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Farms and other businesses can benefit by using independent contractors to fill labor needs while not having the same financial and legal responsibilities the business has for its employees. But state and federal laws allow those advantages only if the worker is truly an independent contractor. When a worker classified as “independent contractor” functions as an employee in the eyes of the law, a business can be liable for failing to meet its employer obligations for the worker. That’s exactly what happened in a recent case before the Ohio Supreme Court.
The company. The case involved Ugicom (the company), paid by Time Warner Cable under a subcontract to provide workers to install underground cable. Workers used the company’s website to select and document installation jobs and the company paid the workers at rates it determined. The installers were required to wear badges and vests identifying the company and to pass drug tests and background checks, all coordinated by Time Warner. The company required installers to sign a one-year independent contractor agreement containing a “non-compete clause” that prohibited them from providing installation services for competitors. The contract also required installers to respond to service requests within two hours. Installers had to provide their own hand tools, transportation, cell phones, and laptops, but used cable obtained from Time Warner. They could work any day or time consented to by customers. The company paid the installers by the job and did not withhold taxes or provide any benefits.
The Bureau of Workers Compensation (BWC) audit. The BWC audited the company to decide whether it had paid the correct amount of workers’ compensation premiums for all of its employees. The BWC examined the company’s treatment of workers it had hired to install cable as independent contractors. Concluding that the company exercised “too much control” over the installers, the BWC determined that the installers were actually employees for workers’ compensation purposes and the company owed $346,817 in unpaid premiums for the employees. The company unsuccessfully appealed the decision to the agency and the Tenth District Court of Appeals and the case ended up before the Ohio Supreme Court.
The Ohio Supreme Court review. For purposes of the workers’ compensation program, Ohio law provides that the controlling determination in whether a worker is an independent contractor or an employee is “who had the right to control the manner or means of doing the work.” There is not a bright-line test for making such a determination, however. Instead, the Ohio Supreme Court explained, the BWC must consider a set of factors related to who controls the manner or means of the work. Those factors include:
- Whether the work is part of the regular business of the employer
- Whether the workers are engaged in an independent business
- The method of payment
- The length of employment
- Agreements or contracts in place
- Whether the parties believed they were creating an employment relationship
- Who provides tools for the job
- The skill required for the job
- The details and quality of the work
The Ohio Supreme Court’s role was to determine whether the BWC relied upon “some evidence” when reviewing each of the factors to reach its conclusion that the company controlled the manner or means of the installers’ work. The Court concluded that most, although not all, of the BWC’s conclusions were supported by at least some evidence and upheld the BWC’s decision. The factors and evidence that received the most attention from the Court included:
- Independence from the company. The installers’ public image when working identified them as being with the company; they all wore the same badges and vests, and some had signs on their vehicles with the company’s name.
- Method of payment. The company controlled the rate of payment, which was nonnegotiable and did not include a bid process as is typical for independent contractors. The “take-it-or-leave-it” approach indicated control over the installers.
- Length of employment. The installers had an ongoing relationship with the company and did not advertise their services to the community at large.
- Agreements and contracts. The company’s non-compete clause restricted the installers’ freedom to work and indicated a measure of control over the workers.
- Skill requirements. The BWC concluded that the minimal skill required to install the cable was not high or unique, and the company offered no facts to show that the installers required specialized skills.
Disagreement on the court. Two of the Supreme Court Justices, Kennedy and DeWine, dissented from the majority opinion. Their primary point of disagreement was that there was no evidence supporting the BWC decision. The evidence instead suggested that the company controlled only how the installers were paid, and the installers controlled the manner and means of doing their work. The dissent criticized the BWC for jumping to a quick conclusion that the company’s true motives were “to evade the obligations associated with having employees.”
What does this mean for farm employers? Farms often rely on independent contractors for seasonal and intermittent help with work like baling hay, running equipment, and doing books. Are these workers true independent contractors or are they employees? That is a fact dependent question, but we can imagine many scenarios where the farm has a majority of the control over the mode and manner of such work. Farms are subject to Ohio’s workers’ compensation law, so a farm could be audited by the BWC just as the company in this case was and could see similar results for misclassifying employees as independent contractors.
Implications for all businesses. The case carries several implications that raise needs for businesses that use independent contractors:
- Recognize that state and federal tests can differ. Many are familiar with the IRS test for independent contractors but note that the Ohio Supreme Court applied its unique Ohio test for determining independent contractors in regard to BWC premiums. State and federal laws differ. It’s important to apply the appropriate test for the situation.
- Review the manner and means factors for each independent contractor. For each worker claimed as an independent contractor, review the nine factors listed above to ensure that the business isn’t exerting the most control over the manner and means of the work. Where possible, adjust practices that give the business unnecessary control over how and when the work is performed. Consider these:
- Use employees to do the regular work of the business and independent contractors for high-skill or unique tasks.
