Articles Posted in Agriculture Law

by
Sunrise, an Ohio agricultural cooperative, owns one-third of Lund, which sells crop insurance. Sunrise pays “patronage,” a rebate, to its Ohio and Michigan members based on how much Lund insurance they buy. The Risk Management Agency (RMA) within the USDA, administers Federal Crop Insurance Corporation (FCIC) programs. Patronage payments were prohibited until 2000, when Congress authorized some rebating if permitted under state law. Congress changed course in 2008, prohibiting patronage payments with a grandfather clause, 7 U.S.C. 1508(a)(9)(B)(iii) stating that the prohibition does not apply to a patronage dividend paid: “by an entity that was approved by the [FCIC] to make such payments for the 2005, 2006, or 2007 reinsurance year.” From 2008-2016, Sunrise was approved to pay patronage as a “grandfathered” entity. In 2016, another farming cooperative, Trupointe, merged into Sunrise. Trupointe had 4100 members, did not sell crop insurance, and was not eligible to pay patronage. Sunrise argued to the RMA that under Ohio law and federal tax law, when one company merges into another, the surviving company is the same entity that existed before the merger. The RMA disagreed, concluding that the merger would make Sunrise ineligible to pay patronage and defining “entity” to mean the same entity that it approved for any of the 2005-2007 reinsurance years, with the same structure and relative size; any mergers would be considered a different entity, regardless of name or how taxed. The Sixth Circuit held that the agency was not permitted to impose additional eligibility requirements on approved entities that are unmoored from the statute. View "Sunrise Cooperative v. United States Department of Agriculture" on Justia Law

by
Perkins has actively operated a 200-acre Kentucky farm since 1970. Her operation expanded to cultivate approximately 9,500 acres in various partnerships. Perkins encountered financial trouble in 2014. The partnerships filed Chapter 11 bankruptcy cases. Perkins retired from teaching. The Chapter 11 bankruptcies were dismissed after liquidating substantially all of the partnerships’ assets and making over four million dollars of payments to BB&T. In 2016 Perkins sought Chapter 12 bankruptcy protection. Creditors' proofs of claim totaled $4,012,908.79. In the preceding year, Perkins received $279,000 of gross income from her farm, $764,472 from her partnerships, $161,571 of capital gains from equipment sales, and $132,360 from wages, pension, and social security. BB&T objected to her plan, which projected that $18,950 could be paid annually to unsecured creditors over the plan’s five-year life and that a Chapter 7 liquidation would produce no payments to unsecured creditors. The plan proposed to pay BB&T annual installments over 20 years at 4.5% interest. The bankruptcy court rejected BB&T’s objection and confirmed the plan. The Bankruptcy Appellate Panel affirmed. Chapter 12 relief, 11 U.S.C. 109(f), is available to family fishermen and family farmers, defined as an “individual . . . engaged in a farming operation whose aggregate debts do not exceed $4,153,150,” and who receives more than half of her gross income from “such farming operation.” The bankruptcy court properly found Perkins to be a family farmer and confirmed the plan as feasible, providing proper treatment to secured claims, and meeting the best interests of creditors test. View "In re: Perkins" on Justia Law

by
In 2008, Purdy borrowed from Citizens First, using his dairy cattle as collateral. Purdy refinanced in 2009, executing an “Agricultural Security Agreement" that granted Citizens a purchase money security interest in “all . . . Equipment, Farm Products, [and] Livestock (including all increase and supplies) . . . currently owned [or] hereafter acquired.” Citizens perfected this security interest by filing with the Kentucky Secretary of State. Purdy and Citizens executed two similar security agreements in 2010 and 2012, which were perfected. After the 2009 refinancing, Purdy increased the size of his herd, entering into “Dairy Cow Lease” agreements with Sunshine. The parties also executed security agreements and Sunshine filed financing statements. In 2012, milk production became less profitable. Purdy sold off cattle, including many bearing Sunshine’s brand, and filed a voluntary Chapter 12 bankruptcy petition. Both Citizens and Sunshine sought relief from the stay preventing the removal of the livestock. In 2014, the Sixth Circuit held that Citizens failed to demonstrate that the "Leases” were actually security agreements in disguise. On remand, the bankruptcy court determined that all cattle sold at a 2014 auction were subject to Citizens’ security interest. The district court affirmed, awarding Citzens $402,354.54. The Sixth Circuit affirmed; the bankruptcy court did not contravene its mandate by holding a hearing on the question of ownership. View "Sunshine Heifers, LLC v. Citizens First Bank" on Justia Law

