Annotations 08/2014

In 1936 a landowner conveyed two acres of his property to his grandson.  The portion conveyed did not have access to a public road, and no easement agreement providing for access was recorded.  While the son owned the two acres, a dirt road was constructed so that the grandson could gain access from the public road to his tract.  The tract was subsequently conveyed, with the subsequent owners using the dirt road for access.  Ultimately, an owner of an adjacent tract sued to bar the current owners of the two-acre tract from using the dirt road for access to the two-acre parcel.  The trial court and the court of appeals ruled for the defendant based on the prior use doctrine (essentially allowing the use to continue based on original intent of grantor/grantee) which carries with it a lower standard of proof.  On further review, the Texas Supreme Court reversed and remanded on the basis that the proper legal analysis to apply in this situation was to determine whether an implied easement by way of necessity existed.  Such easements, the court noted have different elements from a public use easement that must be established:  (1) unity of ownership; (2) access remains necessary and is not merely convenient; and (3) necessity existed at time of severance. Hamrick v. Ward, No. 12-0348, 2014 Tex. LEXIS 771 (Tex. Sup. Ct. Aug. 29, 2014).   

The plaintiff, a landowner, granted the defendant, a pipeline company, an easement across the plaintiffs property to lay a pipeline.  The easement agreement required that installation was to occur via underground boring so as to preserve the plaintiff's trees.  The defendant hired a construction company to build and lay the pipeline but did not tell the company of the boring requirement.  As a result, the company cut many trees and bulldozed the ground in the easement area.  The plaintiff sued for breach of contract and trespass and the jury held the defendant liable on both claims.  As for trespass, the jury awarded $288,000 to the plaintiff for the intrinsic value of the destroyed trees.  On the breach of contract claim, the plaintiff was awarded $300,000 as restoration damages (the estimated cost to restore the property to the condition that the property would have been in but for the breach).  On appeal, the defendant claimed that restorative damages were inappropriate due to the permanent nature of the damage and, as a result, the proper measure of damages was diminution in the land's value.  The appellate court noted that the parties had agreed that the damages were permanent and that the damages would also be classified as permanent because the restoration costs exceeded the diminution in the property's fair market value by a disproportionate amount.  As such, the contract damages were $3,000 rather than $300,000.  However, the court upheld the damage award of $288,000 for the intrinsic value of the destroyed trees (aesthetic and utilitarian value).  Wheeler v. Enbridge Pipeline (East Texas), L.P., No. 13-0234, 2014 Tex. LEXIS 767 (Tex. Sup. Ct. Aug. 29, 2014).     

At issue in this case was a disputed 527-acre tract in north Texas along the Oklahoma border.  the plaintiffs bought the property in 1951 and used it for cattle grazing and hunting.  The plaintiffs paid taxes on the property and claimed that they never saw cattle of other people on the property.  The defendant's predecessor in interest owned the Oklahoma land just to the north of the property across the river, and claimed to have run cattle on the property several months annually from the 1960s through the 1980s.  The property apparently changed hands several times in the 1990s culminating with the defendant receiving title to the tract in 2004.  The defendant claimed that he built new fences, cleared timber and brush and used the property for hunting.  The plaintiff filed an action in 2007 to determine title ownership and also claiming that the defendant was trespassing.  The defendant claimed ownership via adverse possession, and the trial court agreed.  On appeal, the court reversed on the basis that the defendant failed to establish visible appropriation and possession as well as consistent and continuous use.  The court noted that the property had already been fenced and cattle grazing was being used to establish adverse possession.  In such situations, substantial modification of the existing fence or the erection of a new fence must be present.  Wells v. Johnson, No. 07-12-00378-CV, 2014 Tex. App. LEXIS 9704 (Tex. Ct. App. Aug. 28, 2014).

The defendants are equine professionals that provided horse training services to the plaintiffs and acted as the plaintiffs' agent and broker in purchase/lease transactions involving horses.  Over an approximately three-year period, the parties engaged in numerous transactions involving the sale/lease of various horses resulting in the plaintiffs claiming that the defendants' representations didn't match reality with respect to the various horses at issue.  The plaintiffs' claims involved 34 alleged acts of negligence and 14 acts of negligent misrepresentation.  The defendants moved for summary judgment.  On the negligent misrepresentation claims, the defendants claimed that the alleged misrepresentations were not statements of fact but merely opinion, and that some were barred by the statute of limitations.  The court agreed as to the negligent misrepresentation claims and granted the defendants' motion for summary judgment.  However, the court denied the defendants' motion as to the claims based strictly in negligence.  Olympic Dreams, LLC v. Clark, et al., No. 3:11CV01103(AWT), 2014 U.S. Dist. LEXIS 120064 (D. Conn. Aug. 28, 2014).   

The petitioners were a married couple where the lawyer-wife had died and the husband was an eye doctor.  The husband was the sole shareholder of his S corporation, and both of them had been convicted of willful failure to filed federal income tax returns and were sentenced to prison followed by a supervised release and a fine.  They hired a firm to perform forensic accounting to determine the correct tax liabilities for the years they failed to file returns and deducted the payment to the firm as legal and professional services on Schedule C.  They also deposited funds into the S corporation bank account, claiming that the deposits were loans that increased basis.  The court, agreeing with the IRS, denied any basis increase in the S corporate stock because the petitioners did not establish that the deposits were loans.  But, the court upheld the invoices for forensic accounting services.  Hall v. Comr., T.C. Memo. 2014-171. 

