Case Summaries 08/2013
(plaintiffs sued under Federal Tort Claims Act (FTCA) claiming; that their cattle operation was damaged due to seed mixture (grass and legumes) that USDA’s State Grazing Specialist (MN) advised them to plant on their property associated with plaintiffs’ participation in EQIP program; seed mixture selected by State Grazing Specialist contained high amount of Alsike Clover which can create toxic hay for cattle; plaintiff complained about mixture and requested permission to plant alfalfa mix which permission was denied due to presence of wet soils; plaintiffs complied with USDA seed mixture because non-compliance would have eliminated EQIP funding; plaintiffs claimed that resulting toxic hay caused cattle deaths and illnesses and destroyed multi-generation farming operation; defendant claimed that mold from improperly stored hay actual cause of cattle deaths; trial court dismissed case on basis that employee’s conduct was within FTCA’s discretionary-function exception; on appeal ,court reversed; on further review by same court on en banc review, trial court decision affirmed; USDA employee had to balance EQIP’s purposes of improving/maintain livestock nutrition or health with environmental quality and not subject to second-guessing by courts; three judges dissented).
(town residents claim that defendant’s farming practices generated excessive amounts of dust, and other forms of pollution that violated state (HI) law; plaintiffs asserted claims based in negligence, trespass, and nuisance and also claimed that landlords liable for acts of defendant, their tenant; plaintiffs seek remuneration for loss of property value and cost of mitigation, and injunction against defendant; court determined that plaintiffs failed to plead sufficient facts to support claims of negligence, failure to warn, trespass and nuisance against landlord, but that pleading defects could be cured; court also determined that plaintiff did not allege facts that, if proven, would establish that landlord committed intentional or negligent misrepresentation; plaintiffs’ negligence claim accrued in 2000; court didn’t reach issue of whether farming could constitute an ultra-hazardous activity).
(Chapter 13 case involving confirmation of reorganization plan; plan not confirmable because amount allowed to unsecured claims was not at least equal to what unsecured claimholders would have received had debtor filed liquidation bankruptcy and, thus, violated 11 U.S.C. Sec. 1325(a)(4); impermissible to condition distribution of net proceeds of preference action on trustee electing to bring optional litigation; on interest rate issue, court determined that use of rate less than what U.S. Supreme Court set forth in Till decision inappropriate).
(petitioner developed landscaping business in Jackson, WY, and later purchased ranch property in ID about 220 miles from Jackson on which he started a bull breeding business; petitioner employed three of his landscaping business employees to work as ranch hands and had a local farmer to assist with cattle; petitioner testified that he spent more than 1,000 hours on the bull breeding activity during years at issue, but did not maintain contemporaneous log or the equivalent, but did create schedules post-audit; loss from bull breeding activities for years in issue exceeded $100,000 each year; court determined that petitioner did not satisfy any of the material participation tests under the passive loss rules and did not establish that bull breeding activity was engaged in on a basis that was regular and continuous; losses from bull breeding activity not deductible).
(attorneys representing debtor in Chapter 13 case not entitled to “no-look” (non-itemized) fees; but, to get no-look fees, legal services provided must be provided in competent and timely manner; no-look fees not awarded in this case because of attorneys wasted time and filed inadequate documents repeatedly and appeared on behalf of clients without preparation and with no knowledge of pending issues).
(petitioner was S corporation that made and sold glass blocks for North American real estate market; S corporation president only full-time worker and was responsible for all operational and financial decisions; S corporation did not pay president salary or wages, but did make distributions which IRS treated as wages subject to FICA and Medicare; president's services generated all of S corporation's income; some of distributions not treated as loan repayments for advances president made to petitioner due to lack of substantiation; while transfers reported as loans on Forms 1120S, no supporting documentation and president did not treat such amounts as loans; court sustained IRS' wage classification of over $30,000 for each of 2007 and 2008 even though petitioner's net taxable income far less than $30,000 which meant that court expected corporation to incur taxable loss so as to generate payroll taxes).
