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You may have been involved in or known someone that was involved in an eminent domain dispute with a utility company or other state agency. When the government tries to take an individual’s property, emotions are understandably heightened. In Ohio, state agencies and other specific entities – like a public utility company – can appropriate or “take” a person’s property, but only if the taking is necessary and for a public use. If the government or governmental agency does appropriate a landowner’s property, then the landowner is entitled to compensation for the taking.
In the case below, a group of landowners disputed a power company’s ability to appropriate their property and the ability of the power company to assume it is entitled to an appropriation simply because a project for public use was approved by state authorities. The landowners also sought to clarify when a landowner is entitled to recover the costs associated with defending their property interests against an attempted appropriation by the state or state agency.
Ohio Power Company v. Burns, et al.
In 2017, the Ohio Power Board of Directors (“Ohio Power Board”) gave initial approval for a project located in Marietta, Ohio to enhance the electric transmission network (the “Project”). The Project included miles of new transmission lines and required siting, rights of ways, and some property purchases. In 2018 the Ohio Siting Board (“Siting Board”) issued a certificate of environmental compatibility and public need for the Project. In 2019, the Project was given final approval by the Ohio Power Board.
After failed easement negotiations, the Ohio Power Company (Plaintiff) filed petitions for appropriation against several landowners (“Defendants”) to take easements on the Defendants’ property. As required by Ohio law, the trial court held a hearing on the appropriation petitions (the “Appropriation Proceedings”). Plaintiff argued that it currently possesses an easement across the property of each Defendant, but it was seeking to replace the existing easement with a new, wider easement for the Project. Plaintiff claimed that the new easements were necessary for a public good and that the Siting Board recognized the necessity of the Project and of acquiring easements, rights of way, and other interests in property along the new power line.
Defendants, however, responded by saying that the Siting Board declared the Project a necessity, not the appropriations. Further, Defendants argued that the easements sought by Plaintiff were overly broad and that the terms of the proposed easements went beyond the necessity to promote the public use. Lastly, Defendants claimed that when Plaintiff was ordered to remove distribution line rights from its appropriation petition, Plaintiff voluntarily abandoned its appropriation which required the trial court to enter a judgement against Plaintiff for the costs associated with defending against the distribution line rights contained within the proposed easements.
The trial court determined that the Siting Board’s certification of the Project and the testimony presented at the hearing established that the appropriations were necessary under Ohio law. Additionally, the trial court found that even if the Siting Board’s certificate did not create an irrebuttable presumption, the appropriations were still necessary because Plaintiff, as a public utility company, is in the best position to determine what is necessary and what is not. The trial court also held that Plaintiff did not abandon the appropriations simply by removing certain provisions from the petitions. Defendants then appealed to the 4th District Court of Appeals.
The following is brief explanation of the 4th District’s opinion that both agreed and disagreed with the trial court.
Rebuttable and irrebuttable presumption
Normally under Ohio law, a public utility company, like the Plaintiff, has to prove that it has the right to make an appropriation and/or that the appropriation is necessary. Plaintiff can do this by presenting evidence at an appropriation hearing and if the judge is persuaded, then Plaintiff will be allowed to take the property. The important part is that the burden of proof is on the public utility company.
However, there are a few situations where the law assumes that a public utility company or other state agency has the right to make an appropriation. Further, those presumptions are either rebuttable or irrebuttable. If the state agency has a rebuttable presumption, then the law will assume that agency has the right to make the appropriation or that the appropriation is necessary unless another party, like a landowner, can prove otherwise. In these situations, the burden of proof switches from the state agency to the landowner to prove that the state agency does not have the right to an appropriation or that the appropriation is not necessary. A state agency gets a rebuttable presumption when:
- A resolution or ordinance of the governing or controlling body, council, or board of the agency declares the necessity for the appropriation; or
- The public utility company presents evidence of the necessity for the appropriation.
A public utility company can also get an irrebuttable presumption about its right to an appropriation or the necessity of an appropriation. This means that no evidence can be presented to prove that the state agency does not have the right to an appropriation or that the appropriation is not necessary. A state agency receives an irrebuttable presumption when it receives approval by a state or federal regulatory authority of an appropriation.
In this case, the Defendants claimed that the Siting Board, which is a state regulatory authority, and the Ohio Power Board, the board of the agency, approved the project, not the appropriation. Therefore, Defendants argued that the rebuttable or irrebuttable presumptions did not apply to Plaintiff. Plaintiff on the other hand thought that both the rebuttable presumption and the irrebuttable presumption applied, and because the irrebuttable presumption applied, Plaintiff argued that the trial court did not need to review the easements. Plaintiff maintained judicial review of the easements was not necessary because a jury would decide the scope of the easement at a compensation hearing for the taking.
The trial court agreed with the Plaintiff and found that Plaintiff was entitled to an irrebuttable presumption of the necessity for the appropriation because of the Siting Board certification. Additionally, the trial court also found that Plaintiff was entitled to a rebuttable presumption because the Ohio Power Board declared the necessity for the appropriation of property interests for the Project.
However, the appeals court disagreed. The 4th District noted that the Plaintiff’s argument ultimately allows it to “take whatever property rights it wants. . .” and the only constraint on Plaintiff’s power to take would be how much a jury determines Plaintiff must pay for the taking. The appellate court found Defendants’ argument to be persuasive. The appellate court held that because the Siting Board and the Ohio Power Board only approved the project and not the specific appropriations at issue in this case, Plaintiff was not entitled to either a rebuttable or irrebuttable presumption. Although the Ohio Power Board recognized “the necessity of acquiring easements or rights of way in connection with” the project, the board only recognized such a necessity in a broad sense. The appellate court held that specific appropriations must be reviewed and approved before a state agency is entitled to the rebuttable or irrebuttable presumption under Ohio law.
The Defendants also argued that the trial court erred when it did not review the proposed easements. The trial court found that the Plaintiff is in the best position to determine the necessity of the easements. The trial court, therefore, did not review the proposed easments and defered to the expertise of the Plaintiff to determine the legality of the easements. Additionally, the court deferred any issues regarding the scope of the easements to a jury at the future compensation hearing.
The court of appeals disagreed with the trial court and held that the trial court should have reviewed the easements and should have made a separate necessity finding as to each one. The 4th District determined that courts are required to engage in the review of easements under Ohio law to make sure that (1) the state is not taking more property than necessary; and that the state is acting (2) fairly; (3) without bad faith; (4) without pretext; (5) without discrimination; and (6) without improper purpose. The appeals court reasoned that a trial court’s role is a critical constitutional check on the state’s power. The appellate court noted that it is a trial court’s duty to determine the extent of the taking and a jury’s duty to determine the amount of damages owed to a landowner as a result of the taking.
Another issue in this case was whether Plaintiff “abandoned” its appropriation for distribution lines. If Plaintiff was found to have abandoned its appropriation, then Defendants would be entitled to fees and other costs associated with defending their property interest.