Two sons (acting as an LLC) entered into a contract with their parents under which the sons agreed to purchase the parents’ farm, including their home, for $100,000. The contract was apparently drafted to protect the family farm from future Medicaid claims in the event the parents had to go to a nursing home. The sons made a $20,000 down payment, and then used the rental income to make the $5,000 yearly payments due under the contract. They also paid the real estate taxes and maintained the property. The parents continued to live in the house. Three years after the contract was signed (and one year after the father began suffering from dementia), the parents sued the sons, asking the court to declare the contract null and void based upon undue influence. The district court granted relief to the parents (the father was not actively involved in the lawsuit because of his health), finding that the sons had a confidential relationship with the parents and that they had placed undue influence on them. On appeal, the court reversed, finding first that no confidential relationship existed between the sons and their parents. Such a relationship, the appellate court said, did not arise simply because of a blood relationship.  This finding was in spite of the fact that purpose of the confidential relationship rule (providing a presumption of undue influence) is not so much to afford protection to (in this case) the parents against the consequences of undue influence as it is to afford the parents protection against the consequences of voluntary action on their part induced by the existence of the relationship between the parents and their sons.  At the time the contract was signed, the parents were of sound mind and did not rely on their sons for the management of their daily affairs.  There was no evidence that the sons had a dominating influence over their parents so as to find a confidential relationship. Because there was no confidential relationship, the court found that the parents did not receive a presumption that their sons had acted with undue influence. The court then found that the parents failed to prove the four elements of undue influence: (1) grantor was susceptible; (2) opportunity to effect wrongful purpose; (3) disposition to influence unduly; and (4) result clearly appears to be the effect of undue influence. The court found that the evidence failed to prove that the sons induced their parents to sign the contract by undue influence.  The court did reform the contract to grant the parents a life estate in the house and outbuildings, and to require the sons to provide a suitable house in town for them if they were to both leave the farm. Koehn v. Koehn Bros. Farms, LLC, No. 13-1036, 2014 Iowa App. LEXIS 867 (Iowa Ct. App. Aug. 27, 2014).

A location in northern Idaho was listed as a Superfund site due to mining activity.  A 2003 trial resulted in the plaintiff being found 22 percent liable for the environmental damage.  The plaintiff filed bankruptcy in 2005 in an attempt to deal with over $6 billion in environmental liabilities in the United States.  The parties in this case executed a "mutual release" in 2008 that the defendant, a railroad company, claimed absolved of any additional cleanup cost.  In a separate agreement, the plaintiff settled with a city for $482 million and the bankruptcy court later approved that settlement.  Later, the plaintiff filed a CERCLA contribution action against the defendant to force the defendant to pay a share of the $482 million.  The trial court upheld the 2008 mutual release, but the appellate court found the mutual release to be ambiguous because it could be read to release the defendant from only those claims involving remaining site cleanup costs that the defendant incurred.  Asarco, LLC v. Union Pacific Railroad Company, No. 13-35356, 2014 U.S. App. LEXIS 16614 (9th Cir. Aug. 27, 2014). 


In Announcement 2002-18, the IRS took the position that frequent flyer miles that an are awarded to a taxpayer in exchange for purchases are only taxable if they are converted to cash, or are changed to compensation paid in the form of travel or other promotional benefits (or in situations where such benefits are used for tax avoidance purposes).  In this case, the Tax Court held that the receipt of points that a bank issued to the petitioner which were then redeemed to buy a plane ticket were includible in income.  The court pointed out that the points were a non-cash award for the petitioner opening a bank account with the bank and were really in the nature of interest or money and that Notice 2002-18 didn't apply.  Shankar, et al. v Comr., 143 T.C. No. 5 (2014).

The Internal Revenue Code (Code) taxes the income of a U.S. taxpayer that is earned in a foreign country.  That foreign country also taxes the same income.  However, the Code allows many taxpayers to either deduct the foreign taxes from gross income for U.S. tax purposes or claim a credit capped at the lesser of the proportion of U.S. tax of the taxpayer's taxable income from foreign sources or the taxpayer's entire taxable income as it bears to the taxpayer's taxable income.  In 2013, the U.S. Supreme court held that foreign paid taxes are creditable under I.R.C. Sec. 901.  The court, affirming the Tax Court, has followed the Supreme Court's guidance.  PPL Corporation and Subsidiaries v. Comr., No. 11-1069, 2014 U.S. App. LEXIS 16479 (3d Cir. Aug. 26, 2014).

Plaintiff seed companies filed an action against the County of Kauai, seeking to invalidate and enjoin enforcement of Kauai County Code § 22-22 (2013) (Ordinance 960), relating to pesticides and genetically modified organisms (GMO). Generally, the provision (which was originally set to take effect August 16, 2014, but was delayed until October 1, 2014) required commercial agricultural entities to: issue weekly and annual reports regarding their use of "restricted use" pesticides and their possession of GMOs and to establish pesticide buffer zones between crops to which “restricted use” pesticides were applied and surrounding properties. The plaintiffs argued that the law was preempted by state and federal law and that it imposed burdensome operational restrictions violating their due process and equal protection rights. They also alleged that the buffer zone requirement would result in “takings” without just compensation. On motions for summary judgment, the court ruled that Ordinance 960 was preempted by state law and was, therefore, invalid. The court stated that its decision “in no way diminishes the health and environmental concerns of the people of Kauai… [but] simply recognizes that the State of Hawaii has established a comprehensive framework for addressing the application of restricted use pesticides and the planting of GMO crops, which presently precludes local regulation by the County.” The court did not find that the Ordinance was preempted by federal law. It also did not need to rule on the constitutional claims since state preemption invalidated the law. Syngenta Seeds v. County of Kauai, NO. 14-00014 BMK, 2014 U.S. Dist. LEXIS 117820 (D. Haw. Aug. 23, 2014).

