Friday, December 7, 2018

Can An Endangered Species Be Protected In Areas Where It Can’t Survive?

Overview

The Endangered Species Act (ESA) has the potential to restrict substantially agricultural activities because many of the protections provided for threatened and endangered species under the ESA extend to individual members of the species when they are on private land.  Many endangered species have some habitat on private land.  Current estimates are that half of the species listed as endangered or threatened have about 80 percent of their habitat on privately owned land.  

When a species is listed as endangered or threatened, the Secretary of the Interior (Secretary) must consider whether to designate critical habitat for the species.  Once a critical habitat designation is made, activities on the designated land are severely restricted.  But how is that designation made, and can a court review the decision to list an area as critical habitat?  Those are important questions for landowners, both rural and otherwise.  Those questions are also the topic of today’s post – critical habitat designations under the ESA and judicial review.

ESA Framework

The ESA establishes a regulatory framework for the protection and recovery of endangered and threatened species of plants, fish and wildlife.  16 U.S.C. § 1531 et seq.  The U.S. Fish and Wildlife Service (USFWS), within the Department of the Interior, is the lead administrative agency for most threatened or endangered species, but the National Marine Fisheries Service (NMFS), within the Department of Commerce administers the ESA for certain endangered or threatened marine or anadromous species. 

Under the ESA, an “endangered species” is a species which is in danger of extinction throughout all or a significant part of its range other than a species determined by the USFWS to constitute a pest whose protection under the provisions of the Act would present an overwhelming and overriding risk to humans.  16 U.S.C. § 1532(6).  A “threatened species” is a species which is likely to become endangered within the foreseeable future throughout all or a significant portion of its range. 16 U.S.C. § 1532(20).   The term “species” includes any subspecies of fish or wildlife or plants and any distinct population segment of any species of vertebrate fish or wildlife which interbreeds when mature. 16 U.S.C. § 1532(16).

The Listing Process.  Secretary determines when a species is to be listed as either threatened or endangered, and other federal agencies have a duty to conserve listed species by consulting with the FWS when developing their own programs.  See, e.g., Sierra Club v. Glickman, 156 F.3d 606 (5th Cir. 1998).  As of December 6, 2018, 1,661 species in the United States had been listed under the ESA, with 1,275 species listed as endangered and 386 listed as threatened. Presently, the states with the greatest number of species listed as endangered or threatened are: Hawaii, California, Florida, Alabama and Texas.

 An endangered or threatened listing is to be made on the basis of the best available scientific and commercial data without reference to possible economic or other impacts after the USFWS conducts a review of the status of the species. 16 U.S.C. § 1533(b)(1)(A) (2002); 50 C.F.R. 424.11 (20). There is, however, no statutory threshold definition or quantification of the level of data necessary to support a listing decision.  Indeed, the information supporting a listing decision need not be credible; only the “best available.”

The Secretary's decision to list a species as endangered or threatened is based upon the presence of at least one of the following factors; (1) the present or threatened destruction, modification, or curtailment of a species' habitat or range; (2) the over-utilization for commercial, sporting, scientific or educational purposes; (3) disease or predation; (4) the inadequacy of existing regulatory mechanisms; or (5) other natural or manmade factors affecting a species' continued existence.  16 U.S.C. § 1533(a)(1).  The USFWS may decline to list a species upon publishing a written finding either that listing is unwarranted or that listing is warranted, but that the USFWS lacks the resources to proceed immediately with the proposal.  16 U.S.C. § 1533(b)(3)(C)(ii).

Ever since the effective date of the 1982 amendments to the ESA, when a species is listed as endangered or threatened, the Secretary must designate critical habitat for the species. See Center for Biological Diversity v. United States Fish & Wildlife Service, 450 F.3d 930 (9th Cir. 2006).   “Critical habitat” is the specific area within the geographical range occupied by the species at the time of listing that is essential to the conservation of the species.  Critical habitat may also include specific areas outside the geographical area occupied by the species at the time it is listed if the USFWS determines that such areas are essential for conservation of the species.  16 U.S.C. §1532(5)(A).   However, critical habitat need not include the entire geographical range which the species could potentially occupy. 16 U.S.C. § 1532(5).  In making a critical habitat determination, the USFWS must consider economic impacts and other relevant impacts, as well as best scientific data.  See, e.g., New Mexico Cattle Growers Association v. United States Fish and Wildlife Service, 248 F.3d 1277 (10th Cir. 2001). The failure to consider the economic and social impacts of a critical habitat designation at the time of the designation can be cause to set aside the designation. Home Builders Association of Northern California, et al. v. United States Fish and Wildlife Service, 268 F. Supp. 2d 1197 (E.D. Cal. 2003). The USFWS may exclude any area from critical habitat if the benefits of the exclusion outweigh the benefits of specifying the area as critical habitat, unless the USFWS determines on the basis of best scientific and commercial data available that the failure to designate an area as critical habitat will result in the extinction of the species. 16 U.S.C. § 1533(b)(2).

Recent Case

Under the facts of Weyerhaeuser Co. v. United States Fish & Wildlife Service, No. 17-71, 2018 U.S. LEXIS 6932 (U.S. Sup. Ct. Nov. 27, 2018), the USFWS, in 2001, listed the dusky gopher frog as an endangered species after determining that its wild population had dwindled to about 100 that were found at a single pond in Mississippi.  It’s habitat had covered coastal areas of Alabama, Louisiana and Mississippi in certain open-canopy pine forests that have since been almost entirely replaced with urban development, agricultural operations and closed-forest timber farming enterprises.  Upon making the designation, the Secretary had to designate the critical habitat for the frog.  It did so in 2010.  Among the areas designated as critical habitat was a 1,544-acre site in Louisiana where the frog species had last been seen in 1965.  While that acreage was largely comprised of closed-canopy timber, it contained five ephemeral ponds and the USFWS believed that the tract met the statutory definition of “unoccupied critical habitat” because it could be a prime breeding ground for the frog.  The USFWS then issued a report on the probable economic impact of designating the tract (and the other areas) as critical habitat. 

The plaintiff owns part of the 1,544-acre tract and leased the balance from a group of landowners that had plans for development of the portion of the tract that they owned.  Those development costs could amount to over $30 million (in timber farming and development) if the USFWS barred all development on the tract.  But, according the USFWS, those potential costs would not be “disproportionate” to the conservation benefits of the designation.  Consequently, the USFWS decided to not exclude the 1,544-acre tract from the frog’s critical habitat. 

The plaintiff and the landowners sued to vacate the designation on the basis that the tract couldn’t be designated as critical habitat because it hadn’t been habitat for the frog since 1965 and couldn’t be habitat without significant modification.  The plaintiff also challenged the decision of the USFWS not to exclude the tract from the frog’s critical habitat on the basis that the USFWS had failed to adequately weigh the benefits of designating the tract against the economic impact of the designation.  The claim was that the USFWS used an unreasonable methodology for estimating economic impact and failed to consider certain categories of costs. 

The trial court upheld the designation on the basis that the tract fit the definition of “unoccupied critical habitat” which only required the USFWS to decide that the tract was essential for the frog’s conservation.  On appeal, the U.S. Court of Appeals for the Fifth Circuit affirmed on the basis that that definition of “critical habitat” required a “habitability” requirement.  The appellate court also determined that the decision of the USFWS was not subject to judicial review. 

On further review, the Supreme Court unanimously reversed 8-0 (Justice Kavanaugh did not participate).  Chief Justice Roberts wrote the Court’s opinion, and pointed out that to be “critical habitat,” the designated area must first be “habitat.”  Indeed, the Court pointed out that once a species is designated as endangered, the Secretary must designate the habitat of the species which is then considered to be critical habitat.  16 U.S.C. §1533(a)(3)(A)(i).  That also applied in the context of unoccupied critical habitat that is determined to be essential for conservation of the species – the area must be “habitat.”  Because the appellate court did not interpret the term “habitat” (the appellate court simply concluded that “critical habitat” was not limited to areas that were “habitat”), the Supreme Court vacated the appellate court’s opinion and remanded on this issue. 

The Supreme Court also disagreed with the appellate court’s holding that the determination of the USFWS to not exclude the tract as critical habitat was not subject to judicial review.  The Supreme Court noted that the plaintiff’s claim involving the alleged improper weighing of costs and benefits of the designation as critical habitat was the type of claim that the federal court’s routinely review when determining whether to set aside an agency decision as an abuse of discretion.  Thus, the Supreme Court also vacated this part of the appellate court’s decision and remanded on the issue. 

Conclusion

The case is important to private landowners for a couple of reasons.  First, on remand the appellate court will have to redetermine the designation of the frog’s critical habitat on the basis that it first must actually be habitat for the frog.  There is a “habitability” requirement when the Secretary designates an area as “critical habitat.”  Second, the USFWS doesn’t get a free pass when designating an area as critical habitat.  That designation is subject to judicial review (as are all USFWS decisions to decline to list a species). 

December 7, 2018 in Environmental Law | Permalink | Comments (0)

Friday, November 9, 2018

Developments in Ag Law and Tax

Overview

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

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

Debtor Can Convert Chapter 12 Case to Chapter 11 

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

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

Federal Law Preempts Kansas Train Roadway Blockage Law

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

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

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

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

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

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

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

Cash Gifts to Pastor Constituted Taxable Income

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

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

Conclusion

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

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

Wednesday, November 7, 2018

“Waters of the United States” Means “Frozen Soil”?

Overview

Section 404 of the Clean Water Act (CWA) makes illegal the discharging of dredge or fill material into the “navigable waters of the United States” (WOTUS) without obtaining a permit from the Secretary of the Army acting through the Corps of Engineers (COE). 33 U.S.C. §§1311(a); 1362(6),(12).  The definition of what a WOTUS has been confusing and controversial in recent years.  How is a wetland that could be a WOTUS delineated?  What force do definitions contained in a COE manual have?  What about supplements?   

How the government defines a “WOTUS” – that’s the focus of today’s post.

Regulatory Definitions

The regulatory definition of a “wetland” has changed over the years.  In its 1987 Manual for delineating wetlands, before the COE may assert jurisdiction over property, it must find the area satisfies the three wetland criteria of hydric soil, predominance of hydrophytic vegetation, and wetland hydrology (soil saturation/inundation).  Wetland hydrology under the 1987 Manual requires either the appropriate inundation during the growing season or the presence of a primary indicator.  Table 5 of the 1987 Manual indicates a nontidal area is not considered to evidence wetland hydrology unless the soil is seasonally inundated or saturated for 12.5 percent to 25 percent of the growing season.  A “growing season” is defined as a season in which soil temperature at 19.7 inches below the surface is above 41 degrees Fahrenheit. 

The 1987 Manual lists six field hydrologic indicators, in order of decreasing reliability, as evidence that inundation and/or soil saturation has occurred: (1) visual observation of inundation; (2) visual observation of soil saturation; (3) watermarks; (4) drift lines; (5) sediment deposits; and (6) drainage patterns within wetlands.

In 1989, the COE adopted a new manual.  The 1989 Manual superseded the 1987 Manual.  The delineation procedures contained in the 1989 manual were less stringent.  Thus, it became more likely that the COE could determine that a particular tract contained a regulable wetland.  This change in delineation techniques caught the attention of the Congress which barred the use of the 1989 Manual via the 1992 Budget Act.  Pub. L. No. 102-104, 105 Stat. 510 (Aug. 17, 1991).  Specifically, the 1992 Budget Act prohibited the use of funds to delineate wetlands under the 1989 Manual "or any subsequent manual not adopted in accordance with the requirements for notice and public comment of the rulemaking process of the Administrative Procedure Act." The 1992 Budget Act also required the Corps to use the 1987 Manual to delineate any wetlands in ongoing enforcement actions or permit application reviews. In the 1993 Budget Act, the Congress again addressed the issue by stating that, “None of the funds in this Act shall be used to identify or delineate any land as a "water of the United States" under the Federal Manual for Identifying and Delineating Jurisdictional Wetlands that was adopted in January 1989 or any subsequent manual adopted without notice and public comment.  Furthermore, the Corps of Engineers will continue to use the Corps of Engineers 1987 Manual, as it has since August 17, 1991, until a final wetlands delineation manual is adopted.”  Thus, it was clear that Congress mandated that the COE continue to use the 1987 Manual to delineate wetlands unless and until the COE utilized the formal rulemaking process to change the delineation procedure. 

While the Congress mandated the use of the 1987 Manual to delineate wetlands, it also appropriated funds to the U.S. Environmental Protection Agency (EPA) to contract with the National Academy of Sciences for a review and analysis of wetland regulation at the federal level.  See Department of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act of 1993, Pub. L. 102-389, 106 Stat. 1571 (Oct. 6, 1992); H.R. Rep. No. 102-710, at 51 (1992); H.R. Conf. Rep. No. 102-902 at 41. This resulted in a report being published in 1995 containing a suggestion that the 1987 Manual either eliminate the requirement of a “growing season” approach to wetland hydrology or move to a region-specific set of criteria for delineating wetlands.  Consequently, the COE began issuing regional “supplements” to the 1987 Manual that provided criteria for wetland delineation that varied across the country.  For instance, in the COE’s 2007 Alaska Supplement, the COE eliminated the measure of soil temperature contained in the 1987 Manual and replaced it with “vegetation green-up, growth, and maintenance as an indicator of biological activity occurring both above and below ground.”   The 2007 Supplement was updated in 2008.

Alaska Case

The 1987 Manual and the budget bills and COE region-specific Supplements were the issue of a recent case.  In Tin Cup, LLC v. United States Army Corps of Engineers, No. 17-35889, 2018 U.S. App. LEXIS 27085 (9th Cir. Sept. 21, 2018), the plaintiff was a closely-held family pipe fabrication company in Alaska that sought to relocate its business for expansion purposes.  The plaintiff found a suitable location (a 455-acre tract in North Pole) where it would need to lay gravel and construct buildings as well as a railroad spur.  Because gravel is contained within the regulatory definition of “pollutant” under the CWA and because the tract was purportedly a “wetland,” the plaintiff had to obtain a discharge permit so that it could place gravel fill on the property before starting construction. 

The plaintiff received a permit in 2004 and, pursuant to that permit, cleared about 130 acres from the site.  In 2008, the plaintiff submitted another permit application to place gravel fill on the site.  The COE issued a new jurisdictional determination in 2010, concluding that wetlands were present on 351 acres, including about 200 acres of permafrost – frozen soil.  The COE granted the plaintiff a discharge permit to place gravel fill on 118 acres, but included mitigation conditions that the plaintiff objected to.  The plaintiff sued on the basis that the COE’s delineation of permafrost as a wetland was improper and, thus, a discharge permit was not necessary. 

The COE delineated the permafrost on the tract as wetland based on its 2008 Alaska Supplement. U.S. Army Corps of Engineers, Regional Supplement to the Corps of Engineers Wetland Delineation Manual: Alaska Region (Version 2.0) (Sept. 2007).  However, the COE’s 1987 Manual specifically excludes permafrost from the definition of a wetland.  The plaintiff argued that the Congress had instructed the COE to continue to use the wetland delineation standards in the 1987 Manual until the COE adopted a “final wetland delineation manual” as set forth in the 1992 and 1993 Budget Acts, as noted above.  Thus, because permafrost does not have the required “growing season” (it never reached 41 degrees Fahrenheit at a soil depth of 19.7 inches) it cannot be a wetland.  The plaintiff pointed out that by virtue of the issuance of regional supplements to the 1987 Manual, the COE had expanded its jurisdiction over private property by modifying the definition of a “wetland.”  Key to the plaintiff’s argument was the point that the Supplement was not a new manual that had been developed in accordance with the formal rulemaking process (e.g., notice, comment, and public hearing).  It also was never submitted to the Congress and the Government Accountability Office which, the plaintiff noted, the Congressional Review Act requires before any federal governmental agency rule can become effective.  5 U.S.C. Ch. 8, Pub. L. No. 104-121, §201. 

The trial court ruled against the plaintiff, holding that the COE could rely on the 2008 Supplement when delineating a wetland and determining its jurisdiction.  The trial court determined that the Budget Acts have no force beyond the funds that they appropriate.  That meant that the COE could delineate wetlands in accordance in whatever manner it determined – the 1987 Manual or any subsequent Manual or supplemental guidance that it issued. 

On appeal, the appellate court affirmed, holding that the 1993 Budget Act did not require the COE to continue using the 1987 Manual to delineate wetlands.  The appellate court stated that there is a “very strong presumption” that if an appropriations act changes substantive law, it does so only for the fiscal year for which the bill is passed” unless there is a clear statement of futurity. Because the 1993 Budget Act contained no such statement, the Court held that the requirement for use of the definition of a growing season in accordance with the 1987 Manual expired at the end of the 1993 fiscal year.

One of the appellate judges, while concurring with the decision that the lower court did not err in granting summary judgment to the COE, disagreed that the 1993 Budget Act didn’t apply beyond the 1993 fiscal year.  This judge noted that the Congress, in the 1993 Budget Act, specifically directed the COE to continue to use the 1987 Manual “until” it adopted a final wetlands delineation manual.  According to this judge, that was a sufficient Congressional directive of futurity that made the directive applicable beyond the Federal Government’s 1993 fiscal year.

Conclusion

The definition of a “wetland” and “WOTUS” is confusing and controversial.  The Ninth Circuit’s holding that the COE can conclude that frozen soil is a navigable water will not diminish that controversy.  The issue of the application of congressional budget act provisions is also one that there is not agreement upon within the federal appellate courts.  Perhaps the U.S. Supreme Court will hear the case. 

As for me, I am going to read my copy of Alice in Wonderland.  It might make more sense than concluding that gravel is pollution and frozen dirt is water and when the Congress says not to do something, you can.

November 7, 2018 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Monday, October 22, 2018

Is Groundwater A “Point Source” Pollutant?

Overview

The purpose of the Clean Water Act (CWA) is to eliminate the discharge of pollutants into the nation's waters without a permit.  The CWA recognizes two sources of pollution. Point source and nonpoint source pollution.  Under the CWA, point source pollution is the concern of the federal government and it is the type of pollution that comes from a clearly discernable discharge point, such as a pipe, a ditch, or a concentrated animal feeding operation.  Nonpoint source pollution, while not specifically defined under the CWA, is pollution that comes from a diffused point of discharge, such as fertilizer runoff from an open field.  Control of nonpoint source pollution is to be handled by the states through enforcement of state water quality standards and area-wide waste management plans.

What if pollution enters CWA-regulated waters (“Waters of the United States”) through groundwater?  Is groundwater a point source of pollution?  If so, that has serious implications for agriculture.  A recent federal appeals court opinion brings good news for agriculture.  It also creates a split amongst the courts that the U.S. Supreme Court may be asked to resolve.

Groundwater and point-source pollution – that’s the topic of today’s post.

The CWA and “Point Source” Pollution

No one may discharge a “pollutant” from a point source into the “navigable waters of the United States” without a permit from the EPA. An NPDES permit is not required unless there is an “addition” of a pollutant to regulable waters. See e.g., Friends of the Everglades, et al. v. South Florida Water Management District, et al., 570 F.3d 1210 (11th Cir. 2009) reh’g., den., 605 F.3d 962 (11th Cir. 2010), cert. den., 131 S. Ct. 643 (2010).  

The definition of “pollutant” has been construed broadly to include the tillage of soil which causes the soil to be “redeposited” into delineated wetlands constitutes the discharge of a “pollutant” into the navigable waters of the United States requiring an NPDES permit.  See, Duarte Nursery, Inc.  v. United States Army Corps of Engineers , No. 2:13-cv-02095-KJM-AC, 2016 U.S. Dist. LEXIS 76037 (E.D. Cal. Jun. 10, 2016).  The court also determined that farming equipment, a tractor and ripper attachment constituted a point source pollutant under the CWA.  The discharge was not exempt under the “established farming operation” exemption of 33 U.S.C. §1344(f)(1) because farming activities on the tract had not been established and on-going but had been grazed since 1988.  As a result, the planting of wheat could not be considered a continuation of established and on-going farming activities.  Id. 

Under 1977 amendments to the CWA, irrigation return flows are not considered point sources. See, e.g., Pacific Coast Federation of Fishermen’s Associations, et al. v. Glaser, et al., No. CIV S-2:11-2980-KJM-CKD, 2013 U.S. Dist. LEXIS 132240 (E.D. Cal. Sept. 16, 2013)In Pacific Coast, the plaintiff directly challenged the exemption of tile drainage systems from CWA regulation via “return flows from irrigated water” on the basis that groundwater discharged from drainage tile systems is separate from any irrigation occurring on farms and is, therefore, not exempt.  In dismissing the case, the court also noted that “return flows” narrows the type of water permissibly discharged from irrigated agriculture and covers discharges from irrigated agriculture that don’t contain additional discharges unrelated to crop production. 

