021/10/caselaw-update.html
Tax Issues Associated With Easements
https://lawprofessors.typepad.com/agriculturallaw/2021/10/tax-issues-associated-with-easements.html
S Corporations – Reasonable Compensation; Non-Wage Distributions and a Legislative Proposal
Tax Reporting of Sale Transactions By Farmers
The Tax Rules Involving Prepaid Farm Expenses
Self Employment Taxation of CRP Rents – Part One
Self-Employment Taxation of CRP Rents – Part Two
Self-Employment Taxation of CRP Rents – Part Three
Recent IRS Guidance, Tax Legislation and Tax Ethics Seminar/Webinar
Tax (and Estate Planning) Happenings
https://lawprofessors.typepad.com/agriculturallaw/2021/11/tax-and-estate-planning-happenings.html
Selected Tax Provisions of House Bill No. 5376 – and Economic Implications
Recent Court Decisions of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html
The Potential Peril Associated With Deferred Payment Contracts
Inland Hurricane – 2021 Version; Is There Any Tax Benefit to Demolishing Farm Buildings and Structures?
2022 Summer Conferences – Save the Date
https://lawprofessors.typepad.com/agriculturallaw/2021/12/2022-summer-conferences-save-the-date.html
The Home Sale Exclusion Rule – How Does it Work When Land is Also Sold?
Gifting Ag Commodities To Children
https://lawprofessors.typepad.com/agriculturallaw/2021/12/gifting-ag-commodities-to-children.html
Livestock Indemnity Payments – What Are They? What Are the Tax Reporting Options?
Commodity Credit Corporation Loans and Elections
INSURANCE
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
REAL PROPERTY
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Three
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Prescribed Burning Legal Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html
Ag Zoning Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/02/ag-zoning-potpourri.html
Court and IRS Happenings in Ag Law and Tax
https://lawprofessors.typepad.com/agriculturallaw/2021/03/court-happenings-in-ag-law-and-tax.html
Is That Old Fence Really the Boundary
https://lawprofessors.typepad.com/agriculturallaw/2021/04/is-that-old-fence-really-the-boundary.html
Court Developments of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/04/court-developments-of-interest.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Deed Reformation – Correcting Mistakes After the Fact
Valuing Ag Real Estate With Environmental Concerns
Ag Law and Tax Potpourri
https://lawprofessors.typepad.com/agriculturallaw/2021/06/ag-law-and-tax-potpourri.html
Montana Conference and Ag Law Summit (Nebraska)
Farm Valuation Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/08/farm-valuation-issues.html
Considerations When Buying Farmland
https://lawprofessors.typepad.com/agriculturallaw/2021/11/considerations-when-buying-farmland.html
The Home Sale Exclusion Rule – How Does it Work When Land is Also Sold?
REGULATORY LAW
The “Almost Top Ten” Ag Law and Ag Tax Developments of 2020 – Part Two
The “Top Ten” Agricultural Law and Ag Tax Developments of 2020 – Part One
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Two
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Four
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Recent Happenings in Ag Law and Ag Tax
Prescribed Burning Legal Issues
https://lawprofessors.typepad.com/agriculturallaw/2021/02/prescribed-burning-legal-issues.html
Packers and Stockyards Act Amended – Additional Protection for Unpaid Cash Sellers of Livestock
Federal Farm Programs and the AGI Computation
Regulation of Agriculture – Food Products, Slaughterhouse Line Speeds and CAFOS
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
The FLSA and Ag’s Exemption From Paying Overtime Wages
The “Dormant” Commerce Clause and Agriculture
Trouble with ARPA
https://lawprofessors.typepad.com/agriculturallaw/2021/06/trouble-with-arpa.html
No Expansion of Public Trust Doctrine in Iowa – Big Implications for Agriculture
Key “Takings Decision from SCOTUS Involving Ag Businesses
Reimbursement Claims in Estates; Drainage District Assessments
Mailboxes and Farm Equipment
https://lawprofessors.typepad.com/agriculturallaw/2021/07/mailboxes-and-farm-equipment.html
Montana Conference and Ag Law Summit (Nebraska)
California’s Regulation of U.S. Agriculture
Checkoffs and Government Speech – The Merry-Go-Round Revolves Again
Is There a Constitutional Way To Protect Animal Ag Facilities
Caselaw Update
https://lawprofessors.typepad.com/agriculturallaw/2021/10/caselaw-update.html
Recent Court Decisions of Interest
https://lawprofessors.typepad.com/agriculturallaw/2021/12/recent-court-decisions-of-interest.html
Livestock Indemnity Payments – What Are They? What Are the Tax Reporting Options?
