Environmental

An agricultural easement is a legal instrument that can protect farmland from non-farm development and preserve the legacy of family land for the future. An earlier blog post explains how an agricultural easement works and answers common questions about agricultural easements.  As we explained, an agricultural easement not only preserves farmland but can also be a valuable financial and tax tool that can enable a transition of the farm to the next generation.  But are there drawbacks to agricultural easements?  Here's a summary of potential negative implications of easements that landowners should also consider.

It's difficult to forecast the future of a farm.  The very nature of the easement requires a best estimate of how the farmland might be used for agriculture into the future--a challenging task.  The Deed of Agricultural Easement the parties agree to must predict agricultural activities that are consistent with the easement and those that would violate the easement.  There could be future problems if the predictions and forecasting aren’t flexible enough to accommodate agriculture in the future. 

The “perpetuity” requirement. While it’s possible to draft an easement that lasts only for a certain term of years, most agricultural easements remain on the land “in perpetuity,” or permanently.  The programs that pay a landowner to grant an agricultural easement and the federal income and estate tax benefits for donating all or part of an easement require that the easement is perpetual.  This differs from the conservation programs we’re accustomed to in agriculture that require shorter term commitments, and it can be a deterrent to a landowner who wants future generations to have a say in what happens to the land.  These concerns might be addressed in the deed of agricultural easement, however, which may provide sufficient flexibility to address those future concerns.

Termination can be difficult and costly.  Hand in hand with the perpetuity issue is the difficulty of terminating an agricultural easement once it’s in place. Typically, both parties must agree on a termination and a court of law must determine that conditions on or surrounding the land make it impossible or impractical to continue to use the land for agricultural purposes. Attempts to terminate without following the stated procedures can result in penalties for the current landowner.  If there was a payment for the agricultural easement, a deed of easement will likely require the landowner to reimburse the paying party for the proportionate share of the fair market value of the land with the easement removed and will also require the party receiving the reimbursement to use the funds only for similar conservation purposes.  

Eminent domain can be an issue.  As one Ohio farm family has learned, an agricultural easement might not protect the farmland from an eminent domain proceeding.  In Columbia Gas v. Bailey, 2023-Ohio-1245, the Bailey family was forced to litigate an attempt by Columbia Gas to use eminent domain for the construction of a gas pipeline across their farmland.  Their predecessor had placed an agricultural easement on the farmland in 2003, and the family argued the easement prevented the taking of land for the pipeline under the doctrine of “prior public use.”  That doctrine prohibits an eminent domain action that would destroy a prior public use.  The court agreed that the agricultural easement did create a prior public use on the land, and the court shifted the burden to Columbia Gas to prove that the pipeline would not destroy the established prior public use.  Rather than doing so, Columbia Gas withdrew its eminent domain proceeding and moved the location of the pipeline.  The court's decision to recognize an agricultural easement as a prior public use might provide some protection from eminent domain for future owners of agricultural easement land but, like the Baileys, landowners may have to fight a long, expensive battle to prove that an eminent domain action would destroy an established prior public use.

Lenders and other interests must be on board.  A landowner must deal with any existing mortgages, liens, leases, or easements on the farmland before entering into an agricultural easement.  The State of Ohio’s agricultural easement, for example, requires a lender to subordinate a mortgage to the rights of the easement holder.  Renegotiation of the mortgage might be necessary, and the lender might require a paydown of the outstanding mortgage if the property’s value could reduce below that amount.  Without subordination and other approvals, a landowner will not be able to enter into an agricultural easement. 

Local governments must be on board.  Ohio’s program for purchasing agricultural easements requires a landowner to submit a resolution of support from the township and county where the land is located.  This means the local governments must agree that committing the land to agriculture is consistent with local land use plans.  An early conversation with local officials is necessary to ensuring consistency with the community’s future plans.

There will be monitoring.  An easement holder has the responsibility of ensuring there is not a violation of the easement or conversion of the land to non-agricultural uses.  This means there will be a baseline or “present condition” report of the easement property upon easement creation and monitoring of the property “in perpetuity.”  An annual visit to the property and completion of an annual monitoring report by the easement holder is common. 

It's a lengthy process.  Agricultural easements don’t pop up overnight.  Especially when applying for funding from competitive programs like Ohio’s Local Agricultural Easement Purchase Program or the NRCS Agricultural Land Easements Program, it can be a year or more before an agricultural easement is in place. 

Planning and integration with plans is necessary.  An agricultural easement is one piece of what can be a complex plan addressing a landowner’s expansion, retirement, estate, and transition needs.  A landowner would be wise to work with a team of professionals—financial planner, tax professional, attorney—to ensure that an agricultural easement integrates with all other parts of the plan.

