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The OSU Agricultural and Resource Law Program is teaming up with Iowa State University and the National Agricultural Law Center to present a conference for farm transition planners. The conference will be in held in Des Moines on August 7-8 and will focus on issues and strategies common to farm transition planners. While the conference is geared towards attorneys and accountants working with farm clients, other professionals, such as lenders, appraisers, Extension personnel and consultants, will also find the conference useful .
Topics for the conference include:
- Lay of the Land from Long-time Farm Transition Planners
- Preserving the Family Farm in the Wake of Uncertainty
- Buy Sell Agreements – Best Practices, Tips, and Traps, Tax and Valuation Considerations
- Preparing Clients for the Transition Plan Experience
- Navigating the On-Farm, Off-Farm Issue
- Fair v. Equal Treatment of Heirs
- Charitable Options for the Transition
- Resources for the Rural Professional
- Working with Clients Who Can't Work Together
- Considering Long-Term Care Needs
- Tax Mistakes to Avoid in the Transition
- Real World Succession Planning Scenarios
For more information and to register, go to the conference registration site. An online participation option is also available.
In addition to providing educational sessions, another purpose of the conference is to create an association of farm transition professionals. This group will hold educational programs and provide support for other professionals in the farm transition planning community. The purpose of the organization is to increase the number of skilled professionals assisting farmers with the critical work of transition planning. The goal is to link conference participants with a network of colleagues for connection during the year through online meetings, webinars, newsletters, and other opportunities.
For more information or questions, contact Robert Moore (moore.301@osu.edu).
You have probably heard of revocable trusts, irrevocable trusts, and maybe even life insurance trusts but you may not be familiar with gun trusts. This specialty trust is sometimes used to hold and pass along restricted firearms to heirs. Gun trusts are only useful to a small number of people who own restricted firearms, but for those people, gun trusts can be a good solution to some of the challenges of owning restricted firearms.
Gun trusts typically hold firearms that are commonly known as NFA firearms, named after the National Firearms Act and the Gun Control Act of 1968. Every NFA firearm has a serial number and must be registered with the ATF. NFA firearms include:
- Fully automatic firearms
- Short barrel shotguns
- Short barrel rifles
- Sound suppressors
NFA firearm owners must pay a transfer tax to the ATF, file transfer paperwork, be fingerprinted and get permission from local law enforcement to have the firearms. It is not a simple process to own NFA firearms.
Each NFA firearm may only have one owner and must be re-registered every time ownership transfers. These ownership and registration requirements can be problematic when NFA firearms are involved in an estate. An executor may innocently but illegally transfer an NFA firearm to an heir due to being unfamiliar with NFA rules and the registration process to transfer the firearms can be cumbersome for the executor. Gun trusts can help alleviate these challenges.
A gun trust has two primary advantages. First, the trust allows multiple people to use the NFA firearms. Without a gun trust, only one person may own and possess an NFA firearm. By placing the firearms in a gun trust, each trustee of the trust is entitled to possess the firearm. So, by naming multiple trustees, the one-person, one-gun rule can be skirted. It is common to set up a gun trust with perhaps father, mother and children all being trustees to allow them all to possess the NFA firearms.
The second advantage is the firearms are not required to be transferred when someone dies. Once the NFA firearms are initially transferred to the gun trust, the trust can continue on after the deaths of the original trustees. The gun trust does not terminate when a trustee dies. Rather, the gun trust continues and is managed by the surviving or successor trustees. The firearms can be passed down through generations without having to re-register the firearms each time an owner dies.
A gun trust is a special type of trust that should be drafted by an attorney familiar with the NFA and other firearm regulations. Also, gun trusts are not needed for firearms that are not subject to the NFA; ordinary firearms can be transferred to heirs with no registration or paperwork. For those gun owners who do have restricted firearms, a gun trust is worth exploring.
We’ve heard from many concerned pork producers since the U.S. Supreme Court recently ruled on California's controversial animal housing law, Proposition 12 (“Prop 12”). Enacted as a ballot measure by California voters, the law sets minimum space requirements for sows and prohibits the sale of pork derived from a sow raised in conditions that don't meet the housing standards. But the California law has yet to go into effect due to a score of lawsuits challenging California's authority to make a state law that negatively affects hog producers in other states. On May 11, the Supreme Court made its decision on one such challenge--National Pork Producers Council v. Ross (“NPPC”). The 5-4 ruling upholding Prop 12 was not the decision desired by agricultural interests, leading to the questions we've been receiving: is there still a way to prohibit the law? When and how will California enforce the law? Will pork producers now begin complying with Prop 12?