What About Groundwater?

The NPDES system only applies to discharges of pollutants into surface water.    Discharges of pollutants into groundwater are not subject to the NPDES permit requirement even if the groundwater is hydrologically connected to surface water.  Indeed, the legislative history of the CWA demonstrates that the Congress, did not intend that the CWA regulate hydrologically-connected groundwater.  Groundwater regulation was to be left to the states as nonpoint source pollution.  See, e.g., Umatilla Water Quality Protective Association v. Smith Frozen Foods, 962 F. Supp. 1312 (D. Or. 1997). 

While it seems clear that the CWA was never intended to apply to pollution discharges into groundwater that eventually finds its way into a WOTUS, in recent years a split has developed between a few of the federal circuit courts of appeal.  For example, in Upstate Forever, et al. v. Kinder Morgan Energy Partners, LP, et al., 887 F.3d 637 (4th Cir. 2018), the plaintiffs, a consortium of environmental and conservation groups, brought a citizen suit under the Clean Water Act (CWA) claiming that the defendant violated the CWA by discharging “pollutants” into the navigable waters of the United States without a required discharge permit via an underground ruptured gasoline pipeline owned by the defendant’s subsidiary. The plaintiff claimed that a discharge permit was needed because the CWA defines “point source pollutant” (which requires a discharge permit) as “any discernible, confined and discrete conveyance, included but not limited to any…well…from which pollutants are or may be discharged.”

The trial court dismissed the plaintiffs’ claim, but the appellate court held that a pollutant can first move through groundwater before reaching navigable waters and still constitute a “discharge of a pollutant” under the CWA that requires a federal discharge permit. The discharge need not be channeled by a point source until reaching navigable waters that are subject to the CWA. The appellate court did, however, point out that a discharge into groundwater does not always mean that a CWA discharge permit is required. A permit in such situations is only required if there is a direct hydrological connection between groundwater and navigable waters. In the present case, however, the appellate court noted that the pipeline rupture occurred within 1,000 feet of the navigable waters. The court noted that the defendant had not established any independent or contributing cause of pollution. 

Similarly, in Hawai’i Wildlife Fund v. Cty. of Maui, 881 F.3d 754 (9th Cir. 2018), the defendant owned and operated four wells at the Lahaina Wastewater Reclamation Facility (LWRF), which is the principal municipal wastewater treatment plant for a city. Although constructed initially to serve as a backup disposal method for water reclamation, the wells became the defendant’s primary means of effluent disposal into groundwater and, ultimately, the Pacific Ocean. The LWRF received approximately 4 million gallons of sewage per day from a collection system serving approximately 40,000 people. That sewage was treated at LWRF and then either sold to customers for irrigation purposes or injected into the wells for disposal. The defendant injected approximately 3 to 5 million gallons of treated wastewater per day into the groundwater via its wells. The defendant conceded, and its expert, confirmed that wastewater injected into wells 1 and 2 enters the Pacific Ocean. In addition, in June 2013 the EPA, the Hawaii Department of Health, the U.S. Army Engineer Research and Development Center, and researchers from the University of Hawaii conducted a study on wells 2, 3 and 4. The study involved placing tracer dye into Wells 2, 3, and 4, and monitoring the submarine seeps off Kahekili Beach to see if and when the dye would appear in the Pacific Ocean. This study, known as the Tracer Dye Study, found that 64% of the treated wastewater from wells 3 and 4 discharged into the ocean.

The plaintiff sued, claiming that the defendant was in violation CWA by discharging pollutants into a WOTUS without a permit.  The trial court agreed, holding that a permit was required for effluent discharges into navigable waters via groundwater. On appeal, the appellate court held that the wells were point sources that could be regulated through CWA permits despite the defendant’s claim that a permit was not required because the wells discharged only indirectly into the Pacific Ocean via groundwater. Specifically, the appellate court held that “a point source discharge to groundwater of “more than [a] de minimis” amount of pollutants that is “fairly traceable from the point source . . . such that the discharge is the functional equivalent of a discharge into a navigable water” is regulated under the CWA.”

A recent decision by the U.S. Circuit Court of Appeals for the Sixth Circuit, however, reached a different decision.  In Tennessee Clean Water Network v. Tennessee Valley Authority, No. 17-6155, 2018 U.S. App. LEXIS 27237 (6th Cir. Sept. 24, 2018).  The defendant, a utility that burns coal to produce energy, produces coal ash as a byproduct. The coal ash is discharged into man-made ponds. The plaintiffs, environmental activist groups, claimed that the chemicals from the coal ash in the ponds leaked into surrounding groundwater where it was then carried to a nearby lake that was subject to regulation under the Clean Water Act (CWA). The plaintiffs claimed that the contamination of the lake without a discharge permit violated the CWA and the Resource Conservation and Recovery Act (RCRA). The trial court had dismissed the RCRA claim but the appellate court reversed that determination and remanded the case on that issue.

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

On further review, the appellate court reversed.  The appellate court held that the CWA does not apply to point source pollution that reaches surface water by means of groundwater movement. The appellate court rejected the plaintiffs’ assertion that mere groundwater is equivalent to a discernable point source through which pollutants travel to a CWA-regulated body of water. The appellate court noted that, to constitute a “conveyance” of groundwater governed by the CWA, the conveyance must be discernible, confined and discrete. While groundwater may constitute a conveyance, the appellate court reasoned that it is neither discernible, confined nor discrete. Rather, the court noted that groundwater is a “diffuse medium” that “seeps in all directions, guided only by the general pull of gravity. This it [groundwater] is neither confined nor discrete.” In addition, the appellate court noted that the CWA only regulates pollutants “…that are added to navigable waters from any point source.” In so holding, the court rejected the holdings in of the prior decisions of the Fourth and Ninth Circuits. 

Conclusion

The Sixth Circuit’s decision is a breath of fresh air for agriculture.  It is the state’s responsibility to regulate nonpoint source pollution.  A hydrological connection was never intended to suffice for federal jurisdiction under the CWA, and the Sixth Circuit said that the other courts finding as such was “misguided.”  The Sixth Circuit stated, “Reading the CWA to extend liability to groundwater pollution is not the best one.” 

Groundwater is not a point source.  The Sixth Circuit’s opinion has big implications for agricultural farming activities and will help keep the federal government out of the farm field in Kentucky, Michigan, Ohio and Tennessee.  It’s also likely that the U.S. Supreme Court will be asked to clear up the split between the circuit courts.  Stay tuned.

October 22, 2018 in Environmental Law | Permalink | Comments (0)

Thursday, October 18, 2018

Agricultural Law Online!

Overview

For the Spring 2019 academic semester, Kansas State University will be offering my Agricultural Law and Economics course online. No matter where you are located, you can enroll in the course and participate in it as if you were present with the students in the on-campus classroom.
Details of next spring’s online Ag Law course – that’s the topic of today’s post.

Course Coverage

The course provides a broad overview of many of the issues that a farmer, rancher, rural landowner, ag lender or other agribusiness will encounter on a daily basis. As a result, the course looks at contract issues for the purchase and sale of agricultural goods; the peril of oral contracts; the distinction between a lease and a contract (and why the distinction matters); and the key components of a farm lease, hunting lease, wind energy lease, oil and gas lease, and other types of common agricultural contractual matters. What are the rules surrounding ag goods purchased at auction?

Ag financing situations are also covered – what it takes to provide security to a lender when financing the purchase of personal property to be used in the farming business. In addition, the unique rules surrounding farm bankruptcy is covered, including the unique tax treatment provided to a farmer in Chapter 12 bankruptcy.

Of course, farm income tax is an important part of the course. Tax planning is perhaps the most important aspect of the farming business that every day decisions have an impact on and are influenced by. As readers of this blog know well, farm tax issues are numerous and special rules apply in many instances. The new tax law impacts many areas of farm income tax.

Real property legal issues are also prevalent and are addressed in the course. The key elements of an installment land contract are covered, as well as legal issues associated with farm leases. Various types of interests in real estate are explained – easements; licenses; profits, fee simples, remainders, etc. Like-kind exchange rules are also covered as are the special tax rules (at the state level) that apply to farm real estate. A big issue for some farmers and ranchers concerns abandoned railways, and those issues are covered in the course. What if an existing fence is not on the property line?
Farm estate and business planning is also a significant emphasis of the course. What’s the appropriate estate plan for a farm and ranch family? How should the farming business be structured? Should multiple entities be used? Why does it matter? These questions, and more, are addressed.

Agricultural cooperatives are important for the marketing of agricultural commodities. How a cooperative is structured and works and the special rules that apply are also discussed.

Because much agricultural property is out in the open, that means that personal liability rules come into play with respect to people that come onto the property or use farm property in the scope of their employment. What are the rules that apply in those situations? What about liability rules associated with genetically modified products? Ag chemicals also pose potential liability issues, as do improperly maintained fences? What about defective ag seed or purchased livestock that turns out to not live up to representations? These issues, and more, are covered in the scope of discussing civil liabilities.

Sometimes farmers and ranchers find themselves in violation of criminal laws. What are those common situations? What are the rules that apply? We will get into those issue too.

Water law is a very big issue, especially in the western two-thirds of the United States. We will survey the rules surrounding the allocation of surface water and ground water to agricultural operations.

Ag seems to always be in the midst of many environmental laws – the “Clean Water Rule” is just one of those that has been high-profile in recent years. We will talk about the environmental rules governing air, land, and water quality as they apply to farmers, ranchers and rural landowners.
Finally, we will address the federal (and state) administrative state and its rules that apply to farming operations. Not only will federal farm programs be addressed, but we will also look at other major federal regulations that apply to farmers and ranchers.

Further Information and How to Register

Information about the course is available here:
https://eis.global.ksu.edu/CreditReg/CourseSearch/Course.do?open=true&sectionId=127126

You can also find information about the text for the course at the following link (including the Table of Contents and the Index):
https://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/principlesofagriculturallaw/index.html

If you are an undergraduate student at an institution other than Kansas State, you should be able to enroll in this course and have it count as credit towards your degree at your institution.  Consult with your academic advisor to see how Ag Law and Economics will transfer and align with your degree completion goals.

If you have questions, you can contact me directly, or submit your questions to the KSU Global Campus staff at the link provided above.

I hope to see you in January!

Checkout the postcard (401 KB PDF) containing more information about the course and instructor.

KStateAgriculturalLawandEconomicsPostcard

October 18, 2018 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Tuesday, August 21, 2018

Does the Migratory Bird Treaty Act Apply To Farmers?

Overview

The Migratory Bird Treaty Act (MBTA) protects migratory birds that are not necessarily endangered and, thereby, protected under the ESA. 16 U.S.C. § 703 et seq.   The MBTA makes it unlawful at any time, by any means or in any manner, to pursue, hunt, take, capture or kill any migratory bird.  The Act is not limited to covering only hunting, trapping and poaching activities, but extends to commercial activities that kill migratory birds. 

But, can a farmer get caught in the web that the MBTA weaves?  Potential application of the MBTA to farming activities – that’s the topic of today’s post.

MBTA Basics

The Act prohibits taking or killing of migratory birds at any time, by any means or in any manner.  See, e.g., Unitied States v. Citgo Petroleum Corp., et al., No. C-06-563, 2012 U.S. Dist. LEXIS 125996 (S.D. Tex. Sept. 5, 2012). Violation of the Act is a misdemeanor punishable by fine up to $500 and imprisonment up to six months.  Anyone who knowingly takes a migratory bird and intends to, offers to, or actually sells or barters a migratory bird is guilty of a felony, with fines up to $2,000, jail up to two years, or both. 

The MBTA is a strict liability statute, and has been applied to impose liability on farmers who inadvertently poison migratory birds by use of pesticides.  While the MBTA is a strict liability statute, constitutional due process requirements must still be satisfied before liability can be imposed.  For instance, in United States v. Apollo Energies, Inc., et al., 611 F.3d 679 (10th Cir. 2010), the court held that oil drilling operators were not liable for deaths of migratory birds under the MBTA to the extent that the operators did not have adequate notice or a reasonable belief that their conduct violated the MBTA.   Similarly, in United States v. Rollins, 706 F. Supp. 742 (D.C. Idaho 1989), a farmer was prosecuted for violating the MBTA when he used a mixture of granular pesticides on an alfalfa field. The chemicals poisoned a flock of geese and killed several of them.  The trial court held that even though the farmer had not applied the pesticide in a negligent manner and could not control the fact that the geese would land and eat the granules, liability under the Act was based on whether the farmer knew that the land was a known feeding area for geese.  The trial court concluded that “a reasonable person would have been placed on notice that alfalfa grown on Westlake Island in the Snake River would attract and be consumed by migratory birds.”  The trial court was reversed on appeal on the grounds that the MBTA was too vague to give the farmer adequate notice that his conduct would likely lead to the killing of the protected birds since the farmer's past experience with the pesticide and the geese was that it did not kill them

Again, in United States v. Van Fossan 899 F.2d 636 (7th Cir. 1990), the court confirmed the notion that the MBTA is a strict liability statute and approved its application to a defendant who used pesticides to poison birds, even though the defendant did not know that his use of the pesticide would kill migratory birds protected under the Act.

Baiting

The MBTA also prohibits the taking of migratory game birds by the aid of “baiting”.  However, it is permissible to take migratory game birds, including waterfowl, on or over standing crops, flooded harvested croplands, grain crops that have been properly shocked on the field where grown, or grains found scattered solely as the result of normal agricultural planting or harvesting. See 50 C.F.R. §§ 20.11(g), 20.21(i). The U.S. Fish and Wildlife Service (FWS) has promulgated regulations defining “normal agricultural planting” and  “harvesting.”  In one case, the court held that FWS determinations that harvesting corn after December 1 and aerial seeding of winter wheat in standing corn were not “normal planting” and that the landowners were barred from hunting next to neighbors’ baited fields were reasonable interpretation of MBTA because the determinations were based on substantial evidence. Falk v. United States Fish and Wildlife Service, 452 F.3d 951 (8th Cir. 2006).

Some states also have statutes that prohibit the baiting of wildlife for hunting purposes unless the alleged baiting was the result of commonly accepted agricultural practices.  For example, in State v. Hansen, 805 N.W.2d 915 (Minn. Ct. App. 2011), the defendant’s conviction for using bait to hunt deer was reversed.  The state statute at issue was deemed to violate the defendant’s due process as it was vague as applied to defendant’s pumpkin patch operation because it did not distinguish between normally accepted agricultural practices and the unlawful baiting of deer.

Also, with respect to the baiting issue, the MBTA permits the taking of all migratory game birds, except waterfowl, on or over any lands where shelled, shucked, or unshucked corn, wheat or other grain, salt, or other feed has been distributed or scattered as the result of bona fide agricultural operations or procedures.  In United States v. Adams 174 F.3d 571(5th Cir. 1999), a farmer was convicted of violating the MBTA for hunting doves on a field that he had recently planted to wheat.  For purposes of the “baiting” provision of the Act, the trial court judge determined that intent was not an element of the offense for which the farmer was convicted and did not allow the farmer to introduce evidence concerning the procedures commonly used to plant winter wheat in northeast Louisiana.  On appeal, the Fifth Circuit Court of Appeals reversed the trial court, holding instead that the government was required to prove that the farmer’s intentions were not in good faith and that the farmer’s acts were merely a sham to attract migratory birds to hunt.  Accordingly, the court reversed the farmer’s conviction and rendered acquittal based on the court’s determination that the farmer was entitled to have the lower court consider the evidence of his good faith in growing the wheat, and because there was no evidence from which a jury could find that the farmer’s planting was not the result of a “bona fide agricultural operation or  procedure.” 

Another MBTA “baiting” case was recently decided.  In United States v. Obendorf, No. 16-30188, 2018 U.S. App. LEXIS 18561 (9th Cir. Jul. 9, 2018), the defendant was charged with illegally baiting and conspiracy to bait ducks, under the MBTA.  FWS agents patrolled the area near the defendant’s farm by plane, and aerially spotted large piles of corn near hunting blinds.  They also noticed irregular harvesting in one field on the farm. Along with an Idaho Department of Fish and Game Agent, the FWS “snuck” on to the farm that night. The agents observed six piles of corn and a strip combined field (partly cut field, leaving strips of standing corn) as well as a lot of corn wasted on the ground around the strip. The agents left trail/game cameras hidden on the property. Two years after the initial investigation, the defendant was charged. At trial, the defendant argued that the “agricultural practice” exception of the MBTA applied. That exception states that taking birds over specified areas, including “standing crops or flooded crops,” is not baiting. The trial court jury was instructed that the government had the duty to prove that the exception did not apply in the case at hand as well as proving the defendant’s guilt. The plaintiff presented witnesses that testified that strip cropping and other farming activities by the defendant were not recommended farming practices. The jury was persuaded that the exception did not apply and, the defendant was convicted of baiting under the MBTA. On appeal the defendant claimed that the court misinterpreted the exception. The plaintiff, however, claimed that the exception only applied to “taking” and not baiting. The appellate court agreed and upheld the defendant’s conviction. 

Conclusion

The MBTA is another federal law that can entangle farmers in its provisions.  While some conduct is clearly beyond the pale and should be within the MBTA’s reach, other conduct that is otherwise innocent may also be caught.  In any event, it is important for farmers to understand the potential reach of the law and how the courts have decided the key cases.

August 21, 2018 in Environmental Law | Permalink | Comments (0)

Tuesday, August 7, 2018

WOTUS Developments

Overview

The “Water of the United States” (WOTUS) rule has caused a considerable amount of controversy in agriculture for many years.  In 2006, the U.S. Supreme Court had a chance to add clarity to the matter, but managed to “muddy the waters” instead – rendering a split 4-1-4 decision.  In subsequent years, the Environmental Protection Agency (EPA) attempted to exploit that lack of clarity by expanding the regulatory definition of a WOTUS. 

The WOTUS issue is a very important issue for agricultural and rural landowners, and the U.S. Supreme Court is being asked to hear another case involving the issue at the present time. 

So, what is the present status of the WOTUS matter?  There have been many twists and turns in recent years  Today’s post sorts out the significant recent developments

The WOTUS rule recent developments – that’s the topic of today’s post.

Background

The Clean Water Act makes illegal the discharging of dredge or fill material into the “navigable waters of the United States” without first obtaining a permit from the Secretary of the Army acting through the Corps of Engineers (COE). In March of 2014, the EPA and the COE released a proposed rule defining “waters of the United States” (WOTUS) in a manner that would significantly expand the agencies’ regulatory jurisdiction under the CWA. Under the proposed rule, the CWA would apply to all waters which have been or ever could be used in interstate commerce as well as all interstate waters and wetlands. In addition, the proposed WOTUS rule specifies that the agencies’ jurisdiction would apply to all “tributaries” of interstate waters and all waters and wetlands “adjacent” to such interstate waters. The agencies also asserted in the proposed rule that their jurisdiction applies to all waters or wetlands with a “significant nexus” to interstate waters.

Under the proposed rule, “tributaries” is broadly defined to include natural or man-made waters, wetlands, lakes, ponds, canals, streams and ditches if they contribute flow directly or indirectly to interstate waters irrespective of whether these waterways continuously exist or have any nexus to traditional “waters of the United States.” The proposed rule defines “adjacent” expansively to include “bordering, contiguous or neighboring waters.” Thus, all waters and wetlands within the same riparian area of flood plain of interstate waters would be “adjacent” waters subject to CWA regulation. “Similarly situated” waters are evaluated as a “single landscape unit” allowing the agencies to regulate an entire watershed if one body of water within it has a “significant nexus” to interstate waters. The proposed rule became effective as a final rule on August 28, 2015 in 37 states.

