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.
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.
UPDATE: Governor DeWine signed H.B. 95, the Beginning Farmer bill, on April 18, 2022. The effective date for the new law is July 18, 2022. The Governor signed the Statutory Lease Termination bill, H.B. 397, on April 21, and its effective date is July 19, 2022.
Bills establishing new legal requirements for landowners who want to terminate a verbal or uncertain farm lease and income tax credits for sales of assets to beginning farmers now await Governor DeWine’s response after passing in the Ohio legislature this week. Predictions are that the Governor will sign both measures.
Statutory termination requirements for farm leases – H.B. 397
Ohio joins nine other states in the Midwest with its enactment of a statutory requirement for terminating a crop lease that doesn’t address termination. The legislation sponsored by Rep. Brian Stewart (R-Ashville) and Rep. Darrell Kick (R-Loudonville) aims to address uncertainty in farmland leases, providing protections for tenant operators from late terminations by landowners. It will change how landowners conduct their farmland leasing arrangements, and will hopefull encourage written farmland leases that clearly address how to terminate the leasing arrangement.
The bill states that in either a written or verbal farmland leasing situation where the agreement between the parties does not provide for a termination date or a method for giving notice of termination, a landlord who wants to terminate the lease must do so in writing by September 1. The termination would be effective either upon completion of harvest or December 31, whichever is earlier. Note that the bill applies only to leases that involve planting, growing, and harvesting of crops and does not apply to leases for pasture, timber, buildings, or equipment and does not apply to the tenant in a leasing agreement. A lease that addresses how and when termination of the leasing arrangement may occur would also be unaffected by the new provisions.
The beginning farmer bill – H.B. 95
A long time in the making, H.B. 95 is the result of a bi-partisan effort by Rep. Susan Manchester (R-Waynesfield) and Rep. Mary Lightbody (D-Westerville). It authorizes two types of tax credits for “certified beginning farmer” situations. The bill caps the tax credits at $10 million, and sunsets credits at the end of the sixth calendar year after they become effective.
The first tax credit is a nonrefundable income tax credit for an individual or business that sells or rents CAUV qualifying farmland, livestock, facilities, buildings or machinery to a “certified beginning farmer.” A late amendment in the Senate Ways and Means Committee reduced that credit to 3.99% of the sale price or gross rental income. The bill requires a sale credit to be claimed in the year of the sale but spreads the credit amount for rental and share-rent arrangements over the first three years of the rental agreement. It also allows a carry-forward of excess credit up to 7 years. Note that equipment dealers and businesses that sell agricultural assets for profit are not eligible for the tax credit, and that an individual or business must apply to the Ohio Department of Agriculture for tax credit approval.
The second tax credit is a nonrefundable income tax credit for a “certified beginning farmer” for the cost of attending a financial management program. The program must be certified by the Ohio Department of Agriculture, who must develop standards for program certification in consultation with Ohio State and Central State. The farmer may carry the tax credit forward for up to three succeeding tax years.
Who is a certified beginning farmer? The intent of the bill is to encourage asset transition to beginning farmers, and it establishes eligibility criteria for an individual to become “certified” as a beginning farmer by the Ohio Department of Agriculture. One point of discussion for the bill was whether the beginning farmer credit would be available for family transfers. Note that the eligibility requirements address this issue by requiring that there cannot be a business relationship between the beginning farmer and the owner of the asset.
An individual can become certified as a beginning farmer if he or she:
- Intends to farm or has been farming for less than ten years in Ohio.
- Is not a partner, member, shareholder, or trustee with the owner of the agricultural assets the individual will rent or purchase.
- Has a household net worth under $800,000 in 2021 or as adjusted for inflation in future years.
- Provides the majority of day-to-day labor and management of the farm.
- Has adequate knowledge or farming experience in the type of farming involved.
- Submits projected earnings statements and demonstrates a profit potential.
- Demonstrates that farming will be a significant source of income.
- Participates in a financial management program approved by the Department of Agriculture.
- Meets any other requirements the Ohio Department of Agriculture establishes through rulemaking.
We’ll provide further details about these new laws as they become effective. Information on the statutory termination bill, H.B. 397, is here and information about the beginning farmer bill, H.B. 95, is here. Note that provisions affecting other unrelated areas of law were added to both bills in the approval process.
