Case Summaries

A “commercial vendor of agricultural data” requested farm numbers, tract numbers, and customer numbers from the USDA. The USDA assigns these numbers to administer its farm subsidy programs. The USDA refused to release this information under Exemptions 3 and 6 of the Freedom of Information Act (FOIA). 5 U.S.C. § 522(b)(3), (6). The ag tech company then brought this lawsuit challenging the USDA’s refusal. The USDA moved for summary judgment which the district court granted. The ag tech company appealed.

The USDA withheld the farm numbers and tract numbers under Exemption 3. This exemption applies to records “specifically exempted from disclosure” by a statute. The 2008 Farm Bill prohibited the USDA from disclosing “geospatial information…about agricultural land or operations….” 7 U.S.C. § 8791(b)(2).

The ag tech company argued that “geospatial information” does not include the farm and tract numbers. Geospatial is defined as “relating to information that identifies where particular features are on earth’s surface, such as oceans or mountains.” Geospatial, Cambridge Business English Dictionary (2011). In the same way, the USDA uses farm and tract numbers to identify the specific location of a farm. The court noted that the Eighth Circuit had also concluded that farm and tract numbers fell within § 8791(b)(2)(B). Cent. Platte Nat. Res. Dist. V. USDA, 643 F.3d 1142 (8th Cir. 2011).

The USDA withheld the customer numbers under Exemption 6 of FOIA. A federal agency is not required to release requested records if the records are “similar” to “personnel” or “medical” files and if their disclosure “would constitute a clearly unwarranted invasion of personal privacy.” 5 U.S.C. § 552(b)(6). Because the customer numbers can be used to identify specific farm owners, the court concluded that they are “similar” files.

The court determined that releasing customer numbers would implicate a privacy interest because it would “allow for an inference to be drawn about the financial situation of an individual farmer.” If disclosure will harm a substantial privacy interest, the court must determine whether the privacy interest outweighs a significant public interest. Although there is a significant public interest in monitoring the USDA’s activity, § 8791 clearly shows the legislative intent to protect this information. Therefore, the D.C. Circuit Court of Appeals affirmed the grant of summary judgment in favor of the USDA.

Telematch v. USDA, 2022 WL 3330101 (D.C. Aug. 12, 2022).

Traditional dicamba herbicide is highly volatile and can easily damage non-targeted, non-tolerant crops. Before the EPA registered low volatility dicamba for certain over-the-top use, it was illegal to use dicamba during the growing season. 7 U.S.C. § 136j(a)(2)(G). Monsanto and BASF agreed to work together to develop a dicamba-resistant seed. Although the EPA had not approved a lower-volatility dicamba, Monsanto began selling a dicamba-tolerant cotton seed (Xtend) in 2015. Each bag of seed warned farmers that applying dicamba over the top of Xtend plants was illegal. The EPA approved Monsanto’s lower-volatility dicamba in 2016 and BASF’s in 2017.

Bader Farms, Inc. sued both companies for negligent design and failure to warn alleging that its peach trees were damaged by dicamba drift. A jury found in favor of Bader Farms and awarded $15 million in compensatory damages and $250 million in punitive damages. The district court reduced the punitive damages to $60 million and held both defendants jointly and severally liable. The district court also denied the defendants’ motion for a new trial.


On appeal, the defendants claimed that Bader failed to prove both cause in fact and proximate cause. They argued that Bader did not prove which company’s dicamba injured the trees and that misuse of the product by a third party was an intervening cause. The Eighth Circuit explained that the jury believed Xtend, not dicamba, caused Bader’s injury. Bader had argued that but-for the dicamba resistant seed, neighboring farmers would not have applied the herbicide.

The court also held that misuse by third-party farmers did not break the chain of proximate causation. Monsanto controlled the third-party farmers through growers’ licenses and technology-use terms. Additionally, the primary benefit of Xtend is its dicamba-resistance. Xtend consumers could only obtain this benefit by misusing dicamba.


The defendants also argued that the district court erred in instructing the jury to measure compensatory damages by lost profits rather than reduction in land value. The court stated that, under Missouri law, if a tree owner does not own the land, damages should not be measured by the loss of land value. Cooley v. Kansas City, P. & G.R. Co., 51 S.W. 101, 104 (1899). Here, Bader only owned the peach trees. The land was owned by an individual. Therefore, the court determined there was no error.

Punitive Damages

Lastly, the court considered whether the district court erred in holding Monsanto and BASF jointly and severally liable for punitive damages. Under Missouri law, unless the defendants had established a joint venture, they are only “liable for the percentage of punitive damages for which fault is attributed to such defendant by the trier of fact.” See Mo. St. § 537.067.2. The jury was only instructed to consider Monsanto’s liability for punitive damages. BASF was not mentioned.

The court found that Monsanto and BASF had not established a joint venture because BASF did not have equal control in the agreement to develop a dicamba-resistant seed. Additionally, there was sufficient evidence to establish “different degrees of culpability.” As a result, the Eighth Circuit vacated the $60 million punitive damage award and remanded the case for a new trial to determine punitive damages.

Hahn v. Monsanto Co., F.4th 954 (8th Cir. 2022).

In 2019, the USDA announced the optional New Swine Slaughter Inspection System (NSIS). Modernization of Swine Slaughter Inspection, 84 Fed. Reg. 52,300, 52,315 (Oct. 1, 2019). Among other things, the rule revoked maximum line speeds for swine slaughterhouses which opted into NSIS. The rule also ended the HACCP-Based Inspections Models program (HIMP) which granted line-speed waivers for some plants.

A group of labor unions at pork processing plants challenged the rule under the Administrative Procedure Act (APA). A federal district court held that the rule was arbitrary and capricious because it failed to consider worker safety. United Food and Comm. Workers Union, Local No. 663 v. USDA, 532 F.Supp.3d 741 (D. Minn. 2021). The district court only vacated the portion of the rule eliminating line speed limits. Two months later, three pork processing companies which had participated in HIMP moved to intervene and sought clarification that the district court’s order reinstated the prior HIMP waivers. The district court found the motion untimely and, thus, denied it. United Food and Comm. Workers Union, Local No. 663 v. USDA, 2021 WL 2010779 (D. Minn. May, 20, 2021). The companies appealed.

When assessing timeliness, the court will consider the litigation’s progression, the proposed intervener’s knowledge of the litigation, the reason for the delay, and any prejudice to the existing parties. Smith v. SEECO, Inc., 922 F.3d 398, 405 (8th Cir. 2019). The Eighth Circuit found that all four factors weighed in favor of denying the intervention. The litigation had concluded with the district court’s grant of summary judgment and the companies were well aware of the litigation as they had filed amicus briefs with the district court.  

The companies alleged that they had a “divergence of interests” with the USDA after the district court vacated the line speed limit portion of the rule. The court found this unpersuasive as the USDA, in defending the rule, never sought a return to the HIMP waiver system. Lastly, the court determined that allowing the companies to intervene would hinder the USDA’s ability to implement the remaining rule provisions and manage the national food system. Therefore, the Eight Circuit affirmed the denial of the companies’ motions to intervene.

United Food and Comm.. Workers Union, Local No. 663 v. USDA, 36 F.4th 777 (8th Cir. 2022).

Section 1005 of the American Rescue Plan Act (ARPA) authorizes the USDA to pay up to 120 percent of certain eligible loans balances to “socially disadvantaged farmers and ranchers” (SDFR). SDFR includes producers who are a member of socially disadvantaged groups such as “Black, American Indian/Alaskan Native, Hispanic, Asian, and Pacific Islander.” See 7 U.S.C. § 2279(a)(6).

A white farmer, who did not qualify for the SDFR designation, filed a class action lawsuit against the USDA claiming that the law violated the Civil Rights Act of 1964 and the U.S. Constitution. The district court certified the class and granted a preliminary injunction to enjoin the Secretary from administering § 1005. An advocate organization “of Black farmers, landowners, and cooperatives” filed a motion to intervene. The district court denied the motion and the advocate organization appealed. Miller v. Vilsack, 2021 WL 6129207 (N.D. Tex. Dec. 8, 2021).

To prevail on a motion to intervene as a matter of right, the applicant must show that their interest is inadequately represented by the existing parties to the suit. Fed. R. Civ. P. 24(a)(2). In this case, the court considered whether the advocate organization demonstrated that its interest diverged from the USDA’s “in a manner germane to the case.” See Texas v. U.S., 805 F.3d 653, 662 (5th Cir. 2015).

The court found that the two parties’ interests clearly diverged. Both the advocate organization and the USDA seek to uphold the constitutionality of § 1005. However, the advocate organization argued that the USDA continues to discriminate against minority farmers while the USDA argues that past USDA discrimination still has a lingering effect. Additionally, the advocate organization’s interest was germane to the case. Race-based governmental actions must be narrowly tailored to meet a compelling government interest. Here, evidence of continued discrimination may be crucial to proving a compelling government interest. Accordingly, the Fifth Circuit reversed the district court’s denial of intervention.

Miller v. Vilsack, 2022 WL 851782 (5th Cir. March 22, 2022).

A hotel owned the .49-acre wetland adjacent to it. The hotel applied for a permit under the Clean Water Act to fill the wetland claiming it intended to build a commercial building. See 33 U.S.C. §§ 1311(a), 1341(a)(1), 1344(a), (e). The hotel received a general permit from the Army Corps of Engineers for the construction of commercial buildings.

A member of an environmental non-profit sought declaratory judgment and the restoration of the wetland. She alleged that the hotel always intended to fill the wetland for landscape purposes; therefore, she claimed that the authorization was null and void because the hotel “intentionally and maliciously misled the Corps.” The hotel moved to dismiss the complaint. The district court granted the motion holding that the individual member did not have standing because she did not allege injury in fact. The member appealed to the Eleventh Circuit.

To have standing, a plaintiff must have suffered an injury due to the actions of the defendant. Here, the member claimed that she suffered an aesthetic injury. Such an injury occurs when a person who uses the affected area will experience diminished aesthetic value due to the challenged activity. Friends of the Earth, Inc. v. Laidlaw Env't Servs. (TOC), Inc., 528 U.S. 167, 183 (2000). The member alleged she gained aesthetic pleasure from viewing the hotel’s wetland.