Recent Case

In a recent case, Georgia v. Pruitt, No. 2:15-cv-79, 2018 U.S. Dist. LEXIS 97223 (S.D. Ga. Jun. 8, 2018), the plaintiffs claimed that the WOTUS rule, implemented in 2015, violates the Clean Water Act, the Administrative Procedure Act, the Commerce Clause of the Constitution, and the Tenth Amendment.  The plaintiffs sought an injunction preventing the rule from being implemented in 11 states pending a full hearing on the merits. To receive the injunction, the plaintiffs had to prove that they would (1) likely succeed on the merits; (2) be irreparably harmed; (3) sustain more potential injury than the defendant would be harmed; and (4) establish that the injunction is not contrary to the public interest. The court determined that the plaintiffs had met the standards for all four requirements. As for success on the merits, the court determined that the WOTUS rule would not likely be upheld under the U.S. Supreme Court standard set forth in Rapanos v. United States, 547 U.S. 715 (2006), and was random and impulsive. The court also determined that the irreparable harm standard had been satisfied given the increase in federal jurisdiction of “wetlands” under the rule which overstepped states’ rights and had the potential to impose substantial monetary harm on affected landowners. As for the balancing of the equities, the court determined that the loss of state rights and the increased potential for monetary damages outweighed the harm to the government in complying with an injunction. The court also reasoned that entering an injunction would not violate public policy because the WOTUS rule may be an be an unenforceable rule as inconsistent with prior court rulings concerning the scope of the government’s jurisdiction over wetlands. Accordingly, the court entered a preliminary injunction. 

The court’s order of preliminary injunction prevented the WOTUS rule from being implemented in 11 states – Alabama, Florida, Georgia, Indiana, Kansas, Kentucky, North Carolina, South Carolina, Utah, West Virginia and Wisconsin. A prior decision by the North Dakota federal district court had blocked the rule from taking effect in 13 states – AK, AZ, AR, CO, ID, MO, MT, NE, NV, NM, ND, SD and WY. North Dakota v. United States Environmental Protection Agency, No. 3:15-cv-59 (D. N.D. May 24, 2016).

The Sixth Circuit Litigation and the Jurisdiction Issue

On October 9, 2015, the U.S. Court of Appeals for the Sixth Circuit issued a nationwide injunction barring the rule from being enforced anywhere in the U.S. Ohio, et al. v. United States Army Corps of Engineers, et al., 803 F.3d 804 (6th Cir. 2015). Over 20 lawsuits had been filed at the federal district court level. On February 22, 2016, the U.S. Court of Appeals for the Sixth Circuit ruled that it had jurisdiction to hear the challenges to the final rule, siding with the EPA and the U.S. Army Corps of Engineers that the CWA gives the circuit courts exclusive jurisdiction on the matter. The court determined that the final rule is a limitation on the manner in which the EPA regulates pollutant discharges under CWA Sec. 509(b)(1)(E), the provision addressing the issuance of denial of CWA permits (codified at 33 U.S.C. §1369(b)(1)(E)). That statute, the court reasoned, has been expansively interpreted by numerous courts and the practical application of the final rule, the court noted, is that it impacts permitting requirements. As such, the court had jurisdiction to hear the dispute. The court also cited the Sixth Circuit’s own precedent on the matter in National Cotton Council of America v. United States Environmental Protection Agency, 553 F.3d 927 (6th Cir. 2009) for supporting its holding that it had jurisdiction to decide the dispute. Murray Energy Corp. v. United States, Department of Defense, No. 15-3751, 2016 U.S. App. LEXIS 3031 (6th Cir Feb. 22, 2016). 

In January of 2017, the U.S. Supreme Court agreed to review the Sixth Circuit’s decision. National Association of Manufacturers v. Department of Defense, et al., 137 S. Ct. 811 (2017). About a month later, President Trump issued an Executive Order directing the EPA and the COE to revisit the Clean Water Rule and change their interpretation of waters subject to federal jurisdiction such that it only applied to waters that were truly navigable – the approach taken by Justice Scalia in Rapanos v. United States, 547 U.S. 715 (2006). The EPA and Corps later indicated they would follow the President’s suggested approach, and would push the effective date of the revised Clean Water Rule to two years after its finalization and publication in the Federal Register. In November of 2017, the EPA issued a proposed rule delaying the effective date of the WOTUS rule until 2020.

In January of 2018, the U.S. Supreme Court ruled unanimously that jurisdiction over challenges to the WOTUS rule was in the federal district courts, reversing the Sixth Circuit’s opinion. National Association of Manufacturer’s v. Department of Defense, No. 16-299, 2018 U.S. LEXIS 761 (U.S. Sup. Ct. Jan. 22, 2018). The Court determined that the plain language of the Clean Water Act (CWA) gives authority over CWA challenges to the federal district courts, with seven exceptions none of which applied to the WOTUS rule. In particular, the WOTUS rule neither established an “effluent limitation” nor resulted in the issuance of a permit denial. While the Court noted that it would be more efficient to have the appellate courts hear challenges to the rule, the court held that the statute would have to be rewritten to achieve that result. Consequently, the Supreme Court remanded the case to the Sixth Circuit, with instructions to dismiss all of the WOTUS petitioners currently before the court. Once the case was dismissed, the nationwide stay of the WOTUS rule that the court entered in 2015 was removed, and the injunction against the implementation of the WOTUS rule entered by the North Dakota court was reinstated in those 13 states. Thus, given the June 2018 by the Georgia court, an injunction is presently in place in 24 states against the implementation of the rule. Another case against the WOTUS rule is currently pending in a Texas federal court.

2018 Notice of Proposed Rulemaking

Most recently, as directed by President Trump, the (COE) and the EPA issued a supplemental notice of proposed rulemaking. The proposed rule seeks to “clarify, supplement and seek additional comment on” the 2017 congressional attempt to repeal the 2015 WOTUS rule.  If the rule is repealed, the prior regulations defining a WOTUS will become the law again. The agencies are seeking additional comments on the proposed rulemaking via the supplemental notice. The comment period is open through August 13, 2018. Comments can be submitted by accessing the page at the following link: https://www.regulations.gov/docket?D=EPA-HQ-OW-2017-0203. COE/EPA, “Waters of the United States"– Reinstatement of Preexisting Rules, No. EPA-HQ-OW-2017-0203 (Jul. 12, 2018).

Conclusion

For those interested in the WOTUS issue, it may certainly be worthwhile to submit a comment to the EPA by the August 13 deadline.  We will have to wait and see what happens to the definition of a WOTUS over the coming months.  It’s a big issue for agriculture.

August 7, 2018 in Environmental Law | Permalink | Comments (0)

Wednesday, July 18, 2018

Agricultural Law and Economics Conference

Overview

Next month, Washburn Law School and Kansas State University (KSU) will team up for its annual symposium on agricultural law and the business of agriculture.  The event will be held in Manhattan at the Kansas Farm Bureau headquarters.  The symposium will be the first day of three days of continuing education on matters involving agricultural law and economics.  The other two days will be the annual Risk and Profit Conference conducted by the KSU Department of Agricultural Economics.  That event will be on the KSU campus in Manhattan.  The three days provide an excellent opportunity for lawyers, CPAs, farmers and ranchers, agribusiness professionals and rural landowners to obtain continuing education on matters regarding agricultural law and economics.  

Symposium

This year’s symposium on August 15 will feature discussion and analysis of the new tax law, the Tax Cuts and Jobs Act, and its impact on individuals and businesses engaged in agriculture; farm and ranch financial distress legal issues and the procedures involved in resolving debtor/creditor disputes, including the use of mediation and Chapter 12 bankruptcy; farm policy issues at the state and federal level (including a discussion of the status of the 2018 Farm Bill); the leasing of water rights; an update on significant legal (and tax) developments in agricultural law (both federal and state); and an hour of ethics that will test participant’s negotiation skills. 

The symposium can also be attended online.  For a complete description of the sessions and how to register for either in-person or online attendance, click here:  http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/continuingeducation/businessofagriculture/index.html

Risk and Profit Conference

On August 16 and 17, the KSU Department of Agricultural Economics will conduct its annual Risk and Profit campus.  The event will be held at the alumni center on the KSU campus, and will involve a day and a half of discussion of various topics related to the economics of the business of agriculture.  One of the keynote speakers at the conference will be Ambassador Richard T. Crowder, an ag negotiator on a worldwide basis.  The conference includes 22 breakout sessions on a wide range of topics, including two separate breakout sessions that I will be doing with Mark Dikeman of the KSU Farm Management Association on the new tax law.  For a complete run down of the conference, click here:  https://www.agmanager.info/risk-and-profit-conference

Conclusion

The two and one-half days of instruction is an opportunity is a great chance to gain insight into making your ag-related business more profitable from various aspects – legal, tax and economic.  If you are a producer, agribusiness professional, or a professional in a service business (lawyer; tax professional; financial planner; or other related service business) you won’t want to miss these events in Manhattan.  See you there, or online for Day 1.

July 18, 2018 in Bankruptcy, Business Planning, Civil Liabilities, Contracts, Cooperatives, Criminal Liabilities, Environmental Law, Estate Planning, Income Tax, Insurance, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Monday, July 2, 2018

Regulation of Wetlands and “Ipse Dixit" Determinations

Overview

Over two thousand years ago, the Roman philosopher Cicero coined a phrase for opinions not supported by facts.  “Ipse dixit” is Latin for “he said it himself.”  It’s an assertion without proof, with the person (or entity) making the assertion claiming that a matter is because the party making the assertion said it is.  

In a recent case involving wetlands, the court determined that the U.S. Army Corps of Engineers (Corps) claimed jurisdiction over “wetlands” without any supporting evidence.  It was a wetland because the Corps said it was a wetland – an “ipse dixit” determination.  The court set the Corps’ determination aside.

This isn’t the first time this has happened.  In 1998, the USDA/NRCS did the same thing in a Nebraska case involving ditch maintenance of a hay meadow caught up in the Swampbuster regulations.

“Ipse dixit” determinations involving wetlands – that’s today’s blog post topic.

Farmed Wetlands and Swampbuster

The conservation-compliance provisions of the 1985 Farm Bill introduced the concept of “Swampbuster.”  In 1986, the interim rules for Swampbuster were published in the Federal Register and evidenced general compliance with congressional intent and made no mention of “farmed wetland.”  However, the final rules published in 1987 introduced the concept of “farmed wetland,” defining a farmed wetland as playa, potholes, and other seasonally flooded wetlands that were manipulated before December 23, 1985, but still exhibited wetland characteristics.  Drains affecting these areas can be maintained, but the scope and effect of the original drainage system cannot be exceeded. 7 C.F.R. § 12.33(b). The USDA/NRCS has interpreted this as meaning that farmed wetland can be used as it was before December 23, 1985 (National Food Security Act Manual (NFSAM) § 514.23), and a hydrologic manipulation can be maintained to the same “scope and effect” as before December 23, 1985. Id. § 515.10(a).  In particular, the government has interpreted the “scope and effect” regulation such that the depth or scope of drainage ditches, culverts or other drainage devices be preserved at their December 23, 1985, level regardless of the effect any post-December 23, 1985, drainage work actually had on the land involved. 

Nebraska case.  However, in 1999, the Eighth Circuit Court of Appeals invalidated the government’s interpretation of the “scope and effect” regulation.  The court held that a proper interpretation should focus on the status quo of the manipulated wetlands rather than the drainage device utilized in post-December 23, 1985, drainage activities.  Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir. 1999). 

In Barthel, to determine the original scope and effect of the manipulation, the USDA focused solely on the depth of the ditch that drained the hay meadow at issue.  In essence, the USDA interpreted the manipulation to be the ditch. The USDA pointed out that the level of the culvert (that drained the ditch beneath a road) on or before December 23, 1985, was eighteen inches higher than at the time of the litigation.  The USDA took the position that the culvert could only be placed at that higher level.  At that level, the meadow would not drain and the plaintiff’s land was flooded. 

The USDA/NRCS claimed it had the authority to “determine the scope and effect of [the] original manipulation” by selecting “any pre-December 23, 1985, manipulation ‘which can be determined by reliable evidence.’” Thus, if the agency had reliable evidence about the ditch level in 1965, then the Barthels would be stuck with those findings, even if in 1983 (still before the effective date of the Act), more far reaching modifications were made. The appellate court disagreed, noting that it was presented with a factual setting that was cyclical.  The court noted that the record showed that the ditch was continually silted-in by natural conditions and animal traffic and must be periodically cleaned out.  The court then stated that if it accepted “the government’s argument, the USDA could select a level for the original manipulation, either intentionally or unintentionally, which is at the end of the natural cycle - just before the periodic clean-up.  This would essentially redefine the cycle.  Thus, in the government’s view, if partial flooding occurred just before the clean-up, the flood level would be the best the Barthels could expect for use of their land.  An ipse dixit determination like this would drastically reduce the use of the land and even leave it underwater - reviving a wetland [citation omitted].  This interpretation conflicts with the Act considered as a whole.” 

Wetland and the Clean Water Act

In 1993, the COE and EPA adopted new regulations clarifying the application of the permit requirement of §404 of the CWA to land designated as wetland.  Section 404 of the CWA makes illegal the discharging of dredge or fill material into the “navigable waters of the United States” (WOTUS) without obtaining a permit from the Secretary of the Army acting through the Corps.  The regulations specifically exempt prior converted wetlands from the definition of “navigable waters” for CWA purposes. 58 Fed. Reg. 45,008-48,083 (1993); 33 C.F.R. §328.3(a)(8).  Thus, prior converted cropland is not subject to the permit requirements of § 404 of the CWA.  Indeed, the Corps stated clearly that the only method for prior converted cropland to return to the Corps’ jurisdiction under the regulation was for the cropland to be “abandoned” – cropland production ceases with the land reverting to a wetland. 

In early 2009, the Corps prepared an Issue Paper announcing for the first time that prior converted cropland that is shifted to non-agricultural use becomes subject to regulation by the Corps. See Issue Paper Regarding "Normal Circumstances" (ECF No. 18-22).  The paper was the Corps’ response to five pending applications for jurisdictional determinations involving the transformation of prior converted cropland to limestone quarries. The paper concluded that the transformation would be considered an "atypical situation" within the meaning of the Corps’ Wetlands Manual and, thus, subject to regulation.  The paper further found that active management, such as continuous pumping to keep out wetland conditions, was not a "normal condition" within the meaning of 33 C.F.R. § 328.3(b).  However, no APA notice-and-comment period occurred (as required by the Administrative Procedure Act (APA) – Pub. L. 79-404, 69 Stat. 237, enacted Jun. 11, 1946)) before the Corps issued the memorandum.  Even so, the Corps implemented and enforced the rules nationwide.  The rules were challenged and in New Hope Power Company, et al. v. United States Army Corps of Engineers, 746 F. Supp.2d 1272 (S.D. Fla. Sept. 2010), the court held that the Corps had improperly extended its jurisdiction over the prior converted croplands that were converted to non-agricultural use and where dry lands were maintained using continuous pumping.  Under the Corp’s new rule, wetland determinations were being made based on what a property’s characteristic would be if pumping ceased.  The court noted that the rules effectively changed the regulatory definition of prior converted cropland without the new definition being subjected to notice and comment requirements.  Accordingly, the court invalidated the Corp’s new rule.

Illinois case.  In Orchard Hill Building Co. v. United States Army Corps of Engineers, No. 15-cv-06344, 2017 U.S. Dist. LEXIS 151673 (N.D. Ill. Sept. 19, 2017), the plaintiff was a developer that obtained title to a 100-acre tract on the southeast side of Chicago metro area in 1995.  The local town then passed a zoning ordinance allowing development of the property.  The tract was divided into three sections - 25 acres were to be developed into 168 townhomes; 61 acres to be developed into 169 single-family homes; and 14 acres in between the other acreages to function as a stormwater detention area.  The townhomes and water detention area was to be developed first and then the single-family housing.  Construction of the townhomes began in 1996, and the single-family housing development was about to begin when the defendant designated about 13 acres of the undeveloped property as “wetlands” and asserted regulatory jurisdiction under the CWA.

The defendant claimed jurisdiction on the basis that the “wetland” drained via a storm sewer pipe to a creek that was a tributary to a river that was a navigable water of the U.S.   The plaintiff administratively appealed the defendant’s jurisdictional determination to the Division Engineer who agreed that the District Engineer failed to properly interpret and apply applicable the U.S. Supreme Court decision in Rapanos v. United States, 547 U.S. 715 (2006), which created a significant nexus test.  On reconsideration, the District Engineer issued a second approved jurisdictional determination in 2010 concluding that the tract had a significant nexus to the navigable river.  The plaintiff appealed, but the Division Engineer dismissed the appeal as being without merit.  In 2011, the plaintiff sought reconsideration of the defendant’s appeal decision because of a 1993 prior converted cropland designation that excluded a part of the 100-acres from CWA jurisdiction.  Upon reconsideration, the District Engineer issued a third jurisdictional determination in 2012 affirming its prior determination noting that farming activities had ceased by the fall of 1996 and wetland conditions had returned.  The plaintiff appealed on the basis that the “significant nexus” determination was not supported by evidence.  The Division Engineer agreed and remanded the matter to the District Engineer for supportive documentation and to follow the defendant’s 2008 administrative guidance.  The District Engineer issued a new jurisdictional determination with supportive evidence, including an 11-page document that had previously not been in the administrative record.  This determination, issued in 2013, constituted a final agency determination, from which the plaintiff sought judicial review. 

In court, the plaintiff claimed that the defendant didn’t follow its own regulations, disregarded the instructions of the Division Engineer, and violated the Administrative Procedures Act (APA) by supplementing the record with the 11-page document.  However, the trial court judge (an Obama appointee) noted that existing regulations allowed the Division Engineer, on remand, to instruct the District Engineer to supplement the administrative record on remand and that the limitation on supplementing the administrative record only applied to the Division Engineer.  The trial court also determined that the supplemental information did not violate the Division Engineer’s remand order, and that the supplemental information had been properly included in the administrative record and was part of the basis for the 2013 reviewable final agency determination.  The trial court also upheld the defendant’s nexus determination because it sufficiently documented a physical, chemical and biological impact of the navigable river.  In addition, the trial court determined that the prior converted cropland exemption did not apply because farming activities had been abandoned for at least five years and wetland characteristics returned. 

On appeal, in Orchard Hill Building Co. v. United States Army Corps of Engineers, No. 17-3403, 2018 U.S. App. LEXIS 17608 (7th Cir. Jun. 27, 2018), the appellate court three-judge panel in a unanimous opinion (the author of the opinion is a Trump appointee and another judge is also a Trump appointee; the third panel member is a Ford appointee) first noted that the Corps concluded that the tract was a WOTUS based on the 11-page document both “alone and in combination with other wetlands in the area.”  However, the appellate court held that this conclusion lacked substantial evidence.  Simply stating that wetlands filter out pollutants and that the tract has a “discrete and confined intermittent flow” to a creek that flowed to a WOTUS which gave the tract the ability to pass pollutants along was mere speculation that didn’t support a significant nexus with a navigable water.  The appellate court also that the Corps also determined that the development of the tract would result in a floodwater rise of a fraction of one percent. On this point, the court stated, “If the Corps thinks that trivial number significant, it needs to give some explanation as to why.”  The appellate court found similarly with respect to the potential increase on downstream nitrogen.  The Corps provided no reasoning for its conclusion. 

The appellate court also noted that the Corps referenced the National Wetland Inventory for a listing of all of the wetlands in the area that were in proximity to the creek that flowed into a navigable waterway.  But, again, the appellate court scolded the Corps for making a bald assertion that the wetlands in the watershed were adjacent to the same tributary without any supporting evidence.   The Corps claimed it didn’t have to show or explain how each wetland was adjacent to the creek, but the appellate court stated that constituted jurisdictional overreach.  Importantly, the court stated that, “the significant nexus test has limits:  the Corps can consider the effects of in-question wetlands only with the effects of lands that are similarly situated.  To do as the Corps did on this record – to consider the estimated effects of a wide swath of land that dwarfs the in-question wetlands, without first showing or explaining how the land is in fact similarly situated – is to disregard the test’s limits…. By contrast, the Corps’ similarly-situated finding here, lacking as it does record support or explanation, is little more than administrative ipse dixit.”

Consequently, the appellate court vacated the trial court’s grant of summary judgment to the Corps and remanded with instructions to remand to the Corps for reconsideration of its jurisdiction over the tract.

Conclusion

Two ipse dixit determinations by federal agencies against landowners.  In each situation, the appellate court found that the government had abused its discretion.  The cases point out that maybe there is some hope that the courts will hold government agencies to the requirement that they must support their determinations with solid proof.  They can’t just say that it is so because they say it is.

July 2, 2018 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Monday, June 18, 2018

Wetlands and Farm Programs – Does NRCS Understand the Rules?

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.

Wetlands under the farm program rules – that’s the topic of today’s post.