In its initial appropriation petition, Plaintiff included an appropriation for distribution lines across the Defendants’ properties. However, during the appropriation hearing, Plaintiff conceded that it did not need an appropriation for distribution lines and only included the distribution line rights in its appropriation petition just in case it was needed. Plaintiffs admitted that their proposed easement was broader in scope than necessary, and the trial court ordered that Plaintiff remove the distribution line rights from its petitions. However, the trial court did not find that Plaintiff abandoned its appropriation for distribution lines and did not award Defendants any fees and costs for the alleged abandonment.
On appeal, Defendants argued that the trial court was wrong for not entering a judgment against the Plaintiff for fees and costs associated with defending against the appropriation for distribution lines. Plaintiff claimed that it did not abandon its petition because it essentially amended its petition, it didn’t drop its petition entirely. The trial court agreed with Plaintiff, reasoning that removing the word “distribution” from Plaintiff’s petition did not amount to an abandonment.
The court of appeals agreed with the trial court that Plaintiff did not abandon its appropriation petition but still found that Defendants were entitled to recover costs associated with defending their property interests. The 4th district found three scenarios when a landowner would be entitled to the costs associated with defending its property interest against a taking. Those three scenarios are:
- When an agency, like a public utilities company, voluntarily abandons the appropriation proceedings;
- When a trial court determines that the appropriation is not necessary or not for public use; and
- When a trial court determines, at any time during the appropriation proceedings, that the agency is not entitled to appropriate “particular property.”
Defendants argued that the court ordering Plaintiff to remove the distribution line rights from its petition constituted a voluntary abandonment under scenario 1. However, the 4th District found that Plaintiff could have only voluntarily abandoned the appropriation proceedings before the trial court’s order. The appellate court reasoned that the voluntary part of scenario 1 is absent once a court orders a party to remove an appropriation from its petition. The 4th District also found that scenario 2 did not apply to this case either. According to the appellate court, the trial court must dismiss the entire matter because the appropriations are not necessary or not for public use. Because that did not happen in this case, the 4th District determined that Defendants cannot recover costs under scenario 2.
Under scenario 3, however, the 4th District did find that Defendants were entitled to costs for defending against the distribution line rights in Plaintiff’s petition. In this scenario, an agency can bring appropriation proceedings for various parcels, property rights, or other property interests. Understanding that different rights can be disputed, the appellate court found that if a court determines an agency is not entitled to appropriate “particular property”, or in other words take a particular property interest, then the agency must reimburse the landowner for its costs and fees associated with defending that property interest. The 4th District determined that because the trial court ordered the Plaintiff to remove the distribution line rights from its petition, the trial court determined that the Plaintiff is not entitled to appropriate the “particular property” – or in this case, the distribution line rights. Therefore, the 4th District determined that Plaintiff must be ordered to pay Defendants for the costs associated with defending against the distribution line rights.
Although this ruling doesn’t dramatically change Ohio law, it helps clarify the requirements and procedures that must be followed when a state agency petitions for an appropriation. This ruling will be closely reviewed by public utility companies and other state agencies to ensure that they have all the required approvals before filing any petition for future appropriations. View the 4th District’s opinion for more details.
Written by Zach Ishee, J.D. Candidate '23, University of Mississippi, Research Fellow, National Agricultural Law Center
Zach has been working with OSU's Agricultural and Resource Law Program thanks to our partnership with the National Agricultural Law Center.
A major piece of environmental legislation currently making waves is the Growing Climate Solutions Act (GCSA), S. 1251. The GCSA passed through the Senate with overwhelming bipartisan support, by a final tally of 92-8. The bill sponsored by Senator Mike Braun (R-IN) had 27 Democratic co-sponsors, 26 Republican co-sponsors, and one independent co-sponsor. Although it has been criticized by some for not doing enough, the final vote shows a willingness by this Senate to grapple with the issues surrounding the environment and the climate.
Purpose of the Growing Climate Solutions Act
The goal of the GCSA is to ease the burden on farmers, ranchers, and foresters entering the voluntary carbon markets through the creation of the Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Certification program. The program’s efforts will be focused on removing the technical barriers of entry into the marketplace. The program calls for certification of certain entities to improve accurate information flow to farmers, ranchers, and foresters.
Timeline and Advisory Council
The Agriculture Secretary will have eight months from the bill’s passage to create the Greenhouse Gas Technical Assistance Provider and Third-Party Verifier Certification program. If the Secretary decides against the program, he must publish a detailed explanation of why he has decided against the program.
An advisory council will be established to help the USDA create protocols for calculating, sampling, accounting, verification and reporting methodologies. The advisory council will be comprised of United States Department of Agriculture (USDA) representatives, Environmental Protection Agency (EPA) representatives, and agriculture industry representatives, among other qualified participants. The council must have at least twelve members from the agriculture industry and at least six active farmers or ranchers. The council is also required to have at least four members from the forestry industry. Other groups of participants are capped between two and four members but include members from the scientific research community, members of the private sector who deal in voluntary credits, and experts/professionals in the verification field. In total, over half of those serving on the council will be farmers, ranchers, and private forest owners.
Once the protocols have been created, the USDA must provide information for how entities self-certify and instructions on how to assist the farmers, ranchers, and private forest owners. The bill will require the creation of a website exclusively dedicated to assisting the potential market participants on best practices.
The certification granted by the USDA will allow an approved entity to claim they are a “USDA-certified technical assistance provider or third-party verifier for voluntary environmental credit markets”. Other entities, not approved by the USDA, that claim this certification or something substantially similar are subject to a monetary fine of $1,000 and become ineligible to participate in the program for five years. The certified entities will be audited at least annually to ensure compliance with USDA guidelines.
The GCSA will receive $1 million in funding from 2022-20226 along with $4.1 million rescinded from the American Rescue Act of 2021. This relatively small amount of new funding is likely one of the reasons for such strong bipartisan support for this bill.
Although this bill is a welcome start to addressing climate issues through agriculture participants, a few large questions remain. The bill does nothing to address some of the main concerns that industry experts have, for example the bill does not directly mention farmer data. Of course, data is an extreme concern for the participants in voluntary credit markets because of how much data must be turned over prior to verification of their created credits. It seems the advisory council will certainly address this issue, among others, but this bill does not create certainty with respect to data. It will be extremely important to keep track of the recommendations made by the advisory council and the USDA’s final decision on best practices as they will set the standard for voluntary credit markets moving forward.
Multiple organizations have come out in opposition of this bill. Family Farm Action has criticized the GCSA for playing into the hands of the major agribusinesses, stating “Without strong, preemptive antitrust protections, a carbon credit program would pay these agribusinesses for their pollution, compounding the already-substantial challenges they pose to the food system and the planet.” Senator Jeff Merkley (D-Ore) has also vocalized his reasoning for being part of the minority voting against the bill saying, “I don’t believe that an offset system that subsidizes corporations’ continued pollution in front-line communities is the best strategy. Let’s set incentives that reduce pollution in both agriculture and front-line neighborhoods.” The opposition to this bill has almost completely been in the camp that the bill does not do enough, rather than outright opposition against the overarching theme of combating climate change.