SECURED TRANSACTIONS
Continuing Education Events and Summer Conferences
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
Cross-Collateralization Clauses – Tough Lessons For Lenders
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
The “EIDL Trap” For Farm Borrowers
https://lawprofessors.typepad.com/agriculturallaw/2021/07/the-eidl-trap-for-farm-borrowers.html
The Potential Peril Associated With Deferred Payment Contracts
WATER LAW
Continuing Education Events and Summer Conferences
The “Top Ten” Agricultural Law and Tax Developments of 2020 – Part Three
Agricultural Law Online!
https://lawprofessors.typepad.com/agriculturallaw/2021/01/agricultural-law-online.html
The Agricultural Law and Tax Report
https://lawprofessors.typepad.com/agriculturallaw/2021/05/the-agricultural-law-and-tax-report.html
Montana Conference and Ag Law Summit (Nebraska)
May 22, 2022 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)
Saturday, April 9, 2022
Farm Economic Issues and Implications
Overview
A firm understanding of the economic context within which the farmers and ranchers operate is necessary for both tax planning and financial planning. The creation and dissolution of legal entities, the restructuring of debt, and the use of various legal devices for the protection of assets from creditors and preserving inheritances cannot successfully be accomplished without knowledge of agriculture that transcends the applicable legal rules.
Crop production, energy issues, monetary policy, issues in the meat sector and unanticipated outside shocks have farm-level impacts that professional advisors and counselors need to account for when representing farm and ranch clients.
Current economic issues impacting ag – it’s the topic of today’s post.
Projected Plantings (and Implications)
On March 31, the USDA released its “prospective plantings” report for the 2022 crops. https://www.nass.usda.gov/Publications/Todays_Reports/reports/pspl0322.pdf The report projects farmers planting 91 million acres of soybeans and 89.5 million acres of corn. The corn planting number is down 4 percent from last year, and is the lowest acreage estimate over the last five years. The soybean projection is up four percent from 2021. Total planted acres are projected to remain about the same as 2021.
Note: The shift from corn acres to soybean acres was very predictable. Farmers have calculators and can run the numbers with higher input costs (such as fertilizer). Corn, as compared to soybeans, requires a greater amount of inputs which have risen in price substantially.
Projected wheat planted acres is up one percent from 2021, but still is projected to be the fifth lowest total wheat planted acres since 1919. Grain sorghum is projected to be down 15 percent (1.4 million acres) from 2021, with significant declines projected in Kansas and Texas. Conversely, barley and sunflower planted acres is projected to increase 11 percent and 10 percent respectively from 2021. With respect to sunflowers, however, the 2022 projection is still the fifth lowest planted area on record. Cotton acreage is projected to be up about 800,000 acres.
Implication: The projected planting numbers indicate that higher protein prices can be expected in the future.
Global Crops
The Russian war with Ukraine will have impacts on global grain trade and create additional issues for U.S. farmers and ranchers. Russia and Ukraine are leading exporters of food grains. But, Ukraine ports are closed and Russian imports are being avoided causing rising food prices. In the U.S., the rise is in addition to existing inflationary price increases for most good products. Russia and Ukraine produce 19 percent of the world’s barley; 14 percent of the world’s wheat; and four percent of the world’s maize. They also produce 29 percent of total world wheat exports and 19 percent of total world corn exports. Those numbers are particularly important to countries that depend on imported grain from Russia and Ukraine, with a major issue being the loss of corn exports from Ukraine.
Note: U.S. corn exports are projected to rise, but U.S. wheat exports are not.
If the war triggers a global food crisis, the least developed countries that are also likely to be low-income or food-deficit countries are the most vulnerable to food shortages. This would create a surge in malnutrition in these countries. Presently, 50 countries rely on Russia and Ukraine for 30 percent of their wheat supply (combined), and 26 countries source at least 50 percent of their wheat needs from Russia/Ukraine. Egypt and Turkey get over 70 percent of their wheat from Russia/Ukraine. Russia supplies 90 percent of Lebanon’s wheat and cooking oil. Grain shortages will hit the poorer African countries particularly hard. These countries rely on imported bread to feed their expanding populations. As a whole, in 2020, the continent of Africa imported $4 billion worth of ag products from Russia (which supplied the majority of the continent’s wheat consumption.
