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Look Before You Leap

In the last several months, the Iowa Court of Appeals has issued opinions that reinforce a common-sense sentiment; look before you leap.  In two separate cases, adjoining landowners engaged earth movers and heavy construction operators to build roads, but failed to get a survey to determine what ground they actually owned, thus failing to build the road on their own land.

In one matter, the road moving party is facing nearly $20,000 of cost to move the road back onto the property that the party owns and off of his neighbors. That figure doesn’t include the cost of installing the road, the subsequent law suit, or the appeal.  In the other matter, the court awarded triple damages for the removal of trees belonging to the adjoining property owner, and the cost of restoring her property to the condition it was in prior to the encroaching road. In both matters, the cost of a survey would have been 10% or less of the cost these road builders ultimately paid.

Dicamba and its continued use.

Dicamba is a chemical that is used to attack weeds resistant to the popular herbicide glyphosate (known by its trade name Roundup). Dicamba has been the source of widespread crop damage this summer, as it was sprayed incorrectly or applied with unintended results. Resistant weeds are becoming more of a production problem for crop farming enterprises. These resistant weeds can mean more passes across the field to control weed growth, which cuts into already tightening margins for operators.

The EPA is moving to allow farmers to spray dicamba next year, but with additional rules for its use. Reuben Baris, acting chief for the herbicide branch of the Environmental Protection Agency’s (EPA) Office of Pesticide Programs, said the agency had not yet determined what steps it would take to address these problems.

Baris commented that the EPA is in negotiations with Monsanto and BASF (which sell dicamba) to make changes regarding how they are used.

It appears that the EPA will look to state regulators to help create a responsible application requirement. States have taken a broad range of actions, including contemplation of placing the chemical on a “do not spray” list for the coming years.

Iowa Citizens for Community Improvement Back Door Attempt to Stunt Livestock Industry Defeated.

ICCI, long known for being anti-production agriculture, submitted a petition to the Iowa Environmental Protection Commission to make the installation of additional livestock facilities very difficult, if not impossible. The group submitted the petition after getting themselves on county level board of supervisor’s agendas in an attempt to get the local boards to endorse their petition.

The proposal would have increased the setback distances, given higher credit for pollution control, and increased the amount of compliance required to obtain a construction permit. The Iowa DNR, who administers the program, was against the petition’s demands.

 

 

Wont Crack: California’s Egg Sales Law Stands Up to First Attack.

The U.S. Supreme Court declined to review a challenge to California’s egg sale law that was filed by several states, including Iowa. The complaint comes against the law’s requirement that egg producers in Iowa have to modify their operations and increase costs to sell eggs in California under its state law. The Supreme Court didn’t decide the merits, but simply decided the State did not have the “standing” or legal status, to challenge the law. Iowa is a top egg producer and this is not good for other forms of ag either, as California is a large consumer of ag products and subject to ballot measures that groups can use to quickly change state law.

Snakes in the Mail:  Reptile Keepers Win Against FWS Ban on Giant Snake Trade.

The Lacey Act bans “any shipment” of injurious species (which not surprisingly includes Giant Snakes) “between the continental United States, the District of Columbia, Hawaii, the Commonwealth of Puerto Rico, or any possession of the United States.” The U.S. Fish and Wildlife Service interpreted the shipment clause to ban transport between the 49 continental states as well.

The United States Association of Reptile Keepers (ARK) challenged the rule, arguing language of “between” covers only shipments between the listed jurisdictions and the continental United States. The district court found the law does not bar shipments between the 49 continental states.  Look for the next Amazon Prime day for a special on King Cobras with free shipping.

No Dolphins Hurt, Only Pocket Books. Bumblebee Tuna Will Plead Guilty to Price Fixing Charges.

Bumble Bee Foods has agreed to plead guilty to federal charges of price fixing. Bumblebee Tuna, Chicken of the Sea, and StarKist agreed to fix the prices of shelf stable tuna fish from 2011-2013. In addition to pleading guilty, Bumble Bee has also agreed to pay a $25 million criminal fine. Two of Bumble Bee senior vice president have also pled guilty to fixing prices.  Walmart, and several other retailers, have filed civil suits against the tuna companies, alleging that the price fixing has been a long-lasting conspiracy.