An understanding of the court’s reasoning in NPPC is necessary before we can answer these questions. Let’s begin with the following excellent explanation of the case by my colleague Elizabeth Rumley at the National Agricultural Law Center.
The Supreme Court's decision
After considering a constitutional challenge to a California ballot initiative regulating space requirements for farm animals, the Supreme Court of the United States (“SCOTUS”) ruled on May 11th in favor of the state of California, allowing the law to stand. The proposal, known as “Prop 12,” set conditions on the sale of pork meat in California- regardless of where it was produced. It required, among other things, that all products be from pigs born to a sow housed in at least 24 square feet of space. This effectively imposed Prop 12’s animal housing standards on any producer, no matter the location, who wished to sell products to residents of California. This part of the law was promptly challenged and eventually heard by the Supreme Court.
The case, National Pork Producers Council v. Ross (“NPPC”) considered whether Prop 12’s regulation of the out-of-state production of products to be sold within state boundaries is a permitted action under a legal doctrine known as the dormant Commerce Clause. In other words, under what circumstances can a state government pass laws that primarily affect the actions of people in other states? SCOTUS agreed to consider the case, and oral arguments were heard last October. Many of the arguments centered on whether the law met the provisions of the “Pike balancing test,” which compares local benefits of a law to the burden that it places on out-of-state commerce to determine if the burden is clearly excessive.
NPPC Ruling
While parts of this ruling were agreed upon by all justices, the foundational legal analysis was a split decision, with several justices agreeing and disagreeing as to various parts. Ultimately, a plurality of the court held that Prop 12 was constitutional and enforceable by California. A minority of justices would have sent the case back to the district court for further consideration. The opinion of the Court (joined by the largest number of justices), was written by Justice Gorsuch.
In the initial, unanimously agreed upon, sections of the opinion, Gorsuch focuses on the “antidiscrimination principle” that “lies at the ‘very core’” of dormant commerce clause jurisprudence. In the clearest situations, this happens if a state set different standards for out-of-state businesses vs in-state businesses (for example, if Prop 12 had required Kansas producers to give pigs more space, but allowed California producers to confine animals in smaller pens). However, Gorsuch does not apply this principle, instead pointing to a concession by the Pork Producers Council that producers are treated similarly regardless of geography. Gorsuch then moves on to consider the constitutionality of a law that is not facially discriminatory (as in the hypothetical example above), but has a disproportionate effect on out-of-state businesses. While the court did not specify whether Prop 12 would fall into this category, it would have ultimately made no difference. Gorsuch refused to find such a law unconstitutional, writing that “[i]n our interconnected national marketplace, many (maybe most) state laws have the ‘practical effect of controlling’ extraterritorial; behavior.”
Next, Gorsuch considers the Pike balancing test in a series of sections where some justices join in his analysis while others do not. Pike asks the court to weigh local benefits of a law against the burden it places on out-of-state commerce. Again, Gorsuch returns to what he sees as an underlying requirement of discriminatory intent, even in the cases decided using the Pike analysis. He rules, in a section joined by Justice Thomas and Justice Barrett, that the cost/benefit analysis that Plaintiffs argued was not an integral part of the original Pike analysis, and that Pike does not authorize judges to “strike down duly enacted state laws… based on nothing more than their own assessment of the relevant law’s ‘costs’ and ‘benefits’”. He further highlights the perceived difficulty in doing so as a judicial body; “[h]ow is a court supposed to compare or weigh economic costs (to some) against noneconomic benefits (to others)? No neutral legal rule guides the way. The competing goods before us are insusceptible to resolution by reference to any judicial principle.” Instead, he disclaims that cost/benefit role, arguing that the responsibility is better given to those with “the power to adopt federal legislation that may preempt conflicting state laws.”
Gorsuch also considers a framing of Pike that “requires a plaintiff to plead facts plausibly showing that the challenged law imposes ‘substantial burdens’ on interstate commerce before a court may assess the law’s competing benefits or weigh the two sides against each other.” In a section joined by Justices Thomas, Sotomayor and Kagan, Gorsuch finds that under the facts presented in the complaint, a “substantial harm to interstate commerce remains nothing more than a speculative possibility.”
It’s important to note that the sections of the opinion addressing the Pike test were not adopted by the majority. While Gorsuch wrote the opinion of the court, his reasoning was not adopted by the entire bench. In fact, several justices (Sotomayor, joined by Kagan and Roberts, joined by Alito, Kavanaugh & Jackson) also wrote or signed onto dissents outlining their disagreements with specific elements of Gorsuch’s reasoning. These justices agree that courts can still consider Pike claims and balance a law’s economic burdens against its noneconomic benefits, even if the challengers do not argue that the law has a discriminatory purpose. Much like the Rapanos case of WOTUS fame, this case did not result in clearly defined legal doctrine.
