Annotations 12/2011

(plaintiffs sue to recover costs for property damage caused by elevated ground water that flooded plaintiff's property; defendant held 30-year wetland reserve program easement (WRP) on property that surrounded plaintiff's property on three sides; court notes that the Congress vested "considerable" discretion in USDA to administer WRP and defendant not subject to liability under discretionary function exception; plaintiff also claims that USDA NRCS liable under Federal Tort Claims Act for violations of various agency directives in the NRCS General Manual, Engineering Field Handbook and Field Operations Technical Guide in conducting activities on easement land in conjunction with WRP; on this issue, court holds that Chapter 13 of Engineering Field Handbook not mandatory and lacks force of law - defendant entitled to judgment on pleadings on this issue; court noted that Field Operations Technical Guide - Conservation Practice Standard 657 became mandatory upon enactment of 1996 Farm Bill and issue of government's liability thereunder turned on when alleged harmful conduct occurred; under facts of case 30-year easement began in 1920s, but question remains as to whether defendant engaged in any harmful conduct after Practice Standard 657 became mandatory - defendant's motion for judgment on pleadings on this issue dismissed without prejudice; likewise, defendant not entitled to judgment on pleadings on issue of whether defendant subject to liability for alleged violation of state permit and relevant state laws; further scheduling conference set for Feb. 7, 2012).


(seller of property brought negligence action against real estate agents (defendants) for failing to secure the listed, unoccupied building; alleged negligence in leaving doors unlocked, which allowed a vandal to enter and set fire to the building; summary judgment granted to defendants; court held arson was not foreseeable when no previous vandalism occurred in the area to put the defendants on notice of criminal activity, so  no duty to safeguard the property existed; defendants’ negligence was not the proximate cause of the fire because vandals could have broken in and there was no notice of criminal activity; for same lack of notice, arsonist’s action was intervening cause, relieving defendants from liability).


(plaintiff, environmental activist group, claimed that defendant violated CWA, CERCLA and EPCRA in 2004; consent decree entered into in 2006 and plaintiff notified defendant of alleged violations of decree in 2008 – (over-application of lagoon waste; ponding of manure water in field; manure applications on frozen field; application of manure to field with no cropping activity); attempted settlement failed; court modified decree and extended it for three years; defendant need not pay plaintiff’s attorney fees and costs). 


(plaintiffs sue to recover costs for property damage caused by elevated ground water that flooded plaintiff's property; defendant held 30-year wetland reserve program easement (WRP)on property that surrounded plaintiff's property on three sides; court notes that the Congress vested "considerable" discretion in USDA to administer WRP and defendant not subject to liability under discretionary function exception; plaintiff also claims that USDA NRCS liable under Federal Tort Claims Act for violations of various agency directives in the NRCS General Manual, Engineering Field Handbook and Field Operations Technical Guide in conducting activities on easement land in conjunction with WRP; on this issue, court holds that Chapter 13 of Engineering Field Handbook not mandatory and lacks force of law - defendant entitled to judgment on pleadings on this issue; court noted that Field Operations Technical Guide - Conservation Practice Standard 657 became mandatory upon enactment of 1996 Farm Bill and issue of government's liability thereunder turned on when alleged harmful conduct occurred; under facts of case 30-year easement began in 1920s, but question remains as to whether defendant engaged in any harmful conduct after Practice Standard 657 became mandatory - defendant's motion for judgment on pleadings on this issue dismissed without prejudice; likewise, defendant not entitled to judgment on pleadings on issue of whether defendant subject to liability for alleged violation of state permit and relevant state laws; further scheduling conference set for Feb. 7, 2012).


(plaintiff sought determination that they need not defend nor indemnify defendant (insured) in negligence action brought against defendants (teenage boys) for damages sustained by prank pulled by defendants; defendants placed Styrofoam deer on road at night; driver came over hill, spotted what appeared to be a live deer and veered to miss it, but lost control of the vehicle and overturned; court determined that, as a matter of law, placement of deer on road did not cause resulting harm because evidence showed that other cars had avoided the deer - defendants' conduct and resulting harm not intrinsically tied together; thus summary judgment for plaintiff not proper - jury must weigh facts to determine whether defendants intended or expected resulting harm and, if so, whether plaintiff's policies provided coverage; as for one policy in issue, exclusionary language was different and insurer under no duty to defend or indemnify insureds). 