Winter is a good time to review farm leases, for both economic and legal reasons. We'll provide you current information to help with the farmland leasing process in our Ohio Farmland Leasing Update webinar on February 9, 2022 from 7 to 9 p.m. Barry Ward, Leader of Production Business Management for OSU Extension, will address the economic issues and our legal team of Peggy Hall and Robert Moore will provide the legal information.
Our agenda will include:
- Current economic outlook for Ohio row crops
- Research on cash rent markets for the Eastern Corn Belt
- Rental market outlook fundamentals
- Negotiating conservation practices
- Using leases in farmland succession planning
- Ohio's proposed law on providing notice of termination
- Ensuring legal enforceability of a lease
There is no fee for the webinar, but registration is necessary. Register at https://go.osu.edu/farmlandleasingupdate.
Winter is a good time to review farm leases, and current information is critical to that process. That's why our Farm Office team is offering its Ohio Farmland Leasing Update, a webinar on February 9, 2022 from 7 to 9 p.m. I'll be joined for the webinar by co-speakers Barry Ward, Leader of Production Business Management for OSU Extension, and attorney Robert Moore.
On the legal side, we'll share legal information to help parties deal with addressing conservation practices in a leasing situation, using leases in farmland succession planning, Ohio's proposed new law about providing notice of termination, and ensuring legal enforceability of a lease. On the economic side, Barry Ward will provide a current economic outlook for Ohio row crops, research on cash rent markets for the Eastern Corn Belt, and rental market outlook fundamentals. We'll also overview farmland leasing resources.
There is no fee for the webinar, but registration is necessary. Register at https://go.osu.edu/farmlandleasingupdate.
Did you know that white sturgeon are North America’s largest fish? The largest white sturgeon on record was caught in 1898 and weighed approximately 1,500 pounds. Sturgeon is the common name for the species of fish that belong to the Acipenseridae family. The largest sturgeon on record was a Beluga sturgeon weighing in at 3,463 pounds and 24 feet long. Talk about a river monster! Swimming right along, this edition of the Ag Law Harvest brings you some intriguing election results from across the country, pandemic assistance for organic producers, and a lesson in signatures.
Maine first state to have “right to food.” Earlier this month, Maine voters passed the nation’s first “right to food” constitutional amendment. The referendum asked voters if they favored an amendment to the Maine Constitution “to declare that all individuals have a natural, inherent and unalienable right to grow, raise, harvest, produce and consume the food of their own choosing their own nourishment, sustenance, bodily health and well-being.” Supporters of the new amendment claim that the amendment will ensure the right of citizens to take back control of the food supply from large landowners and giant retailers. Opponents claim that the new amendment is deceptively vague and is a threat to food safety and animal welfare by encouraging residents to try and raise their own products in their backyards without any knowledge or experience. The scope and legality of Maine’s new constitutional amendment is surely to be tested and defined by the state’s courts, but until then, Maine citizens are the only ones the in the United States that can claim they have a constitutional right to food.
New York voters approve constitutional environmental rights amendment. New Yorkers voted on New York Proposal 2, also known as the “Environmental Rights Amendment.” The proposal passed with overwhelming support. The new amendment adds that “[e]ach person shall have a right to clean air and water, and a healthful environment” to the New York constitution. New York is one of a handful of states to have enacted a “green amendment” in its state constitution. Proponents of the amendment argue that such an amendment is long overdue while opponents argue that the amendment is too ambiguous and will do New York more harm than good.
USDA announces pandemic support for certified organic and transitioning operations. The U.S. Department of Agriculture (“USDA”) announced that it will be providing pandemic assistance to cover certification and education expenses to agricultural producers who are currently certified or to those seeking to become certified. The USDA will make $20 million available through the Organic and Transitional Education and Certification Program (“OTECP”) as part of the USDA’s Pandemic Assistance for Producers initiative. OTECP funding is provided through the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”). Producers can apply for expenses paid during the 2020, 2021, and 2022 fiscal years. For each fiscal year, OTECP will cover 25% of a certified operation’s eligible certification expenses, up to $250 per certification category. Crop and livestock operations transitioning to organic production may be eligible for 75% of eligible expenses, up to $750 for each year. Both certified organic operations and transitioning operations are eligible for 75% of eligible registration fees, up to $200, per year for educational events to help operations increase their knowledge of production and marketing practices. Applications are now open and will be available until January 7, 2022. Producers can apply through their local Farm Service Agency office. For more information on OTECP visit https://www.farmers.gov/pandemic-assistance/otecp.
