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Once again, litigants are attacking production agriculture in North Carolina. Large verdicts have returned against Smithfield Foods, a large pork integrator that places its owned animals on custom feed floors. The latest trend is not to sue the actual farm operator, but rather sue the company that owns the hogs on contract to be fed by the producer. The lawyers attacked the anaerobic lagoons and the spraying of manure upon fields, asserting they were a public nuisance. In the North Carolina cases, despite the big headlines, the actual damages will be limited to $3 million dollars or less.

Interestingly, the North Carolina legislature responded by limiting the time line for neighbors filing lawsuits against farm operations to the first year that they are established or have a “fundamental” change. It also prohibits damages being awarded unless the farm operation has already had a criminal or regulatory sanction.

Concerningly, the federal legislators in farm states are making rumblings about a national prohibition on lawsuits against farm operations similar to the North Carolina measure. I am not a fan of a large federal government that provide blanket policy on how individuals use the land. The federal government’s foray in to land use management via the EPA and the Army Corps of Engineers is not a shining example of how to achieve results. Each of the 50 states should retain its own power to determine land use decisions. The solution in Hawaii is not the same solution in Texas. In fact, in response to the North Carolina jury decision, speculation has begun that more swine operations will move west, to the Dakotas and other wide-open spaces where people are not. This action may be encouraged or discouraged by the people of South Dakota through its laws, as it should be. Perhaps they want more jobs and pork production, perhaps they don’t want the associated negative impacts. The people of South Dakota should make those decisions, not a federal blanket policy.

In other attacks on agriculture, Monsanto suffered a large verdict against it for allowing the use of Glyphosate (Roundup) without adequate warnings or research. Observers who are pro and anti chemical companies noted that the trial was less about science and more about corporate practices and indifferences towards discovering the potential harm of the product.

What is concerning about in both these cases is the attack on the perceived faceless, monolithic corporations. It is generally more palatable to sue a company than to sue an individual over a perceived wrong. As corporations continue to grow and independent producers are pushed out, the corporate face will be an easy one to attack. What appears to be a faceless corporation is actually thousands and thousands of employees and stock holders who will bear the economic costs of continued litigation. Those economic losses or fear of those losses will be passed along in the form of higher product costs to the end user, the farm operator. That farm operator has nobody to pass the costs on to.

July is the month most law changes take effect in Iowa. Some highlights that impact agriculture operations are below:

Small Claims. More Fighting for less.

The small claims limit will be raised from $5,000 to $6,500, effective July 1st. Plaintiffs can now collect up to $6,500, plus fees if applicable, when filing small claims actions. Small claims are more cost effective than formal district court litigation as discovery and other things that slow down civil litigation are not generally an issue. You also can get a court date much quicker and a ruling much faster. Also, attorneys are optional at best in small claims.

OWI

All OWI related offenses will require the “blow and go” breath analyzer to ensure that the operator is not consuming alcohol while driving. It used to be only those with a high BAC at the time of arrest were required to get the analyzer for a 1st offense OWI.  The rules for getting a work permit after your licenses has been suspended have been loosened up and should reduce the number of violations for driving while suspended.  This should increase access to the work force as those under suspension should be able to get a license that is broader in nature than previously allowed.

Chapter 12 Bankruptcy

Agriculture is full of risks: marketing, financial, production, labor, and legal risks that must be managed.  Net income on the farm in 2017 was down 9% from the previous year. While the last four years have shown a decrease in total bankruptcy filings, farm bankruptcy filings are up 17%.  It appears to be moving higher.

Bankruptcy is a risk management tool of last resort for a farming operation.  We in the Midwest are ingrained with a "pull ourselves up by the boot straps" approach to all problems, but this may not be the wisest decision when it comes to farm business in peril.

Chapter 12 of the Bankruptcy Code has made business reorganization and debt repayment a much more streamlined process, allowing family farmers and fishermen to reorganize their operation to avoid failure.    

To qualify under a Chapter 12 proceeding, the farmer must have “regular annual income” which is “sufficiently stable and regular enough income” to make payments for a restructured business through this chapter (11 U.S.C. § 101(19)). A farmer can be an individual and spouse, a corporation or a partnership. The farmer can’t have over $4,031,575 of debt.  If the limits are exceeded, a Chapter 11 or 13 can still be used. The farmer must also have 50% of the debt connected to the farm operation and 50% of the gross income from the farm. Chapter 12 is not for weekends and nights, hobby farmers.