The plaintiff, a nursing home resident, transferred assets before applying for Medicaid benefits.  The Medicaid agency calculated a penalty period running from November 2007 through September 2011.  Subsequently, a part of the transferred assets came back to the plaintiff and the state Medicaid agency counted the value of the returned assets as excess resources and recalculated the penalty period as now running from July 2009 through April of 2013.  The plaintiff argued that the original start date for the penalty period should remain in force, even though state regulations said that the penalty period is to be recalculated when transferred assets are returned and runs until those assets are spent down to the required minimum.  The court upheld the regulations, noting that federal law was silent on the issue.  Aplin v. McCrossen, No. 12-CIV-6312-FPG, 2014 U.S. Dist. LEXIS 119682 (W.D. N.Y. Aug. 25, 2014).

The petitioner had a house built in Wichita, Kansas and moved in to it in November of 2009.  She had previously owned a different home in Wichita, but sold it in 2004 due to job issues and moved in with her daughter.  In 2005, the petitioner resumed employment with her prior employer with her post of duty considered to by in California.  In 2007, the petitioner bought a membership in an R.V. park in California and purchased a fifth-wheel (trailer) that was placed on a lot in the R.V. park.  She lived in the trailer while working in California.  On her 2009 return, the petitioner claimed a first-time homebuyer tax credit and IRS denied the credit due to the petitioner's ownership interest in and use of the trailer.  The IRS also imposed an accuracy-related penalty.  However, the court determined that the trailer did not meet the definition of "principal residence" under I.R.C. Sec. 36(c)(2) because the trailer was not "affixed" to the land under state (CA) law and, thus, did not meet the requirement of being a fixture under local law contained in Treas. Reg. Sec. 1.121-1(b)(1) (which governs for purposes of I.R.C. Sec. 36).  Accordingly, the court allowed the first-time homebuyer tax credit.  Oxford v. Comr., T.C. Sum. Op. 2014-80.

Plaintiffs, the owners of a farming company, entered into an oil and gas lease with an energy company. The lease granted the energy company the right to lease the property for five years and the option to extend the lease for an additional five-year term under the sale lease terms and conditions. Two years into the lease, the energy company assigned its rights under the lease to an oil exploration company. Six years after the initial lease term began, the exploration company filed an affidavit in the county official records stating that the lease had been extended for a second five-year term. The Plaintiff filed an action against both the exploration company and the energy company, alleging claims of slander of title and tortious interference with business relations.  The complaint alleged that the energy company retained an interest in the lease under the terms of the assignment. The court dismissed the action against the energy company, finding that the energy company’s rights in the lease were extinguished through the assignment contract. The court refused to grant relief to the exploration company by tolling the terms of the lease pending final disposition of plaintiff’s claims. The court found that to do so would be premature because the underlying merits of the plaintiff’s claims were not yet resolved. Feisley Farms Family, L.P. v. Hess Ohio Res., LLC, No. 2:14-cv-146, 2014 U.S. Dist. LEXIS 118519 (S.D. Ohio Aug. 25, 2014).


On the same day it upheld a large jury verdict in favor of employees in a similar class action against the same employer, the Eighth Circuit upheld a jury verdict in favor of the meat processor in this case.  The plaintiffs represented a class of employees at a meat-processing facility in Columbus Junction, Iowa. They sued the meat processor for not paying wages due under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq., and the Iowa Wage Payment Collection Law (IWPCL), Iowa Code 91A.1 et seq. The plaintiffs alleged that they had been uncompensated for time spent “donning“ and “doffing” safety apparel and walking from where the apparel was located to and from the job site. The district court entered partial summary judgment for the meat processor, ruling that the claims for donning, doffing and walking during the 35-minute lunch period were not compensable. The jury returned a verdict for the processor on the other claims, finding that the plaintiffs did not prove that the activities in question were “integral and indispensable to a principal activity.” On appeal, the Eighth Circuit affirmed, finding that sufficient evidence existed that the disputed activities were not integral and indispensable class-wide. The court also found that the trial court did not err in allowing the jury to hear evidence supporting the processor's good faith defense. Summary judgment was properly granted as to the mealtime claims because the evidence showed that the mealtime period was primarily for the employees’ benefit, not for the benefit of the employer. Donning and doffing during the 35-minute meal period was thus not compensable.  Guyton v. Tyson Foods, No. 13-2036 , 2014 U.S. App. LEXIS 16278 (8th Cir. Iowa Aug. 25, 2014).

The plaintiff was a farming company that purchased 300 acres from an owner who had contracted with a private company to build grass waterways. The former owner received a federal subsidy from the Natural Resources Conservation Service for building the waterways. He did not, however, pay the contractor for building the waterways because he contended that there was a lip or ridge along the edge of the grass waterways that prevented proper draining. The contractor sued the former owner in state court, and the former owner filed counterclaims. The state court entered summary judgment against the former owner and denied the farming company’s motion to intervene (the farming company had by that time purchased the property). The farming company then filed its action in federal court alleging that the grass waterways were improperly designed and built and that they did not conform to federal law. All defendants moved to dismiss the suit on a variety of grounds, including lack of federal subject-matter jurisdiction. The district court concluded that the suit sounded in state tort law with no federal subject-matter jurisdiction and granted the motions dismissing the case. On appeal, the Sixth Circuit agreed, finding that the farming company could point to no statute providing an express or implied right of action for its suit. Stew Farm, Ltd. v. Natural Res. Conservation Serv., No. 13-4111, 2014 U.S. App. LEXIS 16274 (6th Cir. Ohio August 25, 2014). 