Out of Water: EPA & U.S. Army Corps of Engineers Move Away Expansive Water Jurisdiction.

The Environmental Protection Agency, Department of Army, and Army Corps of Engineers are proposing a rule to rescind the Clean Water Rule and move back to the regulations that existed prior to 2015 defining “waters of the United States” or WOTUS. This will hopefully, shrink the EPA’s jurisdiction as well as the Corps of Engineers.

Montana Beef Producers Rustle Up a Stay of the Beef Check Off Program.

The Federal District of Montana confirmed a lower court ruling that the USDA beef checkoff program violates the First Amendment rights of the state’s cattle ranchers.  The ruling is a noteworthy development as the check offs are widely considered government speech. I still enjoy the “BEEF: Its what’s for dinner” ad campaign that the check off funded, and the “Support Beef: Run over chicken” bumper sticker, though I am not sure that was check off dollar supported.

After Years of Fighting Against COOL, Now Farmers are Suing to Implement it.

A suit against the USDA alleged that country-of-origin labeling (COOL) regulations are harming farmers and misleading consumers. The farmers claimed that not having COOL “reinstated regulations that reclassify imported beef and pork as domestic goods, enabling that meat to be passed off as a United States product.” 

Incomplete Job: Dakota Access Pipeline Needs New Environmental Impact Assessment.

In June, the Federal Court for the District of Columbia found that the US Army Corps of Engineers did not consider the impacts of an oil spill on fishing rights, hunting rights, or environmental justice for the Dakota Access Pipeline process. The Corps will have to reconsider those sections of its environmental analysis. However, the court also declined to stop the pipeline’s operation and indicated that it is an issue for another day. Classic example of both sides being able to claim a victory from one ruling.

Silence is Consent: Court Considers Actual Production History (APH) Yield Exclusion 

A group of winter wheat farmers challenged how federal crop applied the Actual Production History (APH) Yield Exclusion to their crop insurance claims.. The court found that Congress addressed other crops specific application/implementation language but did not for winter wheat. This indicates an intention to allow the existing law to be applicable. 

Monsanto Not Responsible for Off Label Use of Dicamba by Farmers.

A claim was made in court that Monsanto should foresee the illegal use of dicamba and be held responsible for those who are injured by a farmer’s off label use. However, because of the use of warning labels placed on the seed products, the claim was rejected. Monsanto included warning labels, providing notice to farmers that the spraying of dicamba on GE crops would be in violation of state and federal law. So yeah, labels will still be a thing for a long time.

In other dicamba litigation, a group of Arkansas farmers allege that Monsanto’s and BASF’s “negligent control, development, and distribution of the dicamba crop system . . . proximately caused significant and material injury and damage to Plaintiffs’ crops in 2016.” The lawsuit states that farmers who did not plant dicamba-resistant seeds had no way of protecting themselves, and have been victimized by Monsanto’s and BASF’s conduct. The case is pending.

Data Dump Costs the EPA: Farm Groups and EPA Reach Privacy Settlement Regarding Agricultural Data

The American Farm Bureau reached a settlement regarding violation of the Freedom of Information Act brought by AFB and the National Pork Producers Council against the EPA. The litigation started after EPA released spreadsheets containing personal information about farmers and ranchers in 29 states who raise livestock and poultry. In some cases this included the names of farmers, ranchers, other family members, home addresses, email addresses, GPS coordinates and telephone numbers.

 

 

 

Its July, its hot, and the worry will soon set in on Harvest ‘17. Minus some late season applications, the die has been cast on the crop, and mother nature will be the deciding factor as the crop moves toward maturity. It is time to evaluate where the farm operation is, where it is going, and where it needs to steer clear of in the coming years.

Does your operation have a one year, three year, and five-year plan? Has it reviewed its relationships with its land owners recently?  When is the operation going to need more labor? Where will it get that labor, and how will it retain its help when competing with off-farm jobs? Does the estate plan match the business plan? What vendors can you rely upon to grow with you, and which ones are not up to the task? Have you outgrown relationships with vendors and end users of your product? Why do you buy and sell where you do? How could you make it more efficient? How will new federal or state legislation and programs impact your operation? What would a sustained 10% hit to the gross income do to your operation and how would it adjust. Same question at 20%.