A signature case. In 2018 Margaret Byars died intestate survived by her 5 children. After Byars’s death, one her sons, Keith, revealed that Margaret had allegedly executed a quitclaim deed in 2017 giving her Dayton home to Keith. The other siblings brought this lawsuit claiming that the deed was invalid and unenforceable because the facts surrounding the execution of the deed seemed a little odd. In 2017, Margaret was diagnosed with breast cancer and moved into a nursing facility. Shortly after entering the nursing home, Sophia Johnson, a family friend and the notary on the deed, showed up to notarize the quitclaim deed. Trial testimony revealed that the quitclaim deed was prepared and executed by a third party. Margaret did not physically sign the deed herself. In fact, the trial court noted that the signature looked like the handwriting of the person that prepared the deed and that no one saw Margaret authorize another to sign the deed for her. Sophia testified that when she showed up to notarize the deed, the deed was already completed and signed. Sophia also testified that Margaret seemed to intend to transfer the house to Keith and understood the nature and consequences of the deed. After hearing all the testimony, the trial court concluded that the deed was enforceable, and the house belonged to Keith. However, on appeal, the Second District Court of Appeals found the deed to be invalid. The Second District stated that in Ohio a grantor need not actually sign a deed in order to be valid, however, the court concluded that the “signature requirement may be satisfied by another affixing a grantor’s signature on a deed so long as the evidence shows that the grantor comprehend the deed, wanted its execution, and authorized the other to sign it.” The court concluded that the evidence showed that Margaret comprehended the deed and perhaps even wanted its execution. But the evidence did not show that Margaret authorized anyone to sign the deed for her. Because it could not be established that Margaret authorized the preparer or anyone else to sign the deed for her, the Second District court held that that deed was invalid under Ohio law. This case demonstrates the importance of attorneys and the work they do to make sure all asset transfers and estate planning documents are in compliance with the law to help avoid unnecessary lawsuits and prevent any unintended outcomes.
Did you know that Hippopotamuses cannot swim? It’s true. When hippos submerge themselves underwater, they don’t swim back up to the surface, instead they walk along the bottom until they reach shallow water. That is unless the hippo decides to chase you out of its territory, then it will gladly run, jump, and charge right at you.
Like the hippo, this week’s Ag Law Harvest is a little territorial. We bring you recent Ohio court decisions, a federal order allowing Colombian hippos to take the testimony of Ohio residents, and the Ohio Department of Agriculture’s directives as it ramps up its fight against Ohio’s newest pest.