(Chapter 13 case involving question of whether bankruptcy trustee can be paid statutory percentage fee when no plan is confirmed; under 11 U.S.C. Sec. 568(e)(1)trustee can collect fee under confirmed plans from debtor’s plan payments; trustee claimed that 11 U.S.C. Sec. 568(e)(2) requires trustee to deduct trustee fee from all payments received from debtor regardless of whether plan confirmed and apply funds received for fee to pay percentage fee; court disagreed, noting that 11 U.S.C. Sec. 1326(a)(2) specifies that if no plan is confirmed, trustee to return all of debtor’s payments less allowed administrative claims; 11 U.S.C. Sec. 1326(a)(1)(A) specifies that debtor to make payments in the amount proposed by the plan, and court determined that such amount includes trustee’s fee; accordingly, trustee not entitled to retain fees in unconfirmed cases; thus, 11 U.S.C. Sec. 568(e)(2) directs trustee to collect and hold percentage fees pending plan confirmation and 11 U.S.C. Sec. 1326(a)(2) tells trustee how to disburse payments after confirmation or denial of confirmation, and 11 U.S.C. Sec. 1326(b)(2) requires trustee to return to debtor all funds received including trustee’s fee after paying administrative expenses when plan not confirmed).
(Arkansas landowners seek summary judgment against defendant for defendant’s failure to pay cash bonuses of $300 per acre in addition to royalty payments in accordance with oil and gas leases; landowners executed leases and defendant failed to pay on bank drafts because it had made determination to abandon oil and gas exploration in the county after drilling dry well; trial court granted summary judgment on finding that lease agreements were binding and only subject to defendant’s good faith approval of title and cancellation unrelated to title; appellate court affirmed; language of written oil and gas leases coupled with bank draft issued to pay cash bonus constituted enforceable contracts; mutuality of obligation present even though bank draft contained “no-liability” clause because such clause contrary to language in lease; lease agreements were accepted in accordance with approval language and renunciation of lease does not preclude enforceability).
(parties own adjacent tracts with defendants acquiring their tract first; defendants used property for training and riding horses; electric fence constructed on plaintiffs’ property along with paddock; ownership of strip in dispute; defendant’s use not continuous or with intent to claim ownership; electric fence not boundary fence).
(consolidated appeals concerning issues related to the same tract of land; appeal found substantial evidence supported jury verdict finding defendant entitled to an easement by necessity for running a water line across the plaintiff’s property because the defendant’s property was land-locked and an earlier lawsuit mandated that the water company extend service to the defendant; appeal upheld zoning board decision denying application for commercial activity on plaintiff’s property not arbitrary as evidence demonstrated intended activity exceeded that stated in application, increased traffic to occur, and other adverse effects on neighboring property).
(boundary dispute based on 1974 deed’s reference to an “existing fence”; question was whether current “zigzag” fence or former “straight” fence that no longer existed was referenced; property was split in 1974 and the deed referenced the property line as the fence; in 1977 the landowner purchased the second half of the property and the deed reference the boundary as a straight line; subsequent conveyances of the properties continued to carry this discrepancy; plaintiff also pled adverse possession claim for the use of the disputed area; trial court found evidence showed boundary in 1974 was straight line; adverse possession also was not proven because plaintiff could not establish continuous use of the area for 10 years; decision affirmed on appeal).
(property tax assessment dispute between county assessor and landowners regarding proper valuation of 3.3 acres of land used for hay cultivation; all parties agreed property was properly classified as agricultural, but disagreed as to why; assessor argued valuation should be made pursuant to statutory requirements for vacant and unused property classified as agricultural which examined best use of property and assesses property based on fair market value ($374,500 assessment); landowners claimed use of property was agricultural and valuation should be based on land’s productive capability ($400 assessment); hearing officer determined land was used for agricultural purposes and valuation should be based on productive capability, which she valued at $75 an acre; assessor appealed and district court reversed, holding property should be assessed at fair market value; landowners appealed; appellate court held that determination of use was question of fact for hearing officer and her decision upheld because not arbitrary, capricious or unreasonable; court also held that agricultural purpose under statute does require use to be profitable or meet other “objective” criteria proffered by assessor).
(easement holder’s predecessor-in-title executed quitclaim deed favoring servient landowner’s predecessor-in-title that released interest in land, but QCD did not extinguish easement; no clear intent to abandon; in addition, evidence supported finding that easement use consistent with original purpose of easement; nominal damages awarded).