On the other hand, support for the GCSA has been easy to find. Kameran Onley, the Director of North American Policy and Government Relations for The Nature Conservancy has come out in support for the bill stating, “American farmers know that sustainability and profitability go hand in hand. This bill will help farmers improve their operations, build new revenue streams, and implement climate-smart practices to safeguard our environment for the future.” American Farm Bureau Federation President Zippy Duvall thanked lawmakers for the bipartisanship and further said, “The Growing Climate Solutions Act acknowledges the potential of climate-smart farming while ensuring farmers would be respected as partners who can build on our strong foundation of environmental stewardship." The support for the bill has been focused on the Senate’s ability to work across the aisle to begin structuring a unified approach towards carbon credit markets.
Clearly the bill still awaits a vote in the House of Representatives to make it to the President’s desk to become law. Although no timeline exists for a house vote at this point, good reason exists to believe it could make its way through the House quickly. As of right now a companion bill exists in the house, H.R. 2820, which goes by the same name, Growing Climate Solutions Act. The companion bill is substantially the same as the Senate bill, calling for the same advisory council and certification process. The House bill is sponsored by Rep. Abigail Davis Spanberger (D-VA-7) and co-sponsored by 33 Democrats and 19 Republicans, which is only further proof of the bipartisanship seen in the climate arena. The latest action on the House version of the Growing Climate Solutions Act was its referral to the House Committee on Agriculture April 22nd of this year. The Senate bill was received and held at desk in the House as of June 24th of this year. Although the House Agriculture Committee has yet to schedule a markup if the legislation, the bipartisan Problem Solvers Caucus has endorsed the bill.
Barry Ward, Leader, Production Business Management, Director, OSU Income Tax Schools
Ohio cropland varies significantly in its production capabilities and, consequently, cropland values and cash rents vary widely throughout the state. Generally, western Ohio cropland values and cash rents differ from much of southern and eastern Ohio cropland values and cash rents. The primary factors affecting these values and rents are land productivity and potential crop return, and the variability of those crop returns. Soils, fertility and drainage/irrigation capabilities are primary factors that most influence land productivity, crop return and variability of those crop returns.
Other factors impacting land values and cash rents may include field size and shape, field accessibility, market access, local market prices, field perimeter characteristics and potential for wildlife damage, buildings and grain storage, previous tillage system and crops, tolerant/resistant weed populations, USDA Program Yields, population density, and competition for the cropland in a region. Factors specific to cash rental rates may include services provided by the operator and specific conditions of the lease.
The Western Ohio Cropland Values and Cash Rents study was conducted from January through April in 2021. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were rural appraisers, agricultural lenders, professional farm managers, ag business professionals, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel.
The study results are based on 94 surveys. Respondents were asked to group their estimates based on three land quality classes: average, top, and poor. Within each land-quality class, respondents were asked to estimate average corn and soybean yields for a five-year period based on typical farming practices. Survey respondents were also asked to estimate current bare cropland values and cash rents negotiated in the current or recent year for each land-quality class. Survey results are summarized for western Ohio with regional summaries (subsets of western Ohio) for northwest Ohio and southwest Ohio.
According to the Western Ohio Cropland Values and Cash Rents Survey, cropland values in western Ohio are expected to increase in 2021 by 3.8 to 5.3 percent depending on the region and land class. Cash rents are expected to increase from 3.6 to 3.9 percent depending on the region and land class.
For the complete survey research summary go to:
"Farm Office Live" returns August 27, 2021, at 10:00 AM with special appearances by Ben Brown and attorney Robert Moore! Tune in to get the latest outlook and updates on ag law, farm management, ag economics, farm business analysis, and other related issues. Targeted to farmers and agri-business stakeholders, our specialists digest the latest news and issues and present it in an easy-to-understand format.
Ben Brown - A former member of the OSU Farm Office Team, Ben's areas of expertise include farm management, commodity markets, and agricultural policy.
Robert Moore, Esq. - A former OSU Extension employee, Robert now practices agricultural law at Wright & Moore, with a focus on farm succession planning, estate planning, and business planning.
Tax Planning in the Midst of Uncertainty - Robert Moore, Esq.
Ohio Cropland Values & Cash Rents
FSA Program Update
Grain Marketing Update - Ben Brown
To register or to view a previous "Farm Office Live," please visit https://go.osu.edu/farmofficelive. You will receive a reminder with your personal link to join each month.
The Farm Office is a one-stop shop for navigating the legal and economic challenges of agricultural production. For more information visit https://farmoffice.osu.edu or contact Julie Strawser at email@example.com or call 614.292.2433
Did you know that the “wise old owl” saying is a myth? Generally speaking, owls are no wiser than other birds of prey. In fact, other bird species like crows and parrots have shown greater cognitive abilities than the owl. An owl’s anatomy also helps dispel the myth because most of the space on an owl’s head is occupied by their large eyes, leaving little room for a brain.
This week’s Ag Law Harvest brings you EPA bans, Ohio case law, USDA announcements, and federal case law which could make your head spin almost as far as an owl’s.
EPA banning use of chlorpyrifos on food crops. The EPA announced that it will stop the use of the pesticide chlorpyrifos on all food to better protect producers and consumers. In its final rule released on Wednesday, the EPA is revoking all “tolerances” for chlorpyrifos. Additionally, the EPA will issue a Notice of Intent to Cancel under the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) to cancel all registered food uses of chlorpyrifos. Chlorpyrifos is an insecticide used for a variety of agricultural uses, including soybeans, fruit and nut trees, broccoli, cauliflower, and other row crops, in addition to non-food uses. The EPA’s announcement comes in response to the Ninth Circuit’s order directing the EPA to issue a final rule in response to a petition filed by opponents to the use of chlorpyrifos. The petition requested that the EPA revoke all chlorpyrifos tolerances because those tolerances were not safe, particularly because of the potential negative effects the insecticide has on children. For more information about chlorpyrifos and the EPA’s final rule, visit the EPA’s website.
