Case Summaries

The petitioner listed his business on his tax return as "World Travel Guide" and showed a net business loss of $39,138.  As he traveled, the petitioner blogged about his travels and hoped to profit from income generated via affiliate sales from the blog.  When that didn't pan out, the petitioner shifted to writing books about his travels.  The IRS disallowed the loss under the hobby loss rules of I.R.C. Sec. 183.  The court agreed with the IRS, noting that the petitioner did not maintain books or records, had no written business plan, no estimate as to when his website would be operational or when he would begin to earn money from the activity.  Pingel v. Comr., T.C. Sum. Op. 2015-48.

The petitioner was an accountant that provided tax return preparation services to clients.  In addition to an office in town, the petitioner also met with clients at their businesses or homes and then did accounting work for them out of her residences.  For the years in issue, the petitioner rented out one residence to a friend and also occasionally stayed there overnight.  The petitioner claimed business-related deductions for both of her homes which the IRS denied.  The court upheld the IRS position on the basis that the taxpayer did not satisfy the principal place of business test and also because the petitioner did not use the home as a place to meet clients or customers and did not have a separate structure or part of the home set aside for business use.  Instead, the taxpayer had an office in town - another fixed location where she could perform substantial administrative or management activities.  The court also disallowed deduction for alleged business autos on the grounds that the petitioner could not show that she either owned or leased the vehicles in question.  Sheri Flying Hawk v. Comr., T.C. Memo. 2015-139.

A father and his son operated a farm.  The son's daughter had a 12-year birthday (sleepover) party at the farm and invited her friends to attend.  The day after the sleepover, a 10-year friend of the daughter and the daughter took turns riding the farm's ATV on the farm over several hours.  The girls did not ask permission and were never told they could operate the ATV.  The father and son both saw the girls operating the ATV and did not stop them from doing so, but the grandfather told his granddaughter that both of the girls needed to slow down.  While both girls were on the ATV, the ATV struck a tree and the 10-year-old friend was killed.  The father and son were sued for wrongful death and the father and son sought coverage under their policy with the plaintiff which provided $300,000 in coverage.  The insurance company reserved its right to dispute coverage and filed a declaratory judgment action claiming that the policy did not provide coverage for the little girl's death.  The wrongful death action settled for $462,500.  The trial court held that the exclusionary clause in the policy that excluded coverage for "any person operating [an ATV] with 'your' express permission" did not apply because the girls did not receive express permission.  The policy did not define the term "express permission" and the court gave it its plain and ordinary meaning, and noted that the facts clearly indicated that the girls were operating the ATV only with tacit or implied permission.  The trial court granted summary judgment for the insureds.  Not satisfied with that result, the plaintiff appealed.  However, the appellate court affirmed.  The court noted that the policy did not define "express permission" and that the trial court was correct in applying the plain and ordinary meaning to the phrase.  The appellate court harshly scolded the plaintiff when it stated, "Grinnell's arguments suggesting the district court erred 'are the complaints of a poor draftsman, and we are as unsympathetic as we expect the [Minnesota courts] would be....It's not our role to rescue an insurer from its own drafting decisions."'  Grinnell Mutual Reinsurance Co. v. Villanueva, No. 14-2933, 2015 U.S. App. LEXIS 14017 (8th Cir. Aug. 11, 2015), aff'g., 37 F. Supp. 3d 1043 (D. Minn. 2014).   

The petitioner chartered boats and entered into a management agreement with another organization that was responsible for marketing boats, setting charter prices, booking charters, maintaining records, collecting money and cleaning and maintaining the boats.  The petitioner was paid "net charter revenue," and the petitioner paid the organization a "turnaround fee" for each charter.  The petitioner also had the use of each of his two boats for two, two-week periods annually, paying for various expenses.  The activity encountered a loss, and the issue was whether the petitioner could satisfy the material participation test of Treas. Reg. Sec. 1.469-5T(a)(3)(the "more than others" test - more than 100 hours with more participation in the activity than anyone else).  The petitioner (and spouse) reconstructed their time to show 470 hours for one year and 732.5 hours in the activity for another year.  While the 470 was less than the 500 hours required by Treas. Reg. Sec. 1.469-5T(a)(1), but did meet the 100 hour test.  The petitioner was able to establish that their hours exceeded the hours of any other person in the activity.  Kline v. Comr., T.C. Memo. 2015-144.      