Iowa Case

In B & D Land & Livestock Co. v. Schafer, 584 F. Supp. 2d 1182 (N.D. Iowa 2008), the plaintiff purchased the tract in issue in 1997.  The tract had been farmed by the prior owner’s tenant from 1972 to 1986, and was enrolled in the Conservation Reserve Program (CRP) from 1987 to 1997.  The plaintiff purchased the property in 1999, before the USDA determined that a portion of the tract was wetland.  Despite that determination, the plaintiff removed some woody vegetation in 2000 because it was a nuisance to the plaintiff’s farming operation.  The USDA determined that the plaintiff had “converted” 0.9 acres of wetland.  However, the plaintiff claimed that the tract had been cropped before December 23, 1985, thereby making it prior converted cropland.  Also, the plaintiff introduced evidence that a drainage tile had been installed before December 23, 1985, and that the tile, along with a road ditch, removed the wetland hydrology from the tract.  But, USDA believed that the tile was not functioning as of December 23, 1985, because woody vegetation existed. 

The plaintiff’s expert civil engineer, however, concluded that if the drainage tile had been plugged, when the USDA broke the tile during the on-site field investigation, the resulting hole would have filled full of water and saturated the ground and would have continued to be fed from water from further up the tile line.  But, that did not occur.  So, the plaintiff argued that the drainage tile coupled with the installation of a road ditch removed the presence of wetland hydrology from the tract.  USDA disagreed, claiming that the presence of hydrophytic vegetation, by itself, demonstrated wetland hydrology was present.

The court didn’t buy the USDA’s argument.  The court noted the statute clearly specifies that a “wetland” has three separate, mandatory requirements:  (1) hydric soil; (2) wetland hydrology, and; (3) hydrophytic vegetation.  In addition, the court noted that the presence of hydrophytic vegetation is not sufficient to meet the wetland hydrology requirement.  In addition, the court determined that the USDA reached its conclusion by disregarding evidence contrary to its experts that were relevant on the issues involved. 

Accordingly, the court ruled that the USDA hearing officer’s “final” determination must be overturned as arbitrary and capricious, an abuse of discretion, or contrary to law.  As for attorney fees, the court stated that it would reserve the issue for consideration upon a specific application for attorney fees.  

Virginia Dispute

In a recent dispute involving a tract of land in Virginia, the USDA NAD again determined that the NRCS didn’t follow applicable rules when determining the existence of wetlands.  In re Hood, No. 2017E000755 (USDA NAD, Jun. 14, 2018).  The landowner participated in the NRCS Environmental Quality Incentives Program (EQIP) for almost a decade.  The contract covered most of his 31-acre tract.  In 2006, the NRCS determined that the landowner had converted 18.74 acres of wetland on the tract to cropland.  The NRCS issued a certified wetland determination to that effect, but neither the landowner nor the NRCS took any other action at that time.

In 2016, the NRCS again reviewed the property for compliance with the wetland provisions.  They conducted a site visit and again concluded that the landowner had converted 18.76 acres of wetland to cropland after November 28, 1990, by sheering stumps (the tract had formerly been used as a tree farm) and planting crops on former wetland.  An appeal to the Farm Service Agency (FSA) County Committee which upheld the NRCS final technical determination and held the landowner ineligible for USDA farm program benefits.  The landowner appealed the FSA decision to the NAD asserting that the FSA decision was wrong because the underlying 2006 NRCS wetland determination was inaccurate and “incompetent.”  Specifically, the landowner claimed that the NRCS did not follow its soil map, and didn’t properly identify the actual soil on his tract.  The landowner also claimed that the NRCS did not properly follow the “50/20” rule (a method to select dominant aspects for wetland evaluation.  The landowner claimed that the FSA’s decision resulted from the erroneous 2006 wetland determination, and that current and former USDA personnel had advised him that his wetland was farmable because it lacked the characteristics for wetland and contained upland and non-wetland plants.  The landowner also claimed that the tract was drained by the federal government in the 1930s via the installation of three ditches which lowered the water table, changed the land’s hydrology and made the tract dry.  The landowner also claimed that the allegedly converted wetlands were atypical and the NRCS should have reevaluated them as such. 

The landowner also asserted that the NRCS engaged in misconduct by targeting him by taking over 120 soil samples in search of a wetland as part of an ongoing feud that the NRCS had with him as a part-time FSA employee. 

The USDA NAD Secretary determined that the FSA determination was erroneous.  The landowner had sufficiently demonstrated that a natural event of water receding altered the hydrology of the land.  This hydrological change, the NAD Secretary reasoned, established that the wetland determinations were no longer reliable indicators of site conditions on the land.  The NAD Secretary specifically found that the United States Geological Survey (USGS) maps showed no wetlands or swampland related to the cleared part of the land or on any of the land not adjacent to the stream lying on the north/northwest of the property line.  Indeed, the NRCS national cooperative soil survey maps, the NAD Secretary noted, showed that the land was comprised of non-hydric sandy loam soils. 

The NAD Secretary did not have the authority to review the landowner’s claim that the FSA and/or NRCS committed misconduct.  However, the NAD Secretary noted that the landowner could file a complaint with the USDA’s Office of Inspector General.  The NAD Secretary noted that the FSA could seek NAD Director Review by filing a request within 30 days of the Secretary’s decision.

Attorney Fees

When the government’s position is not substantially justified, attorney fees and other expenses can be awarded.  In the Iowa case referred to above, the plaintiff’s lawyer did, indeed, make an application for $57,768.59 in fees and $683.00 in costs, $3,414.17 in expenses, and $13,380.43 in other fees and costs.  Those fees, costs and expenses were the result of work performed on the case that the USDA chose to drag out for over eight years.  The Equal Access to Justice Act (EAJA) allows for an award of attorney fees in cases where the plaintiff prevails against the U.S. Government and satisfies three requirements – (1) a final judgment has been rendered; (2) the plaintiff prevailed; and (3) the government’s position was not substantially justified.  The USDA denied the plaintiff’s request for fees, claiming instead that their position was substantially justified, that special circumstances made an award of fees unjust, and that the plaintiff’s lawyer put excessive hours in on the case at too high an hourly rate and didn’t have any particular expertise in wetland matters.

The court noted that fees and other expenses are to be awarded under the EAJA unless the government’s position was substantially justified or special circumstances would make awarding fees and costs unjust.  To be substantially justified, the government’s position must only have a reasonable basis in law and fact.  That’s a rather low threshold.  Basically, if the government can come up with any reasonable interpretation of statutory law, they win and no award of fees and costs will be required.  In addition, even if the government loses in court, that doesn’t create a presumption that the government’s position was not substantially justified.  But, the government still has the burden of proof to establish that its position was substantially justified. 

The court held that the government had absolutely no reasonable basis for its “conflation of the separate “hydrophytic vegetation” and “wetland hydrology” requirements for a “wetland,” and improperly placing the burden on B&D to demonstrate why wetlands were not present based on criteria not identified in the statute or regulations.”   The court also noted that USDA disregarded “saturation” evidence, disregarded evidence that wetland hydrology had already been removed because of pre-existing drainage and the adjacent road and the ditch.  The court, in a particularly pointed comment, stated:

“At each stage of the proceedings, the government sought to uphold its prior “wetlands” determination, without regard to any evidence or law to the contrary, suggesting an entrenched bureaucracy’s refusal to admit error, not an interest in proper application of the law.”

The court also held that no special circumstances existed to deny an award of fees and costs.  As for the government’s claim that the plaintiff’s attorney billed too many hours at too high an hourly rate, the court noted that the statutory rate specified $125/hour as a maximum rate unless the attorney had particular expertise.  The plaintiff’s attorney had billed some work on the case at $175/hour and other work at $185/hour.  The attorney justified the fee rate based on an inflation adjustment to the statutory rate and the attorney’s specialized skill in wetland matters.  The court agreed on both points.  USDA complained that the plaintiff’s lawyer didn’t need to put time in on a brief for injunctive relief because USDA had promised that it wasn’t necessary because they would continue to pay federal farm program benefits.  The court wouldn’t bite, stating “the court…cannot…say…that the government’s assurances were so unequivocal or binding on the government that no preliminary injunction was warranted, particularly in light of the credible threat of bankruptcy for the plaintiff posed by any enforcement action by the government during the pendency of this action.” 

Conclusion

In the Iowa case, the USDA basically harassed the plaintiff with bogus wetland violation claims for many years which placed the plaintiff within the potential peril of bankruptcy.  In addition, the USDA continued to maintain its bogus claims in an attempt to avoid paying the plaintiff’s attorney fees.  In the Virginia matter, the USDA/NRCS was conducting itself similarly and the NAD Secretary would have none of it. 

The government’s conduct in both of these matters is something that the U.S. Court of Appeals for the Eighth Circuit was concerned with in Barthel v. United States Department of Agriculture, 181 F.3d 934 (8th Cir 1999).  In that case, the court stated, in rejecting the USDA’s interpretation of the statute governing wetland drainage activities, that “…there is no worse statute than one misunderstood by those who interpret it.” 

The USDA is now under new leadership, but lower level field staff remain from prior Administrations.  Perhaps the requirement to pay attorney fees and costs for unreasonable positions will cause them to take more care to follow their own regulations when delineating wetlands. 

June 18, 2018 in Environmental Law | Permalink | Comments (0)

Monday, April 9, 2018

Non-Tax Ag Provisions in the Omnibus Bill

Overview

In late March, the Congress passed, and the President signed, the Consolidated Appropriations Act of 2018, H.R. 1625.  This 2,232-page Omnibus spending bill, which establishes $1.3 trillion of government spending for fiscal year 2018, contains several ag-related provisions.  I looked at one of those a couple of weeks ago – the modification to I.R.C. §199A that was included in the Tax Cuts and Jobs Act (TCJA) enacted last December and which became effective for tax years after 2017.  I.R.C. §199A, known as the qualified business income (QBI) deduction, created a 20 percent deduction for sole proprietorships and pass-through businesses.  However, the provision created a tax advantage for sellers of agricultural products sold to agricultural cooperatives.  Before the modification, those sales generated a tax deduction from gross sales for the seller.  But if those same ag goods were sold to a company that was not an agricultural cooperative, the deduction could only be taken from net business income.  That tax advantage for sales to cooperatives was deemed to be a drafting error and was modified by a provision that provides greater equity between sales to agricultural cooperatives and non-cooperatives. 

The modification to I.R.C. §199A received a lot of attention.  However, there were a couple of other provisions in the Omnibus bill that are also ag-related.  Today’s blog post examines those other two provisions. 

Animal Waste Air Reporting Exemption For Farms

Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the Emergency Planning and Community Right-to-Know Act (EPCRA), the federal government is to be notified when large quantities of hazardous materials are released into the environment. Once notified, the Environmental Protection Agency (EPA) has discretion to take remedial actions or order further monitoring or investigation of the situation. In 2008, the EPA issued a final regulation exempting farms from the reporting/notification requirement for air releases from animal waste on the basis that a federal response would most often be impractical and unlikely. However, the EPA retained the reporting/notification requirement for Confined Animal Feeding Operations (CAFOs) under EPCRAs public disclosure rule. Various environmental groups challenged the exemption on the basis that the EPA acted outside of its delegated authority to create the exemption. Agricultural groups claimed that the retained reporting requirement for CAFOs was also impermissible. The environmental groups claimed that emissions of ammonia and hydrogen sulfide (both hazardous substances under CERCLA) should be reported as part of furthering the overall regulatory objective. The court noted that there was no clear way to best measure the release of ammonia and hydrogen sulfide, but did determine that continuous releases are subject to annual notice requirements. The court held that the EPA’s final regulation should be vacated as an unreasonable interpretation of the de minimis exception in the statute. As such, the challenge brought by the agriculture groups to the CAFO carve out was mooted and dismissed. Waterkeeper Alliance, et al. v. Environmental Protection Agency, No. 09-1017, 2017 U.S. App. LEXIS 6174 (D.C. Cir. Apr. 11, 2017).

The court’s order potentially subjected almost 50,000 farms to the additional reporting requirement. As such, the court delayed enforcement of its ruling by issuing multiple stays, giving the EPA additional time to write a new rule. The EPA issued interim guidance on October 25, 2017. The court issued its most recent stay in the matter on February 1, 2018, with the expiration scheduled for May 1. However, Division S, Title XI, Section 1102 of the Omnibus bill, entitled the Fair Agricultural Reporting Method Act (FARM Act), modifies 42 U.S.C. §9603 to include the EPA exemption for farms that have animal waste air releases. Specifically, 42 U.S.C. §9603(e) is modified to specify that “air emissions from animal waste (including decomposing animal waste) at a farm” are exempt from the CERCLA Sec. 103 notice and reporting requirements. “Animal waste” is defined to mean “feces, urine, or other excrement, digestive emission, urea, or similar substances emitted by animals (including any form of livestock, poultry, or fish). The term animal waste “includes animal waste that is mixed or commingled with bedding, compost, feed, soil or any other material typically found with such waste.” A “farm” is defined as a site or area (including associated structures) that is used for “the production of a crop; or the raising or selling of animals (including any form of livestock, poultry or fish); and under normal conditions, produces during a farm year any agricultural products with a total value equal to not less than $1,000.”

ELD Rule Involving Agricultural Commodities Defunded

The Omnibus bill also addresses an Obama-era regulation involving truckers that is of particular importance to the livestock industry.  On December 18, 2017, the U.S. Department of Transportation (USDOT) Final Rule on Electronic Logging Devices (ELD) and Hours of Service (HOS) was set to go into effect. 80 Fed. Reg. 78292 (Dec.16, 2015). The final rule was issued in late 2015. The new rule would require truck drivers to use electronic logging devices instead of paper logs to track their driving hours starting December 18, 2017. The devices connect to the vehicle's engine and automatically record driving hours. There are numerous exceptions to the ELD final rule.

While the mandate was set to go into effect December 18, 2017, the Federal Motor Carrier Safety Administration (FMCSA) granted a 90-day waiver for all vehicles carrying agricultural commodities. That 90-day delay was later extended. Other general exceptions to the final rule exist for vehicles built before 2000; vehicles that operate under the farm exemption (a “MAP 21” covered farm vehicle; 49 C.F.R. §395.1(s)); drivers coming within the 100/150 air-mile radius short haul log exemption (49 CFR §395.1(k)); and drivers who maintain HOS logs for no more than eight days during any 30-day period.

Under the Omnibus legislation, the ELD rule was defunded through the end of the government's current fiscal year - September 30, 2018. Under Division L, Title I, Section 132, specifies that, “None of the funds appropriated or otherwise made available to the Department of Transportation by this Act or any other Act may be obligated or expended to implement, administer, or enforce the requirements of 5 section 31137 of title 49, United States Code, or any regulation issued by the Secretary pursuant to such section, with respect to the use of electronic logging devices by operators of commercial motor vehicles, as defined in section 31132(1) of such title, transporting livestock as defined in section 602 of the Emergency Livestock Feed Assistance Act of 1988 (7 U.S.C. 1471) or insects.” 

Conclusion

The Omnibus bill is a conglomeration of many provisions, most of which don’t have a direct impact on agricultural producers or agribusinesses.  However, there were a few provisions included of importance to agriculture.  While very few people, if any, have read and understand all of the provisions in the 2,232-page bill, it is important for those in the agricultural industry to have an understanding of the provisions that apply to them.

April 9, 2018 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Tuesday, March 6, 2018

Is a CWA Permit Needed For Pollution Discharges Via Groundwater?

Overview

Under the Clean Water Act (CWA), a National Pollution Discharge Elimination System (NPDES) permit is required to discharge a “pollutant” from a point source into the “navigable waters of the United States” (WOTUS).  Clearly, a discharge directly into a WOTUS is covered.  But, is an NPDES permit necessary if the discharge is directly into groundwater which then finds its way to a WOTUS?  Are indirect discharges from groundwater into a WOTUS covered?   If so, does that mean that farmland drainage tile is subject to the CWA and an NPDES discharge permit is required?  The federal government has never formally taken that position, but if that’s the case it’s a huge issue for Midwest and other areas of agriculture. 

Recently, a federal court determined that some discharges into groundwater require an NPDES permit. But, other courts have ruled differently.  Now the Environmental Protection Agency (EPA) has opened a comment period on whether pollutant discharges from point sources that reach jurisdictional surface waters via groundwater should be subject to CWA regulation.

Possible NPDES discharge permits for groundwater discharges – that’s the focus of today’s post.

CWA Discharge Permit Basics

The CWA recognizes two sources of pollution. Point source pollution is pollution which comes from a clearly discernable discharge point, such as a pipe, a ditch, or a concentrated animal feeding operation.  Under the CWA, point source pollution is the concern of the federal government.  Nonpoint source pollution, while not specifically defined under the CWA, is pollution that comes from a diffused point of discharge, such as fertilizer runoff from an open field.  Control of nonpoint source pollution is to be handled by the states through enforcement of state water quality standards and area-wide waste management plans.

Under 1977 amendments, tile drainage systems were exempted from CWA regulation via irrigation return flows.  See, e.g., Pacific Coast Federation of Fishermen’s Associations, et al. v. Glaser, et al., No. CIV S-2:11-2980-KJM-CKD, 2013 U.S. Dist. LEXIS 132240 (E.D. Cal. Sept. 16, 2013).  They aren’t considered to be point sources.  In addition, several courts have held that the NPDES system only applies to discharges of pollutants into surface water.  These courts have held that discharges of pollutants into groundwater are not subject to the NPDES permit requirement even if the groundwater is hydrologically connected to surface water.  See, e.g., Umatilla Water Quality Protective Association v. Smith Frozen Foods, 962 F. Supp. 1312 (D. Ore. 1997); United States v. ConAgra, Inc., No. CV 96-0134-S-LMB, 1997 U.S. Dist. LEXIS 21401 (D. Idaho Dec. 31, 1997).  Likewise, in another case, the court determined that neither the CWA nor the EPA covered groundwater solely on the basis of a hydrological connection with surface water.  Village of Oconomowoc Lake v. Dayton Hudson Corporation, 24 F.3d 962 (7th Cir. 1994), cert. denied, 513 U.S. 930 (1994).  See also Rice v. Harken Exploration Co., 250 F.3d 264 (5th Cir. 2001); Cape Fear River Watch v. Duke Energy Progress, Inc., 25 F. Supp. 3d 798 (E.D. N.C. 2014).

But, other courts have taken a different view, finding that the CWA covers pollution discharges irrespective of whether the discharge is directly into a WOTUS or indirectly via groundwater with some sort of hydrological connection to a WOTUS.   See, e.g., Idaho Rural Council v. Bosma, 143 F. Supp. 2d 1169 (D. Idaho 2001); Northern California River Watch v. Mercer Fraser Co., No. 04-4620 SC, 2005 U.S. Dist. LEXIS 42997 (N.D. Cal. Sept. 1, 2005); United States v. Banks, 115 F.3d 916 (11th Cir. 1997), cert. denied, 522 U.S. 1075 (1998); Mutual Life Insurance Co. of New York v. Mobil Corp., No. 96-CV-1781 (RSP/DNH), 1998 U.S. Dist. LEXIS 4513 (N.D. N.Y. Mar. 31, 1998).

Recent Case

The issue came up again in a recent case.  In Hawai’i Wildlife Fund v. County of Maui, 881 F.3d 754 (9th Cir. 2018), the defendant owned and operated four wells at the Lahaina Wastewater Reclamation Facility (LWRF), which is the principal municipal wastewater treatment plant for a city. Although constructed initially to serve as a backup disposal method for water reclamation, the wells ultimately became the defendant’s primary means of effluent disposal into groundwater and, ultimately, the Pacific Ocean. The LWRF received approximately four million gallons of sewage per day from a collection system serving approximately 40,000 people. That sewage was treated at LWRF and then either sold to customers for irrigation purposes or injected into the wells for disposal.

The defendant injected approximately 3 to 5 million gallons of treated wastewater per day into the groundwater via its wells. The defendant conceded, and its expert, confirmed that wastewater injected into wells 1 and 2 enters the Pacific Ocean. In addition, in June 2013 the EPA, the Hawaii Department of Health, the U.S. Army Engineer Research and Development Center, and researchers from the University of Hawaii conducted a study on wells 2, 3 and 4. The study involved placing tracer dye into Wells 2, 3, and 4, and monitoring the submarine seeps off Kahekili Beach to see if and when the dye would appear in the Pacific Ocean. This study, known as the Tracer Dye Study, found that 64 percent of the treated wastewater from wells 3 and 4 discharged into the ocean.  The plaintiff sued, claiming that the defendant was in violation of the Clean Water Act (CWA) by discharging pollutants into navigable waters of the United States without a CWA National Pollution Discharge Elimination System (NPDES) permit.  The trial court agreed, holding that an NPDES permit was required for effluent discharges into navigable waters via groundwater. 