(recapture tax under payroll extension act applies both to reduced FICA tax on employees and reduced RRTA tax on employees, but not the reduced RRTA tax on employee representatives). 


(court holds that California's Low Carbon Fuel Standard violates Commerce Clause because legislation based on lifecycle analysis of fuels would result in ethanol market becoming "Balkanized" by having producer either relocate operations in state of largest use or sell locally to avoid transportation and other penalties; as such, Standard would interfere with the "maintenance of a national economic union unfettered by state-imposed limitations on interstate commerce"; state sought to control conduct beyond boundary of state by regulating "dirtier" Midwest-produced ethanol in attempt  to regulate greenhouse gas emissions; facts established that ethanol produces more greenhouse gas emissions than does gasoline). 


(bank A held junior security interest in debtor’s accounts receivables; bank B held prior perfected security interest; bank A claimed that it had priority because its interest was a PMSI; court assumed that accounts receivables can qualify for PMSI status, but that bank A’s interest not within scope of a PMSI under Puerto Rico UCC-Art. 9; bank B had priority). 


(case involves dispute over crop insurance coverage that sustained losses due to wind damage; defendant denied plaintiff’s claim on basis that plaintiff did not have insurable interest in crop and did not satisfactorily establish production loss; matter submitted to arbitration and parties stipulated that amount of loss not in question, but arbitrator determined that plaintiff not entitled to any insurance indemnity on crop claim; plaintiff argues arbitrator’s decision contrary to law because decision premised on finding inconsistent with parties’ stipulation; court grants plaintiff’s motion to compel deposition of arbitrator by written interrogatories limited to two questions). 


(petitioner denied head-of-household filing status for tax years that various members of extended family lived with him; petitioner could not prove that he provided over one-half of cost of maintaining household; but, petitioner could claim dependency deductions for two minor nieces; petitioner also had unreported income and court upheld IRS bank deposit method of reconstructing petitioner's income along with petitioner's profit and loss statements from limousine-driving business no additional Schedule C deductions allowed). 


(court upholds 15-year power purchase agreement (PPA) between Cape Wind and National Grid (largest utility in Massachusetts); National Grid had agreed in late 2010 to buy half of Cape Wind's offshore output beginning in 2013 at 18.7 cents per kWh, coupled with a 3.5% annual increase; PPA had been approved by Department of Public Utilities (DPU) which ruled that project benefits outweighed costs; court determined that DPU properly determined that environmental benefits will accrue to all National Grid customers; court's decision largely moot because wind farm project never likely to be built because project has been denied federal loan guarantees and no investor willing to buy other half of power generated that is not under contract with National Grid). 


(labor services performed in connection with dirt disposal associated with drilling of deep disposal wells not subject to KS sales and use tax; purchase of fly ash not exempt; tangible property purchased or rented or used in disposal process not exempt). 


(plaintiff's clearing and grading activity on 34-acre pasture in conjunction with converting 10 acres to blueberry farm subject to county critical area ordinance due to presence of wetlands which require permit; no on-going use of farmland because use is changing from pasture to blueberry farming). 


(in case of first impression, court construes Illinois Banking Act (25 ILCS 5/28) such that plaintiff, successor in interest to original mortgage holder (another bank), became legal holder of mortgage and, thus, had standing to bring foreclosure action; debtor alleged numerous procedural defects; court noted that state of Illinois had approved merger at issue  and original mortgagee merged with bank that ultimately merged with plaintiff, thus, plaintiff succeeded to mortgage rights possessed by original mortgagee by matter of law). 


(IRS announcement of temporary regulations on whether certain expenses can be currently deducted as a repair expense or must be capitalized and added to basis; written comments due March 26, 2012).