The petitioners, homosexual domestic partners, had $2.7 million in mortgage debt attributable to two homes that they jointly owned.  More than $2 million of the mortgage debt was associated with an 8,554 square foot home in Beverly Hills that they purchased for $3.2 million in 2002.  One petitioner claimed $194,599 in mortgage interest deduction for the two years at issue which IRS limited to $79,701, and limited the other petitioner to a deduction of $66,558 out of the $162,597 he had paid during the two years.  The IRS approach was to take the mortgage interest debt limit of $1.1 million contained in I.R.C. Sec. 163()(3) and apportion it between the two unmarried owners (based on the average outstanding mortgage balance).  The Tax Court agreed with the IRS, holding that the I.R.C. §163(h)(3) limitations on mortgage interest deductibility are to be applied on a per-mortgage basis rather than on per-individual basis.  As a result, unmarried co-owners, collectively, are limited to an interest deduction of $1.1 million ($1million of acquisition indebtedness and $100,000 of home equity indebtedness).  This is the same result that would apply to married taxpayers that co-own a residence.  On appeal, however, the appellate court reversed.  The court determined that the limitations are to be applied on a per-taxpayer basis (for a total of $2.2 million of mortgage debt).  A dissenting judge pointed out the absurdity of the majority opinion and noted that IRS was reasonable in limiting unmarried taxpayers to deducting the same amount as married taxpayers that file jointly.  Voss v. Comr., No. 12-73257, 2015 U.S. App. LEXIS 13827 (9th Cir. Aug. 7, 2015), rev'g., and remanding sub. nom., Sophy v. Comr., 138 T.C. 204 (2002).

The plaintiff farmed until 2007 when he leased his property to the defendant under a written cash lease.  In the early fall of the next year, the defendant paid a "bonus" of over $60,000 to the plaintiff with a detailed accounting of how the bonus was calculated.  The bonus was paid to help ensure that the plaintiff would continue to lease the ground to the defendant.  A new written lease was signed later that fall with nearly identical provisions, but higher per acre rent.  Again, a bonus payment was paid to the plaintiff under an alleged oral agreement that the parties had that the defendant would share profits with the plaintiff.  Another new lease was signed for the next year, but no bonus was paid that year because the crop did not generate a profit.  The defendant continued to farm the property for two more years under an oral arrangement.  In August of 2011, the plaintiff gave notice of lease termination to the tenant effective March 1, 2012.  In the fall of 2011, the defendant did an accounting for the 2010 crop year and offered to pay a bonus of $19,218.  The plaintiff refused.  In November of 2011, the plaintiff gave written notice to the defendant not to market the plaintiff's grain without permission, and filed a financing statement perfecting a landlord's lien.  The plaintiff also chopped and chiseled corn stalks.  The defendant paid all remaining cash rent obligations and paid for crop storage.  The checks were returned with the plaintiff claiming that the parties were farming on a 50/50 crop share basis with a minimum of $200/acre.  The plaintiff sued for a declaratory judgment and accounting, claiming that the written lease was not the full agreement between the parties and that the defendant owed rent under the 50/50 crop share lease.  The defendant denied the existence of an oral agreement and sought damages for lost value of the unharvested corn stover.  The trial court ruled for the plaintiff, determining that an oral crop share agreement supplemented the written lease, and entered judgment of $204,072.08 for the plaintiff.  On appeal, the court reversed.  The court held that the additional payments were simply discretionary bonus payments and that the defendant was entitled to the corn stover.  Also, the court noted that the written lease provided for full payment of some expenses by the defendant which contradicted the existence of a profit-sharing agreement.  In addition, a crop-share lease would have violated FSA rules.  The plaintiff's net judgment was reduced to $80,548.70.  Peck v. Four-Acre Farms, Inc., No. 14-1482, 2015 Iowa App. LEXIS 696 (Iowa Ct. App. Aug. 5, 2015).       