Well, well, well. A recent Ohio case demonstrated the complex issues a landowner can run into when dealing with an oil and gas lease. The Plaintiff in this case owns land in Hebron, Ohio and brought suit against his neighbors and the Ohio Department of Taxation claiming that he was not the owner of a gas well located on his property or that he was responsible for paying taxes and maintaining the well under Ohio law. The Hebron, Ohio property at issue in this case passed through many hands before becoming the property of the Plaintiff. One of the prior owners was a man named William Taggart (“Taggart”). As mentioned earlier, the property also has a gas well which was subject to an oil and gas lease. The oil and gas lease passed to multiple parties and ended up with Taggart while he owned the Hebron property. After having both the property and the oil and gas lease, Taggart deeded the property to Plaintiff’s parents which eventually passed onto Plaintiff. Plaintiff argued that he is not the rightful owner of the well because the last person that was assigned the oil and gas lease was Taggart, making him the owner of the well. The Fifth District Court of Appeals disagreed. The court found that Plaintiff’s parents registered as owners of the well under Ohio Revised Code § 1509.31 which requires a person to register a well before they can operate it. Further, the court determined that when the oil and gas lease was assigned to Taggart the rights of the landowner and the lessee merged, essentially making Taggart the only individual with any property interest in the well. Relying on § 1509.31, the court found that when the entire interest of an oil and gas lease is assigned to the landowner, the landowner then becomes responsible for compliance with Chapter 1509 of the Ohio Revised Code. Therefore, when the property passed to Plaintiff’s parents, they became the owners of the well and were responsible for making sure the well was in compliance with Chapter 1509. Because this responsibility passed onto Plaintiff, the court found Plaintiff to be liable for the taxes and ensuring that the well is compliant with Ohio law. The court also denied Plaintiff’s attempt to argue that Taggart was the responsible party because the oil and gas lease was still in effect due to the fact that Plaintiff’s neighbors use the gas well for domestic purposes. The court found that the oil and gas lease had expired by its own terms, pursuant to the habendum clause contained within the lease. A habendum clause essentially defines the property interests and rights that a lessee has. The specific habendum clause in this case stated that the lease would terminate either within three years or when the well no longer produced oil and gas for commercial purposes. The lease at issue was well beyond the three-year term and, as the court found, the lease expired under Taggart because the well no longer produced oil or gas for commercial purposes. The use of the well for domestic purposes did not matter. The Fifth District ultimately held that because Plaintiff could not produce any evidence to show that another party had an interest in the well, Plaintiff is ultimately responsible for the well.
Amending a contract doesn’t always erase the past. Two companies (“Plaintiffs”) recently filed suit against a former managing member (“Defendant”) for allegedly using business funds and assets for personal use during his time as managing member. The primary issue in this case was whether or not an arbitration clause in the original operating agreement is enforceable after the operating agreement was amended to remove the arbitration clause. Defendant’s alleged misconduct occurred while the original operating agreement was in effect. The original operating agreement would require the parties to settle any disputes through the arbitration process and not through the court system. However, shortly before filing suit, the original operating agreement was amended to remove the arbitration provision. Plaintiffs filed suit against the Defendant arguing that the arbitration provision no longer applied because the operating agreement had been amended. Defendant, however, argued that his alleged misconduct occurred while the original operating agreement was in effect and that the amended operating agreement could not apply retroactively forcing him to settle the dispute in a court rather than through arbitration. The trial court, however, sided with the Plaintiffs and allowed the case to move forward. Defendant appealed the trial court’s decision and the Ninth District Court of Appeals agreed with him. The District Court found that the amended operating agreement did not expressly state any intention for the terms and conditions of the amended operating agreement to apply retroactively. Further, the court held that Ohio law favors enforcing arbitration provisions within contracts and any doubts as to whether an arbitration clause applies should be resolved in favor of enforcing the arbitration clause. The Ninth District reversed the trial court and found that the dispute of Defendant’s alleged misconduct should be resolved through arbitration.
Animal advocates claim victory in pursuit of recognizing animals as legal persons. A recent order issued by a federal district court in Ohio allows an attorney for Colombian Hippopotamuses to take the testimony of two expert witnesses residing in Ohio. According to U.S. law, a witness may be compelled to give testimony in a foreign lawsuit if an “interested person” applies to a U.S. court asking that the testimony be taken. The Animal Legal Defense Fund (“ALDF”) applied to the federal court on behalf of the plaintiffs, roughly 100 hippopotamuses, from a lawsuit currently pending in Colombia. According to the ALDF, the lawsuit seeks to prevent the Colombian government from killing the hippos. The interesting thing about this case is that hippos are not native to Colombia and were illegally imported into the country by drug kingpin Pablo Escobar. After Escobar’s death the hippos escaped his property and relocated to Colombia’s Magdalena River and have reproduced at a rate that some say is unsustainable. In Colombia, animals are able to sue to protect their rights and because the plaintiffs in the Colombian lawsuit are the hippos themselves, the ALDF argued that the hippos qualify as an “interested person” under U.S. law. After applying for the authorization, the federal court signed off on ALDF’s application and issued an order authorizing the attorney for the hippos to issue subpoenas for the testimony of the Ohio experts. After the federal court’s order, the ALDF issued a press release titled “Animals Recognized as Legal Persons for the First Time in U.S. Court.” The ALDF claims the federal court ruling is a “critical milestone in the broader animal status fight to recognize that animals have enforceable rights.” However, critics of ALDF’s assertions point out that ALDF’s claims are a bit embellished. According to critics, the order is a result of an ex parte application to the court, meaning only one side petitioned the court for the subpoenas and the other side was not present to argue against the subpoenas. Further, critics claim that all the federal court did was sign an order allowing the attorney for the hippos to take expert testimony, the court did not hold that hippos are “legal persons” under the law.