(case involves tax ramifications of prepaid forward contracts under which holder of substantially appreciated public stock can receive payment of large percentage of holder's shares, and benefit if stock appreciates and tax deferment on funds paid until transaction closes in future years via Rev. Rul. 2003-7; under facts of case, plaintiff entered into prepaid forward contracts and lent shares subject to the transaction so that investment entity involved could sell the shares short or hedge risk; court holds that plaintiff not entitled to gain deferral because the contracts, in combination with share lending transaction, resulted in taxpayer giving up practically all incidents of ownership; decision likely impacts similar transactions presently under audit, in litigation, or those for which statute of limitations has been extended).


(theft loss deduction denied for assets held in joint tenancy between husband and wife that wife used or transferred due to failure to substantiate amount of loss).


(transaction did not constitute bona fide sale of ranch for corporate stock, but rather constituted corporate liquidation followed by distribution of cash to shareholders and payment to third party of a fee for facilitating sham sale; facts involved Wisconsin dude ranch in which shareholders wanted to sell their interests, but could only find a buyer for the operating assets; operating assets sold to LLC at $750,000 tax cost, but petitioner entered into "no-cost liquidation", a multi-step transaction consisting of nominal sale of corporate stock to facilitator followed by transfer by facilitator to shareholders of cash plus a premium; facilitator used bad debt losses acquired from other companies to offset gain on asset sale; transaction lacked economic substance).


(surviving spouse could transfer pre-deceased wife’s IRA to separate IRA established in his own name via trustee-to-trustee transfer in spite of the fact that wife died before changing beneficiary designation forms from her estate to him; IRS did not apply general rule that would have treated IRA as inherited IRA because surviving spouse was sole beneficiary and estate executor; wife fell ill before getting beneficiary designation changed). 


(Kansas Department of Transportation (KDOT) successfully decreased appraiser’s condemnation award to defendant derived from eminent domain action; trial court entered judgment against member of defendant personally for excess award that had been paid to defendant; court held that trial court’s judgment was void for lack of subject matter jurisdiction). 


(debtors may discharge more than $450,000 in student loan obligations in bankruptcy because payment of even a small portion of student loan debt would impose undue hardship on debtors as defined by 11 U.S.C. §523(a)(8); $22,000 of medical expenses incurred post-petition and debtor couple ages 60 and 58; sufficient evidence present of debtors’ health problems that limited employment prospects).


(partnership that was converted to corporation via series of transactions in attempt to facilitate public offering treated as I.R.C. §351 exchange).


(front-row spectator at NBA basketball game was injured when basketball player careened out of bounds and knocked him over; spectator brought claims in federal court for assault and battery and intentional inflection of emotional distress; spectator alleged player used his forearm in an aggressive manner while attempting to right himself from the fall and that player glared at spectator while making his way back onto the court; spectator alleged offensive conduct occurred because player was frustrated his team was losing and that official did not make proper call on play; district court granted summary judgment dismissing the assault and battery claim based on assumption of risk inherent in sitting courtside at a basketball game, and dismissed emotional distress claim for lack of evidence of outrageous conduct; on appeal, court affirmed summary judgment on emotional distress claim, but reversed judgment on the assault and battery claim finding initial contact with player was an assumed risk, but questions of fact remained on the second contact; basketball player failed to provide testimony or affidavit in opposition to spectator’s allegations).


(1945 state law providing for exemptions from permit requirement for certain types of withdrawals of groundwater applies to withdrawals for stock-watering purposes and does not limit such withdrawals to any particular quantity; withdrawals at issue involved between 450,000 and 600,000 gallons per day for 30,000-head cattle feedlot; at time of enactment in 1945 legislature could have reasonably believed that stock-watering was of significant importance and impact of such watering slight; dissent opined that legislature never intended that statute would allow such large withdrawals with no examination of whether existing rights impaired or public welfare harmed). 


(petitioner's receipt of proceeds from settlement of employment discrimination suit not excludible from income under I.R.C. Sec. 104; amount not paid as result of physical injury).


(petitioner's photography activity not engaged in with requisite profit intent under nine-factor analysis).


(some of petitioner's claimed business expense deductions from landscaping business denied due to lack of substantiation; petitioner claimed that records lost; failure to file penalty upheld along with accuracy-related penalty).