On appeal, the appellate court held that the wells were point sources that could be regulated through CWA permits despite the defendant’s claim that an NPDES permit was not required because the wells discharged only indirectly into the Pacific Ocean via groundwater.  Specifically, the appellate court held that “a point source discharge to groundwater of “more than [a] de minimis” amount of pollutants that is “fairly traceable from the point source . . . such that the discharge is the functional equivalent of a discharge into a navigable water” is regulated under the CWA.”  The appellate court reached this conclusion by citing cases from other jurisdictions that determined that an indirect discharge from a point source into a navigable water requires an NPDES discharge permit.  The defendant also claimed its effluent injections are not discharges into navigable waters, but rather were disposals of pollutants into wells, and that the CWA categorically excludes well disposals from the permitting requirements. However, the court held that the CWA does not categorically exempt all well disposals from the NPDES requirements because doing so would undermine the integrity of the CWA’s provisions. Lastly, the plaintiff claimed that it did not have fair notice because the state agency tasked with administering the NPDES permit program maintained that an NPDES permit was unnecessary for the wells. However, the court held that the agency was actually still in the process of determining if an NPDES permit was applicable. Thus, the court found the lack of solidification of the agency’s position on the issue did not affirmatively demonstrate that it believed the permit was unnecessary as the defendant claimed.  Furthermore, the court held that a reasonable person would have understood the CWA as prohibiting the discharges, thus the defendant’s due process rights were not violated. 

Pending Court Cases and EPA Action

The Ninth Circuit’s decision further illustrates the different conclusions that the courts have reached on the matter.  In addition, at the present time, the U.S. Circuit Court of Appeals for both the Second and Fourth circuits have cases before them on the issue of whether the CWA applies to indirect discharges of pollutants into a WOTUS from subsurface discharges.  This all could lead to an eventual case before the U.S. Supreme Court on the matter.

On February 20, 2018, the EPA issued a Request for Comment on whether pollutant discharges from point sources that reach jurisdictional surface waters via groundwater may be subject to Clean Water Act (“CWA”) regulation. Specifically, EPA seeks comment on whether EPA should consider clarification or revision of previous EPA statements regarding the Agency’s mandate to regulate discharges to surface waters via groundwater under the CWA.   As noted above, the EPA has never stated that CWA permits are required for pollutant discharges to groundwater in all cases. Rather, EPA’s position has been that pollutants discharged from point sources that reach jurisdictional surface waters via groundwater or other subsurface flow that has a direct hydrologic connection to the jurisdictional water may be subject to CWA permitting requirements.

As part of its request, EPA seeks comment by May 21, 2018, on whether it should review and potentially revise its previous positions.  In particular, the EPA is seeking comment on whether it is consistent with the CWA to require a CWA permit for indirect discharges into jurisdictional surface waters via groundwater.  The EPA also seeks comment on whether some or all of such discharges are addressed adequately through other federal authorities, existing state statutory or regulatory programs or through other existing federal regulations and permit programs.  Comments can be submitted by identifying them as Docket ID No. EPA-HQ-QW-2018-0063 at http://www.regulations.gov.  Follow the online instructions for submitting comments. 

Conclusion

Whether an NPDES discharge permit is required for pollution discharges that only indirectly find their way to a WOTUS via groundwater is an important issue for agriculture.  It’s a particularly big issue in the Midwest where many farm fields are drained to make crop production possible.  The purpose of drain tile is to control groundwater levels by relocating groundwater to surface water. Nitrates in excess of drinking water standards are prevalent in many parts of the Midwest. 

Interested farmers, ranchers and rural landowners should give serious consideration to submitting comments on or before May 21.    

March 6, 2018 in Environmental Law | Permalink | Comments (0)

Friday, January 5, 2018

Top Ten Agricultural Law and Tax Developments of 2017 (Five Through One)

Overview

This week we are looking at the biggest developments in agricultural law and taxation for 2017.  On Monday, I discussed those developments that were important but just not quite significant enough based on their national significance to make the top ten.  On Wednesday I addressed developments 10 through 6.  Today I discuss the top five developments of 2017 – the really big ones.  These are the developments that I deem to be of the highest importance on a national scale to agricultural producers, agribusiness and rural landowners in general. 

Today’s blog post – the top five developments in agricultural law and taxation in 2017.

  • 5 – Federal Implied Reserved Water Rights Doctrine Applies to Groundwater. Water issues are big in the West, and the Federal Government owns about 28 percent of the land area of the United States, with approximately 50 percent of that amount concentrated in 11 Western states (excluding Alaska).  Across the West, most water rights are granted under and governed by state law. Federal law touching on water rights has generally deferred to state law for over 140 years, and the federal government waives its sovereign immunity from state court proceedings involving water rights.  However, the U.S. Supreme Court has long recognized that Native American tribes can be entitled to water rights under federal law, rights that supersede many of these state rights. These federal implied rights are based upon the belief that the United States, when establishing Indian reservations, “intended to deal fairly with the Indians by reserving for them the waters without which their lands would have been useless.”  But, the federal government’s water rights are not limited to its trustee capacity for Native American Tribes, but also apply to national monuments, national forests, and other public lands.  In 2017, the U.S. Court of Appeals for the Ninth Circuit became the first federal appellate case to reach a decision on this issue, and its reasoning follows multiple state court decisions across the West.  The court first held that the United States clearly intended to reserve water under federal law when it created the Tribe’s reservation. The court noted that the underlying purpose of the reservation was to establish a tribal homeland supporting an agrarian society.  That purpose would be entirely defeated, the court reasoned, without sufficient water supplies held under federal law. Thus, the Tribe was entitled to a reserved water right for the Agua Caliente Reservation.  Next, the Ninth Circuit held that the Tribe’s reserved water right extended to groundwater. It was necessary for the Tribe to access groundwater in the Coachella Valley Basin because surface supplies were clearly inadequate—a reservation without an adequate supply of surface water must be able to access groundwater as well. Thus, the court held that the reservation and establishment of the Agua Caliente Reservation carried with it an implied federal reserved right to use water from the aquifer.  The court also determined that the Tribe’s implied reserved water rights pre-empted state water rights, and the Tribe’s lack of groundwater pumping did not defeat those rights, because they are immune from abandonment.  The court also determined that the proper inquiry was whether water was envisioned as necessary for the reservation’s purpose at the time the reservation was created. Thus, the Ninth Circuit held, the issue of the Tribe’s state law-based water rights did not affect the existence of its federal implied reserved water right.  That right, the court held, always applies as a matter of federal pre-emption, regardless of how a state allocates groundwater rights.  The court’s opinion is significant because groundwater has become the dominant supply of water across the West.  The decision also has important implications for California, the number one agricultural state in the nation (in terms of cash receipts), which enacted the Sustainable Groundwater Management Act (SGMA) in 2014.  Because the Ninth Circuit’s decision establishes strong (and largely non-negotiable) rights for tribes within California’s groundwater basins, it complicates the formidable task of achieving sustainable groundwater management.  Across the West, the other implications of the decision likely depend upon what remains of basin-wide adjudications of water rights.

                Note:  On November 27, 2017, the U.S. Supreme Court denied certiorari in the first phase of the case, allowing the Ninth Circuit’s holding to stand.  Coachella Valley Water                 District v. Agua Caliente Band of Cahuilla Indians, No. 17-40, Vide No. 17-42, 2017 U.S. LEXIS 7044 (U.S. Sup. Ct. Nov. 27, 2017).

  • 4 - EPA Rule Exempting Farms From Air Release Reporting Vacated.Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the Emergency Planning and Community Right-to-Know Act (EPCRA), the federal government is to be notified when large quantities of hazardous materials are released into the environment. Once notified, the Environmental Protection Agency (EPA) has discretion to take remedial actions or order further monitoring or investigation of the situation. In 2008, the EPA issued a final regulation exempting large (commercial) farms (those that emit more than 100 pounds total of hydrogen sulfide or ammonia daily) from the CERCLA reporting/notification requirement for air releases from animal waste (by issuing an annual report of “continuous releases”) on the basis that a federal response would most often be impractical and unlikely. However, the EPA retained the reporting/notification requirement for Confined Animal Feeding Operations (CAFOs) under EPCRAs public disclosure rule.  Indeed, in early 2009, EPA, pursuant to the EPCRA, issued a final regulation regarding the reporting of emissions from confined AFO’s – termed a “CAFO.”  The rule applies to facilities that confine more than 1,000 beef cattle, 700 mature dairy cows, 1,000 veal calves, 2,500 swine (each weighing 55 pounds or more), 10,000 swine (each weighing less than 55 pounds), 500 horses and 10,000 sheep.  The rule requires these facilities to report ammonia and hydrogen sulfide emissions to state and local emergency response officials if the facility emits 100 pounds or more of either substance during a 24-hour period. Various environmental activist groups challenged the exemption in the final regulation on the basis that the EPA acted outside of its delegated authority to create the exemption. Agricultural groups claimed that the carve-out for CAFOs was also impermissible. The environmental groups claimed that emissions of ammonia and hydrogen sulfide (both hazardous substances under CERCLA) should be reported as part of furthering the overall regulatory objective. The court noted that there was no clear way to best measure the release of ammonia and hydrogen sulfide, but noted that continuous releases are subject to annual notice requirements. The court held that the EPA’s final regulation should be vacated as an unreasonable interpretation of the de minimis exception in the statute. As such, the challenge brought by the agriculture groups to the CAFO carve-out was mooted and dismissed.  Later, the court, granted a motion filed by the EPA and ag groups to delay the removal of the exemption until November 14, 2017.  The EPA’s interim guidance on the new reporting requirements was issued on October 26, 2017, but the EPA again motioned for an extension of time to fully implement the regulations.  The court granted the motion on November 22, 2017, staying the implementation of the new reporting regulations until January 22, 2018. The reporting requirement will have direct application to larger livestock operations with air emissions that house beef cattle, dairy cattle, horses, hogs and poultry.   It is estimated that approximately 60,000 to 100,000 livestock and poultry operations will be subject to the reporting requirement.  The reporting level would be reached by a facility with approximately 330-head (for a confinement facility) according to a calculator used by the University of Nebraska-Lincoln which is based on emissions produced by the commingling of solid manure and urine.  The underlying action is Waterkeeper Alliance, et al. v. Environmental Protection Agency, 853 F.3d 527 (D.C. Cir. 2017).
  • 3 – Clean Water Act “WOTUS” Developments. In 2015, the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (COE) finalized a regulation (known as the “Clean Water Rule”) concerning “waters of the United States” (WOTUS) which expanded the parameters of waters (streams, rivers, ponds, ditches, puddles and other water bodies) that are subject to federal jurisdiction and regulation.  The final regulation became effective in the late summer of 2015, but a federal court stayed its implementation later that year in October. In early 2016, the U.S. Court of Appeals for the Sixth Circuit held that federal law placed jurisdiction with the federal appellate courts rather than the federal district courts concerning any challenges to the WOTUS rule.  In January of 2017, the U.S. Supreme Court agreed to review the Sixth Circuit’s decision.  National Association of Manufacturers v. Department of Defense, et al., 137 S. Ct. 811 (2017).  About a month later, President Trump issued an Executive Order directing the EPA and the COE to revisit the Clean Water Rule and change their interpretation of waters subject to federal jurisdiction such that it only applied to waters that were truly navigable – the approach taken by Justice Scalia in Rapanos v. United States, 547 U.S. 715 (2006).  The EPA and Corps later indicated they would follow the President’s suggested approach, and would push the effective date of the revised Clean Water Rule to two years after its finalization and publication.        

In addition, there were several important WOTUS cases decided/finalized in 2017:

  • COE jurisdictional determination is final agency action; no WOTUS present. The plaintiff, a peat moss mining company, sought the approval of the Corps of Engineers (COE) to harvest a swamp (wetland) for peat moss to use in landscaping projects. The COE issued a jurisdictional determination that the swamp was a wetland subject to the permit requirements of the Clean Water Act (CWA). The plaintiff sought to challenge the COE determination, but the trial court ruled for the COE, holding that the plaintiff had three options: (1) abandon the project; (2) seek a federal permit costing over $270,000; or (3) proceed with the project and risk fines of up to $75,000 daily and/or criminal sanctions including imprisonment. On further review, the U.S. Supreme Court unanimously reversed, holding that COE Jurisdictional Determinations constitute final agency actions that are immediately appealable in court. The court noted that to hold elsewise would allow the COE to effectively kill the project without any determination of whether it's position as to jurisdiction over the wetland at issue was correct.  Not only did the jurisdictional determination constitute final agency action under the Administrative Procedure Act, the court held that it also determined rights or obligations from which legal consequences would flow. That made the determination judicially reviewable. United States Army Corps of Engineers v. Hawkes Company, No. 15-290, 136 S. Ct. 1807 (2016).  On remand, the trial court granted summary judgment for the plaintiff on the grounds that the plaintiff’s property did not constitute “waters of the United States” that the defendant had jurisdiction over. The court determined that the government did not establish a “significant nexus” under the Rapanos standard between the plaintiff’s property and the Red River 93 miles away that the defendant claimed were connected via ditches and seasonal tributaries. The court also determined that the Jurisdictional Determination was not based on the “significant nexus” standard of Rapanos and was arbitrary and capricious. The court entered an injunction that ordered the defendant to not assert jurisdiction over the plaintiff’s property. In doing so, the court determined that the defendant had an adequate chance to develop a record which negated a remand back to the defendant to address the evidentiary inadequacies. Hawkes Co., Inc., et al. v. United States Army Corps of Engineers, No. 13-107 ADM/TNL, 2017 U.S. Dist. LEXIS 10680 (D. Min. Jan. 24, 2017).
  • Prior Converted Cropland Exception to CWA Jurisdiction Inapplicable.The plaintiff, a developer, obtained title to a 100-acre tract on the southeast side of Chicago metro area in 1995. The defendant claimed federal jurisdiction over water on a portion of the property on the basis that the “wetland” drained via a storm sewer pipe to a creek that was a tributary to a river that was a navigable water of the U.S. After exhausting administrative appeals, the court upheld the defendant’s nexus determination because it sufficiently documented a physical, chemical and biological impact of the navigable river. The court also determined that the prior converted cropland exemption did not apply because farming activities had been abandoned for at least five years and wetland characteristics returned. The court noted that the defendant and the EPA had jointly adopted a rule in 1993 adopting the NRCS exemption for prior converted cropland. The court also that prior caselaw had held that the CWA’s exemption of “prior converted croplands” included the abandonment provision, and that it would apply the same rationale in this case. The court noted that the specific 13-acre parcel at issue in the case had not been farmed since 1996, and that conversion to a non-ag use did not remove the abandonment provision. The plaintiff also claimed that the wetlands at issue were “artificial” wetlands (created by adjacent development) under 7 C.F.R. §12.2(a) that were not subject to the defendant’s jurisdiction. However, the court noted that the defendant never adopted the “artificial wetland” exemption of the NRCS and, therefore, such a classification was inapplicable. The court granted the defendant’s cross motion for summary judgment. Orchard Hill Building Co. v. United States Army Corps of Engineers, No. 15-cv-06344, 2017 U.S. Dist. LEXIS 151673 (N.D. Ill. Sept. 19, 2017).
  • Conviction Upheld for Clean Water Act Violations.The defendant, a disabled Vietnam Navy veteran, was charged with multiple counts of criminal violations of the (CWA) by virtue of the unauthorized knowing discharge of “pollutants” into the “waters of the United States” (WOTUS) (in violation of 33 U.S.C. §1251-1388) and depredation of U.S. property (18 U.S.C. §1361). The defendant was indicted for building illegal ponds (nine in total) in an existing stream on two parcels - one federal and one private (which the defendant did not own). The defendant did the work due to multiple fires in the area that had recently occurred and to create stock water ponds for his animals. The government claimed that the ponds resulted in the discharge of dredged and fill material into a tributary stream and adjacent wetlands and damaged both properties, even though there was no tributary from the ponds. Dredged material from the ponds had been used to create the berms and had been placed in and around the streams and wetlands. The trial court determined that the stream at issue was a WOTUS on the basis that the stream headwater and wetland complex provided critical support to trout in downstream rivers and fisheries, including the Boulder and Jefferson Rivers (60 miles away) – navigable waters of the U.S. The trial court jury, after a second trial and the introduction by the government of evidence that it allegedly manufactured, found the defendant guilty of two counts of illegal discharge of pollutants into WOTUS without a federal permit and one count of injury or depredation of U.S. property. On appeal, the appellate court affirmed. The appellate court held that U.S. Supreme Court Justice Kennedy’s opinion in Rapanos v. United States, 547 U.S. 715 (2006) was controlling and that the trial court jury instructions based on Justice Kennedy’s “significant nexus test contained in his opinion in Rapanos were proper. The appellate court also held that the definition of WOTUS was not too vague to be enforced. Thus, there was no due process violation. The defendant had fair warning that his conduct was criminal.  United States v. Robertson, 875 F.3d 1281 (9th Cir. 2017).
  • 2 – Rental and Employment Agreements Appropriately Structured; No Self-Employment Tax on Rental Income.The petitioners, a married couple, operated a farm in Texas. In late 1999, they built the first of eight poultry houses to raise broilers under a production contract with a large poultry integrator. The petitioners formed an S corporation in 2004, and set up oral employment agreements with the S corporation based on an appraisal for the farm which guided them as to the cost of their labor and management services. They also pegged their salaries at levels consistent with other growers. The wife provided bookkeeping services and the husband provided labor and management. In 2005, they assigned the balance of their contract to the S corporation. Thus, the corporation became the "grower" under the contract. In 2005, the petitioners entered into a lease agreement with the S corporation. Under the agreement, the petitioners rented their farm to the S corporation, under which the S corporation would pay rent of $1.3 million to the petitioners over a five-year period. The court noted that the rent amount was consistent with other growers under contract with the integrator. The petitioners reported rental income of $259,000 and $271,000 for 2008 and 2009 respectively, and the IRS determined that the amounts were subject to self-employment tax because the petitioners were engaged in an "arrangement" that required their material participation in the production of agricultural commodities on their farm. The Tax Court, in an opinion by Judge Paris, noted that the IRS agreed that the facts of the case were on all fours with McNamara v. Comr., T.C. Memo. 1999-333 where the Tax Court determined that the rental arrangement and the wife's employment were to be combined, which meant that the rental income was subject to self-employment tax. However, the Tax Court's decision in that case was reversed by the Eighth Circuit on appeal. McNamara v. Comr., 236 F.3d 410 (8th Cir. 2000).  Judge Paris, in the current case, determined that the Eighth Circuit's rationale in McNamara was persuasive and that the "derived under an arrangement" language in I.R.C. §1402(a)(1) meant that a nexus had to be present between the rents the petitioners received and the "arrangement" that required their material participation. In other words, there must be a tie between the real property lease agreement and the employment agreement. The court noted the petitioners received rent payments that were consistent with the integrator's other growers for the use of similar premises. That fact was sufficient to establish that the rental agreement stood on its own as an appropriate measure as a return on the petitioners' investment in their facilities. Similarly, the employment agreement was appropriately structured as a part of the petitioners' conduct of a legitimate business. Importantly, the court noted that the IRS failed to brief the nexus issue, relying solely on its non-acquiescence to McNamara (A.O.D. 2003-003, I.R.B. 2003-42 (Oct. 22, 2003)) and relying on the court to broadly interpret "arrangement" to include all contracts related to the S corporation. The Tax Court refused to do so and, accordingly, the court held that the petitioner's rental income was not subject to self-employment tax. Martin v. Comr., 149 T.C. No. 12 (2017).
  • No 1 – The Tax Bill ("To provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018"). The most significant development of 2017 with the widest impact on agricultural producers, agribusinesses and rural landowners is unquestionably the tax bill enacted into law on December 22, 2017.  The new law establishes new tax brackets, essentially doubles the standard deduction, eliminates many itemized deductions, modifies many cost-recovery provisions and changes the corporate tax rate to a flat rate of 21 percent.  The legislation also creates a new 20 percent deduction for qualified business income from a pass-through entity.  Prior law was also modified concerning cash accounting, the tax rate applicable to commodity gifts made to a non-charitable donee above certain levels of unearned income, the rules surrounding net operating losses, interest deductibility, elimination of the corporate alternative minimum tax (AMT) and modification of the individual AMT, the child tax credit and various international tax provisions.  The new law will create many planning questions and opportunities with the structure of perhaps many farm operations being modified to take advantage of the new provisions. 