The court rejected the hotel’s argument that the member must have “actually visited” the wetland before it was filled. Even if the individual member never visited the wetland, the court found that she nevertheless experienced an injury in fact because she could no longer could enjoy viewing the wetland. Additionally, the individual member did not need to have physically occupied the wetland to have an aesthetic interest. While the plaintiff must have an interest in the specific area, the court noted the limitations of this requirement. Otherwise, a plaintiff must “step[] on the Old Faithful geyser at Yellowstone National Park to challenge its destruction.” Lastly, the court found it irrelevant that the wetland was private property. While the member had no right to occupy the wetland, she still had an aesthetic interest in it. Because the individual member sufficiently alleged injury, the court vacated the lower court’s dismissal.

The case is Glynn Env't Coal. v_Sea Island Acquisition LLC, 2022 WL 620284 (11th Cir. March 3, 2022).

In 2017 and 2018, the North Carolina General Assembly amended the state’s Right to Farm law in response to several nuisance lawsuits against pork producer Murphy-Brown. The lawsuits resulted in five large jury verdicts against the company. S.B. 711 created additional requirements a plaintiff must meet to bring a nuisance lawsuit while H.B. 467 provides limitations on the amount of compensatory and punitive damages a plaintiff can receive.

In June 2019, a group of nonprofits brought this lawsuit claiming that S.B. 711 and H.B. 467 violated the North Carolina Constitution’s Law of the Land Clause. The North Carolina Supreme Court has held this clause to be the equivalent of the Fourteenth Amendment Due Process Clause. State v. Collins, 84 S.E. 1049, 1050 (1915). After the superior court granted the defendants’ motion to dismiss under Rule 12(b)(6), the plaintiffs appealed.

Law of the Land Clause and Due Process Clause

To survive a due process challenge, the purpose of the law must be within the scope of police power, the law must be reasonably necessary to promote public good, and the interference with the landowner’s right to use his property must be reasonable. Here, the court found that promoting agricultural activities clearly falls within the state’s police powers. Additionally, both S.B. 711 and H.B. 467 promote the public good by reasonably limiting nuisance claims against agricultural operations. Any interference with the use and enjoyment of property is reasonable.

Right to Trial by Jury

The plaintiffs also claimed that H.B. 467 violated Article I, Section 25 of the North Carolina Constitution by limiting the plaintiffs’ right to a trial by jury. The court disagreed finding that H.B. 467 limited remedies and damages available to a plaintiff, but “did not impair nor abolish the right to a jury trial.”

The case is Rural Empowerment Association for Cmty. Help v. North Carolina, 2021 WL 6014722 (N.C. App. Dec. 21, 2021).

Two environmental organizations brought a lawsuit against a dairy farm under the Clean Water Act (CWA). Intending to build a concentrated animal feeding operation (CAFO) on the property, the dairy farm filled two ditches and installed drainage tiles. The plaintiffs allege that the dairy farm site consists of farmed wetlands and that, through the construction activities, the dairy farm violated the CWA. The CWA prohibits the “discharge of dredged or fill material” into waters of the United States. 33 U.S.C. § 1344(a). This includes farmed wetlands. The dairy farm moved to dismiss the lawsuit claiming that there were no wetlands on the property.

The dairy farm sits on a drained lakebed that has been used as farmland since the 1900s. The dairy farm asserts that the plaintiffs’ petition shows that the land is prior converted cropland. Unlike farmed wetland, prior converted cropland does not have hydrologic signs of wetlands and is not subject to CWA jurisdiction. 7 C.F.R. § 12.2. Farmed wetland includes land that was used to produce an agricultural commodity before December 23, 1985, and experiences inundation for at least 15 consecutive days or 10 percent of the growing season. The court found that the complaint alleged wetland factors including evidence of hydrophytic vegetation, hydric soil, and wetland hydrology. Additionally, the complaint alleged that these wetlands have a significant nexus to jurisdictional waters. Because of this, the court denied the motion to dismiss.

Hoosier En't Council v. Nat. Prairie Indiana Farmland Holdings, LLC, 2021 WL 4459509 (N.D. Ind. Sept. 29, 2021).

In this case, two environmental advocacy organizations allege that the U.S. Army Corps of Engineers (Corps) violated the Administrative Procedure Act (APA) by failing to adhere to technical guidance manuals when making a wetland determination. After filling and tiling drainage ditches, a dairy farm contacted the Corps to determine if the farmland and adjacent ditches were subject to the Clean Water Act (CWA). The Corps determined that, unlike the ditches, the farmland did not have signs of a wetland, but was a prior converted cropland not regulated by the CWA. 

Congress directs the Corps to use the Wetlands Delineation Manual to identify jurisdictional wetlands. The plaintiffs argue that the Corps did not rely on relevant factors set forth in the Wetlands Delineation Manual concerning an atypical situation. An atypical situation exists when there are significant alterations to one of the three wetland parameters. A significant alteration includes the construction of drainage systems.

If there is an atypical situation on farmland, the Wetlands Delineation Manual directs the Corps to assess whether the land could have wetland hydrology. The court found that the Corps did not follow the required technical guidance. For example, it did not consider the relevant factors listed in the guidance manuals to determine the hydrology of the land before the alterations or the impact of the dairy farm’s alterations. Additionally, there was no sufficient reason why the Corps deviated from its own guidance. The court held that the Corps determination was arbitrary and capricious and remanded the case for further consideration of the Corps jurisdiction over the farmland.

Hoosier Env't Council v. Nat. Prairie Indiana Farmland Holdings LLC, 2021 WL 4477152 (N.D. Ind. Sept. 29, 2021).

In 2016, the Ranchers-Cattlemen Action Legal Fund (R-CALF) brought a lawsuit against the USDA for allowing mandatory assessments from the Beef Checkoff program to fund Qualified State Beef Councils’ (QSBCs) promotional activities. In response the USDA began to enter into memoranda of understandings (MOUs) with the QSBCs. These MOUs granted the USDA pre-approval authority over “any and all promotion, advertising, research, and consumer information plans and projects.” On July 27, 2021, the Ninth Circuit held that the USDA “effectively controlled” the advertising and, therefore, the Beef Checkoff program did not violate the First Amendment.

In this current lawsuit, R-CALF claims that the USDA violated the Administrative Procedure Act (APA) by entering into MOUs rather than engaging in formal notice-and-comment rulemaking. See 5 U.S.C. § 553. Because of this, R-CALF alleged that its members would suffer financial injury as the Beef Checkoff funds will go towards speech which threatens the livelihoods of independent, domestic ranchers. The USDA filed a motion to dismiss, claiming that R-CALF lacked standing because it did not identify a specific member who was injured by the MOUs.

Although R-CALF did not identify specific members who had standing to sue in their own right, the district court found that the organization did provide general allegations that its members, “independent, domestic producers,” would be harmed by QSBC advertising “promot[ing] corporate consolidation in the beef industry.” Additionally, R-CALF sufficiently alleged causation to survive the motion to dismiss. R-CALF claimed that if its members had the opportunity to participate in the rulemaking process, the MOUs may have contained more favorable provisions or even a complete prohibition of using checkoff funds for speech. Therefore, the court denied the motion to dismiss, but with the disclaimer that R-CALF must next prove actual members have suffered harm due to the MOUs.

R-CALF v. USDA, 2021 WL 442723 (D.D.C. Sept. 29, 2021). 

Two plaintiffs brought this Clean Water Act (CWA) citizen’s suit against their neighbors who owned 191 acres of agricultural land. The defendants had installed drainage tile several times in recent years, most recently in 2014. The defendants did not obtain a CWA section 404 permit to discharge dredged materials into a navigable water. In 2015, after a heavy rain, the plaintiffs’ property began to experience unprecedented flooding that destroyed their home and other property. The plaintiffs claimed in their citizen’s suit that the previous tiling activity was an unauthorized discharge of a pollutant in violation of Sections 301 and 404 of the CWA. The defendants moved for summary judgment, asserting that the plaintiffs sought to impose liability for a “wholly past violation.”

To have standing in a citizen suit, the proponent must prove that the alleged violation is continuous or intermittent, but still ongoing. Tamaska v. City of Bluff City, Tenn., 26 F. App'x 482, 485 (6th Cir. 2002). Here, there was insufficient evidence that there was either a continuing discharge of a pollutant or a likelihood of a continuing discharge of a pollutant when the plaintiffs filed this lawsuit in 2018. The defendants had not conducted any tiling activities since the lawsuit was filed, nor was there evidence that they intended to do so.

Additionally, any ongoing discharge from the drainage system only consisted of water. While that may be causing flooding on the plaintiffs’ property, water is not a pollutant. Therefore, the plaintiffs asserted a wholly past violation and their “remedy, if any, [was] not grounded in the Clean Water Act in federal court.” See Bettis v. Town of Ontario, N.Y., 800 F. Supp. 1113, 1120 (W.D.N.Y. 1992). The court declined to exercise supplemental jurisdiction over the plaintiffs’ remaining nuisance and negligence claims and granted the defendants’ motion for summary judgment.

The case is Ward v. Stucke, 2021 WL 4033166 (S.D. Ohio, Sept. 3, 2021).

In 2016, the Ranchers-Cattlemen Action Legal Fund (R-CALF) challenged the beef checkoff program, claiming it violated the First Amendment by compelling producers to subsidize private speech through funding of Qualified State Beef Councils’ (QSBCs) promotional activities. While the litigation made its way through the courts, the USDA began to enter into memoranda of understanding (MOUs) with QSBCs, granting the USDA pre-approval authority over “any and all promotion, advertising, research, and consumer information plans and projects.”

In 2018, the Ninth Circuit affirmed R-CALF’s request for a preliminary injunction to prevent a QSBC from using the checkoff to fund advertising campaigns. On remand, the District of Montana found that the recently executed MOUs effectively controlled the QSBCs advertising and therefore constituted government speech immune from First Amendment scrutiny. R-CALF v. Perdue, 449 F.Supp.3d 944 (D. Mont. 2020). R-CALF appealed.