These questions need to be asked frequently, and they need to be answered honestly after considering the environment you are operating in.

Consider a couple of the environmental factors farm operations are experiencing right now.

  1. This year has been particularly interesting for farm operators, as lenders are tightening their purse strings, margins seem to be shrinking, and the equity in the once red hot farm land market appears to be receding. Dairy operations are being asked to check with the buying creamery before expanding herds significantly.

  2. Banks are not keen on the slim cash flows. Operators are being asked to consider consolidation, releasing high rental rate ground, and stream lining their operations to be lean in the coming years. Those operators who bought shiny equipment in the last several years are starting to regret aggressive short term note payments and taking accelerated depreciation.

  3. The ever-aging population of farm land owners who are needing high rents to cash flower their health care needs. What does your land owner need from its tenant to meet its own obligations?

While farm operators are used to having to know everything from tire changing, yield monitor calibration, and agronomy, it is highly unlikely to have all the answers yourself. Those involved with professionals like tax preparers, lawyers, appraisers, marketing specialists, and bankers, to accurately assess the question and its costs, will be far better off.  

Consider this example of behaving like a professional. A large dairy operation installed a scale and told its suppliers point blank, “we will pay for what goes across the scale on the farm, scale in and scale out.” The operation thinks the scale paid for itself the first year.

Businesses that grow take risks, and balance it with the reward. The opportunities for those with the patience and planning will be many in the coming years. A solid cash base to work from will result in opportunities for capital and equipment purchases in the coming years with good value. Operators who can “do the math”, make cash flows that work, and treat farming operations as business operations, not emotional baggage, will be poised to capitalize and grow.

The world of ag law never stops. Here are some of the recent changes in the law that impact agriculture. Every once in a while, a quick tour is in order.