The plaintiffs represented a class of employees at a meat-processing facility in Storm Lake, Iowa. They sued the meat processor for not paying wages due under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. § 201 et seq., and the Iowa Wage Payment Collection Law (IWPCL), Iowa Code 91A.1 et seq. The workers alleged that they were not paid for time they spent putting on and taking off personal protective equipment and clothing before production, before and after lunch, and at the end of the day. The employees also sought compensation for transporting the clothing items from their lockers to the production floor. Because this time resulting in hours that exceeded 40 hours per week, the plaintiffs sought overtime compensation. The jury entered a verdict in favor of the class, awarding damages (including liquidated damages) in the amount of $5,785,757.40. On appeal, the Eighth Circuit affirmed, ruling that the district court did not abuse its discretion in certifying the class because individual issues did not predominate over class issues. The court also found that the plaintiffs showed uncompensated overtime work by applying average donning, doffing, and walking times to employee timesheets. This evidence was "susceptible to the reasonable inference" that the jury's verdict was correct. Judge Beam dissented, arguing that the class should not have been certified and that the state law claims should not have been joined with the federal claims. Bouaphakeo v. Tyson Foods Inc., No. 12-3753, 2014 U.S. App. LEXIS 16283 (8th Cir. Iowa Aug. 25, 2014).

The plaintiff resided in a nursing home and loaned her daughter $98,000 in exchange for a promissory note.  The note was not assignable and could not be sold.  After making the note and promissory note, the plaintiff applied for Medicaid. The state Medicaid agency determined that the note was an available resource as a "trust-like" device.  On appeal, the state administrative agency affirmed on the basis that the note was a "trust-like" device or because it was an uncompensated transfer.  On further review, the court reversed on the basis that the note could not be converted into cash.  No transfer penalty applied because the court determined that the note was actuarially sound.  Frantz v. Lake, No. CIV-14-117-W, 2014 U.S. Dist. LEXIS 116916 (W.D. Okla. Aug. 22, 2014).

In this case, the petitioner had various real estate activities in addition to his day job.  He produced spreadsheets of his time spent in the real estate activities involving single-family homes, but did not produce any contemporaneous log or calendar.  The spreadsheets were created after-the-fact.  The court also determined that the spreadsheet data was excessive, duplicative and counterfactual.  The court determined that the petitioner was not a real estate professional and that losses associated with the real estate activities were not deductible.  The court also imposed a 20  percent accuracy-related penalty.  Graham v. Comr., T.C. Sum. Op. 2014-79.

The petitioner invested in three partnerships that were created to provide investors with charitable deductions from investments in cemetery plots that were held for over one year and then contributed to charity.  The partnerships failed to hold the plots for longer than a year, but reported that the investors could claim charitable contribution deductions for more than the appraised values, as opposed to basis.  The partnerships also had no income or expense for the tax years at issue other than the charitable deductions.  The petitioner claimed a loss on his investments based on the partnership interests being worthless at year-end.  IRS denied the losses on the basis that the petitioner's investment lacked profit intent.  The court agreed with the IRS and that profit intent was clearly lacking.  The partnerships, the court noted, were not created to realize any income or make a profit.  Just because the Congress allows a deduction for a charitable contribution does not mean that a loss incurred in generating a charitable deduction should be allowed.  The charitable contributions were allowed.  McElroy v. Comr., T.C. Memo. 2014-163.

The petitioner founded a company of which he turned over day-to-day management to his son and moved to Florida (from company headquarters in Louisiana).  When the business started to fail, he visited the business more often and increased his efforts on research and development, even inventing a new products and securing a new line of credit.  The business carried in excess of a $3 million loss from 2008 to a prior year and received a refund of approximately $1 million.  IRS denied the loss on audit on the basis that the petitioner was passive.  The petitioner claimed that he spent more than 100 hours in the business during the tax year at issue and that his involvement for those hours was regular, continuous and substantial.  The court agreed with the petitioner, based on all of the facts and circumstances, that he was materially participating for purposes of the passive loss rules.  The court noted that.  The court did not require the petitioner to produce a log book or calendar recording his participation.  Wade v. Comr., T.C. Memo. 2014-169.

Here, the petitioner was a merchant marine that spent much time away from home and rented his home to a friend.  The rental amount was below fair market rental value, and the friend only paid for one month.  The petitioner did not attempt to collect the unpaid rent amounts.  The petitioner claimed a deduction for rental losses which IRS denied on the basis that the petitioner could not prove that he rented the home at market value and made no attempt to collect unpaid rent.  The court upheld the IRS position, noting additionally that the petitioner could not establish his time spent away from home and not at sea.  Hunter v. Comr., T.C. Memo. 2014-164

On review, the appellate court in this case affirmed the trial court's finding that the defendants' emission at its railyards of diesel particulate matter contained in exhaust is not a "disposal"of solid waste under the Resource Conservation Recovery Act.  Center for Community Action and Environmental Justice, et al. v. Burlington Northern Sante Fe Railway Company, et al., No. 12-56086, 2014 U.S. App. LEXIS 16065 (9th Cir. Aug. 20, 2014).

A jury awarded $500,000 in actual damages and $3.3 million in attorney fees for the defendant's underpaying employees for time spent donning and doffing protective clothing before and after work shifts.  The defendant had claimed on appeal that the plaintiffs had not established unpaid time on a class-wide basis.  However, the appellate court disagreed.  The court also upheld the award of attorney fees.  Garcia, et al. v. Tyson Foods, Inc., No. 12-3346, 2014 U.S. App. LEXIS 15917 (10th Cir. Aug. 19, 2014). 