Conclusion

2017 was another active year on the agricultural law and taxation front.  It was also the first year in many years where some rather significant federal regulations as applies to agriculture were either rolled back or eliminated.  2018 will be another very busy year.  That is certainly to be the case especially on the tax side of things. 

January 5, 2018 in Environmental Law, Income Tax, Water Law | Permalink | Comments (0)

Monday, January 1, 2018

The “Almost Top Ten” Agricultural Law and Tax Developments of 2017

Overview

This week I will be writing about what I view as the most significant developments in agricultural law and agricultural taxation during 2017. There were many important happenings in the courts, the IRS and with administrative agencies that have an impact on farm and ranch operations, rural landowners and agribusinesses. What I am writing about this week are those developments that will have the biggest impact nationally. Certainly, there were significant state developments, but they typically will not have the national impact of those that result from federal courts, the IRS and federal agencies.

It's tough to get it down to the ten biggest developments of the year, and I do spend considerable time sorting through the cases and rulings get to the final cut. Today’s post examines those developments that I felt were close to the top ten, but didn’t quite make the list. Later this week we will look at those that I feel were worthy of the top ten. Again, the measuring stick is the impact that the development has on the U.S. ag sector as a whole.

Almost, But Not Quite

Those developments that were the last ones on the chopping block before the final “top ten” are always the most difficult to determine. But, as I see it, here they are (in no particular order):

  • Withdrawal of Proposed I.R.C. §2704 Regulations. In the fall of 2016, the Treasury Department issued proposed regulations (REG-16113-02) involving valuation issues under I.R.C. §2704. The proposed regulations would have established serious limitations on the ability to establish valuation discounts (e.g., minority interest and lack of marketability) for estate, gift and generation-skipping transfer tax purposes via estate and business planning techniques. In early December of 2016, a public hearing was held concerning the proposed regulations.  However, the proposed regulations were not finalized before President Trump took office. In early October of 2017, the Treasury Department announced that it was pulling several tax regulations identified as burdensome under President Trump’s Executive Order 13789, including the proposed I.R.C. §2704 regulations. Second Report to the President on Identifying and Reducing Tax Regulatory Burdens (Oct. 4, 2017).

    Note: While it is possible that the regulations could be reintroduced in the future with revisions, it is not likely that the present version will ultimately be finalized under the current Administration.

  • IRS Says There Is No Exception From Filing a Partnership Return. The IRS Chief Counsel’s Office, in response to a question raised by an IRS Senior Technician Reviewer, has stated that Rev. Prov. 84-35, 1984-2 C.B. 488, does not provide an automatic exemption from the requirement to file Form 1065 (U.S. Return of Partnership Income) for partnerships with 10 or fewer partners. Instead, the IRS noted that such partnerships can be deemed to meet a reasonable cause test and are not liable for the I.R.C. §6698 penalty. IRS explained that I.R.C. §6031 requires partnerships to file Form 1065 each tax year and that failing to file is subject to penalties under I.R.C. §6698 unless the failure to file if due to reasonable cause. Neither I.R.C. §6031 nor I.R.C. §6698 contain an automatic exception to the general filing requirement of I.R.C. §6031(a) for a partnership as defined in I.R.C. §761(a). IRS noted that it cannot determine whether a partnership meets the reasonable cause criteria or qualifies for relief under Rev. Proc. 84-35 unless the partnership files Form 1065 or some other document. Reasonable cause under Rev. Proc. 84-35 is determined on a case-by-case basis and I.R.M. Section 20.1.2.3.3.1 sets forth the procedures for applying the guidance of Rev. Proc. 84-35. C.C.A. 201733013 (Jul. 12, 2017); see also Roger A. McEowen, The Small Partnership 'Exception,' Tax Notes, April 17, 2017, pp. 357-361.

  • “Qualified Farmer” Definition Not Satisfied; 100 Percent Deductibility of Conservation Easement Not Allowed. A “qualified farmer” can receive a 100 percent deduction for the contribution of a permanent easement to a qualified organization in accordance with I.R.C. §170(b)(1)(E). However, to be a “qualified farmer,” the taxpayer must have gross income from the trade or business of farming that exceeds 50 percent of total gross income for the tax year. In a 2017, the U.S. Tax Court decided a case where the petitioners claimed that the proceeds from the sale of the property and the proceeds from the sale of the development rights constituted income from the trade or business of farming that got them over the 50 percent threshold.  The IRS disagreed, and limited the charitable deduction to 50 percent of each petitioner’s contribution base with respect to the conservation easement. The court agreed with the IRS. The court noted that the income from the sale of the conservation easement and the sale of the land did not meet the definition of income from farming as set forth in I.R.C. §2032A(e)(5) by virtue of I.R.C. §170(b)(1)(E)(v). The court noted that the statute was clear and that neither income from the sale of land nor income from the sale of development rights was included in the list of income from farming. While the court pointed out that there was no question that the petitioners were farmers and continued to be after the conveyance of the easement, they were not “qualified farmers” for purposes of I.R.C. §170(b)(1)(E)(iv)(I). Rutkoske v. Comr., 149 T.C. No. 6 (2017).

  • Corporate-Provided Meals In Leased Facility Fully Deductible. While the facts of the case have nothing to do with agriculture, the issues involved are the same ones that the IRS has been aggressively auditing with respect to farming and ranching operations – namely, that the 100 percent deduction for meals provided to corporate employees for the employer’s convenience cannot be achieved if the premises where the meals are provided is not corporate-owned. In a case involving an NHL hockey team, the corporate owner contracted with visiting city hotels where the players stayed while on road trips to provide the players and team personnel pre-game meals. The petitioner deducted the full cost of the meals, and the IRS limited the deduction in accordance with the 50 percent limitation of I.R.C. §274(n)(1). The court noted that the 50 percent limitation is inapplicable if the meals qualify as a de minimis fringe benefit and are provided in a nondiscriminatory manner. The court determined that the nondiscriminatory requirement was satisfied because all of the staff that traveled with the team were entitled to use the meal rooms. The court also determined that the de minimis rule was satisfied if the eating facility (meal rooms) was owned or leased by the petitioner, operated by the petitioner, located on or near the petitioner’s business premises, and the meals were furnished during or immediately before or after the workday. In addition, the court determined that the rules can be satisfied via contract with a third party to operate an eating facility for the petitioner’s employees. As for the business purpose requirement, the court noted that the hotels where the team stayed at while traveling for road games constituted a significant portion of the employees’ responsibilities and where the team conducted a significant portion of its business. Thus, the cost of the meals qualified as a fully deductible de minimis fringe benefit. Jacobs v. Comr., 148 T.C. No. 24 (2017).

    Note: The petitioner’s victory in the case was short-lived. The tax bill enacted into law on December 22, 2017, changes the provision allowing 100 percent deductibility of employer-provided meals to 50 percent effective Jan. 1, 2018, through 2025. After 2025, no deduction is allowed.

  • Settlement Reached In EPA Data-Gathering CAFO Case. In 2008, the Government Accounting Office (GAO) issued a report stating that the Environmental Protection Agency (EPA) had inconsistent and inaccurate information about confined animal feeding operations (CAFOs), and recommended that EPA compile a national inventory of CAFO’s with NPDES permits. Also, as a result of a settlement reached with environmental activist groups, the EPA agreed to propose a rule requiring all CAFOs to submit information to the EPA as to whether an operation had an NPDES permit. The information required to be submitted had to provide contact information of the owner, the location of the CAFO production area, and whether a permit had been applied for. Upon objection by industry groups, the proposed rule was withdrawn and EPA decided to collect the information from federal, state and local government sources. Subsequent litigation determined that farm groups had standing to challenge the EPA’s conduct and that the EPA action had made it much easier for activist groups to identify and target particular confined animal feeding operations (CAFOs). On March 27, 2017, the court approved a settlement agreement ending the litigation between the parties. Under the terms of the settlement, only the city, county, zip code and permit status of an operation will be released. EPA is also required to conduct training on FOIA, personal information and the Privacy Act. The underlying case is American Farm Bureau Federation v. United States Environmental Protection Agency, 836 F.3d 963 (8th Cir. 2016).

  • Developments Involving State Trespass Laws Designed to Protect Livestock Facilities.

    • Challenge to North Carolina law dismissed for lack of standing. The plaintiffs, numerous animal rights activist groups, brought a pre-enforcement challenge to the North Carolina Property Protection Act (Act). The Act creates a civil cause of action for a NC employer against an employee who “captures or removes” documents from the employer’s premises or records images or sound on the employer’s premises and uses the documents or recordings to breach the employee’s duty of loyalty to the employer. The plaintiffs claimed that the Act stifled their ability to investigate NC employers for illegal or unethical conduct and restricted the flow of information those investigations provide in violation of the First and Fourteenth Amendments of the U.S. Constitution and various provisions of the NC Constitution.  The court dismissed the case for lack of standing. People for the Ethical Treatment of Animals v. Stein, 259 F. Supp. 3d 369 (M.D. N.C. 2017).

    • Utah law deemed unconstitutional. Utah law (Code §76-6-112) (hereinafter Act) criminalizes entering private agricultural livestock facilities under false pretenses or via trespass to photograph, audiotape or videotape practices inside the facility.  Anti-livestock activist groups sued on behalf of the citizen-activist claiming that the Act amounted to an unconstitutional restriction on speech in violation of the First Amendment. While the state claimed that lying, which the statute regulates, is not protected free speech, the court determined that only lying that causes “legally cognizable harm” falls outside First Amendment protection. The state also argued that the act of recording is not speech that is protected by the First Amendment. However, the court determined that the act of recording is protectable First Amendment speech. The court also concluded that the fact that the speech occurred on a private agricultural facility did not render it outside First Amendment protection. The court determined that both the lying and the recording provisions of the Act were content-based provisions subject to strict scrutiny. To survive strict scrutiny the state had to demonstrate that the restriction furthered a compelling state interest. The court determined that “the state has provided no evidence that animal and employee safety were the actual reasons for enacting the Act, nor that animal and employee safety are endangered by those targeted by the Act, nor that the Act would actually do anything to remedy those dangers to the extent that they exist”. For those reasons, the court determined that the act was unconstitutional. Animal Legal Defense Fund v. Herbert, 263 F. Supp. 3d 1193 (D. Utah 2017).

    • Wyoming law struck down. In 2015, two new Wyoming laws went into effect that imposed civil and criminal liability upon any person who "[c]rosses private land to access adjacent or proximate land where he collects resource data." Wyo. Stat. §§6-3-414(c); 40-27-101(c). The appellate court, reversing the trial court, determined that because of the broad definitions provided in the statutes, the phrase "collects resource data" includes numerous activities on public lands (such as writing notes on habitat conditions, photographing wildlife, or taking water samples), so long as an individual also records the location from which the data was collected. Accordingly, the court held that the statutes regulated protected speech under the First Amendment in spite of the fact that they also governed access to private property. While trespassing is not protected by the First Amendment, the court determined that the statutes targeted the “creation” of speech by penalizing the collection or resource data. Western Watersheds Project v. Michael, 869 F.3d 1189 (10th Cir. 2017), rev’g., 196 F. Supp. 3d 1231 (D. Wyo. 2016).

  • GIPSA Interim Final Rule on Marketing of Livestock and Poultry Delayed and Withdrawn.In the fall of 2016, the USDA sent to the Office of Management and Budget (OMB) interim final rules that provide the agency’s interpretation of certain aspects of the Packers and Stockyards Act (PSA) involving the buying and selling of livestock and poultry. The interim final rules concern Section 202 of the PSA (7 U.S.C. §§ 192 (a) and (e)) which makes it unlawful for any packer who inspects livestock, meat products or livestock products to engage in or use any unfair, unjustly discriminatory or deceptive practice or device, or engage in any course of business or do any act for the purpose or with the effect of manipulating or controlling prices or creating a monopoly in the buying, selling or dealing any article in restraint of commerce. The “effect” language of the statute would seem to eliminate any requirement that the producer show that the packer acted with the intent to control or manipulate prices. However, the federal courts have largely interpreted the provision to require a plaintiff to show an anti-competitive effect in order to have an actionable claim. Under the proposed regulations, "likelihood of competitive injury" is defined as "a reasonable basis to believe that a competitive injury is likely to occur in the market channel or marketplace.” It includes, but is not limited to, situations in which a packer, swine contractor, or live poultry dealer raises rivals' costs, improperly forecloses competition in a large share of the market through exclusive dealing, restrains competition, or represents a misuse of market power to distort competition among other packers, swine contractors, or live poultry dealers. It also includes situations “in which a packer, swine contractor, or live poultry dealer wrongfully depresses prices paid to a producer or grower below market value, or impairs a producer's or grower's ability to compete with other producers or growers or to impair a producer's or grower's ability to receive the reasonably expected full economic value from a transaction in the market channel or marketplace." According to the proposed regulations, a “competitive injury” under the PSA occurs when conduct distorts competition in the market channel or marketplace. The scope of PSA §202(a) and (b) is stated to depend on the nature and circumstances of the challenged conduct. The proposed regulations specifically note that a finding that a challenged act or practice adversely affects or is likely to affect competition is not necessary in all cases. The proposed regulations also note that a PSA violation can occur without a finding of harm or likely harm to competition, but as noted above, that is contrary to numerous court opinions that have decided the issue. On April 11, 2017, the USDA announced that it was delaying the effective date of the interim final rule for 180 days, until October 19, 2017. However, on October 18, 2017, GIPSA officially withdrew the proposed rule. Related to, but not part of, the GIPSA Interim Final Rule, a poultry grower ranking system proposed rule was not formally withdrawn.

  • Syngenta Settlement. In late 2017, Syngenta publicly announced that it was settling farmers’ claims surrounding the alleged early release of Viptera and Duracade genetically modified corn. While there are numerous cases and aspects of the litigation involving Syngenta, the settlement involves what is known as the “MIR 162 Corn Litigation” and a Minnesota state court class action. The public announcement of the settlement indicated that Syngenta would pay $1.5 billion.

  • IRS To Finalize Regulations on the Tax Status of LLC and LLP Members. In its 2017-2018 Priority Guidance Plan, the IRS states that it plans to finalize regulations under I.R.C. §469(h)(2) – the passive loss rules that were initially proposes in 2011. That provision creates a per se rule of non-material participation for limited partner interests in a limited partnership unless the Treasury specifies differently in regulations. Those regulations were initially issued in temporary form and became proposed regulations in 2011. Is the IRS preparing to take a move to finalize regulations taking the position that they the Tax Court refused to sanction? Only time will tell, but the issue is important for LLC and LLP members. The issue boils down to the particular provisions of a state’s LLC statute and whether there are sufficient factors under the state statute that distinguish an LLC from a limited partnership. That will be the case until IRS issues regulations dealing specifically with LLCs and similar entities. The proposed definition would make it easier for LLC members and some limited partners to satisfy the material participation requirements for passive loss purposes, consistent with the court opinions that IRS has recently lost on the issue. Specifically, the proposed regulations require that two conditions have to be satisfied for an individual to be classified as a limited partner under I.R.C. §469(h)(2): (1) the entity must be classified as a partnership for federal income tax purposes; and (2) the holder of the interest must not have management rights at any time during the entity’s tax year under local law and the entity’s governing agreement. Thus, LLC members of member-managed LLCs would be able to use all seven of the material participation tests, as would limited partners that have at least some rights to participate in managerial control or management of a partnership.

  • Fourth Circuit Develops New Test for Joint Employment Under the FLSA. The Fair Labor Standards Act of 1938 (FLSA) (29 U.S.C. §§ 201 et seq.) as originally enacted, was intended to raise the wages and shorten the working hours of the nation's workers. The FLSA is very complex, and not all of it is pertinent to agriculture and agricultural processing, but the aspect of it that concerns “joint employment” is of major relevance to agriculture. Most courts that have considered the issue have utilized an “economic realities” or “control” test to determine if one company’s workers are attributable to another employer for purposes of the FLSA. But, in a 2017 case, the U.S. Court of Appeals for the Fourth Circuit, created a new test for joint employment under the FLSA that appears to expand the definition of “joint employment” and may create a split of authority in the Circuit Courts of Appeal on the issue. The court held that the test under the FLSA for joint employment involved two steps. The first step involved a determination as to whether two or more persons or entities share or agree to allocate responsibility for, whether formally or informally, directly or indirectly, the essential terms and conditions of a worker’s employment. The second step involves a determination of whether the combined influence of the parties over the essential terms and conditions of the employment made the worker an employee rather than an independent contractor. If, under this standard, the multiple employers were not completely disassociated, a joint employment situation existed. The court also said that it was immaterial that the subcontractor and general contractor engaged in a traditional business relationship. In other words, the fact that general contractors and subcontractor typically structure their business relationship in this manner didn’t matter. The Salinas court then went on to reason that separate employment exists only where the employers are “acting entirely independent of each other and are completely disassociated with respect to” the employees. The court’s “complete disassociation” test appears that it could result in a greater likelihood that joint employment will result in the FLSA context than would be the case under the “economic realities” or “control” test. While the control issue is part of the “complete disassociation” test, joint determination in hiring or firing, the duration of the relationship between the employers, where the work is performed and responsibility over work functions are key factors that are also to be considered. Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017), rev’g, No. JFM-12-1973, 2014 U.S. Dist. LEXIS 160956 (D. Md. Nov. 17, 2014).

  • Electronic Logs For Truckers. On December 18, 2017, the U.S. Department of Transportation (USDOT) Final Rule on Electronic Logging Devices (ELD) and Hours of Service (HOS) was set to go into effect.  80 Fed. Reg. 78292 (Dec.16, 2015).  The final rule, which was issued in late 2015, could have a significant impact on the livestock industry and livestock haulers. The new rule will require truck drivers to use electronic logging devices instead of paper logs to track their driving hours starting December 18. The devices connect to the vehicle's engine and automatically record driving hours. The Obama Administration pushed for the change to electronic logs purportedly out of safety concerns. The Trump Administration has instructed the FMCSA (and state law enforcement officials) to delay the December 18 enforcement of the final rule by delaying out-of-service orders for ELD violations until April 1, 2018, and not count ELD violations against a carrier’s Compliance, Accountability, Safety Score. Thus, from December 18, 2017 to April 1, 2018, any truck drivers who are caught without an electronic logging device will be cited and allowed to continue driving, as long as they are in compliance with hours-of-service rules. In addition, the FMCSA has granted a 90-day waiver for all vehicles carrying agricultural commodities. Other general exceptions to the final rule exist for vehicles built before 2000, vehicles that operate under the farm exemption (a “MAP 21” covered farm vehicle; 49 C.F.R. §395.1(s)), drivers coming within the 100/150 air-mile radius short haul log exemption (49 CFR §395.1(k)), and drivers who maintain HOS logs for no more than eight days during any 30-day period. One rule that is of particular concern is an HOS requirement that restricts drive time to 11 hours. This rule change occurred in 2003 and restricts truck drivers to 11 hours of driving within a 14-hour period. Ten hours of rest is required. That is a tough rule as applied to long-haul cattle transports. Unloading and reloading cattle can be detrimental to the health of livestock.

  • Dicamba Spray-Drift Issues. Spray-drift issues with respect to dicamba and the use of  XtendiMax with VaporGrip (Monsanto) and Engenia (BASF) herbicides for use with Xtend Soybeans and Cotton were on the rise in 2017. , 2017Usage of dicamba has increased recently in an attempt to control weeds in fields planted with crops that are engineered to withstand it. But, Missouri (effective July 7) and Arkansas (as of June 2017) took action to ban dicamba products because of drift-related damage issues. In addition, numerous lawsuits have been filed by farmers against Monsanto, BASF and/or DuPont alleging that companies violated the law by releasing their genetically modified seeds without an accompanying herbicide and that the companies could have reasonably foreseen that seed purchasers would illegally apply off-label, older dicamba formulations, resulting in drift damage. Other lawsuits involve claims that the new herbicide products are unreasonably dangerous and have caused harm even when applicators followed all instructions provided by law. In December of 2017, the Arkansas Plant Board voted to not recommend imposing a cut-off date of April 15 for dicamba applications. Further consideration of the issue will occur in early 2018.

January 1, 2018 in Business Planning, Civil Liabilities, Environmental Law, Estate Planning, Income Tax, Regulatory Law | Permalink | Comments (0)

Friday, November 10, 2017

Air Emission Reporting Requirement For Livestock Operations

Overview

Amidst all of the news recently about tax proposals in the Congress and the attention that has garnered, there is another important date that is creeping up on many livestock producers.  Unless an extension is granted, on November 15, a reporting rule administered by the federal Environmental Protection Agency (EPA) will be triggered that will apply to certain livestock operations.  The reporting applies to certain “releases” of “hazardous” substances and the requirement that the government be notified. 