If speech is “effectively controlled” by the government, it is government speech not subject to First Amendment scrutiny. Johanns v. Livestock Marketing Ass’n, 544 U.S. 550, 559-60 (2005). In this case, R-CALF asserted that the advertising generated by hired third parties constituted private speech. The Ninth Circuit disagreed and held that the MOUs gave the USDA the authority to control the content of the advertising by requiring pre-approval of any and all advertising or contracts entered into by the QSCBs. Under the MOUs, the USDA had final authority over the promotional campaign as it may decertify a noncompliant QSCB. Thus, the court affirmed that promotional activities subject to pre-approval are government speech.

R-CALF v. Vilsack, 2021 WL 3161201 (9th Cir. July 27, 2021).

Section 1005 of the American Rescue Plan Act (ARPA) authorizes the USDA to pay up to 120 percent of certain eligible loans balances to “socially disadvantaged farmers and ranchers” (SDFR). SDFR includes producers who are a member of socially disadvantaged groups such as “Black, American Indian/Alaskan Native, Hispanic, Asian, and Pacific Islander.” See 7 U.S.C. § 2279(a)(6). A Caucasian farmer from Florida brought this lawsuit claiming that Section 1005 of the ARPA violated both the equal protection component of U.S. Const. amend. V’s Due Process clause and that it should thus be prohibited by the Administrative Procedure Act (APA). The plaintiff petitioned the court for a preliminary injunction.

To obtain a preliminary injunction, the proponent, among other factors, must show that he is likely to succeed on the merits. The plaintiff in this case must prove Section 1005 is unconstitutional. Race-based governmental actions are subject to strict scrutiny review and must be narrowly tailored to meet a compelling government interest. The court will consider factors such as the necessity of relief and effectiveness of alternative remedies; the flexibility of the relief or availability of waiver provisions; and whether the law is over-inclusive or under-inclusive. While remedying past government discrimination is usually a compelling interest, the solution must attempt to remedy a past wrong.

Here, the court held that the law was not narrowly tailored. Neither party contests the USDA’s past discrimination against SDFRs which resulted in lower approval rates among minority farmers or loans with less favorable terms. However, Section 1005 only benefits SDFRs who actually received an eligible USDA loan. Additionally, there was no evidence that Congress attempted to first consider race-neutral alternative remedies.

While the defendant argued that Section 1005 is narrowly tailored to quickly provide monetary assistance to producers near foreclosure, the court disagreed, finding it to be inflexible. Section 1005 does not base qualification upon profitability—or the lack thereof—but only on race. Similarly, it did not provide a waiver provision for a non-SDFR to qualify.

Next, the court held that Section 1005 is both over-inclusive and under-inclusive. It does not require a past showing of USDA discrimination, which is the past wrong Congress intended to remedy. It also provided relief to certain groups for which there was little evidence of USDA farm loan discrimination. Alternatively, the court found Section 1005 was under-inclusive because it failed to provide relief for producers who specifically experienced USDA discrimination. Therefore, the court found that the plaintiff was likely to succeed on the merits of the case and granted the motion for a preliminary injunction.

Wynn v. Vilsack, 2021 WL 2580678 (M.D. Fla. June 23, 2021).

To build a natural gas pipeline, Alliance Pipeline obtained easements from agricultural landowners in North Dakota, Minnesota, Iowa, and Illinois. As a condition for the easement, Alliance agreed to pay for any crop losses the pipeline caused. Alliance terminated this crop loss payment program in 2015. Ten landowners in Iowa and Minnesota brought this lawsuit alleging breach of contract and sought class certification to include other landowners and farm tenants.

To establish a class action, the court will first consider the numerosity, commonality, and typicality of the class as well as the ability of the proposed representative to adequately protect the interests of the class. Fed R. Civ. Pro. R. 23(a). Additionally, the class must be clearly ascertainable. McKeage v. TMBC, LLC, 847 F.3d 992, 998 (8th Cir. 2017). In granting the motion for class certification, the court ruled that all factors were met. For example, questions common to the class existed, including whether Alliance had a contractual obligation to compensate landowners for crop loss and, if so, whether Alliance breached that obligation. The court did, however, find that several of the proposed representatives could not adequately protect the interests of the class because they did not have direct knowledge of the agricultural operations on their property. As such, the court declined to certify those five landowners as class representatives.  

H & T Fair Hills, Ltd. v. Alliance Pipeline L.P, 2021 WL 2526737 (D. Minn. June 21, 2021).

A recent case from the District Court of Colorado demonstrates problems that can arise without a written agreement. Similar to a contract, partnership agreements should include the name of the parties involved, the terms of partnership, and each partners’ duties. In this “he said, he said” case, a written agreement might have averted some problems, or at least made them easier to resolve.


The plaintiff was a farmer and producer of specialty hemp seeds. The farmer alleged that he and the partner entered into an oral partnership agreement for the purpose of growing, selling, and distributing specialized hemp starts (young plants) across the United States using the farmer’s expertise and nationwide distribution network for the benefit of the partnership. The two agreed that the partner would pay the farmer a 10 percent management fee for overseeing the growing of the starts. The farmer soon determined that this was a “very bad choice” and brought this lawsuit claiming that the partner breached the agreement. The partner filed a motion to dismiss claiming that the farmer failed to join necessary parties and failed to state a claim.

At this early stage of litigation, the district court, without a written agreement, relied on the farmer’s verified complaint to determine whether the lawsuit must be dismissed. In the complaint, the farmer stated that after he entered into the agreement with the partner personally, the partner ordered for himself, for distribution to related entities, nearly $4.6 million worth of the partnership’s hemp starts and then did not pay for those plants. Additionally, the farmer alleged that the partner failed to pay the $406,621.45 management fee.

Failure to Join Indispensable Parties

The partner claimed that he was not liable for these debts because his LLC had entered into the partnership. Because of that, he argued that the LLC must be joined as a necessary party under Rule 19. Despite the farmer’s original complaint alleging that the starts were sold to both the partner and his LLC, there was no reason to believe the LLC was a necessary party. Accepting the farmer’s verified complaint as true, the court found that the partnership was solely between the farmer and the partner, not the LLC.

Failure to State a Claim

The partner claimed that the farmer failed to state a claim for breach of the partnership agreement, breach of fiduciary duties, and for promissory estoppel. Under Colorado law, a plaintiff cannot sue for breach of a partnership without first providing an accounting. Because the verified complaint claimed an accounting was provided, this claim was adequately pled. The court determined that, at this early stage, the allegations were to be taken as true and the claims should survive the motion to dismiss.

Leago v. Ricks, 2021 WL 1192939 (D. Colo. March 30, 2021).

Additional Hemp Resources

For an update on current hemp regulations, read Iowa Outdoor Hemp License Applications Due May 1.

Potential growers should also carefully consider whether there is a profitable market for hemp. For further reading, see Iowa State Extension article “The Opportunities and Challenges with Hemp” by Dr. Chad Hart.

For more information on the federal regulation of hemp, visit:

For more information on growing hemp in Iowa, applying for a state license, and hemp in animal food, visit All questions about applying for a hemp license or seed permit should be directed to or (515) 725-1470.

For questions about consumable hemp products, contact the Department of Inspection and Appeals at or 515.829.8899.

A farmer filed for Chapter 7 bankruptcy in 2019. Eighteen months later he filed a motion to convert to a Chapter 12 case. A Chapter 7 debtor may convert his case to a Chapter 12 case provided that he meets the requirements of that chapter. See 11 U.S.C. § 706(a), (d).

The court in this case did not discuss whether the debtor met the debt limits and income requirements of Chapter 12, but rather discussed the debtor’s behavior since filing for Chapter 7 liquidation. The United States Supreme Court has determined that 11 U.S.C. section 706(d) allows a court to deny a motion to convert when the debtor has engaged in bad faith conduct. Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 374 (2007).

After filing for bankruptcy, the debtor attempted to hide valuable assets from the bankruptcy trustee, used the bankruptcy estate assets to continue to farm, and gave false information regarding his salary from his farm LLC as well as the amount of his liabilities. The court concluded that the debtor consistently acted in bad faith and allowing the debtor to convert to a Chapter 12 case without a trustee would be like “putting the fox in charge of the henhouse.” Thus, the court denied the debtor’s motion.

In re Steven Keith Jenkins, Debtor, 2021 WL 1845572 (Bankr. N.D. Miss. May 7, 2021)

After a wildfire occurred, the plaintiff claimed that hundreds of wild horses drank water from his Nevada land covered by a Bureau of Land Management (BLM) grazing permit. The United States owns and manages these horses. The plaintiff brought this lawsuit in the United States Court of Federal Claims alleging an illegal Fifth Amendment Taking for failing to manage the wild horses. At the time of the filing, the plaintiff claimed to have suffered over $800,000 in damages. The Claims Court dismissed the complaint for lack of subject-matter jurisdiction finding that government inaction cannot support a takings claim. The plaintiff appealed to the Court of Appeals for the Federal Circuit.

The Tucker Act gives the Claims Court jurisdiction to hear “any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.” 28 U.S.C. § 1491(a)(1). Agreeing with the Claims Court, the Federal Circuit concluded that a takings claim must be based on an affirmative action and cannot be based on government inaction. See St. Bernard Parish Gov. v. United States, 887 F.3d 1354, 1360–61 (Fed. Cir. 2018). The plaintiff’s allegations included the government’s failure to manage the horses and its denial to the plaintiff’s requests to remedy the situation. Additionally, the Tucker Act does not give the Claims Court jurisdiction for tort claims.

Bench Creek Ranch, LLC, v. United States, 2021 WL 1828065 (Fed. Cir. May 7, 2021). 