The plaintiff was an employee of an oil pumping company, and was working on the defendant's oil well pump jack when his hand was pulled into moving belts resulting in the severance of the thumb on his right hand.  The pump jack was not shielded by safety guards, but was an open and obvious danger.  The plaintiff recovered workers' compensation benefits from his employer, but sued the defendant for intentional negligence for failure to install safety guards and for failure to maintain a reasonably safe premises as an exception under state (OK) law to the exclusive remedy rule.  The trial court dismissed both claims.  On appeal, the court affirmed the dismissal of the intentional tort claim, but remanded the premises liability issue for reconsideration on the basis that OK law recognizes an exception to the open and obvious doctrine where the landowner should have reasonably foreseen the harm.  Martinez v. Angel Exploration, LLC, No. 14-6086, 2015 U.S. App. LEXIS 13613 (10th Cir. Aug. 4, 2015).

Idaho law criminalizes (Idaho Code Sec. 18-7042(1)(d)) "interference with agricultural production" when a person knowingly enters an ag production facility without permission or without a court order or without otherwise having the right to do so by statute (in other words, the person is on the premises illegally), and makes a video or audio recording of how the ag operation is conducted.  The court held that the law was unconstitutional because it violates the free speech rights of those wanting to take the illegal videos, and that the law was unconstitutional on equal protection grounds because it singled out persons who sought to take illegal videos.  The court believed that the state had no legitimate interest to provide special protections to certain agricultural enterprises from those groups (such as the plaintiffs) that are devoted to ensuring that they don't exist and have used terroristic tactics in other cases to achieve their goals that have involved charges of ag terrorism under federal law.  Animal Legal Defense Fund, et al. v. Otter, No. 1:14-cv-00104-BLW, 2015 U.S. Dist. LEXIS 10264 (D. Idaho Aug. 3, 2015). 

The petitioner is a C-corp. California farming operation utilizing the cash method of accounting (and the accrual method of keeping books for purposes of lenders with the result that inventory exists for each year at issue) that deducts the cost of various fieldpacking materials (clamshells, cardboard trays and cartons, etc.) that it uses to pack raspberries, strawberries and similar fruits and vegetables.  The IRS claimed that the petitioner could not deduct the cost of the fieldpacking materials until they were actually used, rather then when the petitioner purchased them.  Both parties agreed that the petitioner was not a "farming syndicate" as defined by I.R.C. Sec. 464 which would bar the use of the cash method of accounting, and prevent the deduction for "seed, feed or fertilizer, or other similar farm supplies" in a year before they are consumed.  However, IRS argued that Treas. Reg. 1.162-3 allowed a deduction only for those fieldpacking materials only to the extent they were used or consumed during the tax year.  The court disagreed with the IRS position.  The court noted that the fieldpacking materials are not "similar" to seed, feed or fertilizer because they aren't necessary to grow agricultural crops.  The court noted that I.R.C. Sec. 464 was aimed at tax shelters, not the type of taxpayer involved in the case, and that the fieldpacking materials are not "on hand" and are subject to cash accounting rules.  Thus, the cost of the materials were deductible when purchased.  The court held that Treas. Reg. Sec. 1.162-3 does not require a cash method taxpayer to defer deductions until they are used or consumed, if the cost of such items is deducted in a prior tax year.  The court did note that a limit on deductibility could apply if the materials were not used or consumed within one year.  Agro-Jal Farming Enterprises, Inc., et al. v. Comr., 145 T.C. No. 5 (2015).