Background

The federal government has been involved in regulating air emissions for over 50 years.  The first serious effort at the national level concerning air quality was passage of the 1963 Clean Air Act (CAA) amendments.  This legislation authorized the then Department of Health, Education and Welfare (now Department of Health and Human Services) to intervene directly when air pollution threatened the public “health or welfare” and the state was unable to control the problem.

The 1970 CAA amendments represented a major step forward at the federal level in terms of regulating the activities contributing to air pollution.  This legislation created air quality control regions and made the individual states responsible for sustaining air quality in those regions.  The states could regulate existing sources of pollution with less restrictive requirements. See, e.g., State, ex rel. Cooper v. Tennessee Valley Authority, et al., 615 F.3d 291 (4th Cir. 2010).  

Additional federal Specifically, under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the Emergency Planning and Community Right-to-Know Act (EPCRA), the federal government is to be notified when large quantities of hazardous materials are released into the environment. Once notified, the Environmental Protection Agency (EPA) has discretion to take remedial actions or order further monitoring or investigation of the situation.

Recent Developments

On January 21, 2005, the EPA announced the Air Quality Compliance Consent Agreement to facilitate the development of scientifically credible methodologies for estimating emissions from animal feeding operations (AFOs).  A key part of the agreement is a two-year benchmark study of the air emissions from livestock and poultry operations.  The study was designed to gather data relative to the thresholds of the CAA, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and the Emergency Planning and Community Right-to-Know Act (EPCRA), and set national air policies so that excessive levels could be regulated.  Under both CERCLA and EPCRA, the federal government is to be notified when large quantities of hazardous materials are released into the environment. Once notified, the EPA has discretion to take remedial actions or order further monitoring or investigation of the situation.

In mid-2007, the U.S. Court of Appeals for the D.C. Circuit upheld the EPA’s ability to enter into the consent agreements with participating AFOs.  Association of Irritated Residents v. EPA, 494 F.3d 1027 (D.C. Cir. 2007).   Community and environmental groups had challenged the consent agreements as rules disguised as enforcement actions, that the EPA had not followed proper procedures for rulemaking and that EPA had exceeded its statutory authority by entering into the agreements.  The court disagreed, holding that the consent agreements did not constitute rules, but were enforcement actions within EPA’s statutory authority that the court could not review.

In early 2009, EPA, pursuant to the EPCRA, issued a final regulation regarding the reporting of emissions from confined AFO’s – termed a “CAFO.”  The rule applies to facilities that confine more than 1,000 beef cattle, 700 mature dairy cows, 1,000 veal calves, 2,500 swine (each weighing 55 pounds or more), 10,000 swine (each weighing less than 55 pounds), 500 horses and 10,000 sheep.  The rule requires these facilities to report ammonia and hydrogen sulfide emissions to state and local emergency response officials if the facility emits 100 pounds or more of either substance during a 24-hour period.

2008 Regulations and Court Case

In late 2008, the EPA issued a final regulation exempting farms from the reporting/notification requirement of CERCLA (Sec. 103) for air releases from animal waste on the basis that a federal response would most often be impractical and unlikely. However, the EPA retained the reporting/notification requirement for CAFOs under the EPCRA’s public disclosure rule. Various environmental activist groups challenged the exemption in the final regulation on the basis that the EPA acted outside of its delegated authority to create the exemption. Agricultural groups claimed that the carve-out for CAFOs was also impermissible, but for a different reason.

The environmental groups claimed that emissions of ammonia and hydrogen sulfide (both hazardous substances under CERCLA) should be reported as part of furthering the overall regulatory objective. The court noted that there was no clear way to best measure the release of ammonia and hydrogen sulfide, but noted that continuous releases are subject to annual notice requirements. The court held that the EPA’s final regulation should be vacated as an unreasonable interpretation of the de minimis exception in the statute. As such, the challenge brought by the agriculture groups to the CAFO carve out was mooted and dismissed. Waterkeeper Alliance, et al. v. Environmental Protection Agency, No. 09-1017, 2017 U.S. App. LEXIS 6174 (D.C. Cir. Apr. 11, 2017).

The court set a deadline for the beginning of the reporting of releases, but the EPA sought an extension.  In response, the court extended the date by which farms must begin reporting releases of ammonia and hydrogen to November 15, 2017.  The reporting requirement will have direct application to larger livestock operations with air emissions that house beef cattle, dairy cattle, horses, hogs and poultry.   It is estimated that approximately 60,000 to 100,000 livestock and poultry operations will be subject to the reporting requirement.

EPA Interim Guidance

On October 26, 2017, the EPA issued interim guidance designed to educate livestock operations about the upcoming reporting requirements for emissions from animal waste. 

Under the guidance, the EPA notes that the reportable quantity for each of ammonia and hydrogen sulfide is triggered at a release into the air of 100 pounds or more within a 24-hour period.  That level would be reached by a facility with approximately 330-head (for a confinement facility) according to a calculator used by the University of Nebraska-Lincoln which is based on emissions produced by the commingling of solid manure and urine.  If that level of emission occurs for either substance, the owner (or operator) of the “facility” must inform the U.S. Coast Guard National Response Center (NRC) of any individual release by calling (800) 424-8802.  Unless changed at the last minute, this reporting must be done by November 15, 2017.  In addition, a written report must also be filed with the regional EPA office within 30 days of the NRC reporting.     

If releases will be “continuous and stable,” “continuous release reporting” is available by filing an “initial continuous release notification” to the NRC and the regional office of the EPA.  Once that is done, reporting is only required annually unless the facility’s air emissions change significantly. However, unless an extension is granted, the initial “continuous release” notification is to be filed on or before November 15, 2017.

While air emissions occurring from the crop application of manure or federally registered pesticides are not subject to reporting, spills and accidents that involve manure (other fertilizers) and pesticides must be reported if they are over applicable thresholds.  

The EPA Guidance also indicates that reporting does not apply under the EPCRA to air emissions from substances that are used in “routine agricultural operations.”  Those substances, according to the EPA don’t meet the definition of “hazardous.”  “Routine agricultural operations,” EPA states, includes “regular and routine” operations at farms AFOs, nurseries and other horticultural and aquacultural operations.  That would include, EPA notes, on-farm manure storage used as fertilizer, paint for maintaining farm equipment, fuel used to operate farm machinery or heat farm buildings, and chemicals for growing and breeding fish.  It would also appear to include livestock ranches where cattle are grazed on grass. A similar conclusion could be reached as to the term “facility” – a “facility” under CERCLA should not include a cow/calf grass operation where the livestock graze on grass.  However, at the present time, the EPA has not provided any official guidance concerning the issue.  

There doesn’t appear to be any harm in reporting when it is not clearly required.  In other words, while the land application of livestock manure would appear to fall under the “fertilizer” exemption and not be included in the definition of “facility” a producer could still report such emissions.  While grass operations could also report to be on the side of caution, the reportable emission level (if it were to apply to a grass operation) will be triggered at a higher head count of livestock because commingled solid waste and urine will not be present.   

Conclusion

Recently, the EPA filed a motion with the court to push the November 15 deadline back.  Also, on November 9, 2017, the National Pork Producers Council and the U.S. Poultry and Egg Association filed an amicus brief in support of the EPA’s motion. They are asking the court to give the EPA more time to “provide farmers more specific and final guidance before they must estimate and report emissions.”  In addition, the EPA notes that getting additional time will allow to finalize a reporting system.  

Whenever the reporting requirement becomes effective, either November 15 or sometime later if the court grants an extension, it will be important for livestock producers to comply.  For now, livestock producers should study the EPA interim guidance.  That guidance is available here:  https://www.epa.gov/epcra/cercla-and-epcra-reporting-requirements-air-releases-hazardous-substances-animal-waste-farms#Resources.  If reportable quantities of emissions will occur, the compliance deadline and proper reporting in a timely manner is very important so that applicable fines are avoided.  It is also suggested the livestock producers look for guidance from their state and national livestock associations.

November 10, 2017 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Monday, September 25, 2017

The Prior Converted Cropland Exception From Clean Water Act Jurisdiction

Overview

The federal government’s jurisdiction over “wetlands” continues to be a contentious issue.  In 2015, the U.S. Environmental Protection Agency (EPA) and the United States Army Corps of Engineers (Corps) jointly published a regulation (known as the “Clean Water Rule”) in an attempt to “clarify” the scope of federal jurisdiction over “waters of the United States.”  80 Fed. Reg. 37053 (Jun. 29, 2015).  The rule was immediately contested in court, its implementation stayed, and the U.S. Circuit Court of Appeals determined that it had jurisdiction to hear the challenge to the rule.  Murray Energy Corp. v. United States Department of Defense, 817 F.3d 261 (6th Cir. 2016).  In early, 2017, the Trump Administration indicated its intent to review, revise or rescind the rule.    82 Fed. Reg. 12532 (Mar. 6, 2017).   

Various exemptions can potentially apply to exclude “wetlands” from the federal government’s jurisdiction under the Clean Water Act (CWA).  One of those is for “prior converted cropland.”  That exemption stems from the “Swampbuster” provisions of the 1985 Farm Bill that were later adopted by the EPA and the Corps. 

How does the exception apply?  When does it not apply?  What’s the history behind the exception?  What have the courts had to say about it?  Is there a better way for the federal government to regulate prior converted cropland than the present manner?  A recent Illinois federal court decision involved the prior converted cropland exemption from CWA jurisdiction.  It didn’t turn out well for the landowner, however. 

The prior converted cropland exemption from CWA, that’s today’s topic.

Swampbuster

The conservation-compliance provisions of the 1985 Farm Bill introduced the concept of “swampbuster.”  Swampbuster was introduced into the Congress in January of 1985.  Later, in 1985, the Swampbuster provisions were introduced into the House Agriculture Committee as an amendment to Title XII resource conservation, to deny federal farm program benefits to persons planting agricultural commodities for harvest on converted wetlands. 16 U.S.C. § 3821(a)-(b) (2008).  The USDA defines “converted wetland” as a wetland that has been drained, dredged, filled, leveled, or otherwise manipulated (including…the removal of woody vegetation or any activity that results in impairing or reducing the flow and circulation of water) for the purpose of or to have the effect of making possible the production of an agricultural commodity without further application of the manipulations described herein if: (i) such production would not have been possible but for such action, and (ii) before such action such land was wetland, farmed wetland, or farmed-wetland pasture and was neither highly erodible land nor highly erodible cropland. 7 C.F.R. § 12.2(a) (2008).

The report of the conference committee a week before the 1985 Farm Bill was signed into law stated that wetland conversion was considered to be “commenced” when a person had obligated funds or begun actual modification of a wetland.

The final Swampbuster rules were issued in 1987 and greatly differed from the interim rules.  The final Swampbuster rules eliminated the right to claim prior investment as a commenced conversion.  Added were farmed wetlands, abandoned cropland, active pursuit requirements, FWS concurrence, a complicated “commenced determination” application procedure, and special treatment for prairie potholes. Under the “commenced conversion” rules, an individual producer or a drainage district is exempt from Swampbuster restrictions if drainage work began before December 23, 1985 (the effective date of the 1985 Farm Bill).  This is the genesis of the “prior converted cropland” exemption.    

The final rules defined “farmed wetlands” as playa, potholes, and other seasonally flooded wetlands that were manipulated before December 23, 1985, but still exhibited wetland characteristics.  Drains affecting these areas can be maintained, but the scope and effect of the original drainage system cannot be exceeded. 7 C.F.R. § 12.33(b).  Prior converted wetlands can be farmed, but they revert to protected status once abandoned. Abandonment occurs after five years of inactivity and can happen in one year if there is intent to abandon.  A prior converted wetland is a wetland that was totally drained before December 23, 1985.  If a wetland was drained before December 23, 1985, but wetland characteristics remain, it is a “farmed wetland” and only the original scope and effect of the drainage of the affected land can be maintained.

Clean Water Act

In 1993, the COE and EPA adopted new regulations clarifying the application of the permit requirement of §404 of the CWA to land designated as wetland.  Section 404 of the CWA makes illegal the discharging of dredge or fill material into the “navigable waters of the United States” without obtaining a permit from the Secretary of the Army acting through the Corps.  The regulations specifically exempt prior converted wetlands from the definition of “navigable waters” for CWA purposes. 58 Fed. Reg. 45,008-48,083 (1993); 33 C.F.R. §328.3(a)(8).  Thus, prior converted cropland is not subject to the permit requirements of § 404 of the CWA.  Indeed, the Corps stated clearly that the only method for prior converted cropland to return to the Corps’ jurisdiction under the regulation was for the cropland to be “abandoned” – cropland production ceases with the land reverting to a wetland. 

In early 2009, the Corps prepared an Issue Paper announcing for the first time that prior converted cropland that is shifted to non-agricultural use becomes subject to regulation by the Corps. See Issue Paper Regarding "Normal Circumstances" (ECF No. 18-22).  The paper was the Corps’ response to five pending applications for jurisdictional determinations involving the transformation of prior converted cropland to limestone quarries. The paper concluded that the transformation would be considered an "atypical situation" within the meaning of the Corps’ Wetlands Manual and, thus, subject to regulation.  The paper further found that active management, such as continuous pumping to keep out wetland conditions, was not a "normal condition" within the meaning of 33 C.F.R. § 328.3(b).  However, no APA notice-and-comment period occurred (as required by the Administrative Procedure Act (APA) – Pub. L. 79-404, 69 Stat. 237, enacted Jun. 11, 1946)) before the Corps issued the memorandum.  Even so, the Corps implemented and enforced the rules nationwide.  The rules were challenged and in New Hope Power Company, et al. v. United States Army Corps of Engineers, 746 F. Supp.2d 1272 (S.D. Fla. Sept. 2010), the court held that the Corps had improperly extended its jurisdiction over the prior converted croplands that were converted to non-agricultural use and where dry lands were maintained using continuous pumping.  Under the Corp’s new rule, wetland determinations were being made based on what a property’s characteristic would be if pumping ceased.  The court noted that the rules effectively changed the regulatory definition of prior converted cropland without the new definition being subjected to notice and comment requirements.  Accordingly, the court invalidated the Corp’s new rule.

Illinois Case

Facts.  In Orchard Hill Building Co. v. United States Army Corps of Engineers, No. 15-cv-06344, 2017 U.S. Dist. LEXIS 151673 (N.D. Ill. Sept. 19, 2017), the plaintiff was a developer that obtained title to a 100-acre tract on the southeast side of Chicago metro area in 1995.  The local town then passed a zoning ordinance allowing development of the property.  The tract was divided into three sections - 25 acres were to be developed into 168 townhomes; 61 acres to be developed into 169 single-family homes; and 14 acres in between the other acreages to function as a stormwater detention area.  The townhomes and water detention area was to be developed first and then the single-family housing.  Construction of the townhomes began in 1996, and the single-family housing development was about to begin when the defendant designated about 13 acres of the undeveloped property as “wetlands” and asserted regulatory jurisdiction under the CWA.

Administrative process.  The defendant claimed jurisdiction on the basis that the “wetland” drained via a storm sewer pipe to a creek that was a tributary to a river that was a navigable water of the U.S.   The plaintiff administratively appealed the defendant’s jurisdictional determination to the Division Engineer who agreed that the District Engineer failed to properly interpret and apply applicable the U.S. Supreme Court decision in Rapanos v. United States, 547 U.S. 715 (2006).  On reconsideration, the District Engineer issued a second approved jurisdictional determination in 2010 concluding that the tract had a significant nexus to the navigable river.  The plaintiff appealed, but the Division Engineer dismissed the appeal as being without merit.  In 2011, the plaintiff sought reconsideration of the defendant’s appeal decision because of a 1993 prior converted cropland designation that excluded a part of the 100-acres from CWA jurisdiction.  Upon reconsideration, the District Engineer issued a third jurisdictional determination in 2012 affirming its prior determination noting that farming activities had ceased by the fall of 1996 and wetland conditions had returned.  The plaintiff appealed on the basis that the “significant nexus” determination was not supported by evidence.  The Division Engineer agreed and remanded the matter to the District Engineer for supportive documentation and to follow the defendant’s 2008 administrative guidance.  The District Engineer issued a new jurisdictional determination with supportive evidence, including an 11-page document that had previously not been in the administrative record.  This determination, issued in 2013, constituted a final agency determination, from which the plaintiff sought judicial review. 

Court opinion.  In court, the plaintiff claimed that the defendant didn’t follow its own regulations, disregarded the instructions of the Division Engineer, and violated the Administrative Procedures Act (APA) by supplementing the record with the 11-page document.  However, the court noted that existing regulations allowed the Division Engineer, on remand, to instruct the District Engineer to supplement the administrative record on remand and that the limitation on supplementing the administrative record only applied to the Division Engineer.  The court also determined that the supplemental information did not violate the Division Engineer’s remand order, and that the supplemental information had been properly included in the administrative record and was part of the basis for the 2013 reviewable final agency determination.  The court also upheld the defendant’s nexus determination because it sufficiently documented a physical, chemical and biological impact of the navigable river. 

The court also determined that the prior converted cropland exemption did not apply because farming activities had been abandoned for at least five years and wetland characteristics returned.  The court noted that the defendant and the EPA had jointly adopted a rule in 1993 adopting the Natural Resources Conservation Service (NRCS) exemption for prior converted cropland.  While the joint regulation did not refer to the abandonment exception, the defendant and EPA did explain in the Federal Register that they would use the NRCS abandonment provisions such that prior converted cropland that is abandoned and exhibits wetland characteristics are jurisdictional wetlands under the CWA.  The court noted that prior caselaw had held that the CWA’s exemption of “prior converted croplands” included the abandonment provision (see, e.g., Huntress v. United States Department of Justice, No. 12-CV-1146S, 2013 U.S. Dist. LEXIS 73805 (W.D. N.Y. May 24, 2013); United States v. Righter, No. 1:08-CV-0670, 2010 U.S. Dist. LEXIS 64686 (M.D. Pa. Jun. 30, 2010)), and that it would apply the same rationale in this case.  The court noted that the specific 13-acre parcel at issue in the case had not been farmed since 1996, and that conversion to a non-ag use did not remove the abandonment provision.  The plaintiff also claimed that the wetlands at issue were “artificial” wetlands (created by adjacent development) under 7 C.F.R. §12.2(a) that were not subject to the defendant’s jurisdiction.  However, the court noted that the defendant never adopted the “artificial wetland” exemption of the NRCS and, therefore, such a classification was inapplicable.  The court granted the defendant’s cross motion for summary judgment. 

Conclusion

A good case can be made that agricultural wetlands should be removed from Corps jurisdiction.  The Corps appears to lack the experience and the local staff needed to ably administer the regulation of continuously cropped, partially drained farmed wetlands.  The Corps regulates all wetlands in the same way irrespective of whether the wetland is agricultural, previously manipulated or something else.  In addition, the Corps will not allow drainage with compensatory mitigation without the applicant sequentially proving that drainage cannot be avoided or minimized.  Also, while the USDA and the Corps use the same wetland definition, the Corps refuses to rely upon USDA wetland determinations. This needlessly confounds agricultural property owners in the management, use and marketing of properties containing NRCS-certified farmed wetland and prior converted crop land.  Conversely, an NRCS-certified prior converted cropland determination increases the value of a property. 

In situations where a property owner has installed drainage features, and is responsible for a share of the maintenance costs of common drains built by a drainage district, a clear vested right has been established. A change in land use does not erase that vested right.  Viewed in that light, the Corps’ refusal to accept a USDA prior converted cropland determination could constitute a regulatory taking.

Perhaps a better approach would be to vest sole regulatory authority over prior converted cropland with the USDA.  With 30 years of experience and an office in practically every rural county, it would seem to make more sense that regulatory authority of prior converted wetlands rest solely with the USDA. 

With a change in Administration in the White House and new direction at the top of the EPA and the Corps, perhaps there will be a change in the way the federal government views wetlands, and the prior converted cropland exception.  These issues are very important to agriculture producers and rural landowners that own the estimated 53 million acres of prior converted cropland scattered across the U.S.

September 25, 2017 in Environmental Law, Regulatory Law | Permalink | Comments (0)

Thursday, August 24, 2017

What Problems Does The Migratory Bird Treaty Act Pose For Farmers, Ranchers and Rural Landowners?

Overview

The Migratory Bird Treaty Act (MBTA) 16 U.S.C. § 703 et seq. (2008). protects migratory birds that are not necessarily endangered and, thereby, protected under the Endangered Species Act.  The MBTA is important to agricultural producers and rural landowners because it has been broadly interpreted such that routine daily activities can become subject to the MBTA and create criminal liability at the hands of the U.S. government.      