Still interested?  Ohio landowners interested in learning more about agricultural easements may want to consider these steps:

• Review the resources on the Ohio Department of Agriculture’s Office of Farmland Preservation.
• Talk with other landowners who have entered into easements.  Refer to the Coalition of Ohio Land Trusts landowner resources and landowner stories.
• Visit American Farmland Trust’s Farmland Information Center.
• Talk with a “local sponsor” or land trust in your area.  The Office of Farmland Preservation provides a list of local sponsors for the Clean Ohio Agricultural Easement Purchase Program on its website.
• Talk with your attorney, financial planner, and accountant about the implications of entering into an agricultural easement.

With just over a week left until echoes of “Hang on Sloopy” and chants of “O-H” and “I-O” can be heard from Buckeye faithful across the nation, we thought we would provide you with some light reading to hold you over until that long awaited 3:30 kick off. In this edition of our Ag Law Harvest, we focus on three recent Ohio Supreme Court cases that could potentially impact business owners, Northern Ohio landowners, and Ohio taxpayers. 

Assault and Battery: Is it Covered Under an Insurance Policy?
A victim of a stabbing at an Ohio adult care facility is unable to collect judgment from the facility’s insurance company after a recent decision by the Ohio Supreme Court. The victim was living at the facility when another resident stabbed him. The perpetrator was later indicted on criminal charges but found not guilty by reason of insanity. 

The victim then filed a civil lawsuit against the perpetrator and the facility to recover for damages resulting from the stabbing injuries. The victim ultimately dropped his lawsuit against the perpetrator and entered into a settlement agreement with the facility. As part of the settlement agreement, the victim agreed not to pursue the judgment against the facility, and instead, sought to collect his judgment from the facility’s insurance company.   

At the time of the stabbing, the adult care facility had a commercial general liability policy. When the victim sought judgment from the facility’s insurance company, the insurance company refused to provide coverage. The insurance company explained that the insurance policy contained a provision that specifically excluded coverage for any bodily injury resulting from an assault or battery. The specific provision at issue stated: 

“1. This insurance does not apply to ‘bodily injury,’ * * * arising out of or resulting from: (a) any actual, threatened or alleged assault or battery; * * *.”

The victim argued that because the perpetrator was found to be not guilty by reason of insanity in the criminal trial, the exclusion provision was nullified because the perpetrator lacked the subjective intent to commit any assault or battery. 

The Ohio Supreme Court disagreed. The Court explained that the plain language of the exclusion provision of the insurance policy at issue is clear – there is no intent requirement included in the exclusion language. Therefore, the Court held that coverage did not exist for the willful assault on the victim. The Court sympathized with the victim but ultimately could not interpret the insurance policy language to include a subjective intent requirement where none existed. 

This case demonstrates the importance of reading and understanding your business insurance policy. Insurance policies are, at the core, contracts between two parties and the language contained within the policy will usually govern that contractual relationship. What you assume is covered under your policy may not necessarily be the case. Furthermore, not all insurance policies are the same. We have seen Ohio cases where an insurance policy does require the presence of some subjective intent in order for an assault and battery exclusion to apply. Speak with your insurance agent and/or attorney to make sure you understand when and where coverage exists, knowing this can be critical to protecting you, your farm, and/or your business. 

Ohio Supreme Court Approves Northern Ohio Wind Farm. 
Residents of Huron and Erie Counties along with Black Swamp Bird Conservatory (the “Plaintiffs”) recently lost their battle in court to prevent the construction of a new wind farm in Northern Ohio. The Plaintiffs argued that the Ohio Power Siting Board (the “Board”) failed to satisfy Ohio law before granting the new wind farm its certificate of environmental compatibility and public need. Specifically, the Plaintiffs assert that the wind farm could “disrupt the area’s water supply, create excessive noise and ‘shadow flicker’ for residents near the wind farm, and kill bald eagles and migrating birds.” 

The Ohio Supreme Court found otherwise. The Court concluded that the Plaintiffs failed to establish that the Board’s granting of the certificate was unlawful or unreasonable. As approved, the new wind farm will consist of up to 71 turbines and cover 32,000 acres of leased land. To read more about the Ohio Supreme Court’s decision visit: In re Application of Firelands Winds, L.L.C.

Ohio Supreme Court Sets New Precedent on Interpreting Ohio Tax Law.
In Ohio, most retail sales are subject to sales tax unless a certain exemption applies. Ohio law does have a sales tax exemption for equipment used directly in the production of oil and gas. A fracking business recently challenged a decision by Ohio’s Tax Commissioner and Board of Tax Appeals that levied the sales tax on certain equipment purchased by the business. The fracking equipment at issue included: a data van, blenders, sand kings, t-belts, hydration units, and chemical-additive units.

