Annotations 07/2014

The petitioner lived in NYC and worked for a business that was headquartered in L.A.  The petitioner worked from her apartment at the employer's request, and divided her studio apartment into thirds with one-third used for business.  During 2009, the tax year at issue, the petitioner paid for a cleaning service, cable, telephone and internet access, clothing for the employer, and a cell phone for business use.  The IRS disallowed all of the associated deductions that were claimed as unreimbursed employee business expenses.  However, the Tax Court allowed a deduction for one-third of the petitioner's apartment rent and cleaning service charges.  The Tax Court also deductions for telephone and 70 percent of the internet cost.  As for electricity charges, the petitioner's records were insufficient to allow a deduction for any amount.  Cell phone charges were not deductible due to lack of substantiation required (cell phones were listed property in 2009 and subject to strict substantiation rules which were removed by the SMJA of 2010).  The Tax Court did not allow any deduction for clothing expenses because the petitioner admitted that the purchased clothing were also suitable for personal wear.  Miller v. Comr., T.C. Sum. Op. 2014-74.

The plaintiff was a dairy farmer with a history of allegations against him by local residents and officials from the Maine Department of Agriculture (MDOA) that he engaged in poor animal waste management at his farm in Maine. His farm, which was home to as many as 500 cows, stored manure in a pit located approximately 300 feet from a stream that was classified as a “Class A” waterway. Although officials apparently criticized the plaintiff’s practices for a number of years, they took no enforcement action against him until  2006, a time that corresponded roughly to the time that the defendant became the Commissioner of Agriculture. The defendant and the plaintiff had previously entered into a business deal involving government programs that ended very badly. The plaintiff had filed an appeal with the USDA because of his interactions with the defendant. Although the defendant recused himself from actions involving the plaintiff, the plaintiff alleged that the MDOA suddenly dropped its long-time opposition to Department of Environmental Protection’s enforcement action against him when the defendant became the commissioner. The plaintiff also asserted that the MDOA revoked his professional livestock operations permit and denied him a variance from Maine’s winter ban on manure spreading during that same time. At the end of 2006, the EPA issued an administrative order against plaintiff’s farm for violating the Clean Water Act.  The plaintiff filed an action against the defendant alleging that he was retaliating against the plaintiff for constitutionally-protected speech stemming from the plaintiff’s USDA appeal. The district court granted summary judgment for the defendant, finding that the MDOA would have taken the same enforcement actions against the plaintiff, even in the absence of the plaintiff’s USDA appeal.  Given the poor conditions documented in the record, including liquid manure draining into the stream and a leaking manure pit, no reasonable jury could have found that the DOA would have acted differently absent the personal conflict between the plaintiff and the defendant.   McCue v. Bradstreet, No. 1:12-cv-00204-JDL, 2014 U.S. Dist. LEXIS 103632 (D. Me. Jul. 30, 2014).

A drive-in movie theater sued an adjoining farm, alleging that the light emanating from the farm constituted a private nuisance damaging the theater. A jury awarded the theater $830,000 in damages to construct a fence to block the light, but the trial court granted the farm’s motion for judgment notwithstanding the verdict. The trial court found that there was insufficient evidence for the jury to find a private nuisance. On appeal the court affirmed, ruling that the standard commercial lights employed by the farm were very typical and ordinary lights used by a business. They could not, as a matter of law, have constituted an unreasonable and substantial interference with the theater’s property rights. A private nuisance action could not be maintained based upon a plaintiff’s special sensitivities. Rather, the inconvenience would have to be one that is “objectively unreasonable” to the ordinary plaintiff. Blue Ink v. Two Farms, Inc., No. 01487, 2014 Md. App. LEXIS 73 (Md. Ct. Spec. App. Jul. 30, 2014).

This case points out, again, that payments in a divorce by means of a property settlement are not deductible.   Here, the petitioner signed a separation agreement that was incorporated into a divorce decree.  The agreement awarded the petitioner's ex-wife $65,000 to be paid within 30 days of the execution of the agreement.  The petitioner deducted the $65,000 as alimony.  Under I.R.C. Sec. 71(b)(1)(B), such payments are generally not deductible.  The court disallowed the deduction the imposed a 20 percent substantial understatement penalty.  Also, numerous scrivenor errors in separation agreement.  Peery v. Comr., T.C. Memo. 2014-151.

A decedent’s will named three equal beneficiaries: her son, her stepdaughter, and her step-granddaughter. The step-granddaughter was the attorney-in-fact for the decedent during her lifetime. She was also listed (with the son) as a 50% beneficiary of a POD bank account owned by the decedent. Shortly before the decedent’s death, the step-granddaughter, acting as her attorney-in-fact, sold the decedent’s home, acreage, and household contents at an auction. She deposited the net proceeds, which totaled $80,240, into the POD account. When the decedent died, the stepdaughter split the POD bank account proceeds with the son, and, acting as the executor of the decedent’s estate, filed a small-estate affidavit stating that the value of the decedent’s estate totaled only $9,800, thereby not requiring the granting of letters testamentary. The stepdaughter petitioned the court to direct the application for letters testamentary, arguing that the value of the estate was in excess of $40,000. The trial court concluded that the step-granddaughter exceeded her authority as attorney in fact in depositing the proceeds from the auction into the POD account. On appeal, the court affirmed, ruling that the step-granddaughter was not authorized to make a gift to herself absent express authorization by the decedent. The power of attorney form authorized the step-granddaughter to make gifts to herself only if she respected the intentions of the will. The step-granddaughter was required to turn over the auction proceeds to the estate.   In re Estate of Qualls, No. WD76962, 2014 Mo. App. LEXIS 815 (Mo. Ct. App. Jul. 29, 2014).