- Ensure that the business isn’t controlling the public image of the workers. The workers should not be branded or identifiable with the business through clothing, name badges, hats, vehicles, etc.
- Require independent contractors to submit bids or proposals on the amount and method of payment for their work.
- Avoid using the same independent contractor for an extended period of time and ensure that the worker’s services are available to other businesses.
- Don’t restrict the worker’s freedom to work for others, especially via a contract or agreement.
- Maintain records and evidence of the work situation. The BWC need only have “some evidence” that the nine factors indicate a high level of control over the mode or manner of work, but the business may offer facts and evidence to the contrary. Good recordkeeping is imperative. A business that can’t provide stronger facts and evidence in favor of the business, like the company in this case, might be at risk of an employee classification by the BWC.
While there are benefits of using independent contractors to meet labor needs, farms must recognize the associated risk of misclassification. For workers' compensation purposes, farms can avoid those risks by ensuring that it is the independent contractor, not the farm, who controls the "manner or means" of doing the work. Read the Ohio Supreme Court’s opinion in State ex rel. Ugicom Enterprises v. Morrison here.
Higher input costs and higher crop prices have been the theme for the last several months. Higher production costs in 2021 gave way to even higher costs for the 2022 production year. Factors affecting both supply and demand have continued to drive commodity crop prices higher. The result of all of this change is a positive margin outlook for 2022 commodity crops.
Production costs for Ohio field crops are forecast to be higher than last year with higher fertilizer prices leading the way. Variable costs for corn in Ohio for 2022 are projected to range from $578 to $708 per acre depending on land productivity. The trend line corn yield (183.7 bpa) scenario included in the corn enterprise budget shows an increase in variable costs of 44%.
Variable costs for 2022 Ohio soybeans are projected to range from $311 to $360 per acre. Variable costs for trend-line soybeans (56.5 bpa) are expected to increase 40% in 2022 compared to 2021.
Wheat variable expenses for 2022 are projected to range from $249 to $321 per acre. The trend line wheat yield (74 bpa) scenario included in the wheat enterprise budget shows an increase in variable costs of 50%.
Returns will likely be positive for most producers depending on crop price change throughout the rest of the year. Grain prices used as assumptions in the 2022 crop enterprise budgets are $7.00/bushel for corn, $14.25/bushel for soybeans and $7.50/bushel for wheat. Projected returns above variable costs (contribution margin) range from $450 to $835 per acre for corn and $333 to $606 per acre for soybeans. Projected returns above variable costs for wheat range from $195 to $345 per acre although significant crop price increases since last fall (when the price was set for this enterprise budget) will likely cause wheat to be more profitable than these return projections indicate.
Return to Land is a measure calculated to assist in land rental and purchase decision making. The measure is calculated by starting with total receipts or revenue from the crop and subtracting all expenses except the land expense. Returns to Land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $260 to $619 per acre in 2022 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $205 to $462 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $100 per acre to $239 per acre assuming a planting-time price of $7.50/bushel. If a current forward harvest price for wheat of $11.50/bushel is used, the Return to Land is in a much higher range of $325 to $576 per acre depending on land production capabilities.
Total costs projected for trend line corn production in Ohio are estimated to be $1,054 per acre. This includes all variable costs as well as fixed costs (or overhead if you prefer) including machinery, labor, management and land costs. Fixed machinery costs of $78 per acre include depreciation, interest, insurance and housing. A land charge of $207 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $105 per acre. Details of budget assumptions and numbers can be found in footnotes included in each budget.
Total costs projected for trend line soybean production in Ohio are estimated to be $678 per acre. (Fixed machinery costs: $62 per acre, land charge: $207 per acre, labor and management costs combined: $60 per acre.)
Total costs projected for trend line wheat production in Ohio are estimated to be $593 per acre. (Fixed machinery costs: $36 per acre, land charge: $207 per acre, labor and management costs combined: $52 per acre.)
Data used to compile these enterprise budgets includes research, surveys, market data, economic modeling, calculations and experience of authors.
Current budget analyses indicates very favorable returns for all three primary commodity crops but crop price change and harvest yields may change this outcome. These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2022. have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets
By Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
The relationship between farmland owner and tenant often goes beyond just a business transaction. It is common for the tenant to lease the same farmland for many years or for the tenant/landowner relationship to span several generations. The relationship between the parties may evolve into one of great trust and respect – the landowner knowing that the tenant will treat the land like their own and the tenant knowing the landlord will always be fair with them.
Sometimes, when the landowner knows that their heirs do not have interest in owning the land, they will promise to give the tenant the first chance to buy the farm at landowner’s death. Tenants will always appreciate this gesture so that they do not have to outbid their neighbors at a public auction when the landowner dies. However, a mere promise is not enough. To protect the tenant’s right to purchase the farm, the landowner must take proactive measures.