The Tax Commissioner concluded that the fracking equipment was not used directly in the extraction of oil and gas, only indirectly, and therefore, did not qualify for the tax exemption. The Ohio Supreme Court felt differently. 

The Court found that all the equipment, except the data van, is used in unison to expose the oil and gas. Because the equipment is used to expose the oil and gas – a necessary part of fracking – the Court had little difficulty concluding that the equipment is being used directly in the production of oil and gas. 

In addition to the equipment’s direct use in the production of oil and gas, the Court also recognized that the fracking equipment may also have a storage or delivery function/purpose. However, the Court reasoned that a piece of equipment’s function must be viewed through the “primary purpose” lens. For example, the Court held that although the blender equipment in this case performs a holding function, the primary use of the blender is to mix “the critical ingredients in the fracking recipe seconds before the mixture is inserted into the well.” Therefore, the Court found that the blender’s holding function did not disqualify it from Ohio’s sales tax exemption. 

Additionally, in this case, the Court also issued an opinion on how Ohio courts should interpret tax law moving forward. Normally, courts use the ever-important legal principal of stare decisis to help it decide on new cases. Stare decisis is the principal that courts and judges should honor the decisions, rulings, and opinions from prior cases when ruling on new cases. Here, the Court took its opportunity to acknowledge that in the past the Court interpreted tax exemptions against the taxpayer, favoring tax collection. But the Court made clear that from here on out, the Court “will apply the same rules of construction to tax statutes that [it applies] to all other statutes” without a slant toward one side or the other. The Court concluded that its task “is not to make tax policy but to provide a fair reading of what the legislature has enacted: one that is based on the plain language of the [law].” 

To read the Ohio Supreme Court’s decision visit: Stingray Pressure Pumping, L.L.C. v. Harris

We’re back! We are excited to bring back our regular Ag Law Harvest posts, where we bring you interesting, timely, and important agricultural and environmental legal issues from across Ohio and the country. This month’s post provides you with a look into Ohio’s ongoing legal battle of some provisions in the recently enacted “Chicken Bill”, a brief dive into the U.S. Department of Labor’s new H-2A wage rules, a warning about conservation easement fraud, and an explanation of a court’s recent decision to release an insurance company from its duty to defend its insured in a lawsuit. 

Battle of “Chicken Bill.”
Ohio House Bill 507 (“HB 507”), sometimes referred to as “the Chicken Bill” went into effect last month and was widely known for reducing the number of poultry chicks that can be sold in lots (from six to three). However, HB 507 contained other non-poultry related provisions that have caused quite a stir. Environmental groups have sued the State, seeking a temporary restraining order, a preliminary and permanent injunction to prevent HB 507 from going into effect, and a declaratory judgement that HB 507 violates Ohio’s Constitution. Two provisions within HB 507 have specifically caught the attention of the Plaintiffs in this case: (1) a revision to Ohio Revised Code § 155.33 that requires state agencies to lease public lands for oil and gas development (the “Mandatory Leasing Provision”); and (2) a revision to Ohio Revised Code § 4928.01 that defines “green energy” to include energy generated by using natural gas, so long as the energy generated meets certain emissions and sustainability requirements (the “Green Energy Provision”). 

Plaintiffs argue that the Mandatory Leasing Provision will cause irreparable harm to their members’ “environmental, aesthetic, social, and recreational interests” in Ohio’s public lands. Additionally, Plaintiffs assert that the Mandatory Leasing Provision and Green Energy Provision violate Ohio’s Constitution by not following the “One-Subject Rule” and the “Three-Consideration Rule” both of which require transparency when creating and passing legislation in Ohio. The Franklin County Court of Common Pleas recently denied Plaintiffs’ request for a temporary restraining order, reasoning that no new leases would likely be granted until the Oil and Gas Land Management Commission adopts its rules (as required by Ohio law) and that there is “no likelihood of any immediate and irreparable injury, loss, or damage to the plaintiffs.” Since the hearing on Plaintiffs’ request for a temporary restraining order, the State of Ohio has filed its answer denying Plaintiffs’ claims and currently all parties are in the process of briefing the court on the merits of Plaintiffs’ request for a preliminary injunction. 