The decedent created two irrevocable charitable remainder trusts during his life, one for each of his sons.  The decedent was the income beneficiary during his life, with each son then being the beneficiary of that son's trust.  The amount paid to the decedent during life and each son after the decedent's death, was the lesser of the net trust accounting income for the tax year or 11% of the net value of the trust assets for trust one or 10% for trust two.  If trust income exceeded the fixed percentage for that trust, the trustee was directed to make additional distributions to make up for prior years when the trust income was insufficient to satisfy a distribution of the fixed percentage for that particular trust (hence, the trusts were a "net income with makeup charitable remainder unitrust" - NIMCRUT).  The payout period was the latter of 20 years from the time of creation of the trusts or the date of death of the last beneficiary to die.  The decedent died about one year after creating the trusts, and his estate reduced the taxable value of the estate by the amount it deemed to be charitable (note - the estate did not claim a charitable deduction).  The IRS denied the deduction because the trusts did not satisfy the requirement that the value of the charitable remainder interest be at least 10% of the net fair market value of the property contributed to the trust on the date of the contribution as required by I.R.C. Sec. 664(d)(2)(D).  The estate claimed that it was entitled to a charitable deduction under I.R.C. Sec. 664(e) because the distributions were to be determined according to the applicable I.R.C. Sec. 7520 rate so long as the rate is above 5%.   The court determined that I.R.C. Sec. 664(e) was ambiguous, but that the legislative history supported the IRS position that the value of a remainder interest in a NIMCRUT is to be based on the fixed percentage stated in the trust instrument.  As such, the trusts failed the 10% test.  The court also noted that the IRS regulations on the matter were not helpful.  Schaefer v. Comr., 145 T.C. No. 4 (2015).   

The taxpayer sold S corporation stock to an ESOP and remained involved in the S corporation business after the sale.  The taxpayer also paid for non-business expenses from the corporate account which were recorded in a ledger account.  The corporation, on behalf of the petitioner, made significant charitable contributions and IRS denied a charitable deduction because the taxpayer fully paid the ledger account balances with personal funds and was the party that bore the economic burden of the contributions.  In the latter half of the year in which the contributions were made, the taxpayer used corporate funds to pay off the ledger account balances previously incurred.  The Tax Court determined that the S corporation actually bore the economic burden of the contributions.  However, the court determined that the taxpayer did not prove the portion of contributions made in the latter half of the tax year were made with personal funds and did not establish with sufficient evidence that ledger account balances were bona fide debt of petitioner; as a result, the associated deductions were denied.  However, the taxpayer was allowed a charitable deduction for the amounts he had actually repaid the corporation.  He was not allowed to deduct the contributions where his repayments were immediately paid for by a new corporate advance.  On appeal, the appellate court affirmed.   Zavadil v. Comr., No. 14-1053, 2015 U.S. App. LEXIS 12262 (8th Cir. Jul. 16, 2015), aff'g., T.C. Memo. 2013-222).

A car rental company claimed a casualty loss for losses sustained when rental customers purchased the company's damage waiver and then had an accident and the company decided not to repair the vehicle and return it to their fleet.  The IRS determined that the loss was not deductible as a casualty loss because the loss was not sudden, unexpected and unusual in nature.  Instead, the costs associated with accidents are an ordinary and necessary expense of the car rental business.  C.C.M. 201529008 (Feb. 4, 2015).