The petitioner was a full time insurance professional and also engaged in various real estate ventures from his home base in North Carolina.  He got involved in cattle breeding with an individual located (at least part of the time) in Indiana.  The cattle breeding venture resulted in numerous breached contracts, unpaid bills and promissory notes and unregistered genetic lines of cattle.   The cattle breeding business was not operated in a business-like manner.  In addition, the cattle breeding venture showed four consecutive years of losses while he was showing a substantial increase in income from this insurance and real estate businesses.  The court determined that IRS prevailed under the I.R.C. Sec. 183 tests and petitioner's cattle breeding venture was deemed to be conducted without a profit intent.  Gardner v. Comr., T.C. Memo. 148.

Plaintiffs sued their neighbor for compensation after the neighbor was convicted of intentionally killing the plaintiffs’ dog. The trial court limited damages to the market value of the dog. On appeal, the court affirmed, finding that dogs were classified as personal property by an Ohio statute. As such, the court had to abide by the market-value limitation on damages derived from common law. While the court appreciated the subjective value of the dog to the plaintiffs and their emotional attachment to him, the court found that the law simply did not consider sentimentality as a “proper element in the determination of damages caused to animals.” The plaintiffs had not identified a particularized and identifiable pecuniary loss. Davison v. Parker, No. 2013-L-098,  2014 Ohio App. LEXIS 3201 (Ohio Ct. App. Jul. 28, 2014).


A corporation's former subsidiary business converted to an LLC with the corporation as it's sole member and the IRS determined that the businesses were separate and distinct trades or businesses under I.R.C. Sec. 446(d) because they were engaged in different activities, had separate books, separate records, were not located near each other and did not share employees except for top-end executives.  Thus, the businesses could use different accounting methods for each of the different businesses.  There was not creation or sharing of profits and losses between the businesses, and income of the businesses was clearly reflected.   This was the case even though the LLC did not elect to be taxed as a corporation and, as a result, was a treated for tax purposes as a division of the corporation.  C.C.A. 201430013 (Mar. 24, 2014).  

A railroad company proposed the closure of several private railroad crossings and closed one of them.  The plaintiffs are owners or lessees of farmland adjacent to the crossings. The plaintiffs contended that their access to their farm property would be restricted if the railroad were allowed to close the crossings. In 2008, the Louisiana legislature passed a statute, La. Rev. Stat. Ann. § 48:394, (the Act) prohibiting railroads from closing or removing any private crossing unless the railroad gave 180 days’ notice and convinced the Louisiana Public Safety Commission (LPSC) that the action was necessary for safety and in the best interest of the public. In 2010, the court ruled that federal law prohibited state regulation of private crossings that unreasonably burdened or interfered with rail transportation. The Louisiana legislature amended the Act to state that a railroad company was prohibited from closing a private crossing unless the railroad company could convince the LPSC that the specific crossing unreasonably burdened or substantially interfered with rail transportation. In 2007, the plaintiffs sued the railroad company in state court seeking a declaration of their rights to use the crossings and seeking injunctions preventing the railroad company from closing or removing the crossings. After removal to federal court, the railroad company sought a declaration that it was entitled to remove the crossings. After the Act’s passage, the railroad company also alleged that the Act would effect an unconstitutional taking of the railroad company’s property without a public purpose in violation of Article I, Section 4 of the Louisiana Constitution. The court certified the question to the Louisiana Supreme Court, finding that the state’s highest court should consider the question of the relationship between a state statute and the state constitution in the first instance.   Faulk v. Union Pac. R.R. Co., No. 13-30669, 2014 U.S. App. LEXIS 14286 (5th Cir. Jul. 25, 2014).

The taxpayers adopted a child of mixed ancestry and claimed the I.R.C. Sec. 23(b) credit for associated expenses because the child was not likely to be adopted due to mixed parentage.  To get the credit, the state must make a determination that the child is a special needs child.  The taxpayers claimed that state law specifies that a special needs child is one not likely to be adopted because the child is black or of mixed parentage, and that the statute constituted a determination.  The court held that the statute did not constitute a determination because no individualized decision with respect to the child had been made.  Lahmeyer v. United States, No. 13-23288-CIV-ALTONAGA/O'Sullivan, 2014 U.S. Dist. LEXIS 114896 (S.D. Fla. Jul. 25, 2014). 

The sellers had purchased their home for $450,000 from the estate of a couple who died in a murder/suicide. The murder/suicide was highly publicized. One year later, after investing in many renovations, the sellers listed their house for sale, informing their realtor and consulting with an attorney and the Pennsylvania Real Estate Commission regarding the tragic history of the home. The sellers relied on the advice of counsel and the Commission and did not disclose the murder/suicide as a material defect on their Seller’s Property Disclosure Statement. A California resident purchased the home from the sellers for $610,000. She did not learn of the murder/suicide until after she had moved into the home. She filed an action against the sellers and their realtor, asserting that she never would have purchased the home had she known its history. The trial court granted summary judgment for the defendants, ruling that murder/suicide was not a material defect subject to disclosure. An en banc panel of the Superior Court affirmed, finding that psychological damage to a property cannot be considered a material defect. On appeal, the Pennsylvania Supreme Court agreed. The court ruled that the murder/suicide events were not defects in the “structure” of the house. The sellers’ disclosure duties were designed to address structural defects, not tragic events. The court reasoned that a requirement that such events be disclosed would be impossible to apply with consistency and would place an unmanageable burden on sellers.  Milliken v. Jacono, No. 48 MAP 2013, 2014 Pa. LEXIS 1770 (Pa. Jul. 21, 2014).