Justice Kavanaugh wrote as well, concurring in part and dissenting in part. He highlighted concerns about the constitutionality of statutes like Prop 12, “not only under the Commerce Clause, but also under the Import-Export Clause, the Privileges and Immunities Clause, and the Full Faith and Credit Clause.”
NPPC: What Happens Next?
At least theoretically, other challenges to Prop 12 might be filed on dormant Commerce Clause grounds with more facts presented in the complaint. This would be possible because a plurality of Justices agreed that the Plaintiffs did not allege facts that would constitute a “substantial harm”. New complaints, however, might allege facts sufficient to meet that burden. Those hypothetical challenges may or may not also include some of the additional legal grounds identified in Kavanaugh’s opinion. But as of right now- and for the foreseeable future- Prop 12 is constitutional. However, there are other court cases pending that impact the immediate enforceability of Prop 12 and similar laws.
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In California Hispanic Chamber of Commerce v. Ross, retailers asked for an extension of time to come into compliance with Prop 12 regulations for the sale of pork, which was granted by the court. For retailers selling “whole pork meat,” the regulations may not be enforced until July 1, 2023. For retailers selling veal and egg products, the regulations are currently effective.
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Massachusetts Restaurant Association v. Healey addresses a 2016 Massachusetts law, similar to Prop 12. The language of the statute is available here, and the regulations are available here. The MA law was challenged on dormant Commerce Clause grounds, and the parties agreed to prevent enforcement of the portions of the law relevant to the sale of pork products until 30 days after the NPPC decision was issued by the USSC. The portions relevant to the sale of egg and veal products are currently effective.
Is there still a possibility of stopping Prop 12 and other efforts to establish farm animal housing standards?
Continued lawsuits against Proposition 12 and other state laws that require certain production standards is a strategy that will likely continue. As Elizabeth Rumley explained above, the recent NPPC opinion itself lays out two additional options for challenging Proposition 12: alleging facts sufficient to meet the “substantial harm” requirement and raising the additional constitutional arguments highlighted by Justice Kavanaugh, such as the Import-Export Clause, the Privileges and Immunities Clause, and the Full Faith and Credit Clause.
Federal lawmaking is another option. Justice Gorsuch, in the NPPC decision, highlighted the constitutional power Congress possesses to “regulate Commerce … among the several States.” The Justice suggested that Congress could displace Prop 12 by exercising its commerce power and enacting legislation that regulates the interstate trade of pork. Some members of Congress have expressed willingness to include interstate commerce language in the upcoming Farm Bill.
Others in Congress advocate a different strategy—legislation that restricts states from interfering with animal production practices. A proposal raised unsuccessfully last year by Sen. Marshall (R-Kan) and Rep. Hinson (R-Iowa) may surface again in the wake of the NPPC. But even with several options for federal legislation that would prevent Prop 12, many question whether there is sufficient congressional support. Congress has a long history of unwillingness to overturn any type of state ballot initiative enacted by “the will of the people.”
When and how will California enforce Prop 12?
With the NPPC decision by the Supreme Court, the California Department of Food and Agriculture’s Animal Care Program has issued guidance on how it will enforce Prop 12. The agency had already developed Prop 12 regulations, which require distributors and producers of pork to register and obtain a third-party certification of compliance by January 1, 2024. For pork producers, certification involves passing an on-site inspection showing compliance with the housing standards and maintaining compliance records and requires an annual renewal process. The agency offers a Sow Housing Guide that illustrates Prop 12’s requirements that a sow’s enclosure be at least 24 square feet and does not prevent the sow from lying down, standing up, fulling extending all limbs without touching the side of the enclosure, or turning around freely. The agency is also presenting several webinars, including a webinar for pork producers on June 27.
Will pork producers now begin complying with Prop 12?
That’s a question without a legal answer. Those who do comply with the housing standards will certainly incur economic costs, and some producers had already done so prior to NPPC. The National Pork Producers Council estimates that converting existing sow housing to meet the Prop 12 standards will run a producer about $3,500 per sow and national costs could total between $1.9 and $3.2 billion. We can guess that some producers will not or cannot make the new investment, which in turn raises many more questions about the economic and social impacts of Prop 12. As is often the case with controversial laws like Prop 12, we might always have more questions than answers.