This combined data indicates an escalation of global food insecurity. One estimate is that worldwide food and feed prices could rise by 22 percent which could, in turn, cause a surge in malnutrition in developing nations. Since the war started, total world food output has decreased, resulting in a sharp drop in food exports from exporting countries. Other food exporting countries have announced new limitations on food exports (or are exploring bans) to preserve domestic supplies. This will have an impact on international grain markets and will likely have serious implications for the world’s wheat supply. The extent of such disruptions is unknown at the present time.
Note: Russia is also a major fertilizer exporter, supplying 21 percent of world anhydrous exports, 16 percent of world urea exports and 19 percent of world potash exports. Combined, Russia and Belarus provide 40 percent or world potash exports. The Russia/Ukraine war will likely have long term impacts on fertilizer prices in the U.S. and elsewhere. This will have impact crop planting decisions by farmers.
Energy Policy
Incomprehensible energy policy in the U.S. since late January of 2021 and in Europe have been a financial boon to Russia. The policy, largely couched in terms of ameliorating “climate change,” has resulted in the U.S. from being energy independent to begging foreign countries to produce more. The restriction in U.S. production and distribution of oil has occurred at a time of increasing demand coming out of state government mandated shutdowns as a result of the China-originated virus. The resulting higher energy prices have caused the prices of many products and commodities to increase.
Monetary Policy
The U.S. economy is incurring the highest inflation in 40 years. While the employment numbers are improving coming out of virus-related shutdowns, the labor force participation rate is not. A higher rate of employment coupled with a decrease in the labor force participation rate may mean that workers are taking on multiple (lower paying) jobs in an attempt to stay even with inflation.
The last time the government attempted to dig itself out of a severe inflationary situation the Federal Reserve raised interest rates substantially to “wring inflation out of the economy.” The result for agriculture was traumatic, bringing on the farm debt crisis of the 1980s. The current situation is similar with the Federal Reserve having backed itself into a corner with prolonged, historic low interest rates coupled with an outrageous increase in the money supply caused by massive government spending. If the Federal Reserve attempts to get out of the corner by just raising interest rates, the end result will likely not be good. The money supply must be reduced, or worker productivity gains must be substantial. Higher interest rates are a means to reducing the money supply.
Meat Sector
In the meat sector, the demand for beef remains strong. Beef exports are steadily growing. The current major issue in the sector is the disconnect between beef demand and the beef producer. Currently, the large meat packers are enjoying record-wide margins. Cattle producers are being signaled to decrease herd sizes because of the disconnect. Legislation is being considered in the Congress with the intent of providing more robust and transparent marketing of live cattle.
On the pork side, demand is not as impressive but is improving.
For poultry, demand remains strong and flock sizes are decreasing largely because of the presence of Avian Flu.
Some states have enacted labeling laws designed to protect meat consumers from deceptive and misleading advertising of “fake meat” products. The Louisiana law has been held unconstitutional on free speech grounds. Turtle Island Foods SPC v. Strain, No. 20-00674-BAJ-EWD, 2022 U.S. Dist. LEXIS 56208 (M.D. La. Mar. 28, 2022). Much of the advertising of “fake meat” products is couched not in terms of health benefits, but on reducing/eliminating “climate change.” Government mandates have been imposed for the sake of “climate change” – a certain amount of ethanol blend in fuel; a certain amount of “renewable” energy to generate electricity, etc.). Could that also happen to the meat industry, but in a negative way? A concern for the meat industry is whether the government will try to mandate that a certain percentage of meat cuts in a meat case consist of “fake meat” products based on a claim that doing so would further the “save the planet” effort.
Water Issues
West of the Sixth Principal Meridian, access to water is critical for the success of many farming and ranching operations. A dispute is brewing between Colorado and Nebraska over water in northeast Colorado that Nebraska lays claim to under a Compact entered into almost 100 years ago. In the fertile Northeastern Colorado area, the State Engineer has shut-in almost 4,000 wells over the past two decades to maintain streamflow and satisfy downstream priority claims. A similar number of wells have had their pumping rights limited in some way. While this is a very diverse agricultural-rich area, water is essential to maintain production. Given the rapid urban development in this area, the need for water for new subdivisions along the front range will trigger major political ramifications if there are any further reductions in agriculture’s water usage.