Trusts aren’t to be used as shields. An Ohio appeals court recently reinforced the concept that under Ohio law, trusts are not be used as a way to shield a person’s assets from creditors. Recently, a plaintiff filed a lawsuit against a bank alleging breach of contract and conversion, among other things. Plaintiff, an attorney and real estate developer, claimed that the bank removed money from his personal account and a trust account in violation of Ohio law and the terms of the loan agreement between the parties. Prior to the lawsuit, plaintiff established a revocable trust for estate planning purposes and to acquire and develop real estate. This dispute arose from a $200,000 loan from the bank to the plaintiff to help establish a restaurant. A provision of the loan agreement, known as the “Right to Setoff” provision, allowed the bank to “setoff” or effectively garnish all accounts the plaintiff had with the bank. The setoff provision explicitly prohibited any setoff from any IRA or trust accounts “for which setoff would be prohibited by law.” Plaintiff made all monthly payments but failed to make the final balloon payment on the loan. Plaintiff argued that the bank broke the loan contract and violated Ohio law by taking funds from the trust account to pay off the remaining balance of the loan. The court disagreed. The court noted that under Ohio law, a settlor’s property in a revocable trust is subject to the claims of the settlor’s creditors. A settlor is a person who creates or contributes property to a trust. In this case, plaintiff was the creator, settlor, and sole beneficiary of the revocable trust. Because of that, the court concluded the bank did not violate Ohio law when using the trust account to setoff the balance of the loan. Additionally, the court found that the bank did not violate the terms of the loan agreement because a setoff from the trust account was not prohibited by law. The court noted that Ohio law did not intend to allow a settlor who is also a beneficiary of the trust to use a trust as a “shield” against creditors. Although trusts can be a useful estate planning tool, there are limits to what a trust can do, as evidenced by this case.
Renewable fuel supporters file appeal on E15 summer sales. Corn farmers have joined forces with the biofuel industry (“Petitioners”) to ask the D.C. Circuit Court of Appeals for a new hearing on a ruling that struck down the EPA’s 2019 decision to allow year-round E15 sales. Earlier this year, the same D.C. Circuit Court of Appeals issued an opinion that ruled the legislative text in the law supporting the biofuel mandate does not support the Trump administration’s regulatory waiver that allowed E15 to be sold during the summer months. In their petition, Petitioners argue that the D.C. Circuit Court made “significant legal errors.” Petitioners contend that the court should rehear the case because the intent behind the nation’s biofuel mandate is better served by the sale of E15 through the summer months because it is less volatile, has less evaporative emissions, and is overall better for the environment than other fuel sources. Petitioners also believe the court’s original decision deprives American drivers the choice of lower carbon emitting options at the gas pump.
Monsanto asks Supreme Court to review Ninth Circuit’s Roundup Decision. In its petition to the Supreme Court of the United States Monsanto Company (“Monsanto”) asked the Supreme Court to review the $25 million decision rendered by the Ninth Circuit Court of Appeals. In that decision, the Ninth Circuit held that the Federal Insecticide Fungicide and Rodenticide Act (“FIFRA”) did not preempt, or otherwise prevent, the plaintiff from raising California failure-to-warn claims on Roundup products and allowed plaintiff to introduce expert testimony that glyphosate causes cancer in humans. In trial, the plaintiff argued that Monsanto violated California’s labeling requirements by not including a warning on the Roundup label that glyphosate, which is found in Roundup, causes cancer. Monsanto argues that FIFRA expressly preempts any state law that imposes a different labeling or packaging requirement. Under FIFRA, Monsanto argues that the EPA did not require Monsanto to include a cancer warning on its Roundup label. Therefore, Monsanto maintains, that because California law differed from FIFRA, Monsanto was not required to follow California law when it came to labeling its Roundup product. Secondly, the Ninth Circuit allowed plaintiff to present expert evidence that glyphosate could cause non-Hodgkin’s lymphoma in the general public and that glyphosate caused the plaintiff’s lymphoma. Monsanto contends that the lower courts have distorted established precedent by allowing the expert testimony because the testimony is not based on generally accepted scientific principles and the scientific community has consistently found that glyphosate does not cause cancer in humans.
USDA working to protect nation’s dairy industry. The USDA’s Agricultural Marketing Service (“AMS”) has struck a deal with the European Union (“EU”) to satisfy the EU’s new import requirements on U.S. dairy. The EU will require new health certificates for U.S. dairy products exported to the EU to verify that the U.S. milk used for products exported to the EU is sourced from establishments regulated under the Grade “A” Pasteurized Milk Ordinance or the USDA AMS Milk for Manufacturing Purposes. Officials representing the U.S. Dairy Export Council and International Dairy Foods Association claim that the deal will allow U.S. producers to comply with the EU’s mandates while also satisfying the concerns within the American dairy industry. The deal pushes back the EU’s deadline for new health certificates to January 15, 2022, to allow U.S. producers and exporters enough time to bring their products into compliance. The USDA also announcedthat it is providing around $350 million to compensate dairy producers who lost revenue because of market disruptions due to the COVID-19 pandemic and a change to the federal pricing formula under the 2018 farm bill. Additional details are available at the AMS Dairy Program website.
Tale as old as time. An Ohio appeals court recently decided a dispute between neighbors about a driveway easement. The driveway in dispute is shared by both neighbors to access their detached garages. Defendants used the driveway to access their garage and then the driveway extends past the Defendants’ garage onto Plaintiff’s property and ends at Plaintiff’s garage. The dispute arose after Defendants built a parking pad behind their garage and used parts of the driveway they never used before to access the parking pad. The original easement to the driveway was granted by very broad and general language in a 1918 deed, when the property was divided into two separate parcels. In 1997, a Perpetual Easement and Maintenance Agreement (“Agreement”) was entered into by the two previous property owners. The Agreement was much more specific than the 1918 deed and specifically showed how far the easement ran and what portions of the driveway could be used by both parties. The 1997 Agreement did not allow for Defendants to use the portion of the driveway necessary to access their parking pad. Plaintiffs argue that the 1997 Agreement controls the extent of the easement, whereas Defendants argue that the broad general language in the 1918 deed grants them authority to use the whole length of the driveway. The Court found the more specific 1997 Agreement to be controlling and ruled in favor of the Plaintiffs. The Court reasoned that the 1918 deed creates an ambiguity as to the extent of the easement and there is no way of knowing what the original driveway looked like or how it was used. The Court concluded that the 1997 Agreement does not contradict or invalidate the 1918 deed, rather the 1997 Agreement puts specific parameters on the existing easement and does not violate any Ohio law. The Defendants were found liable for trespass onto the Plaintiffs’ property and is expected to pay $27,500 in damages. The lesson to be learned from all of this? Make sure your easements are as specific and detailed as possible to ensure that all parties are in compliance with the law.
Agricultural workers are usually categorized in two ways. They are either an “employee” or an “independent contractor.” Depending on how an agricultural worker is labeled determines the duties and liabilities of the agricultural employer.
Generally speaking, if an ag employer has the right to control the work of an ag worker, then the ag worker is probably an employee. This means that the ag employer must abide by a whole host of federal and state laws that relate to labor and employment and can be found liable for any damages caused by their employees under the doctrine of vicarious liability. Vicarious liability is a legal doctrine that may hold an employer responsible for the actions of an employee -- so long as the employee was acting in the ordinary course of business. A good example of the vicarious liability doctrine in action is when a court decides to hold a farmer and/or farm business responsible for any spray drift damages resulting from an employee’s application of herbicide.