Tags: Proposition 12, NPPC v Ross, Farm animal welfare, commerce clause
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The National Agricultural Law Center (NALC) is holding its 10th Annual Mid-South Agricultural and Environmental Law Conference on Thursday (June 9th) in Memphis, Tennessee. The conference primarily addresses agricultural legal issues in the Mississippi Delta region. Robert Moore will be providing a presentation on Long-Term Care and its impact on farming operations. Other topics will include real estate title issues, the 2023 Farm Bill and conservation easements. More information can be found here and an online attendance option is available.
The NALC, funded through the National Law Library, is a long-time partner with OSU’s Agricultural and Resource Law Program. The NALC maintains resources that are understandable and available to the general public. The Center’s website serves as a hub for research and information within the agricultural, food and environmental law field. You can view their extensive catalogue of information at https://nationalaglawcenter.org/
Tags: Mid-South Conference
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You may have seen the recent story of an attorney in New York who filed a pleading in a case in a federal district court. The filing included citations to six court cases that do not actually exist. Come to find out, the attorney who filed the pleading did not write it but instead used ChatGPT, the Artificial Intelligence (AI) tool. The attorney now faces a June 8 sanctions hearing before the judge. This incident is a good example of the myriad of implications, both good and bad, of using AI in the legal world and beyond.
What is AI?
Artificial Intelligence refers to the development of computer systems capable of performing tasks that typically require human intelligence. It includes a broad range of technologies, including machine learning, natural language processing, computer vision, and robotics. AI systems have the ability to process and analyze vast amounts of data, identify patterns, and make autonomous decisions or recommendations.
How Does Artificial Intelligence Work?
AI operates through various techniques and methodologies that allow machines to simulate human intelligence. Here are some key aspects of AI functionality:
Machine Learning. Machine learning is a branch of AI that focuses on developing algorithms capable of learning and improving from data. Through a process called training, AI models are exposed to large datasets, enabling them to recognize patterns, make predictions, and perform tasks without explicit programming.
Natural Language Processing. Natural language processing enables machines to understand and interpret human language. AI systems analyze text, speech, and context to extract meaning, respond to inquiries, and engage in conversation. Virtual assistants like Siri and Alexa are examples of AI applications that utilize natural language processing.
What is ChatGPT?
ChatGPT is an AI chatbot developed by OpenAI, a non-profit corporation. Released in November 2022, ChatGPT is groundbreaking in that it allows a simple, easy-to-use interface with a powerful AI computer framework. Anyone who is capable of a simple Google search can use ChatGPT.
The chat or chatbot component of ChatGPT allows the user to chat with ChatGPT. The user does not need to be a computer programmer or have a sophisticated understanding of computers. The user asks or commands ChatGPT to produce an answer or output and then can further refine the output by chatting with ChatGPT. For example, let’s enter the following into ChatGPT: “Write a one paragraph email to my neighbor asking them to fix their fence so their cattle quit getting into my field”. ChatGPT produces the following:
"I hope this email finds you well. I wanted to bring to your attention a recurring issue that has been affecting my property recently. It seems that the fence separating our fields is in need of repair, as I have noticed your cattle frequently entering my field. While I understand that maintenance tasks can sometimes slip our minds, I kindly request your assistance in fixing the fence to prevent further incursions. I believe that addressing this matter promptly will help maintain a positive relationship between us and ensure the well-being of both our properties. If you require any assistance or have any questions, please do not hesitate to reach out. Thank you for your attention to this matter."
As you can see, ChatGPT did a good job of writing the email. Instead of you spending 15 minutes trying to find the right words, it drafted your email in seconds. But let’s say you’ve already told your neighbor about their fence and want the email to be firmer and more direct. All you have to say to ChatGPT is: “Make the email firmer and more direct”. ChatGPT produces the following:
"I hope this email finds you well, although I must express my growing concern over a pressing matter. It has come to my attention on multiple occasions that your cattle have been breaching the fence separating our fields. This trespassing has caused considerable damage to my property and poses a risk to both your animals and mine. I must insist that you take immediate action to rectify this issue by repairing the fence without any further delay. It is imperative that we maintain clear boundaries and protect the integrity of our respective properties. I trust you understand the urgency of this situation and will promptly address it. Should you require any assistance or have questions regarding this matter, please reach out to me as soon as possible."
By chatting with ChatGPT, it was able to learn what changes you wanted and to accommodate the request. ChatGPT was able to successfully change the email to a firmer tone by understanding simple, common input terms. This is the breakthrough of ChatGPT and other AI tools, AI is no longer the domain of the Elon Musk’s of the world, we all now have access to it. You can set up a free account with ChatGPT and start using it today.