(boundary dispute between adjacent properties; plaintiffs claimed fence line in existence since 1947 established boundary by agreement; in granting summary judgment to defendants, district court disagreed because fence erected while parcels were under common ownership to separate cattle from farmed fields, so there was no agreement at the time built that fence established boundary; appellate court reversed and remanded for lower court to consider actions and acquiescence of subsequent landowners in 60 years since fence built to determine if agreement existed, including predecessor’s practice of farming to fence line and well-established wind break planted on other side of fence line).
(taxpayer is married but temporarily living apart from spouse due to spouse’s employment and raised question as to whether filing status could be head of household (HOH); IRS determined that HOH status not available if spouse away by reason of business and planned to share common household with taxpayer in future – spouse’s absence merely temporary absence; taxpayer not unmarried at close of tax year in accordance with I.R.C. Sec. 7703(b) and Treas. Reg. Sec. 1.7703-1(b)(5)).
(plaintiff was accountant whistleblower and brought qui tam lawsuit against employer under False Claims Act; plaintiff received $36.6 million in settlement proceeds and $9.4 million for attorney fees of $18.5 million actually incurred; plaintiff claimed $3.8 million deduction for attorney fees paid but not awarded in settlement as fully deductible business expenses not subject to 2 percent limitation on miscellaneous itemized deductions and as fully deductible for AMT purposes; court determined that plaintiff in trade or business of pursuing lawsuit and associated attorney fee expenses fully deductible; plaintiff provided services to government as activities as relator; court noted that plaintiff kept detailed log and put in 5,963 hours in pursuing lawsuit and that his litigation activities were regular and continuous).
(petitioner held title to tracts of real estate to be used by father's construction business; because father could not obtain additional credit on own, father used petitioner's favorable credit rating to buy and develop the tracts; petitioner did not receive any payments, but served as conduit for payments to and from father; after expiration of three-year statute, IRS claimed petitioner had unrecognized income from sale of tracts resulting in omission from gross income that exceeded 25 percent thereby allowing six-year statute of limitations; court determined, based on testimony of witnesses, that petitioner only served as father's agent and that under assignment of income doctrine, father required to report income rather than petitioner as agent; six-year statute inapplicable).
(final regulation defines “gluten-free” for voluntary use in food labeling; “gluten-free” defined to mean that food bearing the claim does not contain any ingredient that is a gluten-containing grain, an ingredient derived from a gluten-containing grain that has not been processed to remove gluten, or ingredient derived from gluten-containing grain that has been processed to remove gluten if the use of that ingredient results in presence of 20 ppm or more gluten in food (20 mg or more gluten/kg of food); any such labeled food that subsequently fails to meet requirements deemed misbranded; effective Sept. 4, 2013 with compliance date of Aug. 5, 2014).
(no abandonment loss deduction for cost associated with proposed stock offering; while reorganization plan including stock offering was terminated, no abandonment actually occurred because taxpayer had intent to complete reorganization at future date in separate transaction; abandonment loss deduction only available if entire transaction abandoned, and costs of pursuing alternatives that are not consummated must be capitalized).
(adjacent property owners entered into stipulation and settlement agreement in lieu of writ of mandamus concerning clearing of fence line of brush and weeds; if agreement not followed, plaintiffs had right to petition township trustees for relief under state law and trustees would have the fence line cleared; agreement not followed by property owner and township trustees failed to clear fence line; plaintiff's suit also alleged that trustees had individually acted fraudulently to induce plaintiff to enter into agreement and sought compensatory and punitive damages against trustees in individual capacities; claims against adjacent property owner dismissed but not trustees; court informed that case settled and plaintiffs then filed motion to enforce settlement; trustees failed to abide by terms of settlement agreement that court determined was binding; plaintiffs awarded $15,000 according to terms of settlement agreement, plus attorney fees of $37,558 and $3,888 for expert witness fees; on appeal, court affirmed).
(petitioner is a minister that paid $35,000 in mortgage and utility payments for the home he owned; church organization petitioner affiliated with did not comply with I.R.C. Sec. 107 but did incorporate petitioner and petitioner signed vow of poverty; no Form 4361 timely filed to obtain exemption from self-employment tax; petitioner assigned his income to the affiliated church organization which fed, housed and clothed petitioner; petitioner's salary not received from third party; instead petitioner received compensation for services rendered to affiliated religious organization; no income transferred to religious organization via vow of poverty; payments religious organization made on behalf of petitioner only benefited petitioner in meeting basic living expenses).