In this case, the IRS disallowed tens of millions of dollars in exclusions for cost of goods sold and business expense deductions claimed by one of the largest medical marijuana dispensaries in the country. Taxpayers cannot claim a deduction for ordinary and necessary expenses if the taxpayer is engaged in an unlawful business such as selling a controlled substance like marijuana. I.R.C. § 280E, 21 U.S.C. § 812(c). While acknowledging it was subject to section 280E, the dispensary, which operated a legal business under California law, petitioned the United States Tax Court for a redetermination of the IRS decision. The Tax Court affirmed the multi-million-dollar deficiency judgment resulting from the dispensary’s corporate income tax liabilities from tax years 2007 to 2012.


On appeal to the United States Court of Appeals for the Ninth Circuit, the dispensary argued that section 280E was unconstitutional or, alternatively, that the denied deductions should qualify as cost of goods sold and therefore be excluded from its gross income. Historically, challenges to the constitutionality of section 280E have been unsuccessful. N. Cal. Small Bus. Assistants Inc. v. Comm'r, 153 T.C. 65, 72 (2019); Alpenglow Botanicals, LLC v. United States, 894 F.3d 1187, 1201 (10th Cir. 2018). Here, the court declined to consider the dispensary’s 16th Amendment argument because it was not raised before the Tax Court.

Excludible Inventory Costs

The dispensary alternatively claimed that the approximately $7 million it incurred by purchasing and processing marijuana qualified as excludible inventory costs. The costs, for example, included employee compensation relating to the negotiation of bud purchases and the cost of laboratory testing of marijuana.

The Tax Court found that the dispensary “purchased” rather than “produced” the products it sold and that taxpayers reselling products that they “purchased” are entitled to include as cost only “the invoice price,” less certain discounts not relevant here, as well as “transportation or other necessary charges incurred.”  See Treas. Reg § 1.471-3(b). The dispensary did not appeal the Tax Court’s purchaser determination, but rather claimed that because its inventory method satisfied I.R.C. § 471 by meeting the general requirements for best accounting practice and clear reflection of income, the IRS could not force the dispensary into a particular cost method under Treas. Reg. § 1.471-3. The Ninth Circuit disagreed, stating that § 471 requires taxpayers to take inventory as set forth by the IRS. I.R.C. § 471(a). Therefore, taxpayers must follow the detailed regulations on how to compute their inventories. See Treas. Reg. §§ 1.471-1 to -11.

The dispensary next claimed that because the IRS did not challenge whether the dispensary’s inventory method failed to clearly reflect its income, the IRS could not require a particular accounting method. In rejecting this argument, the court explained that the IRS did not attempt to compel a particular accounting method, but rather disallowed an accounting method that was not in conformance with the applicable regulations.

Lastly, the dispensary argued that under Treas. Reg. § 1.471-3(d), it could include both its production and purchasing costs in the inventory costs. The court stated that § 1.471-3(d) only applies to industries “in which the usual rules for computation of cost of production are inapplicable.” Such industries include famers, some miners and manufacturers, and retail merchants that use the retail method of accounting. The court noted that while the normal inventory accounting rules may be unfavorable to the dispensary, it was still subject to those rules and regulations.

Patients Mutal Assistance Collect Corp. v. Comm'r, 2021 WL 1570288 (9th Cir. April 22, 2021).

In 2018, 62 landowners along the Mississippi River filed a lawsuit against the United States in the United States Court of Federal Claims. The plaintiffs claimed that the Army Corps of Engineers (Corps) committed an illegal taking by making improvements for navigability on the Middle Mississippi River which caused recurrent flooding on the plaintiffs’ property. The court of claims dismissed the complaint, finding that it was barred by the six-year statute of limitations governing actions under the Tucker Act. See 28 U.S.C. § 2501, 28 U.S.C. § 1491(a)(1).  

On appeal, the United States Court of Appeals for the Federal Circuit affirmed. A claim accrues when the alleged event causing the damage occurs and the plaintiff is aware, or should be aware, of the event. Under the stabilization doctrine, when a taking happens gradually, the claim does not accrue until the plaintiff is injured. The court found that 91 percent of the river improvements were in place by 2000, well outside of the six-year statute of limitations. The area had experienced recurrent flooding since the nineteenth century and there was no evidence any Corps action within the statutory six-year period exacerbated the flooding. Additionally, the court found that the plaintiffs should have known about the defendant’s potential liability because there was easily accessible public information dating back to the 1970s on the impact of river training structures.

Jackson-Greenly Farm, Inc. v. United States, 2021 WL 1546034 (Fed. Cir. April 20, 2021).

In 2020, the U.S. Supreme Court issued a ruling in a Clean Water Act (CWA) citizens’ suit against the County of Maui. County of Maui v. Hawai’i Wildlife Fund, 140 S. Ct. 1462 (2020). The plaintiffs claimed that the County of Maui’s wastewater reclamation facility discharged pollutants through groundwater into a navigable water in violation of the CWA. The Court ruled that a permit is required when there is “the functional equivalent of a direct discharge” and remanded the case for further proceedings.

On remand, the plaintiffs moved for summary judgment. The County of Maui claimed that the plaintiffs’ motion relied on a flawed 2013 groundwater tracer study. Arguing that the study was unreliable, the County of Maui petitioned for a pretrial evidentiary hearing. In denying the motion, the court ruled that there was no reason to decide the issue in advance of considering the pending summary judgment motion. The plaintiffs asserted that they did not rely on the study in their motion for summary judgment. The court stated that while it must perform a gatekeeping function to ensure that admitted scientific evidence is relevant and reliable, a pretrial evidentiary hearing was not necessary. The court noted that it might turn out that the court could perform its gatekeeping function when the disputed evidence is offered during the bench trial, which is scheduled for the fall. The case could also be decided on summary judgment without a trial.

Hawaii_Wildlife_Fund_v._County_of_Maui, 2021 WL 1299192 (D. Haw. April 7, 2021).

The plaintiffs in this case market products such as “tofurky,” “vegetarian ham roast,” and “vegan jerky.” In 2018, the Missouri Legislature amended its meat advertising regulation to criminalize plant-based and lab-grown meats from being misrepresented as a meat. See Mo. Rev. Stat. § 265.494(7). The plaintiffs brought this lawsuit challenging the constitutionality of the new statute, as it applied to them, and asked for a preliminary injunction. The district court denied the request finding that the plaintiffs’ marketing clearly indicated that the products do not contain meat; therefore, the statute did not prohibit their speech and the plaintiffs were not likely to succeed on their First Amendment claim.

On appeal, the plaintiffs claimed the district court applied the wrong legal standard and too narrowly interpreted the statute. After determining that the commercial speech standard applied to the plaintiffs’ claim, the Eighth Circuit next considered whether the plaintiffs’ products misrepresented meat and was therefore prohibited by the statute. The Missouri Department of Agriculture had issued guidance explaining that the new law did not prohibit packages which both contained a prominent disclosures that the product is “plant-based” and “made from plants” because the product did not misrepresent meat. The State did not claim that the plaintiffs’ products misrepresented meat. Additionally, the plaintiffs claimed that their products are “clearly labeled as plant based, vegan, or vegetarian.” Because it was unlikely the statute would be applied to their speech, the plaintiffs are unlikely to succeed on their merits of their as-applied First Amendment Claim. Therefore, the court affirmed the district court’s ruling denying the preliminary injunction.

Turtle Island Foods_v. Thompson, 2021 WL 1165406 (8th Cir. March 29, 2021).

Plaintiffs brought this citizen suit under the Clean Water Act (CWA) and against a coal company for discharging selenium and ionic pollutants from two mines. The plaintiffs claimed that the defendant exceeded its 402 permit limitations and its 401 certification as well as violated the Surface Mining Control and Reclamation Act (SMCRA). The West Virginia Department of Environmental Protection (DEP) issued two Orders of Compliance for exceeding selenium discharge limitations and a Proposed Consent Order to come into compliance. The defendant claimed these orders precluded the plaintiffs’ claims under section 309(g) of the CWA, which bars a citizen suit if a state has already begun prosecution under comparable state law or the state has already issued a final order imposing a monetary penalty. See 33 U.S.C. § 1319(g).

In rejecting the defendant’s claim, the court found that these orders did not cover the entire scope of the plaintiffs’ allegations, such as those involving ionic pollutants or the SMCRA. Additionally, the allegations that the Proposed Consent Order did address did not meet section 309(g) criteria. First, because the plaintiffs filed the citizen suit more than a year before the DEP sent the Proposed Order, the enforcement action did not predate the citizen suit. Moreover, the court had previously found that the state law was not comparable to the CWA because it “does not provide for the assessment of administrative penalties without the violator's consent.” Sierra Club v. Powellton Coal Co., LLC 662 F. Supp. 2d 514, 530 (S.D. W. Va. 2009). Alleged violators may terminate DEP enforcement action at any time and for any reason. Finally, none of the orders penalized the defendant, but instead gave the defendant the option to not enter into the proposed order at all. Because of this, the court found that the state enforcement did not preclude the plaintiffs’ suit.

Ohio Valley Environmental Coalition v. Lexington Coal Co., 2021 WL 1093631 (S.D.W. Va. March 22, 2021).

Plaintiffs claimed that several egg-producer trade groups and a large egg producer violated the Sherman Act, 15 U.S.C. § 1, by price-fixing the cost of eggs. After trial, the jury instructions and verdict form asked if the defendants agreed to conspire to reduce the supply of eggs by 1) taking several short-term steps to reduce the supply of hens and chicks, 2) requiring producers to follow certain guidelines to become United Egg Producer (UEP) certified, and 3) coordinating an export program to decrease the domestic supply of eggs. The jury found that the defendants did not conspire to reduce the supply of eggs.

On appeal, the plaintiffs claimed the use of the word “and” in the jury instructions and verdict form did not allow the jury to find a conspiracy occurred unless the plaintiffs proved all three of the aforementioned allegations. However, the district court consistently instructed the jury on the correct components of a conspiracy. Therefore, any error on a jury form did not affect the outcome and was harmless.

The plaintiffs also claimed that the district court erred by failing to instruct the jury that defendants’ conduct was a per se violation of the Sherman Act. The court disagreed, however, ruling that the per se rule is “appropriate only after courts have had considerable experience with the type of restraint at issue, and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason.