The plaintiff was a Mexican citizen and nonresident of the U.S. that brought a tax refund action exceeding $16 million.  He claimed that he was engaged in the trade or business of slot machine gambling in Las Vegas and, as a result, his taxes should be based on his net income in accordance with I.R.C. Sec. 871(b) (nonresident alien is taxed on taxable income connected with trade or business conducted in the U.S.).  The plaintiff had retired from a Mexican potato farming business in 2001 and began his "betting business" at that time, making numerous trips to Las Vegas annually.  For the years at issue, the plaintiff reported a net loss in some years and profit in other years.  On audit, IRS disallowed wagering costs due to lack of trade or business and issued deficiency notice and assessed tax at 30 percent rate pursuant to I.R.C. Sec. 871(a)(1).  Court determined that test set forth in Comr. v. Groetzinger, 480 U.S. 23 (1987) was to be utilized in determining the existence of a trade or business, and that the test was not satisfied because the plaintiff did not engage in gambling activities on a basis that were continuous and regular.  The court turned to the factors set forth in Treas. Reg. Sec. 1.183-2 to determine whether the plaintiff had the requisite profit intent to be deemed to be in the conduct of a trade or business and determined that: (1) he did not pursue his gambling activity for the purpose of making a profit; (2) he couldn't rely on advisors or gain expertise because playing slots is controlled by a random number generator with the outcome based on pure luck; (3) his time spent on the activity was sporadic and did not consume much of his personal time; (4) he had no expectation that the assets used in the activity would increase in value (because there were none); (5) he didn't participate in any other activities that would enhance his success in playing slot machines; (6) the history of income or loss from the activity was a neutral factor; (7) the amount of occasional profits slightly favored the plaintiff; (8) the taxpayer was very wealthy and didn't need income from slots to support himself, and; (9) there were substantial elements of personal pleasure.  Thus, the plaintiff did not engage in playing slots with the required profit intent.  The court upheld the IRS position.  Free-Pacheco v. United States, No. 12-121T, 2014 U.S. Claims LEXIS 666 (Fed. Cl. Jun. 25, 2014).     

A horse farrier of 45 years was trimming the hooves of the defendant’s horses when the horses knocked the farrier down, causing him to strike his head on a rock. The farrier died from his injuries. His widow sued the defendant for premises liability and wrongful death, alleging that the defendant had negligently allowed his corral to remain rocky, thereby contributing to her husband’s death. The trial court granted summary judgment for the defendant, finding that the horses, not the rock terrain, caused the fall. The court found that the defendant owed no legal duty to the farrier because of the “occupational assumption  of risk doctrine.” On appeal, the court affirmed, ruling that a no-duty rule (often called the “veterinarian’s rule”) applied where a person confronted unpredictable animals as an inherent part of his job. The court found that the job of a farrier was an inherently dangerous occupation as much (or more so) as that of a veterinarian. As such, the assumption of the risk doctrine applied to bar the widow’s claims. The defendant owed no duty to the farrier since the farrier assumed the risks of his inherently dangerous occupation and all of its associated risks. Barrett v. Leech, No. D063991, 2014 Cal. App. Unpub. LEXIS 5185 (Cal. App. Ct. July 24, 2014).

A married couple operated numerous Steak 'n Shake franchises, but later also began breeding and training Tennessee Walking Horses.  After the husband died in a 2003 house fire, the surviving spouse became President of the corporation that ran the franchises and was very involved in the franchise businesses.  The couple had purchased several hundred acres in TN for slightly under $1 million to operate their horse breeding and training activity.  They ran up substantial losses from the horse activity which they attempted to deduct.  The IRS denied the deductions and the surviving spouse paid the tax and sued for a refund.   The court upheld the IRS determination.  The court noted that under the multi-factor analysis the taxpayers (and later the widow) didn't substantially alter their methods or adopt new procedures to minimize losses, didn't get the advice of experts and continued to operated the activity while incurring the losses.  The court noted that the losses existed long after the expected start-up phase would have expired.  Profits were minimal in comparison and the taxpayers had substantial income from the franchises.  Also, the court noted that the widow had success in other ventures, those ventures were unrelated to horse activities.  Estate of Stuller v. United States, No. 11-3080, 2014 U.S. Dist. LEXIS 100617 (C.D. Ill. Jul. 24, 2014).