On the other hand, ag employers that use independent contractors are usually not liable for any damages that result from the actions of an independent contractor. This obviously makes the use of independent contractors very appealing but comes at a higher cost than using an employee to do the work.
Simple enough right? Be careful with employees and spray drift or use independent contractors and be worry free. Not really. Although a big concern for ag employers are the liability issues that stem from employees’ actions, having employees requires ag employers to fulfill multiple obligations under state and federal labor and employment laws, obligations that otherwise would not exist if an ag employer used an independent contractor to complete the work. Those obligations can include wages, overtime pay, hour restrictions, migrant and seasonal worker protections, tax concerns, and others. So, you see, labeling a worker as an employee or independent contractor goes far beyond just preventing a lawsuit against the ag employer.
Ag employers often think they are using independent contractors to complete work around the farm. But innocently, the ag employer may actually be using an employee to complete work around the farm and is probably violating federal and state law and exposing itself to fines and lawsuits. An ag employer must be careful when determining who is an employee and who is an independent contractor when looking for help on the farm. Below is a brief summary of Ohio and federal law that determine when an ag worker is an employee and when an ag worker is an independent contractor.
How do I determine who is an employee and who is an independent contractor?
The simple answer to that is, it depends. Different tests are used at the federal level and in Ohio. However, one thing that all these tests have in common is the ag employer’s right to control the work being done. This means that if an ag employer can direct, monitor, correct, or otherwise control how the work is being done, then the ag worker is likely an employee. Even if an ag employer never exerts or directly controls how the work is being done, courts only care that the ag employer has or had the ability to do so.
What are the tests to determine if a worker is an employee or independent contractor?
The Economic Realities Test. The Fair Labor Standards Act (“FLSA”) is the federal law that governs minimum wage, overtime pay, recordkeeping, and youth employment standards. “Employee” is defined very broadly under the FLSA and more often than not, a worker is found to be an employee rather than an independent contractor. To help determine who is an employee and who is an independent contractor, the FLSA uses an Economic Realities Test. The Economic Realities Test looks at the reality of the economic relationship between the parties and if a worker is more reliant on the employer for economic gain and security, then the worker is more likely an employee. Factors under this test include:
- The degree of control that an employer can exert over the worker and the work being performed.
- Whether the work being performed is an integral part of the employer’s business.
- The permanency of the relationship.
- The amount of the worker’s investment in facilities and equipment.
- The worker’s opportunities for profit and loss.
- The amount of initiative, judgment, foresight, and skill required for the worker’s success.
The Internal Revenue Service (“IRS”) Standard. The IRS has a separate test to help taxpayers determine whether an individual should be considered an employee or independent contractor for tax purposes. The IRS analyzes three areas – behavioral control, financial control, and the relationship of the parties.
- Behavioral Control – a worker is an employee when the business has the right to direct and control the work performed. Factors include: (a) the type of instructions given; (b) degree of instruction given; (c) evaluation of work done; and (d) training.
- Financial Control – If a business has the right to direct or control the financial and business aspects of the worker’s job, then the worker is likely in employee. A major factor is how the worker is paid. Employees are guaranteed regular pay whereas independent contractors are paid by the job.
- Relationship of parties – the IRS takes into consideration what the parties think their relationship is. The IRS will look at written contracts, whether any benefits are offered, the length and permanency of the relationship, and whether the worker is performing work that is an integral part of the business of the employer.
Ohio’s standard. Ohio uses two separate, yet very similar tests to determine employee or independent contractor status. For wage and hour purposes, Ohio uses the Economic Realities Test that is used by the FLSA.
However, for workers’ compensation, unemployment insurance, and Ohio’s vicarious liability law, Ohio uses a “right to control” test. Under Ohio’s “right to control” test courts consider the following factors:
- Whether the worker is engaged in a distinct occupation or business;
- Whether the worker or the employer supplies the place and tools to complete the work;
- Whether the work is done by a specialist requiring a particular skill;
- How the worker is paid;
- The length of time a worker is employed;
- Whether the work performed is part of the regular business of the employer;
- Whether the employer controls the details and quality of the work to be performed; and
- The terms of any agreements or contracts between the parties.
Why is determining who is an employee and independent contractor important?
First and foremost, determining who is and is not an employee defines an ag employer’s obligations under the law. If an ag employer has employees, then the ag employer must abide by federal and state wage, hour, antidiscrimination, unemployment insurance, workers compensation, and safety laws. Those same obligations do not arise when using an independent contractor.
Secondly, misclassifying a worker as an independent contractor when they are actually an employee can lead to severe legal fines and penalties. Some of the consequences for incorrectly classifying a worker could include:
- Lawsuits for unpaid wages;
- Fines for failing to comply with federal and Ohio antidiscrimination laws;
- Discrimination and wrongful termination claims;
- Lawsuits for the negligence or other civil wrongs of the worker; and
- Fines for failing to maintain Ohio Workers’ Compensation Insurance and Unemployment Insurance.
Conclusion. Determining who is and isn’t an employee defines an ag employer’s legal obligations, so it is always important to ensure that whenever someone is doing work for you, you categorize them correctly. If you have any doubts, it’s always best to air on the side of caution and treat a worker as an employee. If you should have any questions contact your attorney to help you determine what your legal obligations are as an employer, it can save you time, money, and stress.
To learn more about distinguishing between an employee and an independent contractor visit:
I recall sharing my concern with a professor when I was in law school: how will I ever know all the answers to legal questions? No worries, he said. You can’t know the answer to every legal question, but you do need to know how to find the answers. I think of that advice often as legal questions come across my desk.
We’ve had a steady stream of them this summer, and the questions provide a snapshot of what’s going on around the state. Here’s a sampling of questions we’ve received recently, complete with our answers—some we knew and some we had to find.
What do you know about the $500 million to be set aside at USDA for meat processors—who will administer it and what is the timeline? USDA published a notice on July 16, 2021 titled “Investments and Opportunities for Meat and Poultry Processing Infrastructure” seeking input on how to allocate the funds. The notice solicits comments on how to address challenges and increase competition in meat and poultry processing through the $500 million in infrastructure and other investments. USDA is looking at current programs, combinations of programs, and potential programs that can leverage the funds to expand and diversify meat and poultry processing capacity and make the supply chain more resilient. A review of the questions USDA raised in the notice gives a good indication of the types of programs we might see, and administration of the programs could be at both the federal and state levels. The comments are due by August 30, 2021 and USDA will review them before moving forward. It will be at least several months before decisions are made and the funds are available.