by
Silver Bait operates, on 750 acres in Tennessee, housing, growing, and packaging bait worms for sale to retailers. Silver Bait imports baby worms from Europe and feeds and grows them in seven concrete structures, 540 feet long and 50 feet wide, with a 10-foot wide tractor driveway down the center, with worm beds on either side. Durant grows his own corn in to ensure the quality of the feed. Workers send corn silage through a grinder and combine it with peat moss, lime, and water. Silver Bait also makes its own customized bait cups using an injection-molding machine. Believing its employees fell within a Fair Labor Standards Act exemption for agricultural workers, Silver Bait did not pay overtime. In 2010 the Department of Labor issued a report finding Silver Bait’s employees exempt, ordering Silver Bait to pay overtime for one four-week period when the company acted as a wholesaler, importing worms and immediately reselling them to retailers. After obtaining consent forms from other workers, employees filed a private action under 29 U.S.C. 216(b). The Sixth Circuit affirmed a declaratory judgment in Silver Bait’s favor. Although not a specifically enumerated farming activity, there is little to distinguish Silver Bait from a traditional farm other than the unfamiliarity of worm farming. View "Barks v. Silver Bait LLC" on Justia Law

by
Howes, the owner of a pickling cucumber farm, was found to be in violation of provisions in the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The Sixth Circuit affirmed the district court’s determinations that: Howes’ cucumber harvesters were employees, and not independent contractors, such that the FLSA protections apply; Howes controlled the facilities used to house the migrant farm workers in 2011, and was liable for violations of the MSPA in regard to the provision of substandard housing; and Howes unlawfully interfered with the Department of Labor investigation. View "Perez v. D. Howes, LLC" on Justia Law

by
The “Swampbuster” provisions of the Food Security Act deny certain farm-program benefits to persons who convert a wetland for agricultural purposes, 16 U.S.C. 3821. Smith challenged the USDA’s determination that Smith had converted 2.24 acres of wetland and was, therefore totally ineligible for benefits. Smith claimed that the Department erred in failing to: analyze whether his purported conversion would have only a minimal effect on surrounding wetlands, a finding that would exempt him from ineligibility; consider factors that would reduce his penalties; and exempt Smith’s parcel because it was originally converted and farmed before the enactment. The district court denied relief. The Sixth Circuit reversed, noting that, while this case only involves 2.24 acres, it has ramifications for thousands of corn and soybean farmers. The USDA had signed a mediation agreement with Smith, permitting him to plant the parcel in the spring and cut down trees so long as Smith did not remove stumps; USDA never argued that Smith intentionally violated this agreement, but permanently deprived him of benefits, in disregard of its own regulations. That Smith’s stance on mitigation may have “colored” the agency’s relationship with him does not mean that USDA is entitled to ignore minimal-effect evidence and a penalty-reduction request. View "Maple Drive Farms Ltd. P'ship v. Vilsack" on Justia Law

by
The prior owner of the 300-acre STEW Farm in Pickaway County contracted with Watershed Management for construction of waterways and received a subsidy from the Natural Resources Conservation Service (NRCS), a USDA agency, 7 U.S.C. 6962. Kohli, an employee of the Pickaway County Soil and Water Conservation District supervised by NRCS, designed the waterways, and, after certified that they were designed and constructed properly. NRCS also certified the waterways, which allowed the owner to receive the federal reimbursement. The owner failed to pay Watershed, claiming that there was a ridge at the edge of the grass waterways that prevented proper draining. In 2009, Watershed sued for breach of contract; the owner counterclaimed for breach of contract and breach of warranty. A state court granted summary judgment against the owner for failure to prove damages. The new owner then filed a federal suit. The district court dismissed, reasoning, as to NRCS, that STEW Farm had not identified a separate source of federal substantive law and failed to establish a waiver of sovereign immunity because there are no “clear guidelines” which show that the NRCS actions were not committed to agency discretion. As to Watershed, the court concluded that there was no federal cause of action nor did the state claims implicate significant federal issues. As to PCSWCD, STEW Farm alleged only state-law claims that did not implicate significant federal issues. As to PCSWCD and Kohli, the claims were time barred under Ohio’s two-year statute of limitations. The Seventh Circuit affirmed.View "Stew Farm, Ltd. v. Natural Res. Conservation Serv." on Justia Law