The petitioner bought an existing home in January of 2009 that needed substantial repairs to make it habitable.  The petitioner began using the house in May of 2009 after making over $10,000 of repairs.  The petitioner claimed the First Time Homebuyer Tax Credit (FTHBTC) based on the purchase price plus the repair cost.  IRS disallowed the part of the credit attributable to the repairs (note - the house was a low-cost home substantially less than the maximum credit allowed).  While I.R.C. Sec. 36(c)(4) bases the credit on the "purchase price" of the home and defines that phrase as the "adjusted basis of the principal residence on the date the residence is purchased", the court determined that "purchase date" is normally the date when the taxpayer takes legal or equitable title with respect to existing housing.  But, the phrase is the date occupancy is established for a constructed residence based on Woods v. Comr., 137 T.C. 159 (2011).  Here, the court determined that the petitioner did not "construct" the house and that, therefore, the credit was to be computed with respect to the purchase price when he took title to the property and the IRS determination was upheld.  Leslie v. Comr., T.C. Sum. Op. 2014-65.

For death's in 2010 an election could be made to opt-out of the federal estate tax.  Such an election resulted in a modified carry over basis rule being applied to assets in the decedent's estate.  Under I.R.C. Sec. 121(d)(11), property acquired from a decedent (or decedent's estate or trust) can take into account the decedent's ownership and use to determine eligibility for the gain exclusion rule.  In this administrative ruling, the IRS determined that the I.R.C. Sec. 121(d)(11) provision is not repealed for 2010 deaths, but is repealed by P.L. 111-312 (the 2010 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010) for deaths before or after 2010.  C.C.M. 201429022 (May 27, 2014).

In consolidated interlocutory appeals, defendants (financial companies and accountants) challenged the district court's certification of a class of investors in four funds created and managed by the Fairfield Greenwich Group, which sustained billions of dollars in lost value following the collapse of the Madoff Ponzi scheme. In vacating the district court’s order, the court ruled that the order did not indicate how common evidence could show (1) the existence of a duty of care applicable to the class or (2) reliance by the class on alleged misrepresentations. Both were required to show that individual issues did not predominate and that the class should be certified under Fed. R. Civ. P. 23(b)(3). The court noted that Rule 23 did not set forth a pleading standard, but that the "party seeking class certification must affirmatively demonstrate compliance with the Rule.” A district court could only certify a class if it was “satisfied, after a rigorous analysis,'" that the requirements of Rule 23 were met.  Stephen's Sch. v. PricewaterhouseCoopers Accountants N.V., Nos. 13-2340-cv(L), 13-2345-cv(Con), 2014 U.S. App. LEXIS 11515 (2d Cir. N.Y. Jun. 19, 2014).

The petitioner had substantial income from non-real estate trades or businesses, but tried to qualify as a real estate professional so as to fully deduct substantial rental real estate losses.  The petitioner, however, could not substantiate his activity.  Two commercial rentals were profitable.  The rentals were to two S corporations in which the petitioner was also the president and majority shareholder and an active participant.  While the petitioner claimed that he did not provide any services to the S corporations, the petitioner had also claimed in another lawsuit brought by his children against him (who claimed that the petitioner didn't work enough in the S corporations to justify his large salary) that he was actively involved and was "creating" and "inventing" and was participating in the strategy and growth of the business.  Because the petitioner had taken the position in the other litigation that he was active, the court determined that he was materially participating with the result that the net income from the self-rentals was recharacterized as non-passive.  Schumann v. Comr., T.C. Memo. 2014-138.

The petitioner did consulting and tax prep work out of her home.  She filed a Schedule C on which she claimed deduction for home office expenses.  She said that the percentage of the home used for businesses was 33 percent on Form 8829.  She also paid small amounts of "wages" to three children for work in her business activities that were actually paid to them in the form of credit card purchases for meals and tutoring.  On the percentage issue, the court noted that the petitioner simply took the basement as one of the three levels of her home and took 33 percent as the business use percentage.  The court agreed with IRS and disallowed expenses associated with the home office due to lack of evidence on which the court could base an estimate of the space actually used for business use.  On the deduction for wages, the court noted that two of the children were required to file (their income exceeded the standard deduction) had they not been minors, but that they were compensated for services that were actually household chores.  Thus, no deduction for wages as business expenses was allowed.  Ross v. Comr., T.C. Sum. Op. 2014-68.

The defendant was the nephew of an elderly man who had been cared for by his longtime partner. After his partner could no longer care for him, the defendant moved in with the uncle and began providing him with care. He immediately obtained a power of attorney. During the year that he lived with his uncle, the defendant transferred a number of assets of the uncle to himself through the power of attorney. Shortly before the uncle’s death, the defendant was charged with knowing and intentional abuse of a vulnerable adult, attempted theft by deception, and attempted knowing and intentional abuse of a vulnerable adult. The defendant was convicted on 39 counts of abuse. On appeal,  the court ruled that the evidence was sufficient to show that the uncle was a vulnerable adult and that he had a mental or functional impairment during the time in question. The evidence showed that the uncle could no longer care for himself and that he was consistently confused. A CT scan had revealed that the uncle’s brain had shrunk due to dementia. The evidence established that the defendant used his power of attorney not for the benefit of the uncle, but to assure that he and his siblings would benefit from the uncle’s property.The district court did not give the jury misleading, confusing, or incomplete jury instructions.  State v. Rakosnik, 22 Neb. Ct. App. 194 (2014).