In Re: Processed Egg Products Antitrust Litigation, 2021 WL 960730 (3rd Cir. March 15, 2021)

As part of the ongoing litigation against Murphy-Brown and its parent company, Smithfield Foods, 20 plaintiffs brought this lawsuit against the hog integrator seeking compensatory and punitive damages for trespass, negligence, civil conspiracy, and unjust enrichment. The plaintiffs claimed that the swine owned by the defendants at the nearby Vestal Farm caused unreasonable odor, dust, flies, and noise. The defendant filed a motion to dismiss, claiming that the plaintiffs failed to join an indispensable party and for failure to state a claim.

The defendants claimed that the owner/operator of Vestal Farm is a necessary and indispensable party under Federal Rule of Civil Procedure 12(b)(7). In its own motion, the Vestal Farm operator claimed that it cannot protect its farm and financial interests unless allowed to join in the lawsuit. The court found that the operator’s interests were not directly related because the plaintiffs did not challenge the operator’s actions or swine production agreement, but only sought financial compensation from the defendants. Therefore, the operator was not a necessary party.

The defendants also argued that the plaintiffs’ claim should be dismissed under Rule 12(b)(6) because they failed to state a claim. The North Carolina Right to Farm Act (RTFA) bars nuisance lawsuits against agricultural operators if the action is not brought within one year of the operation’s establishment. N.C. Gen. Stat. § 106-701(a)(3). A hog operation has existed at Vestal Farm for decades. The defendants claim that the plaintiffs’ claims “are merely disguised nuisance claims” and should be dismissed under the RTFA. The court found that torts such as nuisance and trespass can share the same elements. Additionally, the RTFA specifically excludes claims of “negligence, trespass, personal injury, strict liability, or other cause of action for tort liability other than nuisance.” Id. at § 106-702(d). Therefore, the plaintiff adequately stated a claim.

Barden v. Murphy Brown, LLC, 2021 WL 965915 (E.D.N.C. March 15, 2021)

Plaintiffs filed this citizen suit under the Clean Water Act (CWA) against a poultry rendering facility for discharging pollutants in excess of its NPDES permit. The defendant, admitting that it had been in continuance noncompliance since the permit took effect, filed for summary judgment claiming that the citizen suit was precluded by an ongoing state enforcement action.

A citizen suit is barred when a state has begun enforcement under a state law “comparable” to the CWA. 33 U.S.C. § 1319(g)(6)(A). The defendant claimed that the Pennsylvania Department of Environmental Protection (PADEP), through two Consent Order and Agreements, had commenced prosecution against the defendant under the Clean Streams Law and that law was comparable to the CWA.

The court acknowledged that there is a circuit split on what findings a court must make to determine comparability. The “overall comparability” standard takes a holistic approach while the “rough comparability” standard requires the state law to be comparable to each of the three provisions found in 33 U.S.C. § 1319(g)(6) regarding penalty assessment, public participation, and judicial review. The court found the “rough comparability” standard more appropriate because it provides uniformity, reduces uncertainty for litigants, and is the most logical interpretation of § 1319(g)(6) requiring that the state law be comparable to that subsection.

After analyzing the two laws, the court ruled that because the Clean Streams Law does not allow adequate public participation, the law is not comparable to the Clean Water Act. Therefore, the court denied the defendant’s motion for summary judgment, and the citizen suit was allowed to continue.

Lower Susquehanna_Riverkeeper v. Keystone Protein Co., 2021 WL 632734 (M.D. Penn. February 18, 2021).

During a Chapter 12 bankruptcy proceeding, debtors petitioned the court to use cash collateral to pay for the post-petition expenses they had incurred. They also requested to use the cash for ongoing farm expenses and family bills until a bankruptcy plan was implemented. A court must consider whether allowing a debtor to use cash collateral creates inadequate protection for the creditors. 11 U.S.C. § 363(e). A substantial equity cushion between the value of the collateral and the total amount of the liens can demonstrate that adequate protection exists. The creditors in this case had a $196,830 equity cushion or 5.69% of the total debt.

In the petition, the debtor claimed to have over $382,000 of cash collateral. However, the debtor’s Chapter 12 plan claimed that the debtors had $457,000 in cash collateral. The debtors could not explain this discrepancy or why they could not use the missing $75,000. Additionally, the debtors did not apply for 2021 financing for the farming operation. They would continue to need to use the cash collateral which would further erode the equity cushion. Therefore, because the proposed use of the cash collateral created substantial risk for the creditors, the court denied the motion. However, the court was willing to consider a two-month use of cash collateral if the debtors could show certain prerequisites.

In the Matter of Justin Dale Raymer and Linda Kay Raymer, Debtors, 2021 WL 510198 (Bankr. D. Neb. Feb. 10, 2021)

A debtor filed a Chapter 13 bankruptcy proceeding. His sister filed a claim asserting that she had a $42,433 lien under Montana law against the debtor’s brand and branded livestock. The claim arose from a state district court order against the debtor for breaching a settlement agreement after he allegedly misappropriated cattle sale proceeds from the siblings’ ranching operating. The bankruptcy court, finding that the sister had a general unsecured lien, affirmed the debtor’s Chapter 13 plan which omitted the sister as a secured creditor. The sister appealed claiming the bankruptcy court erred in finding she lacked a secured lien.

A bankruptcy court will determine whether a creditor has a secured claim based on applicable state law. Bankruptcy laws will then determine the treatment of secured claims. See 11 U.S.C. § 506(a). Under Montana law, a judgment lien is not created in personal property until the debtor either seizes the property or leaves notice of attachment with the debtor. The sister did neither of these. She did, however, obtain a writ of execution from the state district court which directed the Montana Department of Livestock to satisfy the judgment using brands owned or maintained by the debtor. However, there is no Montana law that creates a lien on a brand or on livestock by doing so. Because the sister lacked a secured claim, the court affirmed the debtor’s Chapter 13 plan.

Schweigert_v._Schweigert, 2021 WL 505633 (D Mont. Feb. 11, 2021)

Ranchers-Cattlemen Action Legal Fund (R-CALF) brought this lawsuit claiming that the beef checkoff assessment program violated the First Amendment by requiring R-CALF members to subsidize speech with which they disagreed. The court granted a preliminary injunction while it determined the amount of control the USDA exerted over state beef councils (SBC). The USDA then entered into Memoranda of Understanding (MOUs) with several SBCs. Because the MOUs gave the USDA a level of control so that the SBCs’ advertising qualified as government speech, the court later granted the USDA’s motion for summary judgment. R-CALF petitioned the court seeking attorney fees and costs for obtaining the preliminary injunction under the Equal Access to Justice Act (EAJA). See 28 U.S.C. §2412.

The EAJA is a fee-shifting statute awarding attorney fees, costs, and other expenses for parties which prevail against the United States. The party must show that it is the prevailing party and that the Government’s position was not substantially justified. Even though the court vacated the injunction after the USDA voluntarily chose to enter into the MOUs, the court found R-CALF was the prevailing party because the injunction caused the USDA’s change of action which directly benefited R-CALF. The court also found that the USDA’s litigation position was not substantially justified. The USDA claimed it had sufficient control over the SBCs for the promotions to be considered government speech not subject to First Amendment protections. However, the court did not grant the USDA’s motion for summary judgment, but instead granted R-CALF’s motion for a preliminary injunction, because the USDA did not establish it had sufficient control. The court awarded $145,428.08 in attorney fees and $5,344.17 in costs.  

Ranchers-Cattlemen Action Legal Fund v. Vilsack, 2021 WL 4611 (D. Mont. Feb. 9, 2021)

Intending to get back to his agrarian roots, a successful banker purchased a 156-acre tract of land which had been used as a timber farm and cattle operation. From 2004 to 2014, the taxpayer reported $1.5 million in losses from his farm, primarily in the form of noncash expenses. The IRS audited the taxpayer for tax years from 2004 to 2008, disallowing the farm’s deductions because the evidence showed that taxpayer’s did not engage in the farming activity for profit.

On appeal, the tax court affirmed. If an activity is not engaged in for profit, an individual cannot deduct the expenses related to the activity. 26 U.S.C. § 183. The court ruled that many factors weighed against the taxpayer. The taxpayer had very limited financial records, no business plan, and failed to implement any changes to the operation despite substantial yearly losses. Despite a family history of farming, the taxpayer lacked experience in managing a timber farm or cattle operation. Although the taxpayer did receive advice on the timber operation, it focused more on timber care rather than the timber business.

While there can be losses due to unforeseen circumstances, the farm’s history showed that the losses were not unexpected, but very consistent for a decade. Additionally, the taxpayer did not show any profit in those ten years. The taxpayer earned a substantial income as a banker and the losses from the farm activity resulted in significant tax savings. Finally, the court found that the taxpayer enjoyed farming as a retreat from his stressful job as a banker. This, coupled with the fact that the business was extremely unlikely to be possible, all weighed against the taxpayer.

Whatley v. Commissioner, T.C. Memo. 2021-11 (Jan. 28, 2021).

From 2007 to 2011, a taxpayer reported net losses for her agricultural pursuits on a Schedule F. For 2012 and 2013, the taxpayer and her husband filed joint returns on Form 1040. The taxpayer claimed $1,068 in farm activity income in 2012 for the sale of excess eggs she did not need and $4,800 in 2013 for the sale of several cows. She also reported deductible expenses for both those years and claimed the losses as a deduction. The IRS disallowed the deductions because it did not believe the taxpayer incurred the losses carrying on a trade or business. The taxpayer appealed.

From 2007 to 2011, the taxpayer raised chickens for meat. She only reported one sale in 2011. The taxpayer switched to raising chickens for egg production, but decided that was financially unfeasible because of the increasing price in chicken feed. She then switched back to raising chickens for meat and began growing her flock. The taxpayer intended to begin selling the product in 2014, but wild dogs destroyed most of her flock that year.The taxpayer also experimented with raising various fruits and vegetables and cattle on her farm, but those activities were not successful.