The defendant owns a property and leased it to the plaintiff.  EPA designated 27 square miles around the property (former lead refinery) as CERCLA site.  The EPA sued the plaintiff for $400 million in "recovery" costs.  The plaintiff filed bankruptcy and the court approved a $214 million settlement that resolved the plaintiff's liability.  The defendant, as owner of the site, was a potentially responsible party and settled with the EPA for $25 million.  The defendant claimed that lead-based paint was the primary source of contamination and filed FOIA requests for EPA documents to prove its argument.  The plaintiff moved to intervene in the FOIA case in an attempt to void its government settlement.  The plaintiff also had outstanding claims against the defendant for a portion of its $214 million that it owed the EPA.  The defendant tolled the statute of limitations for a contribution action for two years after a final judgment in the FOIA case, but later reached a settlement with the EPA for $25 million.  The plaintiff did not object to the settlement which provided the defendant with "protection from contribution actions or claims"  via Sec. 113(f)(2) of CERCLA.  The appellate court upheld the trial court's determination that the plaintiff's failure to object barred any claims it had against the defendant.  The court noted that the plaintiff had failed to raise its estoppel argument prior to the appeal.  Asarco v. Union Pacific Railroad Company, No. 13-2830, 2014 U.S. App. LEXIS 15285 (8th Cir. Aug. 8, 2014), aff'g., 8:12cv416, 2013 U.S. Dist. LEXIS 108852 (D. Neb. Aug. 2, 2013).

This case points out that the interest of the IRS in a delinquent taxpayer's bank accounts vests immediately on issuance of a levy and the property subject to levy must be immediately surrendered.  If not, the bank is personally liable for the depositor's tax bill.  Here, the taxpayer had an AGI of $21,594 in 2008 but received a tax refund of $78,169 in 2009 attributable to the 2008 tax year.  Instead of notifying the IRS of the obvious error, the taxpayer deposited the funds with the defendant, the taxpayer's bank.  The defendant also did not inform the bank that he was not actually entitled to the funds and that the source of the funds was an obvious IRS error.  An IRS revenue officer assigned to the matter went to the taxpayer's home with a jeopardy levy in hand at 9:30 a.m. on Sept. 9, 2009, and notified the taxpayer that he owed roughly $93,000.  The revenue officer demanded payment, but the taxpayer did not pay the deficiency at that time.  The IRS revenue officer served the taxpayer with the IRS notice to levy his bank accounts.  Ten minutes later, the IRS revenue officer served the jeopardy levy on the defendant.  Less than two hours later, the taxpayer withdrew all of the funds in one of his bank accounts with the defendant, and left less than $8,000 in a different account, which was turned over to the IRS.  Two days later, the defendant froze the bank accounts.  The IRS sought the balance of the taxpayer's tax liability from the defendant.  The court noted that, for a jeopardy levy, IRS need only provide the taxpayer with notice and demand for immediate payment under I.R.C. Sec. 6331 before imposing the levy.  IRS properly followed that procedure and could then levy immediately.  The defendant claimed that it acted reasonably within two hours of receiving the IRS levy and should not be held personally liable for the withdrawn funds.  The court disagreed, noting that I.R.C. Sec. 6332 (the liability provision) does not contain any reasonability requirement.  In addition, the court noted that the government's interest vested immediately upon notifying the bank of the levy and the bank was immediately responsible for preserving the taxpayer's bank accounts for the IRS.  The court also noted that I.R.C. Sec. 6332 contained a reasonability requirement only with respect to an additional 50 percent penalty which could make the defendant liable for 150 percent of the levied property.  United States v. JPMorgan Chase Bank NA, CV 13-3291 GAF (RZx), 2014 U.S. Dist. LEXIS 113896 (C.D. Cal. Aug. 15, 2014).    

The plaintiff, a chemical manufacturing plant, discharged dissolved minerals into two tributaries that ultimately flowed into regulated waters.  The state (AR) imposed more stringent water quality standards that impacted the plaintiff's discharges and gave the plaintiff three years to comply.  The plaintiff, however, filed a third party rulemaking which would allow it to continue the same level of discharges of minerals into the tributaries.  The state adopted the plaintiff's proposed revisions and submitted them to the Environmental Protection Agency (EPA) for approval.  The EPA rejected the changes on the basis that aquatic life in the downstream regulated waters  would not be adequately protected.  The trial court upheld the EPA position.  On appeal, the court affirmed, upholding the EPA regulations that allowed it to examine downstream waters when evaluating a state's water quality standards and noting that AR's supporting documentation was inadequate.  The EPA had a rational basis for adopting the regulations and the EPA's rejection was neither arbitrary nor capricious.  Eldorado Chemical Company v. United States Environmental Protection Agency, No. 13-1936, 2014 U.S. App. LEXIS 15694 (8th Cir. Aug. 15, 2014).