You may be thinking the email is a neat trick but what can it do to help me in the real world? The possibilities are endless. The following are just a few examples:
- Provide creative names for a new business
- Explain a complex concept
- Research an issue
- Draft invoices and receipts
- Create marketing ideas and marketing materials
- Generate a mission statement for your organization
Limitations of AI
AI is not close to perfect, at least not yet. As the New York lawyer found out, ChatGPT and other AI tools can, and do, sometimes produce incorrect responses. Therefore, AI should be used as a tool to provide ideas and assist with tasks but should not be relied upon as an infallible expert on all matters. AI is not currently a capable substitute for important, technical issues such as medical diagnosis, legal services or tax advice.
The Agricultural and Resource Law Program has begun a project to monitor and measure the effectiveness of ChatGPT and other AI tools in providing legal assistance. Over the next few months, we will provide updates and summaries of our findings. We feel it is important to understand both the utility and limitations of AI in the legal and agricultural world.
Summary
AI technology presents numerous benefits, including improved efficiency, enhanced decision-making capabilities, and automation of tasks. AI can and will likely transform many industries including legal and agriculture. However, it is crucial to consider the current limitations of AI and the need for human oversight. Striking a balance between harnessing AI's potential benefits and addressing its limitations is vital for responsible and effective integration.
Author’s Note: Excluding the examples, ChatGPT wrote about 25% of this article, can you tell which part?
Get your free ChatGPT account here.
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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 30th. 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.
Tags: Ohio legislation, Oil and Gas, Environmental Law, H-2A, Labor and Employment, Insurance, Toxic Dumping, taxes, IRS, Conservation Easement Fraud
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Barry Ward, Leader, Production Business Management
Lower crop prices and a mix of higher and lower input costs have been the theme for the last several months. High production costs in 2022 gave way to a mix of higher and lower input costs for the 2023 production year. Factors affecting both supply and demand have continued to drive commodity crop prices lower. The result of these changes is an outlook for limited positive margins for the 2023 corn, soybean and wheat crops.
Production costs for Ohio field crops are forecast to be slightly lower than last year with lower fertilizer and fuel prices leading the way. Higher rents, seed costs, machinery/equipment costs and interest rates mostly offset any benefit related to lower cost areas.
Variable costs for corn in Ohio for 2023 are projected to range from $514 to $628 per acre depending on land productivity. The trend line corn yield (181.8 bpa) scenario included in the corn enterprise budget shows a decrease in variable costs of 10% but a decrease in total costs of only 5% due to higher rents and machinery/equipment costs.
Variable costs for 2023 Ohio soybeans are projected to range from $280 to $320 per acre. Variable costs for trend-line soybeans (56.5 bpa) are expected to decrease 10% in 2023 compared to 2022 while total costs are expected to decrease only 2% in 2023.
Wheat variable expenses for 2023 are projected to range from $246 to $309 per acre. The trend line wheat yield (75.4 bpa) scenario included in the wheat enterprise budget shows a decrease in variable costs of 3% with an increase in total costs of 4%.
Returns will be mixed depending on crop price change throughout the rest of the year. Grain prices used as assumptions in the 2023 crop enterprise budgets are $5.00/bushel for corn, $12.00/bushel for soybeans and $8.00/bushel for wheat (wheat price set in October using the September ’23 Futures price at that time).
Projected returns above variable costs (contribution margin) range from $333 to $463 per acre for corn and $378 to $494 per acre for soybeans. Projected returns above variable costs for wheat range from $326 to $415 per acre although significant crop price decreases since last fall (when the price was set for this enterprise budget) will likely cause wheat to be less profitable than these return projections indicate.
Return to Land is a measure calculated to assist in land rental and purchase decision making. The measure is calculated by starting with total receipts or revenue from the crop and subtracting all expenses except the land expense. Returns to Land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $23 to $254 per acre in 2023 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $130 to $348 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $129 per acre to $295 per acre assuming a planting-time price of $8/bushel. If a current forward harvest price for wheat of $6.80/bushel is used, the Return to Land is in a lower range of $60 to $192 per acre depending on land production capabilities.
Total costs projected for trend line corn production in Ohio are estimated to be $1,003 per acre. This includes all variable costs as well as fixed costs (or overhead if you prefer) including machinery, labor, management and land costs. Fixed machinery costs of $88 per acre include depreciation, interest, insurance and housing. A land charge of $228 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $88 per acre. Details of budget assumptions and numbers can be found in footnotes included in each budget.