Ohio Department of Agriculture announces quarantine to combat the spread of the Spotted Lanternfly. According to the Ohio Department of Agriculture (“ODA”) the Spotted Lanternfly (“SLF”) has taken hold in Jefferson and Cuyahoga counties. The ODA announced that the SLF is now designated as a destructive plant pest under Ohio law and that the ODA was issuing quarantine procedures and restricting the movement of certain items from infested counties into non-infested areas of Ohio. The ODA warns that the SLF can travel across county lines in items like tree branches, nursery stock, firewood, logs, and other outdoor items. The ODA has created a checklist of things to look for before traveling within or out of infested counties. Nurseries, arborists, loggers, and other businesses within those infested counties should contact the ODA to see what their obligations and rights are under the ODA's new quarantine instructions. Under Ohio law, those individuals or businesses that fail to follow the ODA’s quarantine instructions could be found guilty of a misdemeanor of the third degree on their first offense and a misdemeanor of the second degree for each subsequent offense. For more information visit the ODA’s website about the SLF.
Infrastructure legislation and the Build Back Better reconciliation bill have consumed Washington lately, but the House Agriculture Committee set those issues aside long enough last week to tend to several other pieces of legislation. The committee passed five bills on to the House in its committee hearing on October 21. Here’s a summary of each:
H.R. 5609, the Cattle Contract Library Act of 2021, likely made the biggest splash in the agriculture community. Sponsored by Rep. Dusty Johnson (R-SD) and 23 co-sponsors on both sides of the aisle, the legislation would address beef supply and pricing transparency issues by requiring:
- A mandatory reporting program for packers, who must file information with USDA for:
- The type of each contract offered to producers of fed cattle, classified by the mechanism used to determine the base price for the fed cattle committed to the packer, including formula purchases, negotiated grid purchases, and forward contracts;
- A contract’s duration;
- All contract summary information;
- Contract provisions that may affect the price of cattle, including base price, schedules of premiums or discounts, and transportation;
- Total number of cattle covered by a contract that is solely committed to the packer each week within the 6 and 12-month periods following the date of the contract;
- For contracts where a specific number of cattle aren’t committed solely to the packer, an indication that the contract is an open commitment and any weekly, monthly, annual, or other limitations on the number of cattle that may be delivered to the packer under the contract;
- A description of contract terms that provide for expansion in the committed numbers of fed cattle to be delivered under the contract for the 6 and 12-month periods after its date.
- USDA must maintain the information submitted by packers in a publicly available library in a “user-friendly format,” including real-time notice, if practicable, of the types of contracts that are being offered by packers that are open to acceptance by producers.
- USDA must establish a competitive program to award Producer Education Grants for producer outreach and education on the best uses of cattle market information, including the Cattle Contract Library.
- USDA must also provide weekly or monthly reports based on the information collected from packers of:
- The total number of fed cattle committed under contracts for delivery to packers within the 6-month and 12-month periods following the date of the report, organized by reporting region and type of contract;
- The number of contracts with an open commitment along with any weekly, monthly, annual or other limitations on the number of cattle that may be delivered under such contracts; and
- The total maximum number of fed cattle that may be delivered within the 6-month and 12-month periods following the date of the report, organized by reporting region and type of contract.
H.R. 4252 proposes additional scholarship funding for students at the nation’s 1890 land grant institutions, which includes Central State University here in Ohio.
Committee Chairman David Scott (D-GA) is the sponsor of the bill, which would allocate $100 million for scholarships and make the scholarship program permanent.