In 1952, the owner of Illinois farmland granted a pipeline operator an easement for two pipelines across the parcel. The first pipeline was built immediately.  The second pipeline, if built at all, had to be within 10 feet of the first pipeline. The operator promised that the land would remain farmable. In 2012, the operator notified the owner (now successor in interest) that it planned to build a second pipeline. The owner responded with a federal diversity quiet-title suit under Illinois law, asking the court to declare that the operator had no right to build a second pipeline—either because the right to do so has expired or because another pipeline would violate the farmability condition of the 1952 contract. The operator replied that the right to build a pipeline has no time limit and that federal law, in particular 49 U.S.C. §60104(c) (safety provision), preempted enforcement of the farmability condition. The district court agreed with the operator and dismissed the suit. On appeal, the court found no reason to think that Illinois courts would call the 1952 contract an option or apply the Rule Against Perpetuities. The district court therefore properly denied the owner's request to quiet title in its favor. That portion of the judgment was affirmed. The remainder of the judgment, however, was vacated because the farmability question was not ripe for decision until the pipeline was built.  Knight v. Enbridge Pipelines Fsp L.L.C. & Ccps Transp., No. 13-3481, 2014 U.S. App. LEXIS 13708 (7th Cir. Jul. 16, 2014).

A farmer borrowed money to fund his business from his father’s trust (the father was the sole trustee). The farmer filed the standard form UCC financing statements naming himself as debtor and the trust as the secured party. These statements were filed with the Secretary of State, but no security agreements were memorialized. During this time, the farmer entered into a three-year lease agreement with three landlords. The farmer and the landlords entered into a settlement agreement for a civil action the farmer filed against them. The farmer assigned the proceeds of the confidential settlement to the trust. Three days later, the farmer and the landlords received a garnishment summons from a creditor that had obtained a judgment against the farmer in the amount of $89,822. After receiving court approval, the landlords deposited the settlement funds with the court, and the creditor filed an interpleader action asking for the funds and alleging that the farmer’s assignment of the settlement proceeds constituted a fraudulent transfer. The district court entered summary judgment for the creditor, and the farmer appealed. The court affirmed, finding that the financing statement alone could not substitute for a valid security agreement. As such, there was no enforceable security interest. The district court also did not err in finding a fraudulent transfer under the Minnesota Uniform Fraudulent Transfer Act, Minn. Stat. § 513.45(b). The farmer did not overcome the presumption that his transfer to an insider was fraudulent. Weinandt v. Peckman, No. A14-0073, 2014 Minn. App. Unpub. LEXIS 727 (Minn. Ct. App. Jul. 14, 2014).

Plaintiff is a chicken farmer who challenged an EPA Compliance order pursuant to the Clean Water Act (CWA) claiming that rainwater polluted with dander, manure, and other fine particulates stemming from plaintiff’s poultry CAFO was polluting nearby streams.  Plaintiff filed her lawsuit alleging that the discharge constituted "agricultural stormwater," which is exempt from the CWA's permitting requirements. The EPA withdrew its Compliance Order and then sought to dismiss the lawsuit, contending that its withdrawal of the Compliance Order rendered the entire proceeding moot. The plaintiff disagreed, maintaining that the district court retained jurisdiction because the EPA had not altered its position that her farm remained subject to the CWA's discharge permitting requirements. The court denied the EPA's motion to dismiss and granted motions by several clean water advocacy organizations to intervene as defendants. One day after the plaintiff filed her motion for summary judgment, pursuant to the court’s scheduling order, another environmental group filed a motion to intervene pursuant to Federal Rule of Civil Procedure 24(a), and, alternatively Rule 24(b). the district court denied the motion to intervene on the grounds that it was untimely and would unduly delay the adjudication of the other parties’ rights. In affirming the denial, the Fourth Circuit found that the district court had properly determined (1) how far the underlying suit had progressed; (2) the prejudice any resulting delay might cause the other parties; and (3) why the movant was tardy in filing its motion. The environmental group’s strategic decision not to devote its "limited resources" to the matter at an earlier stage, believing the court would grant the EPA's motion to dismiss engendered little sympathy. Alt v. United States EPA, No. 13-2200, 2014 U.S. App. LEXIS 13319 (4th Cir. W. Va. Jul. 14, 2014).

Five states bordering the Great Lakes and an Indian tribe filed an action for injunctive relief based upon the assertion that Asian carp were about to invade the Great Lakes and that they were poised to inflict billions of dollars of damage on the ecosystem. Believing that the U.S. Army Corps of Engineers (Corps) and the Metropolitan Water Reclamation District of Greater Chicago (District) had failed in their task of protecting the Great Lakes, the plaintiffs asked the court to impose measures against the defendants to ensure that the carp were forever blocked from the Lakes. The district court dismissed the action under Fed. R. Civ. P. 12(b)(6), finding that the action failed to state a claim for which relief could be granted. On appeal, the Seventh Circuit Court of Appeals affirmed, finding that the complaint did not plausibly alleged that the Corps and the District were creating a current or imminent public nuisance by their manner of operating the Chicago Area Waterway System (CAWS). The court found that there was a notable lack of factual allegations that Asian carp were passing the barriers that the Corps had established, and that the complaint did not plausibly allege that the Corps could not or would not respond to more urgent threats if and when they would arise. To the contrary, the allegations tended to show that the Corps was taking its stewardship over the CAWS and the carp problem seriously. The states were free to return to court based upon changed circumstances.  Michigan v. United States Army Corps of Eng'rs, No. 12-3800, 2014 U.S. App. LEXIS 13349 (7th Cir. Jul. 14, 2014).