A debtor borrowed money from a lender and pledged dairy cattle as collateral.  The lender secured an interest in the cattle.  The debtor later borrowed additional money from the lender, pledging crops, farm products and livestock as collateral with lender's security interest containing a dragnet clause.  The lender secured its interest.  The debtor later entered into a "Dairy Cow Lease" with a third party to allow for expansion of the herd.  The third party lessor perfected its interest in the leased cattle.  The debtor filed bankruptcy and the bankruptcy court determined that the lease arrangement actually created a security interest rather than being a true lease.  The court noted that the "lease"  was not terminable by the debtor and the lease term was for longer than the economic life of the dairy cows.  The third party lessor also never provided any credible evidence of ownership of the cows, and the parties did not strictly adhere to the "lease" terms.  The court noted that the lender filed first and had priority as to the proceeds from dairy cows.  In addition, the bankruptcy court held that the lender's prior perfected security interest attached to all of the cows on the debtor's farm and to all milk produced post-petition and milk proceeds under 11 U.S.C. Sec. 552(b).   In a later action in the district court, a different creditor failed to comply with court’s order requiring posting of bond as a condition to stay the effect of the court’s prior ruling.  As a result, there was no stay in effect during pendency of the appeal and the lender was entitled to have the proceeds turned over to it.  A feed supplier creditor did not have standing to seek surcharge of the bank’s collateral under 11 U.S.C. Sec. 506(c).  The bankruptcy trustee did not file a motion for surcharge and court could not order the amount that the supplier paid for feed deliveries to be retained from funds turned over to the lender.  The lender's motion for abandonment and turnover of proceeds was granted.  On further review of the bankruptcy court's decision concerning the dairy cow lease, the appellate court reversed.  The appellate court determined that under applicable law (AZ) as set forth in the "lease" agreement, a fact-based analysis governed the determination of the nature of the agreement.  However, if the lease term is for longer than the economic life of the goods involved, the "lease" is a per se security agreement.  The bankruptcy court focused on the debtor's testimony that he culled about 30 percent of the cattle annually which would cause the entire herd to turnover in 40 months.  That turnover time of 40 months was less than the 50-month lease term.  Thus, according to the bankruptcy court, the lease was a security agreement.  The appellate court disagreed with this analysis, holding that the agreement required the focus to be on the life of the herd rather than individual cows in the herd because the debtor had a duty to return the same number of cattle originally leased rather than the same cattle.  Thus, the agreement was not a per se security agreement.  On the economics of the transaction, the appellate court held that the lender failed to carry its burden of establishing that the actual economics of the transaction indicated the lease was a disguised security agreement.  There was no option for the debtor to buy the cows at any price, and there was no option at all.  Sunshine Heifers, LLC v. Citizens First Bank (In re Purdy), No. 13-6412, 2014 U.S. App. LEXIS 15586 (6th Cir. Aug. 14, 2014), rev'g., 2013 Bankr. LEXIS 3813 (Bankr. W.D. Ky. Sept. 12, 2013).



The petitioner, an elderly Iowa farmer, purchased an ATV to use on his farm.  He paid $439.12 in sales tax and sought a refund on the basis that the ATV was exempt from sales tax as farm machinery and equipment.  Iowa Code Sec. 423.1(18) defined "farm machinery and equipment" as equipment used in ag production and exempts it from sales tax if it is directly and primarily used in the production of agricultural products.  The petitioner testified that he used the ATV 25 percent of the time to carry salt and minerals to livestock, 15 percent to carry corn to feed livestock, 25 percent to check cows and calves, 25% to check fence and 10% to check his crops and hay field.  The Iowa Department of Revenue (IDOR) denied the exemption on the basis that only 40 percent of the petitioner's use of the ATV was in direct ag production activities (25 percent to carry salt and minerals to livestock and 15 percent to carry corn to feed livestock) and that the predominant use of the ATV was therefore not in direct ag production activities.  In re Phillips, No. 14DORFC005 (Iowa Dept. of Inspection and Appeals Proposed Decision (Aug. 13, 2014).

 Before death and during the applicable Medicaid look-back period, the father deeded his residential real estate to his daughter and retained a life estate in the property.  After the transfer, the father applied for Medicaid benefits, and received over $170,000 in benefits by the time of his death.  The state (Idaho) Medicaid agency filed an estate recovery claim in his estate pursuant to state law.  ID law provides that the state Medicaid agency has a claim against non-probate property that passes to a survivor via life estate and other arrangements.  The trial court determined that only the remainder interest was an asset of the estate.  That determination was upheld on appeal.  The estate appealed, asserting that the decedent didn't have any interest in the life estate at death.  On further review the ID Supreme Court held that the retained life estate was also an estate asset for Medicaid estate recovery purposes.  In re Estate of Petersen, No. 40615, 2014 Ida. LEXIS 217 (Idaho Sup. Ct. Aug. 13, 2014).

The parties owned adjacent tracts that, since the 1930s, had been separated by a hedgerow that was about 50 to 70 feet wide  The hedgerow contained a hidden fence that marked the boundary between the tracts.  The defendant bought the property at a sheriff's sale in 1989 and took possession in 1990.  The plaintiff purchased the adjacent tract in 2004.  All prior owners had farmed their respective parcels up to the edge of the hedgerow with the area of cultivation on both sides dictated by the width of the hedgerow at the time.  There always had been mutual agreement that the fence was the boundary line.  A dispute developed over the installation of a new fence, culminating in the defendant claiming the disputed area by adverse possession.  The plaintiff had hired a surveyor to survey the area which ultimately showed that the defendant's fence was over onto the plaintiff by as much as almost 50 feet on one end.  The defendant claimed that the 2009 fence was in the same location at the one the defendant installed in 1990, but her testimony was contradicted.  The trial court determined that the property line had been clearly established and that the defendant had failed to establish adverse possession.  The hedgerow had grown back since the time the defendant cleared it out in 1990, thus resulting in no established use of the property.  The trial court also determined that, as a result of no adverse possession, the installation of the barbed wire fence in 2009 was a trespass.  The trial court also awarded the plaintiff damages due to the need to buy additional feed because the defendant's fence barred the plaintiff from pasturing his horses.   Damages were also awarded to cover the cost of the installation of a wooden fence to replace the barbed wire fence.  The damages were then trebled under the intentional trespass statute.  Attorney fees and costs were also awarded.  On appeal, the trial court's determinations were upheld on all points.  Wren, et al. v. Blakey, et al., No. 70691-8-1, 2014 Wash. App. LEXIS 1952 (Wash. Ct. App. Aug. 11, 2014).       