The decedent married his wife in 1955, had four children together, but later divorced in 1978.  Under the marital separation agreement, the decedent agreed to leave one-half of his eventual estate equally to the children.  The decedent remarried in 1979 and later executed a will and trust.  Under the trust terms, sufficient funds were to be set aside to buy an annuity that would pay the ex-wife $3,000 monthly.  The balance of the trust assets were to pass to the children, with six percent passing to each of three daughters and 16 percent to the son and the balance to the surviving spouse.  After the decedent's death, the children waived all potential claims they might have against the estate.  As a result, each daughter received approximately $3.5 million and the son received $9.5 million.  The estate claimed a deduction of $14 million for the payments to the children under I.R.C. Sec. 2053(a)(3).  The IRS denied the deduction in full and the estate filed a Tax Court petition.  Before trial, the IRS agreed to allow 52.5 percent of the $14 million deduction and informed the Tax Court.  Some of the children then sued the estate for fraudulent procurement of their waiver.  The estate settled by paying each child at issue an additional $1.45 million.   The decedent's estate then sought to set aside the settlement agreement based on mutual mistake of fact or because the IRS knew that at least one child was going to sue the estate before the Tax Court was advised of the settlement.  The Tax Court refused to set aside the settlement agreement between the parties.  On appeal, the court held that the estate could not set aside the settlement agreement on the grounds of mutual mistake because the doctrine didn't apply.  The estate simply failed to see that any of the children would sue the estate.  Also, the court held that the allegation that the IRS didn't reveal a statement by one of the children indicating the child would sue was not a misrepresentation that would allow the estate to set aside the settlement.   The settlement established the amount of the deduction.  Billhartz v. Comr., No. 14-1216, 2015 U.S. App. LEXIS 12730 (7th Cir. Jul. 23, 2015).    

As part of building a transcontinental railroad, the Congress chartered the Union Pacific Railroad Company (U.P.) and gave it large portions of federally-owned land on either side of the planned route between Nebraska and Utah.  In the late 1800s and early 1900s, the U.P. began to sell some of the land to farmers, ranchers, loggers and homesteaders via deeds that conveyed only the surface estate but retained the mineral rights to U.P.  and a right of ingress and egress to prospect for, mine and remove minerals.  When U.P. sought to exploit minerals on a particular tract, it would negotiate a "surface owners agreement" (SOA) with the owner of the surface estate and U.P. would pay the surface owner 2.5% of the value of minerals extracted.  Around year 2000, the defendant acquired U.P.'s mineral interests with respect to the land at issue in the case.  The defendant discontinued the practice of entering into an SOA with the landowners and ceased paying royalties to them as well.  The plaintiffs (1,300 surface owners) sued, claiming that the defendant's use of the surface of their land exceeded the scope of the surface reservations in the deeds and that the defendant was committing a trespass.  The plaintiffs moved for class certification.  The court certified the class on a restricted basis simply to answer the question of whether the defendant exceeded the surface owner's rights by using vertical drilling rather than directional drilling because vertical drilling requires the drilling of more wells than would directional drilling.  A-W Land Co., et al. v. Anadarko E&P Company LP, No. 09-cv-02293-MSK-MJW, 2015 U.S. Dist. LEXIS 95480 (D. Colo. Jul. 22, 2015). 

The defendant, the Federal Energy Regulatory Commission (FERC), issued a certificate of public convenience and necessity to a company authorizing the company to extend a natural gas pipeline.  The plaintiff sued seeking a review of FERC's issuance of the certificate on behalf of its members who "work, live, and recreate" along a nearby river and were concerned about the exercise of eminent domain conveyed to the company under Section 7 of the Natural Gas Act (NGA) to secure rights-of-way.  The defendant claimed that the plaintiff lacked standing and the court agreed.  The court held that the plaintiff's desire to protect its members property due to the defendant's alleged non-compliance with the National Environmental Policy Act (NEPA) and the Clean Water Act (CWA) was not within the "zone of interests that the NGA, NEPA or CWA protected.  The plaintiff did not claim that its members would suffer any environmental harm (thus, the NEPA claim failed) and the CWA claim failed because the plaintiff did not involve any allegation of pollution to navigable waters of the U.S.  The court also determined that an eminent domain claim was not a basis for a CWA claim.  Gunpowder Riverkeeper v. Federal Energy Regulatory Commission, No. 14-1062, 2015 U.S. App. LEXIS 12532 (D.C. Cir. Jul. 21, 2015). 