Under Ohio law, and every other state, verbal promises regarding real estate are rarely enforceable. Because real estate is such an important asset, courts do not want to have to guess as to what a buyer and seller may have agreed upon. So, in most situations, if it is not in writing, a court will not enforce verbal promises regarding real estate.
Example. Landowner has leased her land to Tenant for 25 years and verbally promised that when she dies Tenant will get to buy her farm. Upon her death, her heirs do not want to sell to Tenant because they think they will get more at auction. Because Landlord’s promise was only verbal, the heirs can ignore Tenant and sell at auction.
So, what can be done to ensure that a landlord’s desire for a tenant to buy the farm is enforceable? The following are options available to Landlord and Tenant.
Will or Trust
The landlord can include a provision in their will or trust giving the tenant the right to buy the farm. Upon landlord’s death, the trustee or executor will be obligated to sell the land to the tenant. This is an easy solution to give the tenant a chance to buy the farm. However, it is not a perfect solution.
Wills and trusts can be changed at any time. The tenant has no guarantee that a landlord will not change their will or trust and remove the purchase provision. For as long as the landowner has mental capacity, they can change their will or trust anytime they wish. So, while putting the purchase option in the will or trust is better than a verbal promise, it is not a guarantee the tenant will have a chance to buy the farm.
Practice Pointer. When giving a tenant the right to purchase a farm, consider also providing them with a small amount of money from the estate/trust. By giving them even $100, the tenant becomes a beneficiary of the estate/trust and is entitled to be informed of all aspects of the administration. There could be some dispute as to whether the tenant is a beneficiary of the estate/trust if they only have purchase rights. A beneficiary of an estate/trust has certain rights that a mere buyer would not have.
Right of First Refusal
For the tenant, a better strategy may be to enter into a Right of First Refusal (ROFR) with the landowner. A ROFR is an agreement that gives the tenant the chance to buy land at the landowner’s death or before the landowner can transfer it. The ROFR includes a provision that makes it binding upon the landowner and their heirs so that the ROFR survives the landowner’s death. Upon the landowner's death and before the land can be transferred to heirs, the ROFR is triggered and tenant can decide if they wish to buy the land. The ROFR should be signed by both parties, notarized and recorded.
Example. Landowner wants to ensure that Tenant has a chance to buy her farm when she passes away. Landowner and Tenant execute a ROFR that states upon Landowner’s death, Tenant will have a chance to buy the land at appraised value. The ROFR is made binding upon the Landowner’s heirs and recorded. When Landowner dies, the purchase provision in the ROFR will be triggered and Tenant will have an opportunity to buy the land.
The disadvantage of the ROFR for the landowner is that it cannot be changed. The ROFR is a contract and once signed cannot be changed without the tenant’s consent. If the landowner wants to keep the option to change their mind regarding the sale of the farm, they should not enter into a ROFR but opt for the will/trust strategy instead.
Regardless of which of the aforementioned strategies are used, time and effort should be spent specifying the purchase terms. The will/trust or ROFR should include specific language addressing the following:
- Identify the Property. Use parcel numbers, legal descriptions, FSA farm numbers and/or acreage to specify what land is being offered for sale. Do not leave any room for misunderstandings of what land is being offered to the tenant. Avoid using only farm names to identify (i.e. “Smith Farm”)
- Purchase Price. Clearly state how the purchase price is determined. If by appraisal, consider using a licensed, certified appraiser to avoid any perception that the appraiser favors one party or the other. Also consider including a three-step appraisal process allowing either party to get their own appraisal if they dispute the original appraisal. A flat price can be used for the purchase price but the parties risk the flat price not adjusting to market conditions. The landowner may also include a discount % on the purchase price to help the tenant.
- Deadlines. The purchase terms should give the tenant a specific number of days to decide if they want to purchase the farm. This term should begin to run after the purchase price has been established. The tenant should be required to exercise their purchase option by giving written notice to the estate/trust. A closing date should also be set, usually a specific number of days after the tenant has provided the written notice to purchase.
- Other Purchase Terms. Include any other purchase terms like title insurance and transaction costs.
Landowners and tenants should not rely on verbal promises for the purchase of the farm at landowner’s death. Using either a will/trust or ROFR can ensure that a tenant will have a legally enforceable right to purchase the farm. When drafting the will/trust or ROFR, include specific purchase terms to avoid conflict between the tenant and the landowner’s heirs. The parties should seek legal counsel to assist in drafting the documents to be sure that all legal requirements are met.
We can count on legal questions about surface water drainage to flow steadily in the Spring, and this year is no exception. Spring rains can cause drainage changes made on one person’s land to show up as harm on another’s land. When that happens, is the person who altered the flow of surface water liable for that harm? Possibly. Here is a reminder of how Ohio law deals with surface water drainage problems and allocates liability for drainage interferences, followed by guidance on how to deal with a drainage dispute.