  1. Des Moines Waterworks. They attempted to hold drainage districts responsible for nutrient run off fails.  The sue and settle method of the federal activist groups was not successfully parroted by the DSM Waterworks in their attempt to get additional parties to the table on nutrient run off management.
  2. Syngenta Litigation. The lawsuits have their first “bell weather trials” (aka test cases) working their way through the courts in Kansas and Minnesota. The results of these cases will determine if a global settlement is in the cards for the coming months. If you are a producer of corn in Iowa in the years in question, you are either represented individually by opting out of the class action, or you are represented by the class action lawyer, who essentially carries the case for all the nonspecifically represented corn producers.
  3. Pink Slime. The trial against ABC and its reporters for characterizing Beef Products, Inc.’s lean, finely textured beef as pink slime is underway. BPI says the report ruined its production, cut demand rapidly, and damaged the company to the tune of $1.9 billion (which could be tripled under South Dakota law where the suit is being heard).
  4. Industrial Hemp. Nevada (the state, not the town in Iowa with a different pronunciation of the same word) authorized growing industrial hemp for commercial purposes.
  5. Soda Tax. Seattle imposes a 1.75 cents per ounce tax on all non-diet sodas sold.
  6. Hazardous release exemption challenged.  Activist groups are challenging the EPA when it exempted farms from hazardous release reporting requirements. The district court found it didn’t have the authority to make the exemption. Producer groups were also suing the EPA, saying the exemption wasn’t broad enough and should cover concentrated animal feeding operations as well. Twenty-Eight Senators have asked the EPA to appeal the decision to the Supreme Court. The producers and the senators are worried that the reporting requirements (including low level ammonia and sulfur emissions that happen during livestock production) will expose farms to liability for not reporting correctly, and if they are reported correctly, the reporting system will be overwhelmed and create dangerous conditions. Further, farm groups fear the reporting requirements will subject them to attacks by extremist groups, because of the ease in which they can discover where feeding operations are located and managed via this reporting.
  7. Ag Supply Liens. Suppliers to ag feeding operations (like a feed mill) must file a new UCC filing statement with the Secretary of State every 31 days to maintain its ag supplier’s lien for feed sold within the last thirty days. Further, that lien is for the full amount of the feed supplied, and it attaches in full to the animals that consumed the feed. This is an important clarification that should help ensure distressed livestock farmers can still gain access to feed on credit, without the feed supplier sitting behind the operating credit lender in priority.
  8. Partition of real estate. Breaking up is hard to do, but splitting in kind falls from disfavor with the court. The Iowa Supreme Court ruled that when two parties own property, splitting up dollar bills is preferred to splitting up the farm.  The old “you pour, and I pick” method of splitting drinks won’t work either. This preference by the court means squabbling co-owners shouldn’t look to the court to split a farm, unless it is both fair and practicable. As no two pieces of dirt are ever the same, it creates a high bar. This is good news if you are an auctioneer or real estate agent, as court ordered sales appear to be favored going forward. Right after that ruling by the Supreme Court, the appeals court found that dividing in kind into identifiable tracts with no topographical differences would work, so all hope is not lost for those seeking to split the farm versus buying a co-owner out.
  9. Easements. Once a landowner is paid for the easement, the easement cannot be expanded without further compensation. The court indicates the key is to look at the use of the easement within the original idea of the grant of the easement. For example, allowing ingress/egress to a field doesn’t expand to parking on the access lane unless there is more to the story. If the use isn’t that clear, the court will look at the lay of the land, the actions in the first couple of years of the easement with an expansive view of allowing the easement holder the upper hand.
  10. Fences. Once again, good fences make good fences, and long standing fences make property lines; however, this is only true if coupled with conduct that shows ownership up to the fence. Fences not on the property line make fences the new boundary line after a period of years, but that installation of the fence needs to be coupled with mowing, grazing, or maintaining the area for your claim to stick. Also, fence agreements can be enforced, as one defendant found out when he entered into a fence agreement with his neighbor and then failed to follow its terms. The complaining neighbor picked up about $19,000 of damages and attorney’s fees because the agreement allowed for attorney’s fees to the prevailing party.
  11. Leases. After the court of appeals found one horse makes you a farmer for lease purposes, the Iowa Supreme Court gave further clear guidance. The new standard of whether a lease is a farm lease, for termination purposes, is the “primary purpose” test. The courts will now look at the actual use of the property to determine if it is a farm lease. So, the tenants out there with fainting goats, a herd of cats, and a broken-down nag will not get the September 1st protection that an actual farm tenant receives. In another matter, the court enforced the proration of unused lime as called for in the lease between the tenant and the farmer, which was a first legal test of that fairly standard provision.  The court also clarified that 99 year leases for primarily non-ag use would be acceptable under the Iowa Constitution.
  12. Nuisance.  A hog facility was found liable for interfering with a neighbor’s use and enjoyment of the property by not following generally acceptable management practices and was ordered to pay over $400,000 in damages.  The hog facility unsuccessfully complained the damages were too high, with the court finding that personal inconvenience, annoyance, discomfort and loss of full enjoyment of the property were caused by the odor from the hog facility. These damages may be limited in the future by the new law enacted in March that limits damages of this type.
  13. Insurance Contracts. I have often remarked that insurance companies do three things very well: deny claims, delay claims, and defend claims.  The insurance company has an army of attorneys who draft the terms of the insurance policy, and they are quick to defend the exact coverage.  A custom grower’s insurance policy was not responsible for the death of 837 hogs, because the contract only covered damage caused by the hogs, not damage TO the hogs.  Knowing the terms of your coverage can be the difference between a bump in the road and bankruptcy.
Friday, October 20, 2017
  • Patrick B. Dillon
  • Jill Dillon
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Patrick B. Dillon enjoys finding solutions to legal issues and catching problems for clients. Pat practices in the Sumner office regularly represents clients in district, associate district and magistrate courts for agricultural, real estate, criminal and collection issues. He drafts wills and trusts, creates estate plans and helps clients through the probate process.
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Jill Dillon focuses on family law, estate planning and IRS matters. Jill is a University of Northern Iowa undergraduate (Political Science Cum Laude) and a Drake University Law School graduate. Jill spent extensive time advocating for low income tax payers in front of the IRS and the State of Iowa Department of Revenue while at Drake.

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