The Internal Revenue Code allows a deduction for all ordinary and necessary expenses incurred carrying on a trade or business. 26 U.S.C. § 162(a). The IRS disallowed the taxpayer’s deductions finding that she did not have a true profit motive and her business operation had not yet started in 2012 and 2013 when the deductions were claimed. On review, the tax court found that despite the lack of revenue, the wife did intend to profit. However, startup costs are not currently deductible. 26 U.S.C. § 195(a). Startup costs include cost incurred when starting a business and may be allowed as a deduction prorated equally over a 15-year period once the business begins. 26 U.S.C. § 195(b). The court found that the taxpayers business never moved beyond the initial startup stage. In 2012 and 2013, the taxpayer was still planting test crops and investigating business opportunities because none of her attempts had been successful yet. Because most of the expenses reported were startup expenses, the court affirmed the denial of the deductions.

Costello v. Commissioner of Internal Revenue, T.C. Memo. 2021-9 (Jan. 25, 2021).

A federal district court recently denied an egg farm’s motion to dismiss a lawsuit alleging that neighbors were damaged by the flow of polluted wastewater coming from the egg farm onto their properties. Specifically, the plaintiff neighbors allege that the egg farm violated the Clean Water Act (CWA) by allowing waste and water runoff containing pollutants to run across their property and into a creek recognized as “waters of the United States.” The CWA citizen suit also includes state allegations of nuisance, negligence, and trespass and seeks injunctive and monetary relief. The egg farmers moved to dismiss, claiming that there was no ongoing violation of the CWA and that the California Regional Water Quality Control Board’s (RWQCB) grant of a conditional waiver for discharges from an animal operation demonstrated that there was no CWA violation.

The court found that the plaintiffs provided sufficient allegations of a pattern of noncompliance under the CWA to avoid the motion to dismiss. In seeking to have the case dismissed as moot, the egg farmers had a “heavy burden” to show the alleged behavior would not happen again. The egg farmers submitted evidence of the RWQCB application stating that manure generated on the property was stored on a tarp, covered if precipitation was forecasted, and disposed of every two weeks. Additionally, the egg farmers claimed that the grant of the waiver demonstrated that there was no CWA violation. The court found that the waiver, as a public record, was a proper subject of judicial notice, but because the parties disagreed over the facts of the document, the egg farmers did not meet their burden to show “the allegedly wrongful behavior could not reasonably be expected to recur.” Because the court denied the motion to dismiss the CWA claim for mootness, the court also retained jurisdiction of the state claims.

Farrar_v._Fluegge_Egg_Ranch_3, Inc., 2020 WL 7869455 (S.D. Cal. Dec. 31, 2020).

In a Chapter 12 reorganization, dairy farmers filed a plan proposing the re-amortization of a Farm Service Agency (FSA) mortgage on their homestead with payments made directly to FSA. The trustee objected, claiming that the payments must be made through the trustee because FSA was an impaired creditor. If a debtor directly pays a creditor, the trustee does not collect fees on the payments.

The court noted that the plain language of the statute allows the debtor or the trustee to make payments to creditors under a Chapter 12 plan. The court recognized, however, that the courts have been split as to when and if a debtor can make direct payments to an impaired creditor. The court noted three approaches: (1) debtors cannot make direct payments to impaired creditors; (2) debtors can pay secured creditors directly regardless of impairment; or (3) whether direct payments should be allowed must be determined case-by-case.

The court opted to follow number three, the majority approach, and based its determination on the factors set forth in In re Pianowski, 92 B.R. 225 (Bankr. W.D. Mich. 1988). The court found that while the debtors had not supplied various financial reports, they still had time to provide the paperwork because the plan was not yet confirmed. Additionally, the following factors weighed in favor of the debtors: the debtors’ good faith to reorganize; FSA’s legal sophistication as a creditor to monitor payments and consent to the plan; the money saved on behalf of the debtors by making direct payments and avoiding trustee fees; and the small risk of abuse of the bankruptcy system. Based upon this analysis, the court affirmed that the debtors could make direct mortgage payments to FSA.

in_Re_Spindler, 2020 WL 7765808 (Bankr. W.D. Wis. Dec. 28, 2020)

Plaintiffs along the Missouri River brought this lawsuit against the United State government for an unconstitutional taking in violation of the Fifth Amendment. The plaintiffs claimed that the changes the U.S. Army Corps of Engineers made under the Missouri River Recovery Program (MRRP) to comply with the Endangered Species Act (ESA) resulted in a flowage easement. Through the plaintiffs’ testimonies, the court determined the Corps' alterations to the Missouri River was the cause of the flooding. Additionally, because these changes and the MRRP program are still in place, the intermittent flooding will continue.

Takings Liability

The court next determined whether the flooding amounted to a taking of a flowage easement. The court examined several factors identified in Arkansas Game & Fish Commission v. United States, including the severity of the action, the duration of the harm, the foreseeability of the harm, the character of the land, and reasonable investment-backed expectations. (See 568 U.S. 23, 38-39). The government claimed that even though the flooding the plaintiffs’ land experienced was severe, the government’s contribution to the flooding was relatively small and did not meet the level required for this factor. The court disagreed, finding that the testimonies of the plaintiffs and an expert witness demonstrated that not only did the Corps' actions cause the flooding, but caused more severe flooding than the properties had previously experienced. The flooding caused by the MRRP caused the plaintiffs to lose crops and impacted their farming operation. The duration of the intermittent flooding was not temporary, but instead permanent, and would continue into the foreseeable future. The court found the duration factor to weigh in the plaintiffs’ favor. Additionally, flooding was a foreseeable consequence of the Corps’ actions under the MRRP. These actions included changing the hydraulics of the Missouri River or making it shallower or slower which foreseeably could cause the harm the plaintiffs experienced. Additionally, despite the testimony from an environmental historian on behalf of the government stating that flooding occurred on land next to the Missouri River since 1867, the court found the MRRP changed the character of the land due to the increase and severity of flooding. Lastly, the court considered whether the plaintiff’s had “investment-backed expectations regarding the land's use.” This analysis includes determining whether the expectations were reasonable and if the government interfered with those expectations. The plaintiffs’ owned the property and used it as farmland investing a substantial amount of money every year in crop production. The plaintiffs invested in their farmland under the assumption the flood patterns pre-MRRP would continue. The plaintiffs’ expectation that their farmland would not experience increased flooding was reasonable because the Corps’ change in prioritizing habitat protection under the ESA over the historical priority of flood protection was unexpected. Additionally, government publications showed that the United States expected constituents along the Missouri River to be protected after the extensive work was completed to make the land in that area flood-free. The government interfered with these expectations by altering the Missouri River and causing crop loss for the plaintiffs. Therefore, a taking of a flowage easement had occurred.

Just Compensation

Because a taking had occurred, the plaintiffs were entitled to just compensation. The court found the plaintiffs were entitled to compensation for diminution in value of their property, but were not entitled to compensation for crop losses and lost profits based on reduced yields, damage to structures, damages to equipment, flood prevention expenses, and flood reclamation expenses because those are indirect consequential damages.

Idekar Farms, Inc., v. United States, 151 Fed.Cl. 560 (Fed. Cl. 2020).

The IRS assessed the owner of a stone mason business for tax deficiencies which occurred between 2005 through 2008. The taxpayer claimed the three-year statute of limitations barred the assessment. The district court found the three-year statute of limitation period never started because the taxpayer did not file the “the return,” specifically the required Form 945 to report backup withholdings for the subcontractors the taxpayer had hired. The 5th Circuit reversed, finding the taxpayer had filed the required Forms 1040 and 1099 for those years, and those forms contained sufficient information to alert the IRS that the taxpayer was liable for taxes assessed as well as the amount of the tax liability. This amounted to a “return” which started the statute of limitations period.

Quezada v. IRS, 2020 WL 7310680 (5th Cir. 2020).

United States farm laborers brought claims against a farmer and his agricultural business for breach of contract, civil conspiracy, and violations of the Migrant and Seasonal Agricultural Worker Protection Act (AWPA). The defendant entered into an agreement with an agricultural labor contractor to hire seasonal workers on his behalf under the H-2A work-visa program. Because many domestic workers expressed interest in the job, the contractor was obligated to prioritize them in the hiring process under the H-2A program requirements. The contractor hired the plaintiffs at the rate specified in the work contract submitted during the H-2A application process. This rate was higher than both the state and federal minimum wage. The defendant then fulfilled his seasonal labor needs through a different contractor paying minimum wage to the laborers and did not provide any work to the plaintiffs.

The district court granted summary judgment in favor of the agricultural business on all claims finding that the defendant did not have control over the contractor and was therefore not liable for the actions of an independent contractor. The Tenth Circuit reasoned that because this was a contract claim rather than a tort claim, control was not the crucial element, but whether an agency relationship existed between the defendant and the contractor. Because there was a genuine issue of material fact whether contractor had actual or apparent authority to enter into contracts with the plaintiffs on the defendants behalf, the court reversed the grant of summary judgment.

The AWPA prohibits an agricultural employer from violating the terms of the working arrangement with a migrant agricultural worker. The plaintiffs claimed the defendant violated this regulation as both an agricultural employer and joint employer with the contractor when he failed to provide the plaintiffs with work as specified in the work contract. The defendant agreed he was an agricultural employer, but argued he did not enter into a contract with the plaintiffs or jointly employ them with the contractor. The court found that the defendant was not a joint employer with the contractor because he did not actually employ the plaintiffs at any time. However, the court found that whether an agency relationship existed with contractor was the “threshold issue” in determining if the agricultural business could be accountable. Therefore, the court reversed the grant of summary judgment on the breach of contract and AWPA claims. The court affirmed the grant of summary judgment on the conspiracy claim because there was no evidence of an agreement between the defendant and the contractor.

Alfaro-Huitron v. Cervantes Agribusiness, 2020 WL 7295709 (10th Cir. 2020).