by
Between 2009 and 2012, Sunshine and Purdy, a Kentucky dairy farmer, entered into “Dairy Cow Leases.” Purdy received 435 cows to milk, and, in exchange, paid monthly rent to Sunshine. Purdy’s business faltered in 2012, and he sought bankruptcy protection. Sunshine moved to retake possession of the cattle. Citizens First Bank had a perfected purchase money security interest in Purdy’s equipment, farm products, and livestock, and claimed that its perfected security interest gave Citizens First priority over Sunshine with regard to the cattle. Citizens argued that the “leases” were disguised security agreements, that Purdy actually owned the cattle, and that the subsequently-acquired livestock were covered by the bank’s security interest. The bankruptcy court ruled in favor of Citizens, finding that the leases were per se security agreements. The Sixth Circuit reversed, noting that the terms of the agreements expressly preserve Sunshine’s ability to recover the cattle. Whether the parties strictly adhered to the terms of these leases is irrelevant to determining whether the agreements were true leases or disguised security agreements. Neither the bankruptcy court nor the parties sufficiently explained the legal import of Purdy’s culling practices or put forward any evidence that the parties altered the terms of the leases making them anything but leases.View "In re: Purdy" on Justia Law

by
In 1990 Plummer, a recognized expert in horse-breeding and the tax consequences of related investments, created the Mare Lease Program to enable investors to participate in his horse-breeding business and take advantage of tax code provision classification of horse-breeding investments as farming expenses, with a five-year net operating loss carryback period instead of the typical two years, 26 U.S.C. 172(b)(1)(G). Plummer’s investors would lease a mare, which would be paired with a stallion, and investors could sell resulting foals, deducting the amount of the initial investment while realizing the gain from owning a thoroughbred foal. If they kept foals for at least two years, the sale qualified for the long-term capital gains tax rate, 26 U.S.C. 1231(b)(3)(A). Between 2001 and 2005, the Program generated more than $600 million. Law and accounting firms hired by defendants purportedly vetted the Program. Plummer and other defendants began funneling Program funds into an oil-and-gas lease scheme. It was later discovered that the Program’s assets were substantially overvalued or nonexistent. Investors sued under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(c), also alleging fraud and breach of contract. The district court granted summary judgment and awarded $49.4 million with prejudgment interest of $15.6 million. The Sixth Circuit affirmed, stating that there was no genuine dispute over any material facts. View "West Hills Farms, LLC v. ClassicStar Farms, Inc." on Justia Law

by
In 2001, the Conservancy sold a 100.10 acre farm in Garrard County, Kentucky to the Sims for $60,084, in addition to a $244,939 charitable pledge from the Sims to the Conservancy. The property appraised at $260,400 without the easement at issue, which requires that the land "be retained forever substantially undisturbed in its natural condition and to prevent any use . . . that will significantly impair or interfere with the Conservation Values of the Protected Property." The Conservancy received an annual right to enter and inspect the property. In January 2005, the Conservancy inspected and documented several violations that concerned excavating and filling a sinkhole. The Sims corrected several other violations. The district court granted summary judgment to the Conservancy, concluding that, although the easement allowed some changes to the topography in conjunction with authorized activities, like plowing for commercial agriculture, the easement specifically prohibited the substantial alteration of filling in a sinkhole with an estimated 6,269 cubic yards of fill. The court awarded the Conservancy $99,796.41 in attorneys’ fees and expenses. The Sixth Circuit affirmed.