Ohio law allows landowners to change surface water drainage
Back in 1980, the Ohio Supreme Court adopted a new rule for resolving surface water disputes in the case of McGlashan v. Spade Rockledge. Previous Ohio law treated water as a “common enemy” to be pushed onto others, then absolutely prohibited any land changes that would increase surface water drainage for lower landowners. In McGlashan, the Court replaced these old laws with the “reasonable use rule” that remains the law in Ohio. The rule states that landowners do have a right to interfere with the natural flow of surface waters on their property, even if those changes are to the detriment of other landowners. But the right to alter drainage is limited to only those actions that are “reasonable.”
Drainage changes must be “reasonable”
Although it allows drainage changes, the reasonable use doctrine also states that landowners incur liability when their interference with surface water drainage is “unreasonable.” What does that mean? The law contains factors that help clarify when an interference is unreasonable, a determination made on a case-by-case basis. The factors attempt to balance the need for the land use change that altered drainage against the negative impacts that change has on other landowners. A court will examine four factors to determine whether the drainage change is unreasonable: the utility of the land use, the gravity of the harm, the practicality of avoiding that harm, and unfairness to other landowners. For example, if a land use change has low utility but causes drainage harm to other landowners, or the landowner could take measures to prevent unfair harm to others, a court might deem the landowner’s interference with drainage as “unreasonable.”
What to do if a neighbor’s drainage is causing harm?
The unfortunate reality of the reasonable use doctrine is that it requires litigation, forcing the harmed party to file an action claiming that the neighbor has acted unreasonably. Before jumping into litigation, other actions might resolve the problem. An important first step is to understand the physical nature of the problem. Can the cause of the increased flow be remedied with physical changes? Is there a simple change that could reduce the interference, or is there need for a larger-scale drainage solution? Identifying the source of the harm and the magnitude of the drainage need can lead to solutions. Involving the local soil and water conservation district or a drainage engineer might be necessary.
Based on the significance of the solutions necessary to eliminate the problem, several options are available:
- If identified changes would remedy the problem, a talk with a drainage expert or a letter from an attorney explaining the reasonable use doctrine and demanding the changes could encourage the offending landowner to resolve the problem. If the landowner still refuses to remedy the problem, litigation is the last resort. The threat of litigation often spurs people into action.
- Sometimes the issue is one that requires collaboration by multiple landowners. Identifying a solution and sharing its costs among landowners, based on acreage draining into the area, can be a way to solve the problem.
- For more substantial drainage problems, a petition for a drainage improvement with the soil and water conservation district or the county engineer might be necessary. Petitioned drainage improvements involve all landowners in the affected area and are financed through assessments on land within that area. A visit with those agencies would determine whether a petition improvement is necessary and if so, how to proceed with the petition.
- For smaller fixes, a landowner always has the option of filing a claim for damages through the small claims court. The estimated damages or repairs must fall below the $6,000 limit for small claims. A landowner can make the claim without the assistance of an attorney, and the dispute could be resolved more quickly through this forum.
As the Spring rains continue, keep in mind that the reasonable use doctrine sets a guideline for Ohio landowners: make only reasonable changes to your surface water drainage and don’t cause an unreasonable drainage problem for your neighbors. Where changes and interferences are unreasonable and landowners are unwilling to resolve them, the reasonable use doctrine is the last resort that provides the legal remedy for resolving the problem.
For more information on Ohio drainage law, refer to our law bulletin on Surface Water Drainage Rights.
By Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
Establishing a new entity in Ohio is relatively easy. The first step is to submit an application to the Ohio Secretary of State along with a $99 fee. This application can be done online with the fee being paid with a credit card. For an LLC, the application only needs to include the name of the entity and the name and address of a contact person. Applications for corporations and other entities may require a bit more information but nothing overly burdensome. The Secretary of State reviews the application and either approves the application or rejects and provides information as to what needs corrected.
Upon approving the application, the Secretary of State will issue an Articles of Organization certificate, or similar document, for each new entity. This certificate is confirmation that the state of Ohio recognizes the entity, and it is permitted to conduct business in Ohio. Upon the entity being registered, business documents such as operating agreements and ownership certificates should be completed.
Usually, a few weeks after registering a new entity, credit card applications will begin to show up. As mentioned previously, each new entity must provide the name and address of a contact person for the entity. The name and address are publicly available on the Secretary of State’s website. Credit card companies retrieve this information and send applications hoping the new entity needs a credit card to conduct business. Credit card companies are not the only solicitors to use the contact information.