Total costs projected for trend line soybean production in Ohio are estimated to be $667 per acre. (Fixed machinery costs: $69 per acre, land charge: $228 per acre, labor and management costs combined: $55 per acre.)
Total costs projected for trend line wheat production in Ohio are estimated to be $619 per acre. (Fixed machinery costs: $43 per acre, land charge: $228 per acre, labor and management costs combined: $56 per acre.)
Data used to compile these enterprise budgets includes research, surveys, market data, economic modeling, calculations and experience of authors.
Current budget analyses indicate less favorable returns for all three primary commodity crops in Ohio for 2023 but crop price change and harvest yields may change this outcome. These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2023 have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-management/enterprise-budgets.
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What is the key to resolving disagreements over water quality issues in Lake Erie? Cooperation, according to the federal court judge overseeing a legal battle over Lake Erie. The judge, U.S. District Judge James G. Carr, recently approved a plan that is the result of cooperation between the U.S. EPA, State of Ohio, Lucas County Commissioners, and the Environmental Law & Policy Center. For almost six years, the parties have been in a legal battle over how to deal with water quality in Western Lake Erie. But at the encouragement of the court, the parties developed and agreed to a Consent Decree to settle the case. Judge Carr approved the Consent Decree on May 4, 2023. Time will soon tell if the cooperation approach will satisfy the parties holding interests in Lake Erie’s water quality.
What led to the Consent Decree?
In the midst of growing concerns about harmful algal blooms and water quality in Western Lake Erie, the Environmental Law & Policy Center and Lucas County Commissioners filed a lawsuit against the U.S. EPA, claiming that the federal agency had failed its obligations to oversee Ohio’s duties to meet water quality standards under the Clean Water Act (CWA). The CWA requires states to identify waters that do not meet water quality standards and designate them as “impaired waters.” Once it lists a water as impaired, the state must also rank which waters have the highest need for determining Total Maximum Daily Loads (TMDLs) that set maximum amounts of pollutants that may enter the water. TMDLs provide a framework for future decisions that affect water quality in the impaired water.
Following a separate lawsuit that challenged Ohio EPA’s designation of some but not all waters in Western Lake Erie as impaired, Ohio EPA assigned impaired water status to all Western Lake Erie waters by 2018. But Ohio identified the waters as a “low” TMDL priority and stated that it would address water quality the western basin through “alternative measures” rather than preparation of a TMDL. The U.S. EPA, charged with reviewing state actions for compliance with the CWA, approved Ohio’s designation. The Environmental Law & Policy Center and the Lucas County Board of Commissioners each filed lawsuits against the U.S. EPA for approving Ohio’s approach, and the two lawsuits were consolidated into the current case. The State of Ohio, not an original party to the litigation, received the court’s permission to intervene as a defendant in the lawsuit.
Several years and many motions and hearings later, Judge Carr admonished both sides of the lawsuit for dragging the matter out in court and leaving Lake Erie’s water quality problem “largely unattended.” In 2021, before considering separate summary judgment motions the parties had made, the Judge pointed out that no matter his decision, the other party would appeal it and continue the litigation and that “nothing is going to get done.” Resolving the problems in Lake Erie would only happen if the U.S. EPA, the plaintiffs, and the State of Ohio would “work cooperatively towards accomplishing a meaningful outcome and resolution,” Judge Carr stated. His resolution on the summary judgment motions would only “kick the can down the road for another two years, at least...” A better solution, said Judge Carr, would be for the parties to resolve the matter through settlement.
With the court’s oversight, the parties engaged in settlement negotiations for nearly two years. They reached an agreement in 2022. As required by law, the U.S. EPA filed the proposed agreement, or Consent Decree, in the Federal Register last November and sought public comments to the proposal. The parties then filed a joint motion to the court, asking Judge Carr to approve the proposed Consent Decree.
The Consent Decree
The Consent Decree outlines a timeline Ohio EPA must follow to create a TMDL designed to address nutrient and algae impairments for drinking water, aquatic life, and recreational uses by establishing pollutant limits for all Western Lake Erie waters. The agreement requires the plaintiffs to allow additional time for the U.S. EPA to step in and prepare a TMDL if Ohio fails in its efforts to do so. The Consent Decree also sets up a status report schedule and a dispute resolution process and awards attorney fees and costs to the Plaintiffs. The agreement does not address the legal sufficiency of the TMDL, and the plaintiffs still hold the right to challenge the legal sufficiency or adequacy of the TMDL. The Consent Decree will end upon performance of all obligations by all parties.
The following summarizes the steps of the agreed upon TMDL schedule.