Chapter 12 allows a farmer to alter debt owed by reducing total debt “to the fair market value of the property, reducing the interest rate to the current market rate, and … extending the payment period”. This is sometimes referred to as a cram down.

To file, the farmer needs $700 ($200 on the day of filing and $500 within 15 days of filing). A complete list of assets, liabilities, income, expenses, contracts, and a financial affairs documents also need to be prepared.  Further, the farmer must include a list of creditors, amount and nature of the claim, the source, amount and frequency of farm income, a list of the farmer’s properties, and a detailed list of monthly farming and living expenses. The claims are divided up into three categories. Priority claims are first class claims, like taxes, that must be addressed in the plan. Secured claims, are obligations with a piece of collateral tied to it, like a mortgage tying real estate to a promissory note. Unsecured claims are not tied to collateral, like a credit card or an open account feed bill.

Collection actions are stopped during this time by a Stay order. Between three and five weeks after filing, a meeting of the creditors will be held where the trustee and the creditors of the farmer can ask the farmer questions under oath.

A trustee is assigned upon filing, who collects the income from the farm and pays it to the creditors according to a plan that the court approves. That plan has to be approved within 90 days of filing.  The plan needs to detail how to pay debts over 3-5 years. 45 days after the filing of the plan, a hearing will be held on if the plan is to be accepted. Creditors can appear to object.

The plan generally includes payment to creditors, with interest, if the obligation is a secured debt, selling excess assets, full payment of priority claims and giving up assets that are secured by liens and obligations. The idea is that the lenders and secured creditors get at least the value of the asset securing the promise to pay. Anything above the value is “unsecured” and may or may not get paid out. Once the trustee has collected all the payments under the plan, the case may be discharged and the farmer will not owe for obligations not addressed as part of the plan.

 Some things cannot be discharged like alimony, child support, debts obtained via false information, and debts for physically hurting someone.

If the plan doesn’t work, the court can dismiss the case or convert it to a Chapter 7 case, which is a liquidation. That only happens if fraud is involved.  

If a business is filing a Chapter 12, a personal bankruptcy may still be needed to resolve personal guarantees.

Your Signature is Valid.

Even if credit card companies don’t require signatures anymore, signatures are important. Signing deals that don’t benefit you in the future can be held against you.

Making deals without a Crystal Ball, escalator clause, or opportunity to get out can be harmful to your bottom line. Recently, in Blackhawk county, a couple who entered into a lopsided deal to sell 80 acres of prime ground to the renter were held to have entered into a valid contract, despite their attorney’s legal maneuvers to get it declared a future gift. The deal called for a set price to purchase the farm by the tenant when the couple died. The couple had advice of multiple lawyers (one who strongly recommended against it) and after inking the deal in 2010, had seller’s remorse in 2015. The right to purchase required the farm ground to not be developed or a penalty was to be paid, and the purchasing tenants had to be married at the time of purchase. That, along with the promise to pay, was enough to have the court declare the agreement binding.

Spraying Can Lead to Suing.

Pesticides drift when the weather and applicator are out of sync with one another. Sometimes it’s just physics and the weather, but sometimes its operators distracted by Snapchat. Regardless, if you are in the receiving or giving end of a spray drift situation, consider the following Document.

Pictures are worth 1000 words and 1000 words can paint a great picture. Document all potential evidence, including taking photographs or samples of damage, keeping a log of spray applications made in the area, noting any custom applicators applying pesticide in the area, documenting environmental conditions like wind speed, direction, and temperatures, and getting statements from any witnesses who might have seen the recent application. Photograph for weeks to track the damage to the plants. The more evidence, the better. Get an agronomist or scout in to look at the damage both sooner and later. The State has lab facilities that can be used to help identify damage, but they are one lab for an entire state of farms. Plus, the fines that state regulators assert don’t go to your bottom line.

Consider talking with your agronomist in advance regarding where samples might be sent in case of a potential claim, and consider how to preserve the evidence effectively before you are watching your field wilt before your eyes.