The credit card applications are easily identifiable, obvious in their intent and can be easily discarded if not needed. However, a more nefarious letter is likely to show up as well. It is common for new entities to receive an envelope that looks like it is from an official government entity. Upon opening the letter, a form that also looks official will request $67.50, $90 or some other amount for a copy of the certificate of organization or certificate of good standing. Upon first glance, the letter and enclosed form looks like something you would receive from a government agency.
The certificate of organization will be provided to the new entity upon registration. At any time, a copy of the certificate of organization can be obtained from the Ohio Secretary of State web site for no cost. A certificate of good standing, sometimes requested by lenders, can be obtained from the Secretary of State for $5. The certificate of good standing merely states the entity is still registered with Secretary of State. The point being, there is likely no reason to pay a company for the articles of organization or a certificate of good standing.
There is nothing illegal about the letters requesting money for a certificate of organization. If you look closely at the form, somewhere it will say it is not from a government agency. If someone wants to pay $90 for a certificate that is provided for free by the Secretary of State they are within their rights to do so.
The intent of this article is to make new business entity owners aware that they do not need to spend extra money on certificates after their entity is registered with the state. Paying for the requested certificates is probably just a waste of money. Unfortunately, people who are registering entities for the first time are often not aware of what is required by the state and just assume they are required to pay the extra fees. If in doubt, contact your attorney.
Below is an example form letter requesting $67.50 for a certificate of good standing. You will need to look closely to find the disclaimer that it is not from a government agency.
An appeals court ruling now stands in the way of a bikeway project begun more than 27 years ago by the Mill Creek Metropolitan Park District (MetroParks) in Mahoning County. The Seventh District Court of Appeals recently ruled that MetroParks did not have the power of eminent domain when it attempted to acquire undeveloped stretches of the bikeway. Several landowners have challenged MetroPark’s use of eminent domain for the project over the years, but this is the first case to yield a positive outcome for landowners who have not wanted the bikeway on their properties. We take a closer look at the decision in today’s post.
The court case began in 2019, when MetroParks offered landowner Diane Less $13,650 for a permanent easement for construction of the bikeway across her land. When the landowner did not agree to the conveyance, MetroParks filed an eminent domain proceeding in the Mahoning County Court of Common Pleas. The landowner responded that MetroParks did not have authority to use eminent domain for the bikeway project and attempted to have the case dismissed through a summary judgment motion. The trial court found that MetroParks was authorized to appropriate the property for the bikeway and denied the motion, and the landowner appealed.
The appellate court began its review of the case by pointing out that whenever Ohio’s legislature grants the power of eminent domain to a subdivision of the state, that grant must be “strictly construed” and any doubts about the right must be resolved in favor of the property owner. An entity like a park district has eminent domain authority (also referred to as appropriation or takings) only when the Ohio legislature grants the power in statutory law. MetroParks relied on Ohio Revised Code 1545.11 as the grant of power to acquire the bikeway land by eminent domain. That statute states:
The board of park commissioners may acquire lands either within or without the park district for conversion into forest reserves and for the conservation of the natural resources of the state, including streams, lakes, submerged lands, and swamplands, and to those ends may create parks, parkways, forest reservations, and other reservations and afforest, develop, improve, protect, and promote the use of the same in such manner as the board deems conducive to the general welfare. Such lands may be acquired by such board, on behalf of said district, (1) by gift or devise, (2) by purchase for cash, by purchase by installment payments with or without a mortgage, by entering into lease-purchase agreements, by lease with or without option to purchase, or, (3) by appropriation.
The appeals court examined MetroParks’ purpose for acquiring the land for the bikeway to determine if it met either of the authorized purposes in the statute of “conversion into forest reserves” or “conservation of natural resources.” MetroParks explained that it established its purposes and the necessity of acquiring the bikeway land in two resolutions in 1993 and 2018. The first resolution stated that the “public interest demanded the construction of a bicycle path” and the second stated that the bikeway “will provide local and regional users with a safe, uniformly-designed, multi-use, off-road trail facility dedicated for public transportation and recreational purposes.”
According to the court, however, both resolutions failed to relate the necessity of the bikeway to the purposes in the statute of acquiring land “for conversion into forest reserves and for the conservation of the natural resources of the state.” The court noted other Ohio court decisions that do conclude that a bikeway meets the purpose of acquiring land for the “conservation of natural resources” when it “supplies a human need,” “contributes to the health, welfare, and benefit of the community” and is “essential for the well-being of such community and the proper enjoyment of its property.” But important to the landowner is the court’s statement that it disagrees with these principles, “especially when applied to a rural area where it appears the public need is speculative at best and the harm to the private property owners is great." Reminding us that a statutory grant of eminent domain authority must be strictly construed and interpreted to favor a property owner, the court stated that prior decisions characterizing any project that serves the public and contributes to the health and welfare of the community as “conservation of natural resources” for purposes of R.C. 1545.11 is “a bit of a stretch.”