If I enroll my land in the Wetlands Reserve Program, does the land still qualify for Current Agricultural Use Valuation tax treatment? Yes. Ohio’s CAUV law allows eligible land to be assessed as agricultural land for property taxation under the CAUV formula. Eligible land is “land devoted exclusively to agricultural use.” The definition of that term is important, and the relevant section that places wetlands and other conservation practices within that definition is ORC 5713.30(A)(1(c), which states that "land devoted exclusively to agricultural use" include tracts, lots, or parcels of land with at least ten acres which “were devoted to and qualified for payments or other compensation under a land retirement or conservation program under an agreement with an agency of the federal government.” According to court cases in Ohio, wetlands enrolled in federal conservation programs fit within this term and should qualify for CAUV treatment, even wetlands used as a mitigation bank. An Ohio Attorney General opinion disagrees that a wetlands mitigation bank is a government conservation program, but that is an advisory rather than binding opinion and a mitigation bank is not the same as the federal Wetlands Reserve Program.
Are there any special requirements for a cottage food producer for selling “gluten free” or “vegan” products? Yes. You need to ensure that you meet federal regulations to use “gluten free” terminology on your cottage food label. There isn’t a label review and approval process for using the language, though, as it’s “self-policing.” You must be sure that your product does not include any gluten containing ingredients. And because low levels of gluten could result from cross contamination in your kitchen, your product must be below the tolerance level of 20 ppm of gluten. There isn’t a testing requirement to prove that you’re under 20 ppm before you sell it, but if for some reason someone challenged your product or ODA randomly sampled it, it must meet the 20 ppm standard. You can have your food lab tested if you want to have that assurance. Otherwise, you should carefully manage your kitchen to reduce cross contamination. The FDA provides the gluten free labeling rule on its website and has a helpful FAQ page also. FDA has said it will be updating the gluten free rule, but I haven’t seen anything new yet.
Vegan labeling is a lesser regulatory concern. If you use that or related terms like “animal free” on your product, federal law requires that you be “truthful and not misleading” to the consumer. There isn’t a federal or state definition of “vegan” to help with that determination, but the agencies explain the term basically as not containing any animal products. Your ingredient list should confirm any vegan or animal free claims on the product.
Are there regulations pertaining to online sales of perennial plants? Yes. The seller must obtain a nursery license from the Ohio Department of Agriculture. The type of license will depend on their type of sales. A phytosanitary certificate might also be required by the importing states where their sales will take place; ODA also handles those certificates. Additionally, the seller will need to obtain a vendor’s license from the Department of Taxation to collect and submit sales tax on the plant sales.
Does a “Scenic River” designation by the Ohio Department of Natural Resources allow the agency to take my property that’s along the river? No. The language in the Scenic Rivers statute is misleading, as it states that “the area shall include lands adjacent to the watercourse in sufficient width to preserve, protect, and develop the natural character of the watercourse, but shall not include any lands more than one thousand feet from the normal waterlines of the watercourse unless an additional width is necessary to preserve water conservation, scenic, fish, wildlife, historic, or outdoor recreation values.” Without reading the entire statute, it does sound as though ODNR could be laying some type of claim to up to 1,000 feet of the lands adjacent to the river. However, further along in the statute is this language that prohibits the agency from having any authority over the private land: “Declaration by the director that an area is a wild, scenic, or recreational river area does not authorize the director or any governmental agency or political subdivision to restrict the use of land by the owner thereof or any person acting under the landowner's authority or to enter upon the land and does not expand or abridge the regulatory authority of any governmental agency or political subdivision over the area.” The designation is a declaration, and not a land claim, transfer of rights, or a taking. Additionally, my further research indicates that ODNR has never used eminent domain to take private property along a scenic river, nor does it have funding allocated from the legislature to purchase scenic river lands.
Do I need a license to make and sell egg noodles from the farm? Yes. Egg noodles don’t fall under Ohio’s Cottage Food Law, which allows you to make and sell certain low-risk “cottage foods” with little regulation or licensing requirements. Instead, producing egg noodles for sale from a home kitchen requires a home bakery registration. You obtain the registration from the Ohio Department of Agriculture’s Food Safety Division. It requires that you submit a request for inspection form, pass an inspection of the home, and submit a $10 fee. The inspection will confirm that walls, ceilings and floors are clean, easily cleanable and in good repair; the kitchen does not have carpeted floors; there are no pets or pests in the home; the kitchen, equipment and utensils are maintained in a sanitary condition; the kitchen has a mechanical refrigerator capable of maintaining 45 degrees and equipped with a thermometer; if the home has a private well, proof of a well test completed within the past year showing a negative test result for coliform bacteria; the food label meets labeling requirements.
Is raising and training dogs considered “animal husbandry” for purposes of d the agricultural exemption from township zoning authority? Yes. The Ohio Supreme Court held in Harris v. Rootstown Twp. that “the raising and care of dogs constitutes animal husbandry and is included in the term “agriculture” within the meaning of R.C. 519.01.” This means that the agricultural exemption in Ohio Revised Code 519.21 applies to raising and caring for dogs, and township zoning can’t prohibit the use of any lot over five acres for those purposes. The township would have limited regulatory authority over dog raising on smaller lots in some situations, though. There is often confusion among townships over how to classify dogs, and that may be because they differ from what we typically think of as “farm animals.” But the Rootstown Twp. case, along with many other appellate level cases in Ohio, confirm that dogs are to be treated the same as “livestock” for purposes of the agricultural exemption from zoning.
Can both landowners be assessed half the cost of removal of noxious weeds that are growing in a partition fence? Maybe. The Ohio line fence law does allow a township to step in and clear the fence row of noxious weeds, brush, briers and similar vegetation if a complaint is filed by one landowner against an adjacent landowner who refuses to clear the weeds. The costs for doing so are assessed back on the refusing landowner whose fence row was cleared. If the noxious weeds arise from both sides of the fence, are growing in the fence, and must be cleared from both sides of the fence, the township trustees would have the authority to assess the costs of removal back on both landowners. I’ve never heard of that happening, but it’s certainly one of those “be careful what you wish for” situations.
Did you know that elephants can’t jump? In fact, it’s impossible for elephants to jump because, unlike most mammals, the bones in an elephant’s leg are all pointed downwards, which eliminates the “spring” required to push off the ground.
Unlike elephants, we have jumped all over the place to bring you this week’s Ag Law Harvest. Below you will find agricultural and resource law issues that include, among other things, conspiracy, preemption, succession planning support, ag spending and disaster relief, and Ohio’s broadband and salmon expansion.
Poultry price fixing conspiracy. According to a press release from the Department of Justice (“DOJ”) a federal grand jury has decided to indict Koch Foods and four former executives of Pilgrim’s Pride for allegedly engaging in a nationwide conspiracy to fix prices and rig bids for broiler chicken products. These indictments combine to make a total of 14 individuals charged in the conspiracy that allegedly started in 2012 and lasted until 2019. The indictments allege that the defendants and co-conspirators conspired to suppress and eliminate competition for sales of broiler chicken products sold to grocers and restaurants. The DOJ reiterated its commitment to prosecuting price fixing and antitrust violations. These indictments come on the heels of President Biden’s Executive Order seeking to promote competition within the American Economy, which focused heavily on the agriculture industry. In addition to Koch Foods, additional companies have been indicted in the conspiracy. So far, Claxton Poultry and Pilgrim’s Pride have both been indicted in the conspiracy with Pilgrim’s Pride agreeing to pay a $107 million fine. Koch Foods denies any involvement in the price fixing scheme.