The Scope of the MBTA

What does “take” mean?  The MBTA makes it unlawful at any time, by any means or in any manner, to “take” any migratory bird.  “Take is defined to mean “pursue, hunt, shoot, wound, kill, trap, capture or collect any migratory bird. 16 U.S.C. §§ 703-712 (2008); 50 C.F.R. §10.12.  Practically all bird species in the United States are covered due to regulations developed by the U.S. Fish and Wildlife Service (FWS) that apply the MBTA to species that don’t even migrate internationally or even at all.  50 C.F.R. §10.13.   

The Act is not limited to covering only hunting, trapping and poaching activities, but extends to commercial activities that kill migratory birds absent an MBTA permit.  The Act prohibits taking or killing of migratory birds (including a nest or egg) at any time, by any means or in any manner.  That could include such conduct as operating oil and gas production facilities, aerogenerators, cell towers as well as commercial forestry and common agricultural activities.  16 U.S.C. §703. However, the courts are split on whether the MBTA applies strictly to truly migratory bird deaths that are not inadvertent (see, e.g., United States v. Citgo Petroleum Corporation, 801 F.3d 477 (5th Cir. 2015)) or deaths of a broader classification of birds that are killed only inadvertently. 

Type of crime.  Violation of the MBTA is a misdemeanor punishable by fine up to $500 and imprisonment up to six months. 16 U.S.C. § 707(a) (2008), as amended by 18 U.S.C. §§3559; 3571.  Anyone who knowingly takes a migratory bird and intends to, offers to, or actually sells or barters a migratory bird is guilty of a felony, with fines up to $2,000, jail up to two years, or both.

Strict liability?  The MBTA is a strict liability statute, and has been applied to impose liability on farmers who inadvertently poison migratory birds by use of pesticides.  While the MBTA is a strict liability statute, constitutional due process requirements must still be satisfied before liability can be imposed.  In other words, there still must be an affirmative act that causes the migratory bird deaths.  For example, in United States v. Apollo Energies, Inc., et al., 611 F.3d 679 (10th Cir. 2010), oil drilling operators were not liable for deaths of migratory birds under the MBTA to the extent that the operators did not have adequate notice or a reasonable belief that their conduct violated the MBTA.  Likewise, in United States v. Rollins, 706 F. Supp. 742 (D. Idaho 1989), a farmer was prosecuted for violating the MBTA when he used a mixture of granular pesticides on an alfalfa field. The chemicals poisoned a flock of geese and killed several of them.  The trial court held that even though the farmer had not applied the pesticide in a negligent manner and could not control the fact that the geese would land and eat the granules, liability under the MBTA was based on whether the farmer knew that the land was a known feeding area for geese.  The trial court concluded that “a reasonable person would have been placed on notice that alfalfa grown on Westlake Island in the Snake River would attract and be consumed by migratory birds.”  The trial court was reversed on appeal on the grounds that the MBTA was too vague to give the farmer adequate notice that his conduct would likely lead to the killing of the protected birds since the farmer's past experience with the pesticide and the geese was that it did not kill them.  But, in United States v. Van Fossan, 899 F.2d 636 (7th Cir. 1990), the court confirmed the notion that the MBTA is a strict liability statute and approved its application to a defendant who used pesticides to poison birds, even though the defendant did not know that his use of the pesticide would kill migratory birds protected under the Act.

“Baiting” of birds.  The MBTA also prohibits the taking of migratory game birds by the aid of “baiting”.  However, it is permissible to take migratory game birds, including waterfowl, on or over standing crops, flooded harvested croplands, grain crops that have been properly shocked on the field where grown, or grains found scattered solely as the result of normal agricultural planting or harvesting.  See 50 C.F.R. §§ 20.11(g); 20.21(i)(2008).  The FWS has promulgated regulations defining “normal agricultural planting” and “harvesting,” and in Falk v. United States Fish and Wildlife Service, 452 F.3d 951 (8th Cir. 2006), the court held that FWS determinations that harvesting corn after December 1 and aerial seeding of winter wheat in standing corn were not “normal planting” and that the landowners were barred from hunting next to the neighbors’ baited fields were a reasonable interpretation of the MBTA.

Some states also have statutes that prohibit the baiting of wildlife for hunting purposes unless the alleged baiting was the result of commonly accepted agricultural practices.  For instance, in State v. Hansen, 805 N.W.2d 915 (Minn. Ct. App. 2011), the defendant’s conviction for using bait to hunt deer was reversed.  The court held that the state statute violated due process because it was vague as applied to the defendant’s pumpkin patch operation.  The law did not distinguish between normally accepted agricultural practices and the unlawful baiting of deer.

In addition, the Act permits the taking of all migratory game birds, except waterfowl, on or over any lands where shelled, shucked, or unshucked corn, wheat or other grain, salt, or other feed has been distributed or scattered as the result of bona fide agricultural operations or procedures.  In United States v. Adams, 383 Fed. Appx. 481 (5th Cir. 2010), a farmer was convicted of violating the Act for hunting doves on a field that he had recently planted to wheat.  For purposes of the “baiting” provision of the Act, the trial court judge determined that intent was not an element of the offense for which the farmer was convicted and did not allow the farmer to introduce evidence concerning the procedures commonly used to plant winter wheat in northeast Louisiana.  On appeal, the Fifth Circuit Court of Appeals reversed the trial court, holding instead that the government was required to prove that the farmer’s intentions were not in good faith and that the farmer’s acts were merely a sham to attract migratory birds to hunt.  Accordingly, the court reversed the farmer’s conviction and rendered acquittal based on the court’s determination that the farmer was entitled to have the lower court consider the evidence of his good faith in growing the wheat, and because there was no evidence from which a jury could find that the farmer’s planting was not the result of a “bona fide agricultural operation or procedure.”  In another case, United States v. Andrus, 383 Fed. Appx. 481 (5th Cir. 2010), the court determined that the use of a stripper header to harvest milo was not a "normal agricultural practice" with the result that the defendant's sentence for taking migratory birds by aid of bait in violation of the MTBA was upheld.  The defendant's testimony that he could not reasonably have been expected to know that the field he was hunting in was baited because he was not a farmer was not credible.  The court noted that the defendant failed to inspect the field and that unharvested milo was clearly present near the defendant's duck blinds and decoys.

Migratory bird facilities.  The MBTA regulations specify that “no migratory bird preservation facility shall receive or have in custody any migratory game birds unless such birds are tagged.  See, e.g., 50 C.F.R. § 20.36.  The requirement has been held to apply to an individual.  See, e.g., United States v. Gilkerson, 556 F.3d 854 (8th Cir. 2009).

Conclusion

Supposedly, the FWS (the enforcing agency of the MBTA) is only interested in enforcing the MBTA on activities that “chronically” kill protected birds, and then only after notice has been given to the alleged offending party.  80 Fed. Reg. 30034 (May 26, 2015).  But, that might be of little assurance to farmers, ranchers, rural landowners and others whose fate could be left up to FWS discretion and the interpretation of the MBTA by the courts where interpretations can differ by jurisdiction. 

August 24, 2017 in Criminal Liabilities, Environmental Law | Permalink | Comments (0)

Tuesday, August 22, 2017

The Business of Agriculture – Upcoming CLE Symposium

Overview

On September 18, Washburn School of Law will be having its second annual CLE conference in conjunction with the Agricultural Economics Department at Kansas St. University.  The conference, hosted by the Kansas Farm Bureau (KFB) in Manhattan, KS, will explore the legal, economic, tax and regulatory issue confronting agriculture.  This year, the conference will also be simulcast over the web.

That’s my focus today – the September 18 conference in Manhattan, for practitioners, agribusiness professionals, agricultural producers, students and others. 

Symposium Topics

Financial situation.  Midwest agriculture has faced another difficult year financially.  After greetings by Kansas Farm Bureau General Counsel Terry Holdren, Dr. Allen Featherstone, the chair of the ag econ department at KSU will lead off the day with a thorough discussion on the farm financial situation.  While his focus will largely be on Kansas, he will also take a look at nationwide trends.  What are the numbers for 2017?  Where is the sector headed for 2018? 

Regulation and the environment.  Ryan Flickner, Senior Director, Advocacy Division, at the KFB will then follow up with a discussion on Kansas regulations and environmental laws of key importance to Kansas producers and agribusinesses. 

Tax – part one.  I will have a session on the tax and legal issues associated with the wildfire in southwest Kansas earlier this year – handling and reporting losses, government payments, gifts and related issues.  I will also delve into the big problem in certain parts of Kansas this year with wheat streak mosaic and dicamba spray drift.

Weather.  Mary Knapp, the state climatologist for Kansas, will provide her insights on how weather can be understood as an aid to manage on-farm risks.  Mary’s discussions are always informative and interesting. 

Crop Insurance.  Dr. Art Barnaby, with KSU’s ag econ department, certainly one of the nation’s leading experts on crop insurance, will address the specific situations where crop insurance does not cover crop loss.  Does that include losses caused by wheat streak mosaic?  What about losses from dicamba drift?

Washburn’s Rural Law Program.  Prof. Shawn Leisinger, the Executive Director of the Centers for Excellence at the law school (among his other titles) will tell attendees and viewers what the law school is doing (and planning to do) with respect to repopulating rural Kansas with well-trained lawyers to represent the families and businesses of agriculture.  He will also explain the law school’s vision concerning agricultural law and the keen focus that the law school has on agricultural legal issues.

Succession Planning.  Dr. Gregg Hadley with the KSU ag econ department will discuss the interpersonal issues associated with transitioning the farm business from one generation to the next.  While the technical tax and legal issues are important, so are the personal family relationships and how the members of the family interact with each other.

Tax – part two.  I will return with a second session on tax issues.  This time my focus will be on hot-button issues at both the state and national level.  What are the big tax issues for agriculture at the present time?  There’s always a lot to talk about for this session.

Water.  Prof. Burke Griggs, another member of our “ag law team” at the law school, will share his expertise on water law with a discussion on interstate water disputes, the role of government in managing scarce water supplies, and what the relationship is between the two.   What are the implications for Kansas and beyond?

Producer panel.  We will close out the day with a panel consisting of ag producers from across the state.  They will discuss how they use tax and legal professionals as well as agribusiness professionals in the conduct of their day-to-day business transactions.

Conclusion

The Symposium is a collaborative effort of Washburn law, the ag econ department at KSU and the KFB.  For lawyers, CPAs and other tax professionals, application has been sought for continuing education credit.  The symposium promises to be a great day to interact with others involved in agriculture, build relationships and connections and learn a bit in the process.

We hope to see you either in-person or online.  For more information on the symposium and how to register, check out the following link:  http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/continuingeducation/businessofagriculture/index.html

August 22, 2017 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 31, 2017

Agricultural Law in a Nutshell

Overview

Today's post is a deviation from my normal posting on an aspect of agricultural law and tax that you can use in your practice or business.  That’s because I have a new book that is now available that you might find useful as a handbook or desk reference.  Thanks to West Academic Publishing, my new book “Agricultural Law in a Nutshell,” is now available.  Today’s post promotes the new book and provides you with the link to get more information on how to obtain you copy.

Content

The Nutshell is taken from my larger textbook/casebook on agricultural law that is used in classrooms across the country.  Ten of those 15 chapters are contained in the Nutshell, including some of the most requested chapters from my larger book – contracts, civil liabilities and real property.  Also included are chapters on environmental law, water law and cooperatives.  Bankruptcy, secured transactions, and regulatory law round out the content, along with an introductory chapter.  Not included in this Nutshell are the income tax, as well as the estate and business planning topics.   Those remain in my larger book, and are updated twice annually along with the other chapters found there. 

Style

The Nutshell is designed as a concise summary of the most important issues facing agricultural producers, agribusinesses and their professional advisors.  Farmers, ranchers, agribusinesses, legal advisors and students will find it helpful.  It’s soft cover and easy to carry.

Rural Law Program

The Nutshell is another aspect of Washburn Law School’s Rural Law Program.  This summer, the Program placed numerous students as interns with law firms in western Kansas.  The feedback has been tremendous and some lawyers have already requested to be on the list to get a student for next summer.  Students at Washburn Law can take numerous classes dealing with agricultural issues.  We are also looking forward to our upcoming Symposium with Kansas State University examining the business of agriculture and the legal and economic issues that are the major ones at this time.  That conference is set for Sept. 18, and a future post will address the aspects of that upcoming event.

Conclusion

You can find out more information about the Nutshell by clicking here:  http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/agriculturallawnutshell/index.html

July 31, 2017 in Bankruptcy, Civil Liabilities, Contracts, Cooperatives, Environmental Law, Real Property, Regulatory Law, Secured Transactions, Water Law | Permalink | Comments (0)

Friday, July 21, 2017

Spray Drift As Hazardous Waste?

Overview

The issues associated with spray-drift of dicamba have generated numerous questions to me.  I devoted a blog post to the issue last week.  Since then I have received more calls and emails from farmers experiencing drift issues.  One farmer raised an interesting question – does the drift of dicamba constitute a hazardous waste that is regulated under federal law?  That’s an interesting question and the focus of today’s blog post.

Comprehensive Environmental Response Compensation & Liability Act (CERCLA)

Hazardous waste is regulated by the federal CERCLA.  CERCLA became law in late 1980, set as a goal the initiation and establishment of a comprehensive response and financing mechanism to abate and control problems associated with abandoned and inactive hazardous waste disposal sites. In general, CERCLA was enacted as a response to several then high-profile hazardous waste trouble spots such as Love Canal in New York and the Valley of the Drums in Kentucky.  While CERCLA focuses on hazardous waste sites, it can have significant ramifications for agricultural operations because the term “hazardous waste” has been defined to include most pesticides, fertilizers, and other chemicals commonly used on farms and ranches. See, e.g., 40 C.F.R. § 261. As such, CERCLA liability is a concern any time that agricultural land is purchased or leased.

CERCLA Components. There are four basic components to CERCLA.  First, the statute sets up an information gathering and analysis system to allow state and federal governments to determine more accurately the danger level at various disposal sites and to develop cleanup priorities accordingly. 42 U.S.C. § 9604. The EPA is authorized to designate as hazardous any substance which, when released into the environment, may present a “substantial danger” to public health and welfare, or to the environment. The act requires notification of any release into the environment of these substances.  The act requires owners and operators of hazardous waste storage, treatment, and disposal sites to provide EPA with notification of the volumes and composition of hazardous wastes that can be found at their facility, and of any known or possible releases.  The EPA uses this information to develop a national priorities list (NPL) in order to prioritize hazardous waste sites from those most dangerous and in need of immediate cleanup to those least dangerous and not as urgently in need of cleanup.

With respect to releases of hazardous substances, CERCLA provides that any person in charge of a “facility” from which a hazardous substance has been released in a reportable quantity must immediately notify the National Response Center. 42 U.S.C. § 9603(a) (2008).  Releases that exceed 100 pounds per day must be reported.  A key question of major importance to agriculture is whether large-scale livestock/poultry confinement operations operated by individual growers pursuant to contractual arrangements with vertically integrated firms constitute a single “facility,” or whether each confinement structure on a farm is a separate facility.  In Sierra Club, Inc. v. Tyson Foods, Inc., 299 F. Supp. 2d 693 (W.D. Ky. 2003), the court held that Tyson was an operator of the chicken farms at issue pursuant to the production contracts with growers and that an entire chicken farm site is a facility from which releases must be reported under CERCLA. In a later case, Sierra Club v. Seaboard Farms, Inc., 387 F.3d 1167 (10th Cir. 2004), the United States Court of Appeals for the Tenth Circuit ruled similarly that the term “facility,” as defined in CERCLA, meant any site or area where hazardous substances come to be located.  As a result, a large-scale confinement hog operation was held to be subject to CERCLAs reporting requirements for ammonia emissions that exceeded the per-day limit for the operation as a whole, even though no single “facility” at the operation exceeded the limit. The rulings make it much more likely that large-scale confinement operations will be subject to the reporting requirements of CERCLA.

Second, CERCLA established two funds:  (1) the hazardous substance response trust fund (“Superfund”) which is funded by taxes on crude oil and chemicals and finances the government's response costs and damage claims for injury to or destruction or loss of natural resources; and (2) the post-closure liability trust fund which is financed by taxes on hazardous wastes and out of which payments are made to cover the costs of response damages or other compensation for injury or loss to natural resources.

Third, CERCLA provides the federal government with authority to respond to emergencies involving hazardous substances and to clean up leaking disposal sites. The EPA is given authority to require parties responsible for contamination to clean up the contamination or reimburse EPA for the costs of remediation. If the liable or “potentially responsible party” cannot be found or cannot afford to pay, then EPA may use the Superfund to clean up the contamination.

Fourth, the statute holds persons responsible for releases of hazardous material liable for cleanup and restitution costs.  Liability is strict, joint and several, and can be applied retroactively to those having no continuing control over the hazardous substance. However, liable parties at a multi-party Superfund site are not jointly and severally liable if a reasonable basis exists to apportion their liability. See, e.g., Burlington Northern and Santa Fe Railway Co., et al. v. United States et al., 129 S. Ct. 1870 (2009).  But, state law still might provide for joint and several liability. 

Elements of Liability. The government must establish four elements to prevail against a party under CERCLA.  For example, the government must establish that the site in question is a covered facility subject to CERCLA regulation. The government must also establish that a release or threatened release of a hazardous substance has occurred   which caused the U.S. to incur “response costs.” The government need not prove that a particular defendant’s waste caused the government to incur response costs. In addition, the defendant must be a “covered person” (also termed a “potentially responsible party”).  If the four elements are proved, the defendant is strictly liable (absent a statutory defense). 

Typically, the government has little trouble establishing the first three elements.  Consequently, most CERCLA litigation concerns the issue of whether the defendant is a “covered person” as defined by CERCLA.  A current owner or operator of a “covered facility” is a covered person.  This includes such individuals as tenants, as well as bankers, insurers and other lenders that finance the purchase of the land, limited partners and stockholders, officers and employees, and may also include easement holders.  Also deemed to be a “covered person” is any owner or operator of the site at the time of disposal, any person who arranged for disposal or treatment of hazardous substances at the site, and any person who transported hazardous substances to the site.  Persons or entities serving as an executor, administrator, conservator or trustee whether serving as an individual or as a corporate fiduciary may also be deemed a “current owner or operator” and, as such, be a “covered person.”  For example, in a 1994 case, the court held that a conservator or executor could be held liable as an owner under CERCLA by virtue of leasing a ranch.  Castlerock Estates, Inc. v. Estate of Markham, 871 F. Supp. 360 (N.D. Calif. 1994).  The environmental contamination at issue was caused by dipping cattle over a period of several years.  The current owner of the ranch was obligated to pay the cleanup costs under CERCLA and sought to recover the cleanup costs from a bank that had acquired another bank that had served as conservator and executor for one of the owners of the ranch who had become disabled.  While the court noted that bare legal title held by a conservator or executor was inadequate to make the conservator or executor liable for cleanup costs, the court noted that liability could attach if there were additional “indicia of ownership.”  The court said that could come from leasing the ranch (which occurred for three years), the granting of additional powers to the fiduciary (which had occurred) or participation in the operation of the ranch.  The court ultimately concluded that there was sufficient evidence to go to trial as to the fiduciary's liabilities. Consequently, fiduciaries of property in current use may want to consider executing an indemnity agreement with the operator concerning indemnification for liability arising from environmental problems caused by the operator's use. 

Pesticide Exemption.  There can be no recovery of response costs or damages under CERCLA from the application of a pesticide product registered under the Federal Insecticide, Fungicide, Rodenticide Act (FIFRA).  This is known as the “pesticide exemption.”  However, one federal court has construed the pesticide exemption narrowly to not apply to the application of pesticides to unauthorized crops and in a manner that caused off-site drift.  See, e.g., United States v. Tropical Fruit, S.E., 96 F. Supp. 2d 71 (D. P.R. 2000).  The court held that a farmer’s improper application of pesticides was inconsistent with the product label and rendered the farmer a potentially responsible party for an “escape” of a hazardous substance.

Conclusion

The dicamba drift matter is a big issue in certain parts of the country right now.  The recent question concerning drift and hazardous waste is an interesting one.  While CERCLA contains a “pesticide exemption” there is potential for CERCLA liability when it can be established that dicamba isn’t applied in accordance with label directions.

July 21, 2017 in Environmental Law | Permalink | Comments (0)