In this case, the petitioner claimed a $33 million charitable deduction of a remainder interest in the membership interests of an LLC.  The LLC was the landlord of property that was subject to a triple net lease.  At issue was the value of the remainder interest and the application of the IRS tables contained in I.R.C. Sec. 7520.  The court determined that the contribution of the remainder interest (to the University of Mich.) resulted in a deduction that far exceeded the partnership's investment.  After the contribution, the University sold the remainder interest to another entity then resold it and the last purchaser then contributed it to another charity which again triggered a charitable deduction that exceeded the entity's or the donor's investment.  The court denied summary judgment, noting that the entire scheme suggested a tax shelter.  On whether the appraisal of the remainder interest was a qualified appraisal, the court determined that the appraisal barely satisfied the requirements of I.R.C. Sec. 170.  RERI Holdings I, LLC v. Comr., 143 T.C. No. 3 (2014); Zarlengo v. Comr., T.C. Memo. 2014-161. 

The plaintiff filed an action as her mother’s legal guardian and conservator and the successor trustee of her parents' living trusts, seeking to rescind or reform a deed they executed in 1995 and a contract they signed in 1998. The lower court dismissed the plaintiff’s claims, finding that the statutes of limitations had run before the plaintiff filed her lawsuit in 2005. On appeal, the court found that the statute of limitations did not apply to the equitable claims, but that they would be subject to the  defense of laches. Because the lower court did not consider a laches defense, the court vacated the dismissal and remanded for a determination of whether any factual questions would preclude summary judgment on the laches defense.  Moffitt v. Moffitt, No. S-14495, 2014 Alas. LEXIS 156 (Alaska Aug. 8, 2014).


In this boundary line dispute case, the trial court determined that the statutory adverse possession requirements had not been satisfied and ordered the reformation of deeds dating to 1918 so that the property description conformed to the intent of the parties who created the deeds.  That intent was that the boundary between the tracts would run down the middle of a driveway with the deeds providing easements on either side of the boundary line for each property owner.  The defendant appealed, arguing that there was no evidentiary basis for the establishment of a boundary line and the easements and that the reformed deeds shifted ownership of the disputed tract from them.  The defendants claimed the disputed area via adverse possession.  On appeal, the court affirmed on the basis that the defendant failed to establish exclusive use.  The court also noted that the trial court acted properly in reforming the deeds.  Rosenthal v. McGraw, No. 2013AP1601, 2014 Wisc. App. LEXIS 653 (Wisc. Ct. App. Aug. 7, 2014). 

In yet another case, the court held that a property settlement arising in the divorce context was not deductible alimony.  Here, the amount of the settlement, $63,500, was established by the divorce court as a property settlement.  Peery v. Comr., T.C. Memo. 2014-151.

The plaintiffs financed their purchase of a part ownership of a Nebraska feedlot via a loan from the defendant.  The plaintiffs also obtained an operating loan of $2.5 million from the defendant to finance the purchase of cattle to be fed at the feedlot.  The loan terms required the plaintiffs to provide the defendant with a monthly inventory report.  The plaintiffs later sought an additional loan from the defendant to buy corn to feed cattle at the feedlot.  The plaintiffs guaranteed the loans.  The plaintiffs relied on the feedlot manager to manage sales of cattle and the cattle inventory, but later discovered that there were approximately 5,000 fewer head of cattle at the feedlot than there should have been.  The manager was fired, and the operating loan was terminated due to "insufficient assets in relation to liabilities" and the defendant demanded full payment of the loan.  Several months later the feedlot filed bankruptcy and the plaintiffs filed a proof of claim seeking to recover over $2 million from the feedlot.  The plaintiffs also sued the defendant based on an allegation that defendant's loan officer had promised to go to the feedlot monthly to count cattle.  In essence, the plaintiff blamed the defendant for the shortage of cattle at the feedlot.  The plaintiffs also claimed that they bought more feed than necessary because of the loan officer misleading them as to the amount of cattle at the feedlot.  The court granted summary judgment for the defendant on all claims.  On the negligence issue, the court noted that Kansas courts have held that lenders do not owe any duty of care to borrowers under Kansas law, and that there was no history or course of dealing that would apply to hold the defendant liable.  On the negligent/fraudulent misrepresentation issue, the court determined that the evidence showed that the plaintiffs did not justifiably rely on any representations of the defendant to their detriment.  The court also noted that the plaintiff was responsible for tracking inventory and reporting it to the defendant and that the defendant was not responsible for counting cattle at the feedlot.  Thus, there was no breach of the duty of good faith and fair dealing.  Page v. Farm Credit Services of America, PCA, No. 13-2073-RDR, 2014 U.S. Dist. LEXIS 108018 (D. Kan. Aug. 6, 2014). 

In the second year of their Chapter 12 bankruptcy plan, the debtors sold-off 396.47 acres of a 458-acre tract of land for $295,576. The debtors had been allowed to retain the land under the plan as a potential source of income to fund the plan. The sales price exceeded by more than $100,000 the value established for the entire 458-acre tract at the time the debtors’ Chapter 12 plan was approved by the court. After paying the costs of the sale, claims secured by the land, taxes, and other expenses, the debtors were left with $35,341.59 and the rest of the land. Unpaid creditors sought distribution of the windfall to them. The court denied their request, ruling that the provisions of the confirmed plan were binding on the debtors and their creditors. The court stated that estate property vests in the debtor—and thus leaves the bankruptcy estate—upon confirmation of the plan. Thus, it is "free and clear of any claim or interest of any creditor provided for by the plan." The court also found that the proceeds were not “disposable income” because post-petition disposable income does not include prepetition property or its proceeds. As such, the debtors had no obligation to pay the proceeds to the creditors. In re Smith, No. 10-50096-rlj-12, 2014 Bankr. LEXIS 3335 (Bankr. N.D. Tex. Aug. 6, 2014).