Under the passive loss rules, in a fully taxable transaction, if all of the gain or loss on the disposition of an activity is realized, then the excess of any loss from that activity over any net income or gain from all other passive activities is treated as a non-passive loss.  Here, IRS reached the conclusion that the use of I.R.C. Sec. 121 does not mean that a transaction is not a "fully taxable transaction."  For instance, if a taxpayer sells a rental property that used to be the taxpayer's principal residence, the possibility exists that when the property is sold that the gain on sale could at least be partially offset by the gain exclusion of I.R.C. Sec. 121 (if the use and occupancy requirements are satisfied).  If the rental activity has unused passive losses, the I.R.C. Sec. 121 exclusion does not bar the ability to release the excess losses under I.R.C. Sec. 469(g)(1).  C.C.A. 201428008 (Apr. 21, 2014).

An electrician was installing a sign in a storefront canopy at a shopping center when he fell through the canopy and was injured. He subsequently sued the owner of the shopping center, and the district court granted summary judgment to the shopping center, finding that the shopping center owed no duty of care to the electrician. On appeal, the court affirmed, finding that a landowner does not generally owe a duty of care to a business invitee for dangers that are known or obvious. Even if the canopy design was a hazard, as the electrician asserted, it was an open and obvious one, which should have alerted the electrician to the fact that its bottom was not weight bearing. The electrician testified that he knew the soffit was not weight bearing, and he was a “master sign electrician,” with more than 10 years of experience.  The landowner had no duty to warn him of an obvious hazard integral to his work.  Pinson v. 45 Dev., LLC, No. 13-3327, 2014 U.S. App. LEXIS 13175 (8th Cir. Ark. Jul. 11, 2014).

The plaintiff operated a cattle farm in Iowa. When it considered using an anaerobic digester to dispose of manure on the farm it contacted a corporation specializing in the design and construction of anaerobic digesters to discuss the feasibility of installing a digester on its farm. Because the farm’s manure would not be enough to operate the digester, the corporation calculated that a digester would be economically feasible based upon the availability of 1,000 cubic feet of manure and 250 tons of paper sludge per day. The corporation also agreed to prepare a USDA grant application for the farm. In so doing, it hired an independent consultant to review the technical report and provide an opinion and recommendation. The independent consultant, which did not have a contract with the farm,  composed a certification letter and performed an independent review required by the USDA grant application process. The letter stated that the project was “technically viable.” The farm was awarded the grant in 2008, and the corporation completed construction and installation of the digester. The digester never worked as planned, and the farm stopped using it within 6 to 8 months. The farm sued both the corporation and the independent consultant, ultimately settling with the corporation. The district court granted summary judgment to the independent consultant, finding that it was not “manifestly aware” that the farm would rely on its certification letter in deciding whether to build a digester. It also found that the farm had not actually relied on the letter. In affirming the judgment, the court ruled that the farm could not establish that it justifiably relied on any statements from the independent contractor because it made no statements with respect to the digester that the farm actually built. The farm used a different size and a substantially different substrate mixture than what had been proposed to the independent contractor. These factors were the most important features of a digester. The independent contractor made no representations as to the final design and could not be liable. Amana Society, Inc. v. GHD, Inc., No. 12-3515, 2014 U.S. App. LEXIS 13170 (8th Cir. Jul. 11, 2014).

The States of West Virginia and Kentucky, as well as coal mining companies and trade associations, filed lawsuits, which were consolidated, challenging actions undertaken by the Environmental Protection Agency (EPA) and the Army Corps of Engineers (Corps) in regulating the surface mining of coal. Specifically, the actions challenged the “Enhanced Coordination Process,” which dictated the procedures governing issuance of Section 404 permits (regulating the discharge of dredged or fill materials into navigable waters under the Clean Water Act (CWA))  and a “Final Guidance” document, which governed the issuance of Section 402 permits (regulating the discharge of pollutants into jurisdictional waters). The plaintiffs alleged that the Enhanced Coordination Process violated the CWA and was a legislative rule that should not have been promulgated without notice and comment. They alleged that the Final Guidance violated the CWA and the Surface Mining Controls and Reclamation Act. The district court granted summary judgment to the plaintiffs, and the federal circuit court reversed, ruling that the Final Guidance was not final agency action subject to pre-enforcement review and that the Enhanced Coordination Process was a procedural rule that the EPA and the Corps had authority to enact under the CWA. The “critical feature” of a procedural rule is that it covers agency actions that do not themselves alter the rights or interests of parties, even though it may alter the manner in which the parties present their viewpoints to the agencies. The court found that this description covered the Enhanced Coordination Process. Nat'l Mining Association v. McCarthy, No. 12-5310, 2014 U.S. App. LEXIS 13156 (D.C. Cir. Jul. 11, 2014).

The petitioner operated a consulting business and upon rehiring a former employee gave the employee $33,000 to help him through some tough times.  The petitioner stated to the employee that it was a loan, but no note or contract was executed.  The employee did not pay back the amount and the petitioner claimed a business bad debt deduction on his return.  The petitioner also sued the employee and the case was resolved two years after the tax year in issue when the deduction was claimed.  The evidence was devoid of any indication of either a business or non-business bad debt.  Court noted that even if the evidence had established that the loan was a bona fide debt, the petitioner would not have been able to establish that the bad debt was a business bad debt.  In addition, even if the debt was found to be a business debt, the petitioner would have failed to establish that the debt became worthless in the year in issue.  Dickenson v. Comr., T.C. Memo. 2014-136.  