A second point the court made in questioning whether a bikeway fits within the purposes of park district land acquisition outlined in R.C. 1545.11 is that a law enacted after that statute assigned Ohio’s Department of Natural Resources the duty to plan and develop recreational trails, along with the authority to appropriate land for recreational trails. The statute suggests that the state agency, not park districts, possesses the authority to use eminent domain to establish recreational trails and bikeways.
Despite its disagreement with the assumption that R.C. 1545.11 permits the acquisition of land for bikeways as the “conservation of natural resources,” the court reviewed the MetroParks resolutions to determine if the park’s purpose constituted the “conservation of natural resources.” Not surprisingly, the court concluded that the resolutions were completely devoid of any purposes that met the statute’s requirements. Creating a bikeway through an extensive acreage of family-owned farmland in a rural area does not constitute the purpose of acquiring land for “conservation of natural resources of the state,” the court stated. Nor does providing recreation automatically equate to the conservation of natural resources. The resolutions did not “indicate that the creation of this particular trail or bikeway is designed to promote the general health and welfare of the pubic, which we believe requires more than just a recreational purposes” and failed at “even remotely tying the creation of the bikeway to the conservation of natural resources.”
Lacking a required statutory purpose for acquiring the bikeway land, the court concluded that MetroParks abused its discretion in attempting to appropriate the landowner’s property. The appeals court instructed the Mahoning Court of Common Pleas to grant summary judgment not only in this case, but also for a second bikeway eminent domain case the landowner was a party to with MetroParks.
A question now before MetroParks is whether it will ask the Ohio Supreme Court to review the decision of the Seventh District Court of Appeals. The park district board will meet on May 9 to discuss how it will proceed.
A continuing problem
The case highlights a recurring issue with the use of eminent domain for bike paths, as this is not the only legal issue MetroParks has faced in its mission to build its bikeway. Several other court cases have challenged the park’s eminent domain authority, though unsuccessful, and an amendment to last year’s budget bill included specific language that prohibits the use of eminent domain for recreational trails for five years in a county with a population between 220,000 and 240,00 people. Mahoning County falls within that population range. Recent attempts by Mahoning County legislators to enact laws that prohibit the use of eminent domain for recreational trails or give local governments the right to veto such actions have not made it through the Ohio General Assembly. The divisive issue is clearly one that requires a closer look by our legislators.
We discussed long-term care (LTC) costs in our April 20 blog post and analyzed recent data to project that a 65-year-old Ohioan, on average, can expect about $100,000 in LTC costs, and double that for a married couple. In this post, we continue to examine LTC costs by addressing an important question for farmers: can the average farmer absorb this cost without jeopardizing the farm and farm assets?
First, we need to remember that any income received by the farmer could be spent on paying the LTC costs. Farm income, land rent, social security income, and income from investments can all pay for LTC costs. After income is used to pay for LTC care costs, non-farm assets, like savings, can be used to pay for the costs. It’s the portion of the LTC costs that income and savings cannot cover that causes farm assets to be at risk. For example, if the farmer has $40,000 in savings, using that savings to pay LTC leaves only $60,000 of farm assets at risk.
Let’s next turn to the risk to farm assets. While a farmer would never want to sell any farm asset to pay for LTC, their land is probably the last asset they would want sold. Most farmers would sell grain, crops, livestock, and machinery before they would sell land. So, if income and savings cannot pay for LTC care costs, how at risk is the land? Data can also help us answer this question. According to the Economic Research Service – USDA (ERS), the total amount of non-real estate, farm assets owned by farmers in the US for 2020 were as follows:
Financial Assets $92,013,020,000
Inventory (crops, livestock, inputs) $62,866,872,000
Total Non-Real Estate Farm Assets $533,688,897,000
The ERS further estimates that there were 2.02 million farmers in the US in 2020. So, on average, farmers owned $264,202 of non-real estate, farm assets. If income and savings are unable to pay for LTC costs, the average farmer would have an additional $264,202 of assets to sell before needing to sell real estate.
So, what does all this data tell us? On average, if farmers are forced to sell farm assets to pay for LTC, they will not need to sell their land. They may need to sell crops, livestock and/or machinery to help pay for the LTC costs but the land is probably safe. That is the good news.
The bad news is the above analysis is all based on averages. When dealing with large numbers, averages are very useful. We can say with some confidence that on average, a 65-year-old farmer in Ohio will spend around $100,000 on LTC. However, the numbers cannot tell us with any certainty what a specific farmer will spend on LTC. Farmer Smith in Delaware County, Ohio might never pay any LTC costs, might pay the average of $100,000 or they might be an outlier. An outlier is someone whose specific circumstances end up being significantly different than the average.