H.R. 5608 proposes the Chronic Wasting Disease Research and Management Act, a bi-partisan bill sponsored by Rep. Ron Kind (D-WI) and House Agriculture Committee Ranking Member Glenn Thompson (R-PA). The act proposes a research program, support for state management efforts, and public education to tackle chronic wasting disease, a fatal neurological disease in deer, elk, and moose. Those initiatives would receive $70 million each year from 2022 to 2028.
H.R. 4489, the National Forest Restoration and Remediation Act, is also a bi-partisan bill and is sponsored by Rep. Kim Schrier, (D-WA), Matt Rosendale (R-MT), Joe Neguse (D-CO) and Dough LaMalfa (R-CA). The bill would allow the U.S. Forest Service to use interest earned on settlement funds for clean-up and restoration of damaged forest lands.
H.R. 5589, the Pyrolysis Innovation Grants Act, is dubbed as a “green technology bill” by sponsors Rep. Josh Harder (D-CA), Rep. Jimmy Panetta(D-CA) and Rep. Jim Costa (D-CA). The proposal would invest $5 million per year through 2027 for USDA pilot projects in pyrolysis, a process that reduces greenhouse gas emissions from burning nut shells by converting the shells into fuels, nutrients, and other commodities.
Did you know that the fastest animal in the world is the Peregrine Falcon? This speedy raptor has been clocked going 242 mph when diving.
Like the Peregrine Falcon, this week’s Ag Law Harvest dives into supply chain solutions, new laws to help reduce a state’s carbon footprint, and federal and state case law demonstrating how important it is to be clear when drafting legislation and/or documents, because any ounce of ambiguity could lead to a dispute.
Reinforcing the links in the supply chain. President Joe Biden announced that ports, dockworkers, railroads, trucking companies, labor unions, and retailers are all coming together and have agreed to do their part to help reduce the supply chain disruption that has left over 70 cargo ships floating out at sea with nowhere to go. In his announcement, President Biden disclosed that the Port of Los Angeles, the largest shipping port in the United States, has committed to expanding its hours so that it can operate 24/7; labor unions have announced that its workers have agreed to work the additional hours; large companies like Walmart, UPS, FedEx, Samsung, Home Depot and Target have all agreed to expand their hours to help move product across the country. According to the White House, this expanded effort will help deliver an extra 3,500 shipping containers per week. Port and manufacturing disruptions have plagued retailers and consumers since the beginning of the COVID-19 pandemic. Farming equipment and parts to repair farming equipment are increasingly in short supply. The White House hopes that through these agreements, retailers and consumers can finally start to see some relief.
California breaking up with gas powered lawn equipment. California Governor Gavin Newsom recently signed a new bill into law that would phase out the use of gas-powered lawn equipment in California. Assembly Bill 1346 requires that new small off-road engines (“SOREs”), used primarily in lawn and garden equipment, be zero-emission by 2024. The California legislation seeks to regulate the emissions from SOREs which have not been as regulated as the emissions from other engines. According to the legislation, “one hour of operation of a commercial leaf blower can emit as much [reactive organic gases] plus [oxides of nitrogen] as driving 1,100 miles in a new passenger vehicle.” The new law requires the State Air Resources Board to adopt cost-effective and technologically feasible regulations to prohibit engine exhaust and emissions from new SOREs. Assembly Bill 1346 is a piece of the puzzle to help California achieve zero-emissions from off-road equipment by 2035, as ordered by Governor Newsome in Executive Order N-79-20.
U.S. Supreme Court asked to review E15 Vacatur. A biofuel advocacy group, Growth Energy, filed a petition asking the U.S. Supreme Court to review a federal court’s decision to abolish the U.S. Environmental Protection Agency’s (“EPA”) rule allowing for the year-round sale of fuel blends containing gasoline and 15% ethanol (“E15”). Growth Energy argues that the ethanol waiver under the Clean Air Act for the sale of ethanol blend gasoline applies to E15, the same as it does for gas that contains 10% ethanol (“E10”). Growth Energy also claims that limiting the ethanol waiver to E10 gasolines contradicts Congress’s intent for enacting the ethanol waiver because E15 better achieves the economic and environmental goals that Congress had in mind when it drafted the ethanol waiver. Growth Energy asks the Supreme Court to overturn the lower court’s decision and instead interpret the ethanol waiver as setting a floor, not a maximum, for fuel blends containing ethanol that can qualify for the ethanol waiver. Growth Energy now awaits the Supreme Court’s decision on whether or not it will take up the case. Visit our recent blog post for more background information on E15 and the waivers at issue.