Approval of the Consent Decree
Judge Carr’s role in reviewing the proposed agreement was to determine if it is “fair, adequate, and reasonable, as well as consistent with the public interest.” The parties’ submitted a joint motion in support of the Consent Decree that laid out their arguments as follows:
- The proposed agreement is fair because it was negotiated at length, in good faith, and in recognition of the strengths and weaknesses of each side.
- Because the proposed agreement addresses Defendant’s alleged violations by providing a schedule for developing a TMDL for Western Lake Erie, it is adequate and reasonable.
- The Consent Decree is in the public interest and furthers the goals of the Clean Water Act by providing for the timely development of a TMDL that will help “restore and maintain the chemical, physical, and biological integrity of the Nation’s waters” as intended by the Act. It also allows continued citizen rights to participate in the TMDL, does not alter existing regulations for TMDLs, and avoids significant time and expenses associated with ongoing litigation.
Judge Carr agreed with the parties’ arguments and approved the Consent Decree. In doing so, he praised the work of U.S. District Judge Polster, who oversaw the settlement negotiations, the lawyers for each party, and the State of Ohio. “Though the work that today’s agreement brings is but a first step, it is a step that has to be taken. How many more steps lie ahead, and how long they will take, is beyond even guessing,” he stated. “But there’s reason to hope that, in time, the Maumee River will no longer display, as it has for countless summers, a loathsome foul and slimy green surface as it flows through Toledo on its constant and irresistible course on to Lake Erie’s Western Basin.”
What’s next?
Implementation of the Consent Decree schedule is already underway. The Ohio EPA issued a draft TMDL or “Nutrient Water Quality Improvement Plan for the Maumee River Watershed” on December 30, 2022, and is currently reviewing comments made during the public comment period that ended on March 8, 2023. The agency appears to be on schedule for meeting the June 30 deadline for submitting the TMDL to the U.S. EPA for its review. Information on the Draft TMDL is available at https://epa.ohio.gov/divisions-and-offices/surface-water/reports-data/maumee-river-watershed.
But is continued cooperation on the TMDL for Western Lake Erie possible? Both the plaintiffs in this case submitted comments on the draft TMDL, and both raised concerns about its “shortcomings.”
“The TMDL just proposes to keep doing the same things that have already failed, focused on voluntary measures and incentive payments to producers,” stated the Environmental Law & Policy Center in its comments, available at https://elpc.org/wp-content/uploads/2023/03/ELPC-Maumee-TMDL-comments-FINAL.pdf.
“It is critical that the draft TMDL not lack the necessary steps to reduce agriculture phosphorous runoff into Lake Erie and place limits on dissolved reactive phosphorous,” said Lucas County Commissioner Wozniak in comments summarized at https://co.lucas.oh.us/CivicAlerts.aspx?AID=1750. “We shouldn’t be fooled into settling for half measures and voluntary practices any longer. We are talking about the health of our most valuable resource, and we must have a meaningful TMDL to protect it.”
While the spirit of cooperation encouraged by Judge James G. Carr is at play in the development of a TMDL for Western Lake Erie, whether that spirit will thrive in the debate over the content and future implementation of the TMDL is a critical question. In the words of Judge Carr, how many more steps lie ahead, and how long they will take, is beyond even guessing. Let’s hope that more litigation isn’t one of those steps.
The Consent Decree is available through this link.
Judge Carr's Order on the Consent Decree is at this link.
Tags: Lake Erie, western basin, water quality, tmdl, EPA, nutrients
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Do you want to learn more about Ohio solar energy development? If so, consider dropping in on our upcoming webinar series, where my colleague Eric Romich and I will discuss trends, procedures, and legal issues in Ohio solar development. The five-part webinar series covers solar development from start to finish and will take place May 23, 24, 25, 30, and 31 from 9 to 10:30 a.m. The series includes the following sessions:
May 23: Solar Development Overview and Trends
- Ohio solar development, industry and technology trends, dual use of land for solar energy and agriculture, community and regulatory issues.
May 24: Leasing Land for Solar Development
- Pre-leasing considerations, solar lease phases, common legal terms, and best management practices for leasing.
May 25: Connecting to the Electric Grid
- Overview of the electric utility system, regulatory jurisdiction, and interconnection procedures and timelines.
May 30: Solar Project Approval in Ohio
- Solar project application procedures, state oversight, and new laws allowing county and township oversight of solar development.
May 31: Construction and Post-Construction
- The construction process, common issues, regulatory oversight, and decommissioning a project in the future
Registration and additional information about the free Zoom webinar series is available at go.osu.edu/solarwebinars. Those unable to attend can view webinar recordings on the Farm Office energy law library at https://farmoffice.osu.edu/our-library/energy-law.