Talk

Make clear maps of what your fields are, how to get to them, and what products you are looking to have on them. Share them with your custom applicators and ask questions to make sure they understand. Taking time to talk with neighboring operators can be very important. Before the season gets rolling, having a conversation with neighboring operators about who is growing what, consideration for tolerant varieties, and identifying nearby sensitive crops can help avoid damage. Also, misery loves company, check with the neighbors to see if they received any unexpected damage.

Weigh the Price to be Paid.

Damage to a crop from spray drift can result in in damages for the impacted operator.  

An initial consideration is to analyze who to sue. The custom operator who has no insurance and drives a 1974 Jeep Truck may not have insurance to cover your claims. That may result in you spending dollars to get a piece of paper that says you are owed money and nothing more. Consider the costs of litigation. It is like poker, paying $10,000 in to see if you can win $7,000 more is not math a lot of people accept.

In other Ag News

New Mexico State Land Commissioner Dunn alleges that Texas landowners are stealing NM water and selling it back across the border for fracking. This presents an interesting issue of how neighboring states deal with differing legal approaches to groundwater. In Texas, a landowner owns his groundwater and use is governed by the rule of capture, but in New Mexico, prior appropriation is the rule and a person has to obtain a permit from the state to use groundwater.

We don’t have a water issue like this in Iowa yet, but continued demands for water may lead to such fights with our neighbors in the future.


Farm Bill Mark Up and Debate

The house and the Senate have wildly different versions of the bill and the Senate one seems to curry more favor with producer groups.

John Deere sues AGCO and Precision Planting Over Alleged Patent Infringement. 

John Deere claims that AGCO and Precision Planting’s new high-speed planters infringe on patents for ExactEmerge planter.  Funny how this claim comes out right after regulatory approval to buy Precision was not granted. Todd Janzen, an Ag Tech lawyer, points out, because the Deere patent is still a toddler (2014) this case has a lot of dollars at stake and will likely be extremely hard-fought by both sides.

The steak dinners, unsolicited seed corn caps with questionable logos, are long burned or covered with grease. The claim regarding Sygenta’s interference with the US Corn market appears to be reduced to a number. The settlement committee reached a preliminary agreement and submitted it to the court for approval the second week of March.

In summary, if the court approves the settlement:

Syngenta will owe $1.51 billion to four groups, with maximum settlement cap amounts for 3 groups. The remainder after distribution to these 3 groups, a minimum of $1.44 billion, is to be distributed to group 1.

The four settlement groups were defined as:

  1. 1. Growers who did not use Duricade or Viptera
  2. 2. Growers who did use Duricade or Viptera (max $22.6M)
  3. 3. Grain handlers (max $29.9M)
  4. 4. Ethanol producers (max $19.5M)

Years of production are 2013/14 through 2017/18 and a “weighted average” percentage will be used as follows:

                2013/14 = 26%

                2014/15 = 33%

                2015/16 = 20%

                2016/17 = 11%

                2017/18 = 10%

Yield will be determined solely by FSA578s (certified production records) with the exception of landlords who will have a claim form. The calculation for settlement, though, will be acres x average county yield per acre x weighted average. If not FSA 578, it would appear that crop insurance records would be used.

The settlement does not allow for silage or “fed on farm” corn. Dairy and Beef producers who walk the corn off the farm instead of trucking it will not be making a claim for that production that was fed.

 If the settlement is approved:

The 1st notice is to be mailed 10 days from approval of this proposed agreement. The opt-out deadline is 90 days from the mailing of the 1st notice. Claims deadline is 150 days from the mailing of the 1st notice. Final payment of Syngenta escrow to fund the settlement is April 1, 2019.

Unfortunately, it is still impossible to estimate a per bushel settlement value.

This will come potentially as farmers are distracted by spring activities. These settlements rarely have a second chance if the initial deadline is missed. Even those who have “signed up” and provided information to an attorney should be on the lookout for the settlement documents, and they should follow through with the required steps to ensure they are counted in the distribution. I expect a heavy advertising campaign will ensue to make sure all producers are counted. The plan calls for using government records to generate lists of people to contact.

Don’t bid up the neighbor’s rent just yet, but the chances are increasing that a small windfall might be coming to the producers who marketed corn over the years 2012-2018.

Wednesday, September 19, 2018
  • 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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