New H-2A Wage Rules: Harvesting Prosperity or Sowing Seeds of Despair? 
On February 28, 2023, the U.S. Department of Labor (the “DOL”) published a final rule establishing a new methodology for determining hourly Adverse Effect Wage Rates (“AEWR”) for non-range farm occupations (i.e. all farm occupations other than herding and production of livestock on the range) for H-2A workers. The new methodology has been in effect since March 30^th. Late last month Rep. Ralph Norman and the Chairman of the House Committee on Agriculture, Rep. Glenn “GT” Thompson, introduced a resolution of disapproval under the Congressional Review Act, seeking to invalidate the DOL’s final rule. Similarly, the National Council of Agricultural Employers (“NCAE”) released a statement declaring that it has filed a Motion for Preliminary Injunction against the DOL’s new methodology. 

Opponents of the new rule argue that the increased wages that farmers and ranchers will be required to pay will put family operations out of business. On the other hand, the DOL believes “this methodology strikes a reasonable balance between the [law’s] competing goals of providing employers with adequate supply of legal agricultural labor and protecting the wages and working conditions of workers in the United States similarly employed.” Producers can visit the DOL’s frequently asked questions publication to learn more about the new H-2A wage rule. As it stands, the new H-2A regulations remain in effect and producers should be taking all possible steps to follow the new rules. Make sure to speak with your attorney if you have any questions about compliance with H-2A regulations. 

Conservation Easement Fraud – Protecting Land or Preying on Profits? 
For a while now, conservation easements have been utilized by farmers and landowners to preserve their land while also obtaining a substantial tax benefit. But not all actors in the conservation easement sphere are good ones. Earlier this month, a land appraiser in North Carolina pled guilty to conspiring to defraud the United States as part of a syndicated conservation easement tax shelter scheme. According to a press release by the U.S. Department of Justice (“DOJ”), Walter “Terry” Douglas Roberts II of Shelby, North Carolina conspired with others to defraud the United States by inflating the value of conservation easements which led to $1.3 billion in fraudulent tax deductions. Roberts is guilty of inflating the value at least 18 conservation easements by failing to follow normal appraisal methods, making false statements, and manipulating or relying on knowingly manipulated data to achieve a desired tax deduction amount. Roberts faces a maximum penalty of five years in prison and could be forced to pay back a specified amount to the U.S. Government. 

Conservation easement fraud is not new, however. The Internal Revenue Service (“IRS”) has been monitoring the abuse of the conservation easement tax deductions for some time. The IRS has included these fraudulent transactions on its annual “Dirty Dozen” list of tax avoidance scams. The IRS has seen taxpayers, often encouraged by promoters armed with questionable appraisals, take inappropriately large deductions for these types of easements. These promoters twist the law to develop abusive tax shelters that do nothing more than “game the tax system with grossly inflated tax deductions and generate high fees for promoters.” The IRS urges taxpayers to avoid becoming entangled by these dishonest promoters and that “[i]f something sounds too good to be true, then it probably is.” If you have questions about the tax benefits of a conservation easement, make sure to speak with your attorney and/or tax professional.  

Alleged Intentional Acts Not Covered by Insurance. 
An animal feed manufacturer is in hot water, literally. A city in Mississippi has accused Gold Coast Commodities, Inc. (“Gold Coast”), an animal feed manufacturer, of intentionally dumping hot, greasy wastewater into the City’s sewer system. Prior to the City’s investigation into Gold Coast’s alleged toxic dumping, Gold Coast purchased a pollution liability insurance policy from Crum & Forster Specialty Insurance Company (“Crum & Forster”). After an investigation conducted by the City and the Mississippi Department of Environmental Quality, the City filed a lawsuit against the feed manufacturer alleging that it intentionally dumped toxic waste into the City’s sewer system. Gold Coast then notified its insurance company of the potential claim. However, Crum & Forster denied coverage for Gold Coast’s alleged toxic dumping. According to the insurance policy, coverage exists for an “occurrence” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Crum & Forster refused to provide a defense or coverage for Gold Coast in the City’s toxic dumping lawsuit because the City alleges multiple times that Gold Coast acted intentionally, and therefore, Gold Coast’s actions were not an accident and not covered by the policy. 

In response, Gold Coast filed a lawsuit against Crum & Forster asking a federal district court in Mississippi to declare that Crum & Forster is required to defend and provide coverage for Gold Coast under the terms of the insurance policy. On a motion to dismiss, the federal district court in Mississippi dismissed Gold Coast’s lawsuit against the insurance company. The district court reasoned that in the underlying toxic dumping lawsuit, the City is not alleging an accident, rather the City asserts that Gold Coast intentionally dumped the toxic waste. Thus, Crum & Forster is not obligated to provide a defense or coverage for Gold Coast, under the terms of the policy. Gold Coast appealed to the Fifth Circuit Court of Appeals (which has jurisdiction over federal cases arising in Texas, Louisiana, and Mississippi). 