FIFRA giving Monsanto a little relief. About a week before the trial of another lawsuit against the Monsanto Company (“Monsanto”) and its Roundup products, a California judge dismissed some of the claims filed by the plaintiff. According to the judge, some of the claims asserted by the plaintiff were preempted by the Federal Insecticide, Fungicide, and Rodenticide Act (“FIFRA”) and therefore could not be pursued. The plaintiff claimed that Monsanto had a state-law duty to warn that Roundup causes cancer. The judge noted that under FIFRA, a state cannot impose or continue to impose any requirement that is “in addition to or different from” those required by FIFRA. At the time, federal regulations did not require Monsanto to place a cancer warning on its Roundup products. The judge reasoned that since federal law is supreme (i.e. preempts state law) California cannot impose a state-law duty on Monsanto to warn that Roundup causes cancer. The judge, therefore, found that the plaintiff cannot pursue her claims against Monsanto for failure to warn under California law. This ruling is in contrast to a recent 9th Circuit Court of Appeals decision which concluded that the failure to warn claims brought by the plaintiff in that suit were not preempted by FIFRA. Plaintiff has time to appeal the judge’s decision, even beyond the start of the trial and could rely on the 9th Circuit’s opinion to help her argue that her claims should not have been dismissed.
Competitive loans now available for land ownership issues and succession planning. The USDA announced that it will be providing $67 million in competitive loans through the new Heirs’ Property Relending Program (“HPRP”). The HPRP seeks to help agricultural producers and landowners resolve land ownership and succession issues. Lenders can apply for loans up to $5 million at 1% interest through the Farm Service Agency (“FSA”) once the two-month signup window opens in late August. Once the lenders are selected, heirs can apply to those lenders for assistance. Heirs may use the loans to resolve title issues by financing the purchase or consolidation of property interests and for costs associated with a succession plan. These costs can include buying out fractional interests of other heirs, closing costs, appraisals, title searches, surveys, preparing documents, other legal services. Lenders will only make loans to heirs who: (1) look to resolve ownership and succession of a farm owned by multiple owners; (2) are a family member or heir-at-law related by blood or marriage to the previous owner; and (3) agree to complete a succession plan. The USDA has stated that more information on how heirs can borrow from lenders under the HPRP will be available in the coming months. For more information on HPRP visit https://www.farmers.gov/heirs/relending.
House Ag Committee approves disaster relief bill. The House Agriculture Committee approved an $8.5 billion disaster relief bill to extend the Wildfire and Hurricane Indemnity Program (“WHIP”). The bill, known as the 2020 WHIP+ Reauthorization Act, provides relief for producers for 2020 and 2021 related to losses from the ongoing drought in the western half of the United States, the polar vortex that hit Texas earlier this year, wildfires that tainted California wine grapes with smoke, and power outages, like the one seen during the polar vortex in Texas, which caused dairy farmers to dump milk. The bill makes it easier for farmers to recover for losses related to drought, now only requiring a D2 (severe) designation for eight consecutive weeks as well as allowing disaster relief payments for losses related to power outages that result from a qualified disaster event. With the Committee’s approval the bill makes its way to the house floor for a debate/vote. Whether it’s a standalone bill or a bill that is incorporated into an appropriations bill or a year-end spending measure remains to be seen.
Senate Appropriations Committee approves ag spending bill. The Senate Appropriations Committee voted in favor of a fiscal year 2022 spending bill for the USDA and FDA that includes about $7 billion in disaster relief and $700 million for rural broadband expansion. The Committee approved $25.9 billion for the FY2022 ag spending bill, which is an increase of $2.46 billion from the current year. In addition to disaster relief funds and rural broadband, the bill increases research funding to the USDA, increass funding for conservation and climate smart agricultural practices, and increases funding for rural development including infrastructure such as water and sewer systems and an increase in funding to transition rural America to renewable energy. The ag spending bill is now set for debate and vote by the full Senate.
Ohio to be the second site for AquaBounty’s genetically engineered salmon. Land-based aquaculture company AquaBounty has selected Pioneer, Ohio as the location for its large-scale farm for AquaBounty’s genetically engineered salmon. The new farm will be AquaBounty’s first large-scale commercial facility and expects to bring over 100 jobs to northwestern Ohio. According to AquaBounty’s press release, the plan for the new farm is still contingent on approval of state and local economic incentives. Ohio is still finalizing a package of economic incentives for the new location and AquaBounty hopes to begin construction on the new facility by the end of the year. AquaBounty has modified a single part of the salmon’s DNA that causes them to grow faster in early development. It raises its fish in what it calls “Recirculating Aquaculture Systems,” which are indoor facilities that are designed to prevent disease and protect wild fish populations. According to AquaBounty, its production methods offer a reduced carbon footprint and no risk of pollution of marine ecosystems as compared to traditional salmon farming. AquaBounty anticipates commercial production to begin in 2023.
DeWine orders adoption of emergency rules to speed up the deployment of broadband in Ohio. Governor Mike DeWine signed an executive order which will help speed up the launch of the Ohio Residential Broadband Expansion Grant Program (the “Program”) which was recently signed into law by Governor DeWine. The Program is Ohio’s first-ever residential broadband expansion program which grants the Broadband Program Expansion Authority the power to review and award Program grant money for eligible projects. The Program requires a weighted scoring system to evaluate and select applications for Program grants. Applications must be prioritized for unserved areas and areas located within distressed areas as defined under the Urban and Rural Initiative Grant Program. The Program hopes to provide high-speed internet to Ohio residences that do not currently have access to such services. With DeWine’s executive order, the Program can start immediately rather than waiting until the lengthy administrative rule making process is complete. Normally, rules by a state agency must go through a long, drawn out process to ensure the public has had its input on any proposed rules and those affected the most can challenge or argue to amend the rules. However, the Governor does have the ability to suspend the normal rule making process when an emergency exists requiring the immediate adoption of rules. According to Governor DeWine’s executive order, the COVID-19 pandemic, the increase in telework, remote learning, and telehealth services have created an emergency that allows DeWine to suspend the normal rule making process to allow the Program to be enacted without delay. Although emergency rules are in place, they are only valid for 120 days. New, permanent rules must be enacted through the normal rule making procedure.
“Carbon farming” is a term that came and went about a decade ago, but it’s back and gaining traction. Ohio farmers now have opportunities to engage in the carbon farming market and receive payments for generating “carbon credits” through farming practices that reduce carbon emissions or capture atmospheric carbon. As with any emerging market, there are many uncertainties about the carbon market that require a cautious approach. And as we’d expect, there are legal issues that arise with carbon farming.