Under I.R.C. Sec. 163(h), acquisition debt and home equity debt is deductible with the total of the two together not to exceed $1.1 million.  Here, the petitioner purchased a California residence in 2004 and resided in it with his wife and children.  He moved out in 2006 while his wife and children continued to reside in the home through 2012.  The couple was divorced in 2008.  In 2005, however, the petitioner and wife purchased another home with the intent of renting it out for weekly vacations and similar events.  However, the petitioner and spouse weren't able to rent the property out due to substantial repairs that needed to be done in advance of renting the property.  The petitioner lived in the second home while not traveling for work.  On their joint return, the petitioner deducted amounts for mortgage interest with respect to the second home.   IRS disallowed the deduction and the court agreed.  The property was not a rental property and the petitioner continued to reside in the property.  While mortgage interest was deducted on the aggregate loan exceeded $1.1 million, the court disallowed the excess amount attributable to the second home and noted that had the parties (who were divorced during the years in issue) each paid interest expense, each of them would have been able to deduct up to $1.1 million in qualifying debt.  Hume v. Comr., T.C. Memo. 2014-135. 

The defendants built a house on a 72.9 acre tract they purchased in 1992. In 1995, they commissioned a survey of the five-acre homestead portion of their property and in 2005, they recorded a “private road easement” for a 35-foot road leading to the tract. In 2007, the defendants sold all of their property, except for the five-acre homestead tract, to the plaintiffs. The plaintiffs were aware of the roadway easement when they purchased the property. The plaintiffs granted the defendants the right to secure access to the private road (where it met the farm road) with a gate, so long as the gate contained a “buddy lock” to which the plaintiffs were granted access. At some point, the defendants secured the gate with a "non-buddy" lock and failed to give the plaintiffs a key. Consequently, the plaintiffs could not get their hay equipment in and out of their property. After the dispute between the parties escalated, the plaintiffs sought declaratory and injunctive relief against the defendants to prevent the defendants from taking action “inconsistent” with plaintiffs’ use and enjoyment of their property. The trial court entered judgment for the plaintiffs, including statements that the plaintiffs had the right to refuse to have a gate across the easement and that the defendants could never expand the scope of the easement. The defendants appealed, and the appellate court found that the trial court exceeded its authority in granting the plaintiffs the right to refuse the gate and in forever enjoining the defendants from expanding the easement. The plaintiffs had not raised these issues so they were not ripe for review. In all other respects, however, the judgment was affirmed.  Murdaugh v. Patterson, No. SD32619, 2014 Mo. App. LEXIS 758 (Mo. Ct. App. Jul. 9, 2014).

Plaintiff was the son of a man who married the decedent shortly after his first wife (the mother of the plaintiff) died from Alzheimer’s disease. The mother had inherited substantial assets from her parents, and those assets were transferred to the father upon her death. Within a month of the marriage, the father and the decedent entered into a contract to make wills, providing that after the death of the survivor,  one-half of the survivor’s estate would be divided between the plaintiff and the decedent’s grandchild. The contract provided that in the event of the revocation of such a will, the son would be entitled to bring an action in equity seeking specific performance. The father died in 2008 without having revoked his will. All of his assets passed to the decedent. A year after the father’s death, the decedent informed the plaintiff that she did not wish to hear from him again. In 2010, the decedent revoked her will made pursuant to the contract. She died in 2012. The plaintiff did not know of her death for nine months. He immediately filed an action to enforce the terms of the contract against the estate. The decedent’s two children, who were the sole beneficiaries under who new will, filed a motion for summary judgment contending that the statute of limitations had passed because the will had been admitted to probate eight months earlier. In affirming the lower court’s judgment in favor of the estate, the court found that the plaintiff’s action was governed by the three-month limitations period governing will contests. The plaintiff was not a “reasonably ascertainable creditor” of the estate entitled to actual notice and granted nine months to file a claim. The court also rejected the plaintiff’s argument that the three-month limitations period violated his due process rights. A breach of contract to make a will action could be similarly limited as a will contest action. Sufficient notice of the admission of the will to probate was provided by publication.  Markey v. Estate of Markey, No. 89A05-1402, 2014 Ind. App. LEXIS 305 (Ind. Ct. App. July 9, 2014).

Plaintiffs leased their property to the defendant for the 2009 crop year. During the summer of 2009, the plaintiffs informed the defendant that the plaintiffs would be leasing the property to a new tenant for the 2010 crop year because the plaintiffs would receive a higher rent from the new tenant, who raised vine crops. The plaintiffs did not send a formal termination notice to the defendant. In the fall of 2009, the defendant sprayed Pursuit herbicide on the field, knowing that the prospective tenant could not plant his vine crops if the field had been sprayed with Pursuit. In early 2010, the plaintiffs informed the defendant that they were cancelling the lease because the defendant had failed to pay rent for the 2009 crop year. The prospective tenant refused to enter into a lease with the plaintiffs, contending that the Pursuit had made the field unsuitable for his vine crops. The plaintiffs filed a breach of contract and tortious interference with a business relationship action against the defendant. The trial court found that the defendant was not credible when he denied spraying Pursuit on the field and ruled in favor of the plaintiffs. In affirming the judgment, the appellate court ruled that the plaintiffs had shown the existence of a valid business expectancy, knowledge by the defendant of that expectancy, intentional interference by the defendant causing the termination of that expectancy, and damage to the plaintiffs. The plaintiffs had properly been awarded $38,908.58 in damages for the tortious interference claim.  Anglers, LLC v. Oakridge Farms, LLC, No. 309741, 2014 Mich. App. LEXIS 1285 (Mich. Ct. App. Jul. 8, 2014).