(1945 state law providing for exemptions from permit requirement for certain types of withdrawals of groundwater applies to withdrawals for stock-watering purposes and does not limit such withdrawals to any particular quantity; withdrawals at issue involved between 450,000 and 600,000 gallons per day for 30,000-head cattle feedlot; at time of enactment in 1945 legislature could have reasonably believed that stock-watering was of significant importance and impact of such watering slight; dissent opined that legislature never intended that statute would allow such large withdrawals with no examination of whether existing rights impaired or public welfare harmed). 


(parties entered into contract to buy and sell real estate; valid contract executed that gave buyer eight days to inspect property and terminate transaction in writing; buyer indicated termination of contract via e-mail during eight-day period, but continued to arrange for inspections; court held the Uniform Electronic Transmission Act only applicable if all parties to transaction agree to conduct transaction by electronic means either in writing or by conduct; listing agreement for property at issue contained box that could be checked (but wasn’t) indicating that seller did not permit electronic signatures; e-mail insufficient to constitute “writing” that would terminate purchase contract under facts of case).


(announcement by IRS that, as applied to property in Iowa, it is suspending some I.R.C. Sec. 42 requirements that normally apply to taxpayers that have property eligible for the low-income housing credit; suspension relates to flooding damage occurring between May 25 and August 1; rules suspended for taxpayers with affected property in Iowa; suspended rules include income limitation requirements, available unit rule, non-transient requirement, and other rules).


(cost of conversion kits used to improve casino slot machine’s productivity need not be capitalized under the pre-2012 repair regulations, but is unclear under present regulations). 


(decedent's revocable trust named son sole trustee and gave beneficiary power to direct trustee in righting to retain distributions; trust also contained creditor protection provision for beneficiary; upon decedent's death, debtor received $20,000 from trust and then filed Chapter 7 bankruptcy; trustee sought distribution scheduled to be made post-petition, but debtor (as beneficiary) instructed trustee in writing to not make distribution; bankruptcy trustee's motion for summary judgment not granted because trustee properly withheld future trust payments).


(plaintiff, Indian Tribe that owns mineral estate of lands at issue, seeks declaratory and injunctive relief against defendant’s development of wind power station on 8,500 acres of leased land; plaintiff claims that wind power station will unlawfully interfere with plaintiff’s development of Osage Mineral Estate; relief denied on basis that plaintiff failed to prove wind power station would interfere with reasonable access to and use  of surface estate for oil and gas development or result in decreased recovery of oil and gas from the mineral estate; injunction would cause substantial financial harm to defendant; development of wind power station does not violate federal law or state (OK) law; plaintiff would not be irreparably harmed without an injunction). 


(plaintiff sued defendant seeking declaratory judgment that defendant obligated to defend plaintiff against claims of other property owners; plaintiff’s property bordered lake Michigan and question arose concerning boundary and others using beach and crossing and occupying what plaintiff believed to be plaintiff’s property; policy exceptions excluded from coverage “boundary line disputes not disclosed of record” and rights of “adjacent and abutting property owners in that portion of the premises lying along Grand Traverse Bay”; court holds that duty-to-defend coverage in general terms of policy not negated by exceptions; boundary line dispute was disclosed of record). 


(direct purchasers of egg products claim that egg and egg product producers and trade groups conspired to fix prices and restrict supply of shell egg and egg products in violation of Kansas Restraint of Trade Act; case remanded for lack of subject matter jurisdiction with court noting that case might join pending multidistrict litigation at later time; in subsequent action, In re Processed Egg Products Antitrust Litigation, MDL No. 2002,08-md-02002, 2012 U.S. Dist. LEXIS 48321 (E.D. Pa. 2012),  the egg producers moved for partial dismissal of time-barred claims by indirect purchasers from various jurisdictions recognizing indirect purchaser antitrust claims; argument focused on whether allegations plead were sufficient as to toll the various statutes of limitations; motion granted due to pleading deficiencies; claims dismissed without prejudice and plaintiffs may seek to amend complaint regarding fraudulent concealment and equitable tolling allegations).