Some of those legal issues center on carbon agreements--the legal instruments that document the terms of a carbon farming relationship. Each carbon market program has its own carbon agreement, so the terms of those agreements vary from program to program. Even so, understanding the basics of this unique legal agreement is a necessity.
Here’s what we know at this point about carbon agreements and the legal issues they may raise.
New terminology. Carbon markets and carbon agreements speak a new language, containing many terms we don’t ordinarily use in the agricultural arena. The terms are not fully standardized, and their meanings may differ from one program to another. Understanding these new terms and their legal significance to the carbon agreement relationship is important. Common terms to know are below but check each program to clarify its definitions for these terms.
- Carbon practices. Farming practices that have the potential to reduce carbon emissions or sequester carbon.
- Carbon sequestration. The process of capturing and storing atmospheric carbon.
- Carbon credit. A measurable, quantifiable unit representing a reduction of carbon dioxide emissions that can be transferred from one entity to another. A credit typically represents one metric ton of “carbon dioxide equivalent, which is a metric that standardizes the global warming potential of all greenhouse gases by converting methane, nitrous oxide and fluorinated gases to the equivalent global warming potential of carbon dioxide.
- Carbon offset. Using a carbon credit generated by another entity to offset the emissions of an entity that emits carbon elsewhere.
- Carbon inset. A reduction of carbon within a specific supply chain that emits carbon, accomplished by adopting practices within that supply chain.
- Carbon registry. An entity that oversees the registration and verification of carbon credits and offsets.
- Verification. The process of confirming carbon reduction benefits, typically performed by a third-party that reviews the carbon practices and the accounting of carbon credits generated by the practices.
- Additionality. Carbon reduction that results from carbon practices incentivized by the carbon agreement and that would not have occurred in the absence of the incentive.
- Permanence. The longevity of a carbon reduction, which may be enhanced by a requirement that carbon practices remain in place over a long period of time and steps are taken to reduce the risk of reversal of the carbon reduction.
- Reversal risk. Risk that a carbon reduction will be reversed by future actions such as changing tillage or harvesting the trees or vegetation planted to generate the carbon reduction.
Initial eligibility criteria. Each carbon program has specific requirements for participating in the program. Two common eligibility criteria are:
- Location. The program may be open only to farmers in a particular geographic location, such as within a specified watershed, region, or state.
- Acreage. A minimum acreage requirement often exists, although that can vary from 10 acres to 1,000 or more acres. Some projects may allow adjacent landowners to aggregate to meet the minimum acreage requirement, but that can raise questions of ineligibility should one landowner leave the program.
- Land control. If the farmer doesn’t own the land on which carbon practices will occur, an initial requirement may be to offer proof that the farmer will have legal control over the land for the period of the agreement, such as a written lease agreement or certification by the tenant farmer.
Payment. While the goal of a carbon agreement is often to generate carbon credits to be traded in the carbon market, there are varied ways of paying a farmer for adopting the practices that create those credits. One is a per-acre payment for the practices adopted, with the payment amount tied to the reduction of carbon resulting from the adopted practices. Another approach incorporates the carbon market—a guaranteed payment that can increase according to market conditions. Concerns about market transparency abound here. Yet another method is to calculate the payment after verification and quantification by a third-party. For each of these different approaches, the amount could be based upon a model, actual soil sampling, or a combination of the two. Payments may be annual or every several years. Another consideration is the form of payment, which could be cash, company credits, or “cryptocurrency”—digital money that can be used for certain purposes. Also be aware that some carbon agreements prohibit “payment stacking,” or receiving payments for the same carbon practices from multiple private or public sources.
Acceptable carbon practices. Carbon practices are the foundation for generating carbon credits. An agreement might outline acceptable carbon practices a farmer must adopt as the basis for the carbon credit, such as NRCS Conservation Practices. Alternatively, an agreement might allow flexibility in determining which carbon practices to use or could state practices that are not acceptable. Typical carbon practices include planting cover crops, using no-till or reduced tillage practices, changing fertilizer use, rotating or diversifying crops, planting trees, and retiring land from production.
Additionality. Many agreements require “additionality,” which means there must be new or “additional” carbon reductions that occur because of the carbon agreement, which would not have occurred in the absence of the agreement. On the other hand, some agreements accept past carbon practices up to a certain period of time, such as within the past two years. This is a tricky term to navigate for farmers who have engaged in acceptable practices in the past. An agreement may address whether those practices count toward the generation of a carbon credit or for payment purposes.
Time periods. Two time periods might exist in an agreement. The first is the required length of time for participation in the program, which may vary from one year to ten or more years. The second relates to the concept of “permanence,” or long-term carbon reductions. To ensure permanence and reduce the risk that gains in one year could be lost by changes in the next year, the agreement may require continuation of the carbon practices for a certain time period after the agreement ends, such as five or ten years.
Verification and certification. Here’s an important question—how do we know whether the carbon practices do generate carbon reductions that translate into actual carbon credits? Verification and certification help provide an answer. But verification is a testy topic because there is uncertainty about how to identify and measure carbon reductions resulting from different practices on different soils in different settings. Predictions that are based upon models are common, but there is disagreement over appropriate and accurate methodology for the models. Some programs may also verify practices with data acquisition and on-the-ground monitoring activities and soil tests. And it’s common to require that an independent third party verify and certify the practices and carbon credits, raising additional questions of which verifiers are acceptable. A final concern: who pays the costs of verification and certification?
Data rights and ownership. The verification question naturally leads us to a host of data questions. Data is critical to understanding and verifying carbon practices, and every agreement should include data sharing and ownership provisions. What data must be shared, who has access to the data, how will data be used, and who owns the data are questions in need of clear answers in the agreement.
Legal remedies. There’s always the risk that a contract will go bad in some way, whether due to non-performance, non-payment, or disputes about performance and payment. A carbon agreement could include provisions that outline how the parties will remedy these problems. An agreement might define circumstances that constitute a breach and the actions one party may take if breach conditions occur. An agreement could also list reasons for withholding payment from a farmer; one concern is that insufficient data or proof of carbon reductions or carbon credit generation could be a basis for withholding payment. There could also be penalties for early withdrawal from the program or early termination of the agreement. It’s important to decipher any legal remedies that are contained within a carbon agreement.
We’ve heard of carbon farming before, but today it raises new uncertainties. Caution and careful consideration of a carbon agreement should address some of those uncertainties. Our list offers a starting point, but it’s not yet a complete list. As we learn more about the developing carbon farming market, we’ll continue to raise and hopefully resolve the legal issues it can present.
For more information on carbon agreements, see this listing from the Ohio Soybean Council of programs available to Ohio farmers with a side-by-side comparison of those programs, and this report on How to Grow and Sell Carbon Credits in US Agriculture from Iowa State University Extension..