Being an outlier is what farmers are really concerned about regarding LTC. We all know someone, or have heard of someone, who was in a nursing home for 10 years. That’s close to $1 million in LTC costs. Few farmers have the income, savings and non-real estate assets to pay for $1 million of LTC.
So, what LTC planning for farmers really ends up being is protecting against the outlier scenario that puts the land at risk. Most 65-year-old farmers would probably sleep well at night if they knew they would only have $100,000 of LTC costs for the rest of their lives. That amount of LTC costs is probably not going to cause a farm liquidation. What keeps farmers up at night is the chance they will be the outlier and spend 10 years in an expensive nursing home.
The outlier scenario is important for farmers to understand as they develop their LTC strategy. For any risk management plan, the true nature of the risk must be understood and not just presumed. The fact is most farms can probably withstand the average LTC costs. It is also factual that most farms cannot withstand an outlier scenario of being in a nursing home for many years. This understanding is critical in developing a LTC plan. That is, the LTC plan should probably seek to mitigate the risk of being an outlier, not on being average.
Fortunately, there are strategies to help mitigate the risk of losing the farm to the outlier scenario, although each of the strategies have significant drawbacks. In future posts, we will discuss those strategies.
One of the core principles of the American legal system is that people are free to enter into contracts and negotiate those terms as they see fit. But sometimes the law prohibits certain rights from being “signed away.” The interplay between state and federal law and the ability to contract freely can be a complex and overlapping web of regulations, laws, precedent, and even morals. Recently, the Ohio Supreme Court ruled on a case that demonstrates the complex relationship between Ohio law and the ability of parties to negotiate certain terms within an oil and gas lease.
The Background. Ascent Resources-Utica, L.L.C. (“Defendant”) acquired leases to the oil and gas rights of farmland located in Jefferson County, Ohio allowing it to physically occupy the land which included the right to explore the land for oil and gas, construct wells, erect telephone lines, powerlines, and pipelines, and to build roads. The leases also had a primary and secondary term language that specified that the leases would terminate after five years unless a well is producing oil or gas or unless Defendant had commenced drilling operations within 90 days of the expiration of the five-year term.
After five years had passed, the owners of the farmland in Jefferson County (“Plaintiffs”) filed a lawsuit for declaratory judgment asking the Jefferson County Court of Common Pleas to find that the oil and gas leases had expired because of Defendant’s failure to produce oil or gas or to commence drilling within 90 days. Defendant counterclaimed that the leases had not expired because it had obtained permits to drill wells on the land and had begun constructing those wells before the expiration of the leases. Defendant also moved to stay the lawsuit, asserting that arbitration was the proper mechanism to determine whether the leases had expired, not a court.
What is Arbitration and is it Legal? Arbitration is a method of resolving disputes, outside of the court system, in which two contracting parties agree to settle a dispute using an independent, impartial third party (the “arbitrator”). Arbitration usually involves presenting evidence and arguments to the arbitrator, who will then decide how the dispute should be settled. Arbitration can be a quicker, less burdensome method of resolving a dispute. Because of this, parties to a contract will often agree to forgo their right to sue in a court of law, and instead, abide by any arbitration decision.
Ohio law also recognizes the rights of parties to agree to use arbitration, rather than a court, to settle a dispute. Ohio Revised Code § 2711.01(A) provides that “[a] provision in any written contract, except as provided in [§ 2711.01(B)], to settle by arbitration . . . shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract.” What this means is that Ohio will enforce arbitration clauses contained within a contract, except in limited circumstances. One of those limited circumstances arises in Ohio Revised Code § 2711.01(B). § 2711.01(B)(1) provides that “[s]ections 2711.01 to 2711.16 . . . do not apply to controversies involving the title to or the possession of real estate . . .” Because land and real estate are so precious, Ohio will not enforce an arbitration clause when the controversy involves the title to or possession of land or other real estate.
To be or not to be? After considering the above provisions of the Ohio Revised Code, the Jefferson County Court of Common Pleas denied Defendant’s request to stay the proceedings pending arbitration. The Common Pleas Court concluded that Plaintiffs’ claims involved the title to or possession of land and therefore was exempt from arbitration under Ohio law. However, the Seventh District Court of Appeals disagreed with the Jefferson County court. The Seventh District reasoned that the controversy was not about title to land or possession of land, rather it was about the termination of a lease, and therefore should be subject to the arbitration provisions within the leases.
The case eventually made its way to the Ohio Supreme Court, which was tasked with answering one single question: is an action seeking to determine that an oil and gas lease has expired by its own terms the type of controversy “involving the title to or the possession of real estate” so that the action is exempt from arbitration under Ohio Revised Code § 2711.01(B)(1)?