The economic impact of water issues in Northeastern Colorado is already being felt. The Colorado-Big Thompson Project collects, stores and delivers more than 200,000 acre-feet of supplemental water annually. Melting snowpack in the Colorado River headwaters on the West Slope is diverted through a tunnel beneath the Continental Divide to approximately 1,021,000 million residents and 615,000 acres of irrigated farmland in Northeastern Colorado. A unit (acre-foot) of Colorado Big Thompson water storage is presently selling for approximately $65,000. Fifteen years ago, it was priced in the $6,000 range. All other water shares are priced accordingly. This dramatic increase in price has implications for the structure of farming operations, succession planning and estate valuation.
Water access and availability will continue to be key to profitability of farms and ranches in the Plains and the West.
Tax Policy
In late March, the White House release its proposed 2023 fiscal year budget (October 1, 2022 – September 30, 2023). At the same time, the Treasury release its “Greenbook” explanation of the tax provisions contained in the budget proposal. Many of the proposals are the same as or similar to those included in bills in 2021 that failed to become law.
Here’s a brief list of some of the proposals:
- Top individual rate to 39.6 percent on income over $400,000 ($450,000 for married couples;
- Corporate rate goes to 28 percent (87 percent increase on many farm corporations);
- Raise capital gain rate to 39.6 percent on income over $1 million;
- Capital gain tax on any transfer of appreciated property either during life or at death;
- Partial elimination of stepped-up basis – if to spouse, then carryover; transfer of appreciated property to CRAT would be taxable;
- Trust assets must be “marked-to-market” every 90 years beginning with any new trust after 1940. The rule would be the same for partnerships or any other non-corporate owned entity. In addition, no valuation discount for partial interests, and a transfer from a trust would be a taxable event. Exclusion of $1 million/person would apply. Any tax on illiquid assets could be paid over 15 years or the taxpayer could elect to pay the tax when the property is sold or is no longer used as a farm (in that event, there would be no 15-year option);
- All farm income (including self-rents) would be subject to the net investment income tax of 3.8 percent;
- A minimum tax would apply to those with a net worth over $100 million;
- Grantor-Retained Annuity Trusts (GRATs) must have minimum term of 10 years. This would essentially eliminate the use of a “zeroed-out” GRAT;
- Any sale to a grantor trust is taxable and any payment of tax of the trust is a taxable gift;
- Limitation on valuation discounts (related party rules);
- R.C. §2032A maximum reduction would increase to $11.7 million
- Trust reporting of assets would be required if the trust corpus is over $300,000 (or $10,000 of income);
- Elimination of dynasty trusts;
- Carried interest income would become ordinary income;
- R.C. §1031 exchange tax deferral would be limited to $1 million;
- Depreciation recapture would be triggered on the sale of real estate, which would eliminate the maximum 25% rate.
Note: The provisions have little to no chance of becoming law, but if some or all were to become law, there would be significant implications for farm and ranch businesses. Many of those implications would be negative for farming and ranching operations.
Conclusion
Farmland values remain strong. Indeed, input, machinery costs and land values are outpacing inflation. For those farmers that were able to pre-pay input expenses in 2021 for 2022 crops, the perhaps much of the price increase of inputs will be blunted until another round of inputs are needed in late 2022 for the 2023 crop. Also, short-term loans were locked in before interest rates began rising. That story will also likely be different in early 2023 when those loans are redone.
The biggest risks to agriculture will continue to be from outside the sector. Unexpected catastrophic events such as the Russian war with Ukraine, whether (or when) China will invade Taiwan, domestic monetary and fiscal policy, political developments at home and abroad, and regulation of agricultural activities remain the biggest unknown variables to the profitability of farming and ranching operations and agribusinesses.
An awareness of the economic atmosphere in which farmers and ranchers operate is important to understand for practitioners to provide fully competent advice and counsel with respect to income tax, estate, business and succession planning for farmers and ranchers.
April 9, 2022 in Business Planning, Environmental Law, Estate Planning, Income Tax, Regulatory Law | Permalink | Comments (0)