The Fifth Circuit affirmed the decision of the federal district court, rejecting Gold Coast’s claim that Crum & Forster is obligated to provide a defense and coverage for Gold Coast in the City’s toxic dumping lawsuit. Gold Coast argued that the City seeks to recover under the legal theory of negligence in the toxic dumping case, therefore Gold Coast’s actions are accidental in nature. The Fifth Circuit was unconvinced. The Fifth Circuit explained that when reading a complaint, the court must look at the factual allegations, not the legal conclusions. The Fifth Circuit found that the factual allegations in the City’s lawsuit all referred to Gold Coast’s intentional or knowing misconduct and any recovery sought under the theory of negligence is not a factual allegation, instead it is a legal conclusion. The Fifth Circuit concluded that using terms like “negligence” do not “transform the character of the factual allegations of intentional conduct against [Gold Coast] into allegations of accidental conduct constituting an ‘occurrence.’” Thus, the Fifth Circuit affirmed the federal district court’s decision to dismiss Gold Coast’s lawsuit against its insurer. Unless the Supreme Court of the United States decides to take up the case, it looks like Gold Coast is all on its own in its fight against the City. The lesson here is that although insurance is important to have, its equally as important to speak with your insurance agent to understand what types of incidents are covered under your insurance policy. 

The United States Supreme Court began its new term last October with the now famous wetlands case of Sackett v. U.S. EPA.  The case is one in a long line of legal battles over how to define which waters are “waters of the United States” (“WOTUS”) that are subject to federal jurisdiction under the Clean Water Act.  We expected quiet waters for WOTUS as we awaited the Sackett decision. But we were wrong.

New EPA rule.  The U.S. EPA made a big splash on January 18, when the agency published a new WOTUS rule to define which waters are WOTUS.  Although the rule had been under consideration since the beginning of the Biden administration, many expected the EPA to hold off on finalizing the rule until after the Supreme Court’s Sackett ruling because that decision could affect the rule.  The EPA chose not to wait, and the new rule became effective on March 20, 2023. 

New litigation begins.  Not surprisingly, the new WOTUS rule set off a new wave of litigation.  A string of four federal lawsuits were filed in January and February of 2023 by many states and interest groups.  The cases contest the validity of the rule and ask for preliminary injunctions preventing implementation of the rule while the cases are pending.

Two cases, two different outcomes.  The Southern District of Texas made the first decision on the new litigation in Texas v. U.S. EPA, granting an injunction on March 19 for two of the lawsuits filed by Texas, Idaho, and the American Farm Bureau and other interest groups.  The injunction prevents the rule from going into effect in Texas and Idaho. The federal district court determined the plaintiffs would expend significant resources complying with the rule although the rule was unlikely to withstand judicial scrutiny, creating potential irreparable harm and justifying an injunction against the rule. The Kentucky district court recent an opposite decision on March 31 in the case filed by the State of Kentucky.  The Eastern District court in Kentucky v. U.S. EPA declined to issue Kentucky’s request for a preliminary injunction, concluding that because the EPA has not begun enforcing the rule in Kentucky, there is no impending injury that warrants an injunction.  In both the Kentucky and Texas cases, the courts declined to issue a nationwide injunction against the new WOTUS rule.

Another injunction decision to come. Twenty four states joined together to file West Virginia v. EPA, the fourth federal lawsuit against the new WOTUS rule.  Ohio is not one of the plaintiff states in the case, which challenges the rule and seeks injunctions in the states as well as a nationwide injunction.  We should see a decision on the injunction request soon from the federal district court in North Dakota.

There are waves in Congress, too.  Not satisfied to sit back and watch the battles over the new WOTUS rule,  Congress recently took action to void the rule.  Congress used its authority under the Congressional Review Act, a little-used federal law that allows Congress to invalidate an agency action.  The House passed a resolution to void the rule on March 9 by a margin of 227 to 198, and the Senate voted on March 29 with 53 for and 43 against nullifying the WOTUS rule.  President Biden has the power to veto the legislation, however.  Neither the House nor the Senate appear to hold the two-thirds majority necessary to override a Biden veto.  (UPDATE:  President Biden vetoed the resolution on April 6, 2023).

Back to SCOTUS.  And still, we circle back to the Sackett case and await the Supreme Court’s analysis of the proper test to use to define a “waters of the United States.”  How will the ruling affect the new WOTUS rule and its litigation?  Will Congress act on the Supreme Court’s ruling to establish a statutory definition for WOTUS that would preempt the EPA’s rule?  As we have learned, there are more WOTUS waves yet to come.