When in doubt, trust the trust. A farm family in Preble County may finally be able to find some closure after the 12th District Court of Appeals affirmed the Preble County Court of Common Pleas’ decision to prevent a co-trustee from selling farm property. Dorothy Wisehart (“Dorothy”), the matriarch of the Wisehart family established the Dorothy R. Wisehart Trust (the “Trust”) in which she conveyed a one-half interest in two separate farm properties, both located within Preble County to the Trust. Dorothy retained her one-half interest in the two farms which passed to her son, Arthur, upon her death. Furthermore, upon Dorothy’s death, the Trust became an irrevocable trust with Arthur as the sole trustee. The Trust had five income beneficiaries – Arthur’s wife and four kids. The Trust specifically allowed for removal and replacement of the trustee upon the written request of 75% of the income beneficiaries. In 2010, four of the five income beneficiaries executed a document removing Arthur as the sole trustee and instead placed Arthur and Dodson, Arthur’s son and one of the income beneficiaries, as co-trustees. Arthur, however, argued that only Dorothy had the power to remove and appoint a new trustee and once Dorothy passed, no new trustee could be appointed. In 2015, Dodson filed suit against his father after Arthur allegedly tried to sell the two farms and further alleged that Arthur breached his fiduciary duty by withholding funds from the Trust. Dodson also asked the court to determine the issue of whether Dodson was validly appointed as co-trustee. The common pleas court sided with Dodson and found that (1) the Trust held an undivided one-half interest in the farms, (2) Dodson was validly appointed as co-trustee, and (3) Arthur wrongfully withheld funds from the Trust, breaching his fiduciary duty as a trustee. Arthur appealed, arguing that the case was not “justiciable” because the harms alleged by Dodson were hypothetical and no real harm occurred. However, the 12th District Court of Appeals disagreed with Arthur. The court found that the Trust expressly provided for the removal and appointment of trustees by 75% of the income beneficiaries. Further, the court ruled that this case was justiciable because Dodson’s allegations needed to be resolved by the courts or else real harm would have occurred to the income beneficiaries of the Trust. This case highlights perfectly the importance of having well drafted estate planning documents to help clear up any disputes that may arise once you’re gone.
No need to cut the “GRAS” today. Consumer advocates, Center for Food Safety (“CFS”) and Environmental Defense Fund (“EDF”), brought suit against the Food and Drug Administration (“FDA”) asking the court to overturn the FDA’s rule regarding “Substances Generally Recognized as Safe (the “GRAS Rule”). According to the plaintiffs, the GRAS Rule subdelegated the FDA’s duty to ensure food safety in violation of the United States Constitution, the Administrative Procedure Act (“APA”), and the Federal Food, Drug, and Cosmetic Act (“FDCA”). In 1958, Congress enacted the Food Additives Amendment to the FDCA which mandates that any food additive must be approved by the FDA. However, the definition of “food additive” does not include those substances that are generally recognized as safe. Things like vinegar, vegetable oil, baking powder and many other spices and flavors are generally recognized as safe to use in food and not considered to be a food additive. Under the GRAS Rule, anyone may voluntarily, but is not required to, notify the FDA of their view that a substance is a GRAS substance. There are specific guidelines and information that must be presented to back up a manufacturer’s claim that a substance is GRAS. In any case, the FDA retains the authority to issue warnings to manufacturers and to stop distribution when the FDA believes that a substance is not a GRAS substance. Plaintiffs claim that under the GRAS Rule, the FDA is subdelegating its duty by allowing manufacturers to voluntarily notify the FDA of a GRAS substance rather than requiring it. However, the Federal District Court for the Southern District of New York found that the FDA did not subdelegate its duties because the FDCA does not require the FDA provide prior authorization that a substance is GRAS. Further, the court held that the FDA has done nothing more than implement a process by which manufacturers can notify the FDA of GRAS determinations and the FDA can choose to agree or disagree. The court reasoned that even if a mandatory GRAS notification procedure or prior approval process were in place, manufacturers could simply lie about what’s in their products and the FDA would be none the wiser. The court also noted that mandatory submissions would consume the FDA’s resources which would be better spent evaluating higher priority substances. The court ultimately concluded that the FDA’s GRAS Rule does not highlight a constitutional issue, nor does it violate the FDCA or APA.