Tags: solar development, solar leasing, solar energy, solar zoning, solar regulations
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The recent failures of three banks may have some farmers concerned about the security of their cash reserves. Many farms hold large reserves of cash, the loss of which would be financially devastating. The federal government does provide protection through the FDIC but not all financial institutions participate in FDIC, not all account types are covered and there are limits to the protection. However, with a little bit of planning, even large amounts of cash can be fully protected from bank failures.
FDIC
The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits and examines and supervises financial institutions for safety, soundness, and consumer protection. FDIC deposit insurance coverage depends on two things: (1) whether your bank is FDIC-insured and (2) whether your chosen financial product is a deposit product. If a bank fails, the FDIC will immediately ensure that holders of eligible accounts will receive their funds subject to coverage limits. To determine if a specific financial institution participates in FDIC, the name of the bank can be searched in the following database: https://banks.data.fdic.gov/bankfind-suite/bankfind.
Eligible Accounts
The following accounts are eligible for FDIC coverage:
- Checking accounts
- Savings accounts
- Money Market Deposit Accounts (MMDAs)
- Time deposits such as certificates of deposit (CDs)
- Cashier's checks, money orders, and other official items issued by a bank
Accounts that are not eligible for FDIC coverage are as follows:
- Stock investments
- Bond investments
- Mutual funds
- Crypto Assets
- Life insurance policies
- Annuities
- Municipal securities
- Safe deposit boxes or their contents
- U.S. Treasury bills, bonds or notes1
Coverage Limits
FDIC coverage is not unlimited. Generally, coverage is capped at $250,000 but can be more depending on the type of account and number of owners/beneficiaries. The coverage limit for each type of account is as follows:
Single Accounts (Owned by One Person) $250,000
Joint Accounts (Owned by Two or More Persons) $250,000 per co-owner
Corporation, Partnership Accounts $250,000
Revocable Trust Accounts $250,000 per owner per unique beneficiary
Irrevocable Trust Accounts $250,000 for each unique beneficiary
Government Accounts $250,000
Strategies to Insure Large Reserves of Cash
The account restrictions and coverage limits can be problematic for many farms. It is not uncommon for farms to hold more than $250,000 in a single account to buy inputs, buy the next farm or as a reserve for lean times. Consider the following example:
Farmer has $1,000,000 in his individual savings account at Bank Co. If Bank Co. were to fail, FDIC would only protect $250,000 of his $1,000,000, leaving $750,000 unprotected and at risk.
The following are a few strategies that can be used to insure large cash reserves:
Bank Networks. Some banks are part of a network that allow eligible accounts to be set up at other, cooperating banks. The primary bank establishes eligible accounts at other banks and then transfers up to $250,000 into each account. Continuing the above example, Bank Co. establishes a savings account at three other banks – 1st Bank Co., 2nd Bank Co. and 3rd Bank Co. Bank Co. then transfers $250,000 to each bank. Farmer now has fully protected accounts at four different banks and his entire $1,000,000 is shielded with FDIC protection. Bank Co. took care of setting up the three additional accounts and transferring the funds.
Open Different Types of Eligible Accounts. FDIC will cover different types of eligible accounts at the same bank. So, multiple type accounts at the same bank can insure more than $250,000. In this scenario, Farmer can change his individual account to a joint account by adding his spouse ($500,000 coverage), transfer $250,000 to an account held by his farm corporation and transfer $250,000 to an account owned by his trust. By adding owners and establishing different types of eligible accounts, Farmer’s entire $1,000,000 can be covered by FDIC and remain at Bank Co.
Open Accounts at Multiple Banks. This strategy is similar to using a Bank Network except that the account holder establishes the accounts. The account holder may prefer to personally open accounts at multiple banks rather than allowing his bank to do so. With this strategy, Farmer opens savings accounts at 1st Bank Co, 2nd Bank Co. and 3rd Bank Co. and transfers $250,000 to each new account. Now, Farmer’s entire $1,000,000 is covered by FDIC but at four different banks.
Conclusion
Producers holding funds in accounts not eligible for FDIC coverage or holding funds in excess of FDIC limits should consider implementing strategies to cover any unprotected money. As the above examples illustrate, it is relatively easy to cause large cash reserves to be entirely insured by FDIC. The producer’s banker or financial advisor should be consulted to determine the strategy that will work best to protect the maximum amount of funds.
1 These investments are backed by the full faith and credit of the U.S. government.