The Ohio Supreme Court determined that yes, under Ohio law, an action seeking to determine whether an oil and gas lease has expired by its own terms is not subject to arbitration. The Ohio Supreme Court reasoned that an oil and gas lease grants the lessee a property interest in the land and constitutes a title transaction because it affects title to real estate. Additionally, the Ohio Supreme Court found that an oil and gas lease affects the possession of land because a lessee has a vested right to the possession of the land to the extent reasonably necessary to carry out the terms of the lease. Lastly, the Ohio Supreme Court provided that if the conditions of the primary term or secondary term of an oil and gas lease are not met, then the lease terminates, and the property interest created by the oil and gas lease reverts back to the owner/lessor.
In reaching its holding, the Ohio Supreme Court concluded that Plaintiffs’ lawsuit is exactly the type of controversy that involves the title to or the possession of real estate. If Plaintiffs are successful, then it will quiet title to the farmland, remove the leases as encumbrances to the property, and restore the possession of the land to the Plaintiffs. If Plaintiffs are unsuccessful, then title to the land will remain subject to the terms of the leases which affects the transferability of the land. Additionally, the Ohio Supreme Court concluded that if Plaintiffs were unsuccessful then Defendant would have the continued right to possess and occupy the land. Therefore, the Ohio Supreme Court found that Plaintiffs’ controversy regarding the termination of oil and gas leases is the type of controversy that is exempt from arbitration clauses under § 2711.01(B)(1).
Conclusion. Although Ohio recognizes the ability of parties to freely negotiate and enter into contracts, there are cases when the law will step in to override provisions of a contract. The determination of title to and possession of real property is one of those instances. Such a determination can have drastic and long-lasting effects on the property rights of individuals. Therefore, as evidenced by this Ohio Supreme Court ruling, Ohio courts will not enforce an arbitration provision when the controversy is whether or not oil and gas leases have terminated. To read more of the Ohio Supreme Court’s Opinion visit: https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2022/2022-Ohio-869.pdf.
By Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
There is no doubt that Long-Term Care (LTC) costs are a financial threat to many farms. Some farmers go to great lengths to protect their farm assets from potential LTC costs. Protection strategies include gifting assets to family members, transferring farm assets to irrevocable trusts and buying LTC insurance. But what do the statistics say about the actual risk to farms for LTC costs?
According to the Administration for Community Living, someone turning age 65 today has an almost 70% chance of needing some type of long-term care services in their remaining years. Due to women having longer life expectancies, predictions are that women will need an average of 3.7 years of care and men will need 2.2 years. While one-third of today's 65-year-olds may never need long-term care support, 20% will need it for longer than 5 years. The following data from the ACL provides more details as to the type and length of care needed:
This table shows that of the three years of LTC needed on average, two of those years are expected to be provided at home and one year in a facility. It is noteworthy that a majority of LTC services are typically provided at home because most people do not want to leave home for a facility, some at-home care isn’t paid for, and home care is less expensive than facility care. Many people may think all LTC will be provided in a facility, but as the data shows, this is not usually the case.
The next important statistic is cost. The following are costs of various LTC services from the 2021 Cost of Care Survey provided by Genworth Financial, Inc.
Nursing home costs are significantly higher than in-home services. People may think of LTC costs in terms of nursing homes, but as discussed in the previous paragraph, the majority of LTC services are the less expensive, in-home type. So, while all LTC costs are significant, they might not be as high as commonly thought.
Let’s use this data to come up with some possible numbers for an Ohio farmer. Assume the following:
- A 65year-old farmer has a 67% chance of needing LTC
- The length of that care will be around 3 years
- 1 year of care will be unpaid inhome services
- 1 year of care will be paid, inhome services at around $60,000/year
- 1 year of care will be in a nursing home at around $90,000/year
Based on the above assumptions, a 65-year-old Ohioan, on average, can expect about $100,000 in LTC care costs ($60,000 + $90,000 x 67%). Keep in mind that these costs are per person and a married couple will have double these potential costs. The next question is, can the average farmer absorb LTC costs without jeopardizing the farm? That's a question we'll examine in a future post in the Legal Groundwork Series.
April showers brings . . . Farm Office Live! That's right, this month's Farm Office Live returns this week! Catch up on all the recent legal, tax, and farm management information that affects your farm office!
The Farm Office Team of Dianne Shoemaker, David Marrison, Peggy Kirk Hall, Barry Ward, Robert Moore, and Jeff Lewis will provide an update and disscussion on:
- State and Federal Legislation
- LLC Liability Protection
- 2021 Midwest Farm Performance
- Fertilizer and Crop Budgets
- FSA Programs
- The Ohio General Assembly's Website
Catch Farm Office Live this Friday, April 22 from 10:00 - 11:30 AM. Unable to make it? Not registered? Don't worry because you can register for, or watch a replay of, this month's Farm Office Live at go.osu.edu/farmofficelive. We look forward to seeing you there!