Plaintiffs sued manufacturers and major food retailers alleging a violation of state consumer-protection statutes through the labeling of a product advertising “100% Grated Parmesan Cheese.” These products actually contained between four to nine percent of cellulose powder and potassium sorbate and this information was available on the ingredient list on the back of the package. The district court dismissed the plaintiffs’ claim finding that the “100%” claim was clarified on the ingredient list and that a reasonable customer would know that product was not 100% cheese because it was sold in the unrefrigerated areas of stores. On appeal, the Seventh Circuit Court of Appeals found the “100%” labeling could be deceptive to the average consumer. Therefore, because whether the labeling actually was misleading was a question fact, the court reversed the grant of summary judgment.

Bell v. Publix Super Markets, Inc., 2020 WL 7137786 (7th Cir. 2020).

After the Texas State Board of Medical Examiners ordered a veterinarian to stop providing veterinary advice over email and phone in violation of state law regarding telemedicine, the veterinarian filed a lawsuit claiming a violation of his First Amendment, equal-protection, and substantive-due-process rights. The district court dismissed for failure to state a claim.

In 2017, Texas revised the state law to allow medical doctors, but not veterinarians, to practice some forms of telemedicine. The next year, the U.S. Supreme Court ruled that requiring employees at crisis pregnancy centers to notify women of low-cost services offered by the California clinics, including abortions, was unconstitutional. After these changes, the plaintiff brought this lawsuit alleging constitutional violations of equal protection and free speech. The district court once again dismissed the plaintiff’s claims and the plaintiff appealed.

To succeed on an Equal Protection claim, two groups must be similarly situated, yet the plaintiff is treated differently. Because there is a rational basis to regulate medical doctors and veterinarians differently, the court ruled that the two are not similarly situated. The court affirmed the dismissal of the Equal Protection claim. First Amendment scrutiny is only given if the law regulates speech, not conduct. As such, the court reversed the grant of summary judgment and remanded the case to allow the district court to determine whether the Texas law regulated conduct or speech of veterinarians.

Hines v. Quillivan, 2020 WL 7054278 (5th Cir. 2020).

Property owners neighboring a large swine operation brought a lawsuit in 2018 against the hog integrator Murphy-Brown. The plaintiffs claimed loss of use and enjoyment of their properties and brought claims of nuisance. A jury awarded $75,000 in compensatory damages and $5 million in punitive damages to each of 10 plaintiffs. Because North Carolina law caps punitive damages to the greater of three times the compensatory damages or $250,000, the punitive damages were reduced to $2.5 million. Murphy-Brown appealed and sought a new trial on several grounds. The court affirmed the jury verdict, but remanded for a rehearing on the amount of the punitive damages. [Murphy-Brown has since ended the case by settling with these and other plaintiffs.]

Statute of limitations:

On appeal, Murphy-Brown claimed North Carolina’s three-year statute of limitations for trespass barred the plaintiffs’ “continuing” nuisance claim. A continuing nuisance is a single event while a reoccurring nuisance involves repeated injuries. Although the first nuisance action occurred more outside of the three year timeline, the court found the statute of limitations did not bar the plaintiffs’ claims because the odor, noise, and pests were a repeated invasion rather than a single occurrence.  

Right to Farm Act Amendment:

While this case was ongoing, the North Carolina General Assembly amended its Right to Farm Law to limit compensatory damages in nuisance lawsuits to the reduction in fair market value or fair rental value of the property. Murphy-Brown claimed this amendment limited the amount of compensatory damages the plaintiffs could receive in the current case 

Looking to the title of the amendment, “An Act to Clarify the Remedies Available in Private Nuisance Actions Against Agricultural and Forestry Operations,” Murphy-Brown claimed the amendment’s purpose was to clarify existing law. The court found that the amendment was a change to the law rather than a clarification. Additionally, because the amendment specifically stated it only applied to lawsuits brought after the date it became law, the court found the amendment did not retroactively apply to this case.

Willful and Wanton Conduct

Murphy-Brown also appealed the award of punitive damages claiming there was insufficient evidence to meet the willful or wanton conduct element required to award punitive damages. The court found that the defendant had knowledge of the harms of its farming practices and policies and intentionally disregarded the harm these methods could cause.

Financial Evidence

Murphy-Brown last challenge involved the admittance of its “corporate grandparent” Smithfield’s and “ultimate parent entity” WH Group’s financial information. The court found the information regarding the finances and executive compensation was relevant when determining nuisance liability and whether Murphy-Brown would face undue hardship in abating the nuisance. However, the court found this information could sway a jury when calculating punitive damages. Therefore, that evidence should have been excluded when determining punitive damages. The court remanded for rehearing on that issue.

McKiver v. Murphy Brown, LLC, 980 F.3d 937 (4th Cir. 2020).

The petitioner is a lawyer that also purchased a 1,300-acre farm.  The petitioner entered into a crop-share arrangement with a tenant under which the tenant had responsibility for farming decisions.  The petitioner spent time during the tax years in issue performing maintenance activities on the farm including cutting vegetation, maintaining fences and shooting wild hogs.  Based on the petitioner's reconstructed records, the court was convinced that the petitioner put in more than 100 hours into the activity and that no one else put in more hours than the petitioner.  Thus, the petitioner was deemed to materially participate in the activity and the losses from the activity were not limited by the passive loss rules.  Leland v. Comr., T.C. Memo. 2015-240.

This case involved the donation of two permanent "conservation" easements inside a gated residential development on developed golf courses in North Carolina that were expanding with the stated purpose to protect a "natural habitat" or provide "open space" to the public.  The sole issue in the case was whether the conservation purpose of I.R.C. Sec. 170(h) had been satisfied by virtue of the easements protecting the natural habitat of various plant and animal species, including the Venus Flytrap.  The donated easements at issue generated claimed deductions of approximately $8 million.  The court noted that while the easements did include some stand of longleaf pine, the easement terms allowed the pines to be cut back from the fairways and the surrounding housing development.  Also, the court opined that the easement did not contain any requirement that an active management plan be followed to mimic the effects of prescribed burning that would allow the pines to mature in a stable condition.  Also, the court stated that the I.R.C. Sec. 170 regulations concerning a "compatible buffer" that contributed to the viability of a conservation area were not satisfied.  While the mere fact that a golf course was involved did not negate the possibility of a valid conservation easement donation deduction, the fact that the golf course was in a gated community eliminated the argument that the donation was to preserve "open space" for the general public.  The court, while denying the claimed deductions, however, did not uphold the imposition of penalties.  Atkinson v. Comr., T.C. Memo. 2015-236.     

The parties executed a partition line fence agreement and recorded it in the fall of 2013.  Under the agreement, the plaintiff was responsible for a portion of the fence between their farms and the defendant was also responsible for a specific portion.  The newly constructed fence was to be a "tight fence" and specifics were provided as to how the fence was to meet that requirement.  As for the defendant, the agreement not only specified the portion of fence the defendant was responsible for, but set deadlines for having the fence built to those specifications.  The defendant hired a fence builder, but never showed the agreement to the builder before leaving to winter in Arizona.  The defendant's portion of the fence was not built to specification and was not built in a timely manner.  The plaintiff sued and the trial court awarded damages for work done to bring the fence into compliance, for repair of a tile line, for reseeding and for lost rent in 2014.  On appeal, the court affirmed.  Brookview Farms, LLC v. Wennes, No. 14-1318, 2015 Iowa App. LEXIS 1159 (Iowa Ct. App. Dec. 9, 2015).

The plaintiff obtained shares of stock upon demutualization of an insurance company.  The plaintiff later sold some of the shares of stock and the defendant asserted that the plaintiff's income tax basis in the stock was zero triggering 100 percent gain on the sale of the shares.  The trial court rejected the defendant's position, and set forth the computation for calculating basis in stock shares received upon demutualization.  The court grounded the computation of stock basis in the same manner in which  the insurance company determined the value of demutualized shares for initial public offering (IPO) for purposes of determining how many shares to issue to a policyholder.  Based on that analysis, the court noted that the company calculated a fixed component for lost voting rights based on one vote per policy holder and a variable component for other rights lost based on a shareholder's past and anticipated future contributions to the company's surplus.  The court estimated that 60 percent of the plaintiff's past contributions were to surplus and 40 percent was for future contributions to surplus which the plaintiff had not actually yet paid before receiving shares and are not part of stock basis; thus, plaintiff's basis in stock comprised of fixed component for giving up voting rights and 60 percent of the variable component representing past contributions to surplus the end result was that the plaintiff's stock basis was slightly over 60 percent of IPO value of stock.  On further review, the U.S. Court of Appeals for the Ninth Circuit reversed in a split opinion.  The court determined that the plaintiff's didn't pay any additional amount for the mutual rights and that treating the premiums as payment for membership rights was inconsistent with how tax law treats insurance premiums. The court noted that under the tax code gross premiums paid to buy a policy are allocated as income to the insurance company and no portion is carved out as a capital contribution.

Conversely, the policyholder can deduct the "aggregate amount of premiums" paid upon receipt of a dividend or cash-surrender value. No amount is carved out as an investment in membership rights. Because of that, the court held that the plaintiff's couldn't have a tax-free exchange with zero basis and then an increased basis upon later sale of the stock. Accordingly, the court held that the trial court erred by not determining whether the plaintiffs paid anything to acquire the mutual rights, and by estimating basis by using the stock price at the time of demutualization instead of calculating basis at the time of policy acquisition. Thus, because the taxpayers did not prove that they paid for their membership rights as opposed to premiums payments for the underlying insurance coverage, they could not claim any basis in the demutualized stock.  Dorrance v. United States, No. 13-16548, 2015 U.S. App. LEXIS 21287 (Dec. 9, 2015), rev'g., No. CV-09-1284-PHX-GMS, 2013 U.S. Dist. LEXIS 37745 (D. Ariz. Mar. 19, 2013).