The plaintiff is a fiduciary of pension plans, IRAs and employee benefit plans for which it is responsible for withholding federal income taxes.  The plaintiff timely and fully deposited all withheld income taxes, but didn't do so electronically as required by IRS regulations when the deposit exceeds $200,000.  IRS assessed failure-to-deposit penalties of over $250,000 by virtue of I.R.C. Sec. 6656(a).  The court upheld the IRS position based on the plain language of the statute and the fact that the Congress had allowed a grace period from the electronic deposit rule at issue from July 1, 1997 to July 1, 1998, and that no grace period any longer applied.  Commonwealth Bank and Trust Company v. United States, No. 3:13-CV-01204-CRS, 2014 U.S. Dist. LEXIS 91489 (W.D. Ky. Jul. 7, 2014).

The taxpayer had multiple real estate rental activities and owned a real property business.  While the taxpayer engaged in the rental activities for more than 750 hours during the tax year, the taxpayer did not participate in each rental activity for at least 750 hours and did not make an election via Treas. Reg. Sec. 1.469-9 to aggregate the activities into a single activity.  The IRS had previously taken the position that a taxpayer, to qualify as a real estate professional, had to put in more than 750 hours in each activity.  But, here, the IRS determined that whether a taxpayer is a real estate professional for purposes of the passive loss rules is not affected by an aggregation election.  Hence, once a taxpayer qualifies as a real estate professional, the requirements for material participation are applied as to each separate activity absent an aggregation election.  C.C.M. 201427016 (Apr. 28, 2014).

Defendant, a dairy farmer, contracted with a cement supplier to have cement delivered to his property for the construction of a bunk silo. An employee of the supplier delivered the cement in a truck owned by the supplier. After delivering the cement, the employee drove the truck to another area of the defendant’s property so that he could wash the truck. While washing the truck the employee fell from a ladder on the truck, into a ditch. The employee filed an action against the defendant, seeking to hold him liable for the injuries under N.Y. Labor Law §240(1), which provided rights to certain workers and imposed liability on owners having nothing to do with the accident where the worker was employed in the “erection, demolition, repairing, altering, painting, cleaning, or pointing of a building or structure. The defendant filed a motion for summary judgment, which the trial court denied, in part. On appeal, the court reversed, finding that the activity in which the employee was engaged was not the kind of activity for which the legislature sought to impose liability. The employee was engaged in the routine maintenance of his cement truck, not engaged in “construction work” under the meaning of the statute when he fell. Bish v. Odell Farms Partnership, No. 568 CA 13-01811, 2014 N.Y. App. Div. LEXIS 4969, 2014 NY Slip Op 5063 (N.Y. App. Div. 4th Dep't Jul. 3, 2014).

Two sets of ranchers owned property along the Sarco Creek. They each called their property the “Sarco Creek Ranch.” One set of ranchers held a trademark for the name and sought to enjoin the other ranchers from using the name on the grounds that it was a trademark violation. The defendants argued that the trademark was invalid because the name was primarily geographically descriptive. In denying the plaintiffs’ request for a preliminary injunction, the court ruled that the name was primarily geographically descriptive and that, as such, the plaintiffs could not show a substantial likelihood of success on the merits. The general rule was that merchants should remain free to indicate their place of business without unnecessary risk of infringement. The court rejected the plaintiffs’ argument that the creek fell within the “obscurity exception” to the rule. The evidence suggested that those in the place where the plaintiffs did business would associate Sarco Creek as the geographic place where they offered goods and services. Sarco Creek Ranch v. Greeson, No. 6:14-CV-13, 2014 U.S. Dist. LEXIS 91037 (S.D. Tex. Jul. 3, 2014).

The defendant was a vegetable grower who operated a packing shed. He hired guest workers from Haiti to work under H-2A visas (temporary visas issued under the Immigration and Nationality Act, 8 U.S.C. § 1101(a)(15)(H)(ii)(a)) to harvest his peas and beans one summer. The workers filed an action against the defendant, alleging, among other things, that he failed to pay their transportation and visa expenses, as was required under the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201-209, and H-2A regulations, 20 C.F.R. § 655, et seq.  The workers filed a motion for partial summary judgment on the issue of unpaid expenses, and the defendant alleged that he was exempt from the requirements of the FLSA because he ran a small business with fewer than 500 "man days." The defendant also alleged that the workers were not entitled to their expenses because they did not complete 50 percent of their contract. The defendant also alleged that an “act of God” relieved him of liability and that he did not “employ” the workers within the meaning of the FLSA. The district court granted the plaintiffs’ motion, ruling that the defendant was not entitled to the 500 man day exemption because he did not raise it as an affirmative defense. The court also found that the defendant’s contention that the workers abandoned the contract was not supported by the evidence and that the act of God defense was inapplicable. Finally, the court ruled that the defendant was a joint employer of the workers, along with the contractor who brought the workers to America on the defendant’s behalf.  Sejour v. Steven Davis Farms, LLC, No. 1:10-cv-96, 2014 U.S. Dist. LEXIS 89378 (N.D. Fla. Jul. 1, 2014).