(IRS announces acquiescence in the following case: Mayo Foundation for Medical Education & Research v. United States, 131 S. Ct 704. (U.S. 2011)(Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) is the appropriate review standard under which Treasury Regulations underlying an ambiguous Code provision are to be evaluated; using the Chevron standard, Treas. Reg. Sec. 31.3121(b)(10)-2 upheld with result that medical residents are to be considered employees rather than students and, as such, cannot receive exemption from Social Security tax)).


(rider option in annuity contract that couldn't be cancelled and would provide long-term care benefits during coverage period constituted "insurance" in accordance with I.R.C. Sec. 7702B(b)(1), and such long-term care benefits not included in owner's income by virtue of I.R.C. Sec. 104(a)(3); under policy, monthly long-term care benefits provided for reimbursement of long-term care services while insured chronically ill and benefits ceased if insured recovered from chronic illness).


(competing summary judgment motions regarding the amount of just compensation required to be paid for property takings as a result of Rails-to-Trails-Act; railroad sought permission to abandon line, but instead sold line to another party; a Notice of Interim Trail Use was issued and party entered into a trail use agreement shortly thereafter; class-action brought by property owners for compensation; government stipulated taking did occur; plaintiffs argued that under state law easement would have been abandoned and property regained by owner, so compensation would be value of property unencumbered by easements versus value with perpetual trail easement; government argued easement never abandoned so damages determined by difference between value of property subject to rail easement versus trails easement; summary judgment denied; state law requires railroad to take external actions to show intent to abandon easement and question of fact remained regarding whether abandonment occurred).


(plaintiff alleges that employee of defendant (as an ag chemical consultant) failed to advise plaintiff of danger of aerially applying defendant’s herbicide to plaintiff’s wheat fields near plaintiff’s potato crop; after aerial application, plaintiff’s 2010 potato crop suffered significantly reduced yield and quality; question before court was whether negligence claim against employee can be sustained separate and apart from defendant; defendant failed to satisfy its burden of showing by clear and convincing evidence that there was no possibility that plaintiff would be able to adequately plead its cause of action against employee; plaintiff’s motion to remand granted). 


(chicken contract growers’ claims in bankruptcy denied – promissory estoppel claims lacked legal merit; in spite of contact language indicating otherwise, growers claimed recovery from debtor based on statements made to growers by debtors’ employees that each grower “would receive chickens as long as he met the company’s requirement” and that debtor was “here for the long haul”; as such, growers claimed statements meant that contracts would remain in effect for a time period long enough for each grower to earn enough income under the contract to cover their cost of rendering performance under each contract; subject of statements are express elements of contracts; contracts specific and complete and specify that type of damages growers’ claim not recoverable).


(petitioner not subject to 10% penalty for early withdrawal of funds from IRA because evidence sufficient to establish that petitioner unemployed for a year and used withdrawn amount to pay for medical and education expenses).


(defendant did not comply with statutory requirements before disqualifying plaintiff's property from farm-use special assessment; disqualification from such assessment invalid). 


(while Social Security benefits constitute "gross income" for purposes of Chapter 12 only to the extent provided in the tax code, and "qualified military benefits" are excluded from gross income, debtor did not establish that any of his military benefits were "qualified military benefits as defined in the tax code, and that even with excluding debtor's average monthly Social Security income, debtor still did not have more than one-half of his income from farming in each of the second and third years preceding petition date or in the year preceding filing Chapter 12; debtor ineligible for Chapter 12 relief). 


(IRS does not have the authority to issue guidance on the deductibility of medicinal marijuana; such expenses are barred from being deductible under the Controlled Substances Act and no exception is provided in I.R.C. Sec. 280E).


(fact sheet summarizes the application of Kansas sales or compensating use tax to sales, purchases and services by pet stores, pet supply stores and pet care service industries).


(decedent's holographic will left decedent's residuary estate to decedent's sister "with the understanding that she will take care of my mother"; decedent's brother was intestate heir and filed motion to remove sister as co-administrator on grounds of breach of fiduciary duty; court held that will language was precatory and conveyed decedent's residuary estate to sister in fee simple; language did not result in creation of testamentary trust or conditional bequest).