The petitioner, a banker, and spouse contributed a permanent conservation easement on more than 80 acres to a land trust, valuing the easement at $1,418,500 million.  They claimed a phased-in deduction over several years.  The IRS, on audit, proposed the complete disallowance of the deduction and sought a 20 percent penalty or a zero valuation of the easement and a 40 percent penalty for gross overvaluation of the easement.   IRS Appeals took the position that the 40 percent penalty should apply due to a zero valuation of the easement, and that if that weren't approved judicially a 20 percent penalty for valuation misstatement should apply.  The parties stipulated to a easement valuation of $80,000 and that the petitioner had no reasonable cause defense to raise against the 40 percent penalty, but that the defense could apply against the 20 percent penalty.  The court upheld the 40 percent penalty.  The IRS also conceded, in order to clear the table for the penalty issue, that the petitioner, a non-farmer, was not subject to self-employment tax on CRP rental income for years 2007, 2008, 2009 and 2010.  The concession was made after the IRS issued it's non-acquiescence to the Morehouse decision in the 8th Circuit in which the court determined that CRP rents in the hands of a non-farmer were not subject to self-employment tax.  Legg v. Comr., 145 T.C. No. 13 (2015).     

The IRS has announced on its website that for estate tax returns (Forms 706) filed on or after June 1, 2015 that account transcripts will substitute for an estate closing letter.  Registered tax professionals that use the Transcript Delivery System (TDS) can use the TDS as can authorized representatives that use Form 4506-T, and requests will be honored if a Form 2848 (Power of Attorney) or Form 8821 (Tax Information Authorization) is on file with the IRS.  The IRS provided instructions and noted that Transaction Code 421 on the website will indicate that the Form 706 has been accepted as filed or that the exam is complete.  IRS also noted that a transcript can be requested by fax or by mail via Form 4506-T to be mailed to the preparer's address.  Certain items are necessary to document that the preparer has the authority to receive the transcripts - letters testamentary (or equivalent), Form 56 (Notice Concerning Fiduciary Relationship), Form 2848 and any other documentation that authorizes the party to receive the information.  The IRS noted that its decision whether or not to audit any particular Form 706 is usually made four to six months after the Form 706 is filed, and that the transcript should not be requested until after that time period has passed.  IRS Webpage, "Transcripts in Lieu of Estate Closing Letters," (Dec. 4, 2015).

The defendant is a large herb grower that became the subject of a class action accusing the defendant of mixing organic and conventionally grown herbs in the same package and selling the package at a premium as "fresh organic."  The class sued under state (CA) unfair competition and false advertising laws.  The trial court held that the class action was preempted by federal law governing organic labeling.   On appeal, the CA Supreme Court reversed.  The court noted that the federal Organic Foods Act displaced state law concerning organic standards and thereby created a federal definition of "organic" and created a federal organic certification procedure.  The court, however, determined that federal law did not either explicitly or implicitly preempt state rules for mislabeling.  Likewise, the court held that state consumer protection law furthered the Congressional objective of ensuring reliable organic standards.  Quesada v. Herb Thyme Farms, No. S216305, 2015 Cal. LEXIS 9481 (Cal. Sup. Ct. Dec. 3, 2015).   


The plaintiffs, a consortium of environmental activist groups and community organizers, sued the Environmental Protection Agency (EPA) for not responding to their 2011 petition that alleged that ammonia gas from confined animal feeding operations (CAFOs) endangered public health and welfare, should be designated as a "criteria pollutant" under the Clean Air Act (CAA), and that National Ambient Air Quality Standards should be established for ammonia.  The plaintiffs sought to compel the EPA to respond within 90 days and also claimed that the EPA had violated the Administrative Procedures Act (APA) by not responding.  However, the court ruled that it lacked subject matter jurisdiction to hear the petition, because the plaintiffs should have brought suit under the CAA which requires a 180-day notice before filing.  Because the CAA provided a remedy for the plaintiffs, they were required to sue under the CAA before attempting to sue under the APA. The petition was dismissed.  The plaintiffs have stated in another court filing that they will provide the required 180-day notice and sue under the CAA.  Environmental Integrity Project, et al. v. United States Environmental Protection Agency, No. 15-0139 (ABJ), 2015 U.S. Dist. LEXIS 160578 (D. D.C. Dec. 1, 2015).

The plaintiff brought a declaratory judgment action concerning the ownership and control of a tract of land that they claimed their predecessor-in-interest obtained a fee simple interest in via right-of-way deeds signed in 1917 and 1918.  The deeds in issue were captioned "right of way" and stated, that the property owners “grant, sell and convey, and forever release to the people of the County of Sargent, in the State of North Dakota, right of way for the laying out, construction and maintenance of a public drain, as the same may be located by the Board of Drain Commissioners, through said above described lands, being a strip of land . . . [described]. And we hereby release all claims to damages by reason of the laying out, construction and maintenance thereof through our said lands.”  The trial court determined that the deed language was ambiguous and considered extrinsic evidence to determine the intent of the parties to the deeds.  Ultimately, the trial court held that the deeds granted fee simple title to the plaintiff’s predecessor.  On appeal, the court reversed.  The appellate court held that the plain language of the deeds conveyed an easement by explicitly stating that they granted a “right of way” through the specified land, and limited the purposed of the right of way for the laying out, construction and maintenance of a public drain.  Sargent County Water Resource District v. Mathews, et al., No. 20140451, 2015 N.D. LEXIS 294 (N.D. Sup. Ct. Dec. 1, 2015).

The IRS has announced that it has changed its policy of not allowing defrauded taxpayers to see the tax return that had been fraudulently filed using the taxpayer's stolen identity number and name.  Now, a defrauded taxpayer will be able to see the fraudulently filed tax return, subject to certain redacted information (apparently so that the IRS can protect the identity of the defrauding party).  Requests to see the fraudulently filed return can be made for returns filed within the prior six tax years.


The petitioner bought a business and along with the purchase came a contract giving the petitioner an exclusive right to tow cars for a local police department.  The petitioner amortized the contract over 15 years.  However, the contract expired after five years and the petitioner wrote off the unamortized amount.  The IRS claimed that value remained and that the unamortized amount, therefore, could not be written off.  The court agreed because it found that the petitioner retained the rights to tow and store vehicle even after the contract expired and until a new contract was entered into.  The court also determined that the willing-buyer/willing-seller test of Treas. Reg. Sec. 20.2031-1(b) did not result in the contract having no value.  Steinberg v. Comr., T.C. Memo. 2015-222.

The plaintiff was friends with the defendant's father and stored property on the father's acreage.  The plaintiff stored items on the property, including cars, an old motor home and other automotive and recreational vehicle parts.  The father died, and the executor allowed the plaintiff to continue to store his property there.  Ultimately, the defendant acquired title to the property and advised the plaintiff that he needed to remove his items from the property or buy the acreage for $50,000.  The plaintiff declined the purchase offer, and the plaintiff did not get his items removed before the winter.  In the spring of the following year (more than a year after the father died), the defendant notified the plaintiff that he owed $350 for the storage of the items ($50/month for seven months) to be paid to the defendant's lawyer within a week and that he should make arrangements to remove the items.  The storage fee wasn't paid and the items weren't removed.  Five months later, the plaintiff sued for conversion after seeing that at least some of his items were no longer on the acreage.  The defendant claimed that the plaintiff had abandoned the items, and sought damages for a reasonable storage fee and costs incurred in removing the property.  The trial court determined that the defendant removed the property in violation of Iowa Code Sec. 556B.1 for failure to give the proper notice, and entered judgment for the plaintiff of $10,800 (the value of the property less the reasonable storage fee and an adjustment for a skid loader).  On appeal, the court reversed.  The court noted that the defendant was a constructive or gratuitous bailee of the plaintiff's property and, as such, was only liable to the plaintiff if the property was lost or damaged through the defendant's gross negligence.  Here, the court noted, the defendant had stored the items for almost a year and stored them for more than six months after asking the plaintiff to remove the items, and didn't dispose of them until receiving a court order from the estate that any items on the property were property of the estate that he inherited.  Accordingly, the defendant did not illegally convert the plaintiff's property.  Theis v. Kalvelage, No. 14-1568 (Iowa Ct. App. Nov. 25, 2015).   

The plaintiffs buy bred heifers sell the cows as soon as possible after calving and then feed the calves for a while before selling the calves, hopefully at a profit.  The calves were not kept for breeding purposes, and the plaintiffs would simply start the process over the next year.  The plaintiffs ordered "creep feed" mixed with Rumensin from the defendant that was placed in creep feeders with the calves.  The calves showed signs of respiratory distress with numerous calves eventually dying.  The toxicology report on two of the calves showed toxic levels of Rumensin.  In total, 23 calves died.  The plaintiffs weaned and fed out the remaining 170 calves and sold them at auction with a disclaimer that they had been fed excess Rumensin and were sold "as is."  The plaintiffs then sued the defendant for negligence, breach of implied warranty of fitness for a particular purpose, and breach of a voluntarily assumed duty.  The plaintiffs also claimed that the defendant was strictly liable for the resulting damages from a hazardous and dangerous feed condition.  The trial court rejected all of the plaintiffs' claims except that based on breach of implied warranty and awarded damages of $164,072.54.  The court also denied the plaintiffs an award of attorney fees.  The plaintiffs appealed on the basis that the award was insufficient to make them whole for failure to award business interruption damages based on lost profits.  However, the appellate court refused to award such damages, noting that in order to recover lost profits on such a theory, there must first be an on-going business with an established sales record and a proven ability to realize profits at the established rate with proof of actual profits for a reasonable time before the breach.  Here, the appellate court determined that the plaintiffs were merely speculating in the calf market and did not have a cattle operation analogous to the swine operation in Ballard v. Amana Society, 526 N.W.2d 558 (Iowa 1995).  The appellate court also denied punitive damages on the basis that the defendant's conduct was not willful and wanton and was without malice, but that errors occurred due to extenuating, non-malicious factors.  The appellate court also upheld the trial court's denial of attorney fees for lack of wanton conduct on the defendant's part.  The court also denied additional damages based on an alleged mistake in the damages calculation because the claim was not raised in the plaintiffs' post-trial motion.  Swanson v. R & B Feeds, L.L.C., No. 14-1823 (Iowa Ct. App. Nov. 25, 2015).