As it often goes with farming, the weather interfered a bit with Farm Science Review this year. We missed seeing farmers and students from across the state gather for the show on Wednesday. But even wind and rain didn’t stop our Farm Office team, above, from presenting Farm Office Live from the Review on Thursday. I gave an update on Ohio legislation, as Ohio’s legislature is back from its summer break. Here’s a summary of the legislation I discussed at our Farm Science Review program.
Bills passed and soon effective
S.B. 52 – Solar and wind facilities. S.B. 52 passed several months ago and will be effective on October 11, 2021. The new law will allow counties to designate “restricted areas” in a county where wind and solar projects may not locate and creates a county referendum process for a public vote on restricted area designation. The law will also require developers to hold a public meeting in the county where a facility is proposed at least 90 days before applying for project approval with the Ohio Power Siting Board. After the meeting, the county commissioner may choose to prohibit or limit the proposed project. Another provision of the new law appoints 2 local officials from the proposed location to serve on the OPSB board that reviews a project. And importantly for landowners, the new law requires a developer to submit a decommissioning plan to OPSB for approval with the application and to post and regularly update a performance bond for the amount of decommissioning costs. Watch for our new law bulletins on S.B. 52, which we’ll publish soon.
Bills on the move
H.B. 30 – Slow-moving vehicles. The bill passed the House on June 23, 2021, and just received its second hearing before the Senate Transportation on September 22, 2021. It proposes revisions to marking and lighting requirements for animal-drawn vehicles to make the vehicles more visible and reduce roadway accidents.
H.B. 95 – Beginning farmers. We’ve been hoping this bill aiding beginning farmers would continue to receive attention. It would allow individuals to be certified as beginning farmers and create income tax credits for owners who sell land and agricultural assets to certified beginning farmers and for beginning farmers who attend approved financial management programs. The bill passed the House on June 28, 2021 and was referred to the Senate Ways and Means Committee on September 8, 2021.
S.B. 47 – Overtime pay. The Senate passed S.B. 47 on September 22, soon after returning from break. It would exempt an employer from paying overtime wages for certain activities, including traveling to the workplace, actions before or after beginning principal work activities, or “de minimus” acts requiring insignificant time. The bill sponsors state that it will bring necessary clarity to overtime pay in the era of more employees working unsupervised from home.
Bills newly introduced
H.B. 397 – Termination of Agricultural Lease. A bill that aims to bring certainty to farmland leases was introduced in the House on August 24, 2021 and referred to the Agriculture and Conservation Committee. The proposal states that where a farm lease agreement does not provide for a termination date or a method for giving notice of termination, a landlord who wants to terminate that agreement must do so in writing by September 1. Unless otherwise agreed in writing, the termination date would be either the date harvest or removal of the crops is complete or December 31, whichever is earlier.
H.B. 385 – Municipal waste discharges to Lake Erie western basin Municipalities would be prohibited from discharging waste from treatment plants into Lake Erie under a new bill proposed by Rep. Jon Cross (R-Kenton). The bill would require the Ohio EPA to revoke all existing NPDES permits for municipal treatment works or sewerage systems to in the western basin and prohibit any additional permits for that purpose. It would also fine municipalities up to $250,000 per day for knowingly discharging waste into Lake Erie on the first offense and $1,000 per day for subsequent offenses, or to fine $100 million if the discharge amount exceeds 100 million gallons in a 12-month period. Introduced on August 6, 2021, the bill has been referred to the House Agriculture and Conservation Committee.
Catch a replay Farm Office Live from Farm Science Review at https://farmoffice.osu.edu/farmofficelive. Register at that site to join us for the next Farm Office Live on October 13 at 7 p.m. or a repeat on October 15 at 10 a.m., whern the Farm Office team will digest the latest news and information on agricultural law and farm management issues that affect Ohio’s farm offices.