The petitioners, a married couple, bought a 40-acre tract within the Pike's Peak viewshed.  They also owned another adjacent 60 acres and sought to plat both tracts as a subdivision with a 2.5 acre size limitation per lot.  Before platting the property, the petitioners  granted a conservation easement on the 40-acre parcel with a development size restriction of one lot of 40 acres.  The pre-easement value as established by the petitioners' appraiser was $1.6 million and the post-easement value was $400,000.  The IRS originally disallowed the entire deduction due to a failure to satisfy I.R.C. Sec. 170, but later conceded that the Code requirements were satisfied and then challenged the appraised values.  The Tax Court determined that the petitioners' appraised values were closer to what the court determined were most accurate.  The result was that the petitioners were entitled to a charitable deduction of over $1.1 million and no penalties or interest.  Schmidt v. Comr., T.C. Memo. 2014-159.

The plaintiffs and the defendants were adjoining landowners. The plaintiffs had used their property since 1989 and had purchased it in 2001. The defendants purchased their property in 2001. A dispute arose between the parties regarding a 17-foot strip of land that ran between their properties. The strip contained a driveway and a strip of land to the east of the driveway. A waterway ran parallel to the driveway on the west side. The plaintiffs had always contended that they owned the driveway and the strip of land to the east and that the defendants owned the waterway. In 2006, one defendant found a marker from a 1982 survey that was to the east of the 17-foot strip of land. He informed the plaintiffs he would be treating the driveway and the rest of the disputed strip as his own. In early 2011, the defendant made preparations to farm the disputed property. He filled in the waterway and began chiseling the driveway. The plaintiffs filed an action to quiet title. The district court quieted title in the plaintiffs and refused to grant the defendants a prescriptive easement (as they had requested as alternative relief in a cross-claim). On appeal, the court affirmed, finding that the plaintiffs had met their burden of proof as to all elements of adverse possession: actual, continuous, exclusive, notorious, and adverse possession under a claim of ownership for a statutory period of 10 years. There was sufficient evidence of the description of the disputed parcel to support the judgment.  The defendants were not entitled to a prescriptive easement because they had used the driveway with permission. Prescriptive rights were disfavored under the law. Schellhorn v. Schmieding, 288 Neb. 647 (Neb. Sup. Ct. 2014).

Before they were married in 1997, the decedent and his wife entered into an antenuptial agreement. At the time, the decedent owned property valued at almost $1.1 million, including farmland, a residence, and farm machinery. The wife’s assets were valued at approximately $150,000. The antenuptial agreement provided, "The will executed by [decedent] shall provide that he will leave his estate to [his wife], if she survives him." It further prohibited the alteration or revocation of the parties’ wills without consent of the other party. In 2011, the decedent executed a will in which he left 25% of his property to his wife and tp each of his three sisters. The decedent died in 2012. His wife filed a claim against the estate, asserting that the decedent’s will violated the terms of the antenuptial agreement.  The trial court agreed and entered summary judgment in the wife’s favor. The sisters appealed, arguing that the antenuptial agreement was ambiguous. The court affirmed, finding that the contract as a whole was not ambiguous. An early recital in the contract stating that each party retained an unhindered right to dispose of their individual property merely made it possible for the later provision to dictate how the decedent would dispose of it. Estate of Kleinlein v. Kauffman, NO. 4-13-1086, 2014 Ill. App. Unpub. LEXIS 1698 (Ill. Ct. App. Aug. 5, 2014).

The petitioner operated a business in which he trained telephone representatives and also he also practiced law.  He also conducted an airplane rental activity which the court found was unrelated to the telephone activity.  The court, agreeing with the IRS, disallowed the flying deductions against the income from the telephone business activity.  The petitioner also failed to establish that he had devoted sufficient hours to the airplane activity to satisfy the material participation tests under the passive loss rules - either the 500-hour test or the 100-hour test.  The court noted that the petitioner had failed to keep records of the time spent on the airplane activity.  The court also upheld the IRS-imposed negligence penalty and underreporting penalty.  Williams v. Comr., T.C. Memo. 2014-158.

At the time of the decedent's death, he was the sole owner of a satellite uplink company that provided satellite access to a religious non-profit company operated by the decedent's son.  In the year of the decedent's death, his company had $16 million in revenue. The decedent's estate was valued at $9.3 million, but IRS valued it at nearly three times that amount. The court determined that the key to the success of the decedent's corporation was his son and the son's goodwill which had not been transferred to the decedent's corporation.  The Tax Court accepted the $9.3 million valuation.  Estate of Adell v. Comr., T.C. Memo. 2014-155

Before filing Chapter 13 bankruptcy, the debtors (married couple) withdrew funds from their IRA and deposited the funds in their sole proprietorship business account.  The bankruptcy trustee objected to debtors' ability to claim the funds as exempt on the basis that the funds did not derive from an IRA or lost their character as IRA funds.  The court disagreed, noting that the same amount was deposited as had been withdrawn and their character had not been destroyed.  While the funds weren't rolled over with the 60-day period allowed under the I.R.C., that did not prevent the funds from being exempt under state (OH) law because the state law exemption was drafted broadly with the intent to protect retirement assets.  In re Karn, No. 13-62446, 2-14 Bankr. LEXIS 3299 (Bankr. N.D. Ohio Aug. 4, 2014).