(Swampbuster case in which plaintiff claims that feds failed to implement final USDA determination that plaintiff’s property does not contain a certified wetland and then made an unauthorized wetland determination; technical determination made on 9/15/08 that tract contained wetland; reconsideration requested on 9/25/08; on-site investigation on 10/9/08 with same result; plaintiff appealed to NAD; on 5/15/09, FSA withdrew decision and plaintiff dismissed NAD appeal; second field visit on 6/23/09 and on 6/26/09 plaintiff gets letter affirming original preliminary technical determination that field contained wetland; on 7/16/09, plaintiff requested NRCS to provide minimal effects determination (MED); on 7/20/09, NRCS said it couldn’t do that until it made final wetland determination, which it did on 9/25/09; MED issued on 10/27/09 concluding that plaintiff’s proposed action would drain 4.9 acres of wetland and would not constitute a minimal effect; plaintiff appealed both the final wetland determination and the MED; NAD hearing on 1/13/10 in which NAD officer upheld (on 5/7/10) NRCS finding of wetland and denied MED; plaintiff requested Director review; Deputy Director issued determination on 8/23/10 reversing NAD hearing officer’s determination as not being supported by substantial evidence – NRCS erred in evaluation of wetland hydrology and did not properly show that wetland exists and did not follow its own procedures in determining wetland hydrology; Director issued letter to plaintiff’s attorney that determination was a final order concluding all administrative processing of the appeal; on 1/21/11 plaintiff’s fee application under EAJA granted; plaintiff directed draining of depression on land during week of 9/6/10; on 9/9/10, state conservationist sent letter to Assistant State Conservationist stating that initial wetland determination would be withdrawn and NRCS would do another preliminary wetland determination; on 9/10/10, NRCS received whistleblower complaint that plaintiff diverting and draining playa lake on property; on 9/11/10 plaintiff’s attorney advised NRCS to stay off property and on 10/4/10, FSA informed plaintiff that farm ineligible for USDA program payments until FSA got a new Form AD-1026 (highly erodible land conservation and wetland conservation certification); on 10/7/10, plaintiff’s attorney withdrew denial of permission to enter property; on 10/28/10, offsite review conducted which identified two wetland areas; on-site review conduced on 10/29/10; on 1/4/11, NRCS sent plaintiff preliminary wetland determination letter with map; plaintiff did not request mediation or reconsideration by NRCS so determination became final; on 3/7/11, plaintiff appealed to NAD and filed court action; on 3/11/11 NAD suspended agency appeal pending outcome of litigation; defendant claimed that plaintiff failed to exhaust administrative remedies and plaintiff claimed that 8/23/10 determination was final agency determination that land did not contain wetlands; government claimed that 8/23/10 determination was final as to the agency not following proper delineation procedures and did not preclude agency from conducting new wetland determination because NAD Director did not make final determination that plaintiff’s land did not contain a wetland; court holds that previous wetland determination was invalid, thus not wetland determination had been made to indicate status of wetlands on plaintiff’s land and agency entitled to make that determination using proper procedures; plaintiff failed to exhaust administrative remedies and case dismissed).


(Chapter 12 case; creditor filed claim asserting it was owed over $5,900,000 via promissory notes secured by debtor’s land and improvements now owned by another creditor; parties agree that other creditor has priority to extent of $315,000, but disagree as to value of real estate; debtor submitted amended plan providing for interim interest-only during pendency of litigation; amended plan proposes payment of allowed secured claim amortized over 30 years with interest and balloon payment; value of collateral at issue because it cannot be less than allowed amount of claim if secured creditor doesn’t accept plan and plan doesn’t propose  surrender of property to secured creditor;  court reject debtor’s valuation as presented by real estate broker who is not a licensed appraiser; secured creditor presented testimony of licensed appraiser who submitted written appraisal; appraisal (which was $640,000 higher than broker’s estimate) well documented and reasonable; creditor’s objection to feasibility of plan rejected because of pending litigation over claim amount and all debtor has to do is fund interest-only payments until claim amount determined; but plan cannot be confirmed because debtor has agreed to make amendments; debtor has until Feb. 1, 2012 to file amended plan). 


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