The plaintiff sued the defendant for damages arising from alleged negligent cattle inspections.  State (WA) law allows the defendant to conduct mandatory cattle inspections to determine ownership of cattle, and cattle must be inspected before they are moved from WA to another state.  In this case, a third party leased cattle from the plaintiff and the plaintiff obtained a security interest in all cattle that the third party owned or leased from others.  The third party defaulted on the lease and transported cattle to Oregon for sale at a public livestock market without the plaintiff's knowledge or consent.  The defendant inspected the cattle at the Oregon market before they were sold.  The third party claimed that it owned all of the cattle, even though some of them had the plaintiff's brand.  The defendant allowed the cattle to be sold without impounding the cattle or holding the sale proceeds.  The public market sold the cattle and distributed the proceeds to the third party.  The plaintiff sued the defendant for negligence in inspecting the cattle.  The court held that the defendant's inspection involved a governmental function for which it could not be held liable in negligence.  Inspections, the court determined, were for the common good.  Sunshine Heifers, L.L.C. v. Washington Department of Agriculture, No. 46322-9-II, 2015 Wash. App. LEXIS 1599 (Wash. Ct. App. Jul. 21, 2015). 

Under the Clean Air Act, the Environmental Protection Agency (EPA) regulates vehicle emissions.  Accordingly, the EPA developed regulations requiring vehicle manufacturers to test emissions of new vehicles using a "test fuel" that is "commercially available."  The plaintiffs, a coalition comprised largely of ethanol producers, challenged the test fuel regulation as arbitrary and capricious because their fuel, which contains 30 percent ethanol, could not be a test fuel because it is not yet commercially available.  They claimed that a fuel need not be commercially available in order to be approved as a test fuel.  The court, in short order, dismissed the plaintiffs' arguments in that the regulation was solidly rooted in the statute requiring vehicles to be tested under circumstances that reflect actual current driving conditions.  The court made no mention that fuel containing ethanol does not actually improve environmental quality as reported in the Proceedings of the National Academy of Sciences published in December of 2014 which reported that "the combined climate and air quality impacts [of corn-ethanol-fueled vehicles] are greater than those from gasoline vehicles."  Energy Future Coalition, et al. v. Environmental Protection Agency, et al., No. 14-1123, 2015 U.S. App. LEXIS 12078 (D.C. Cir. Jul. 14, 2015).

The plaintiff, an S corporation coal mining company, overpaid excise taxes on coal sales which triggered refunds, plus interest for tax years 1990 through 1996.  The refund payments were made in 2009, but the plaintiff claimed that more interest should have been applied - to the tune of $6 million.  The plaintiff claimed that it was due the statutory rate of interest applicable to a non-corporate taxpayer - the federal short-term rate plus three percentage points.  The IRS claimed that the corporate rate applied - the federal short-term rate plus two percentage points.  However, a reduced rate of interest applies to overpayment refunds exceeding $10,000.  In that event, the interest rate is the federal short-term rate plus .5 percentage points.  The court agreed with the IRS that I.R.C. Sec. 6621(a)(1) treats an S corporation as a "corporation" for purposes of determining the applicable interest rate.  The court refused to follow a U.S. Tax Court decision that reached the opposite conclusion, and refused to give much weight to an Internal Revenue Manual provision that somewhat supported the plaintiff's argument.  The court did note, however that I.R.C. Sec. 6621(c) treats S and C corporations differently for purposes of determining underpayment interest.  Eaglehawk Carbon, Inc., et al. v. United States, No. 13-1021T, 2015 U.S. Claims LEXIS 862 (Fed. Cl. Jul. 16, 2015). 

The petitioner divorced her husband.  Later the ex-couple agreed to modify their divorce settlement whereby the petitioner transferred property to her ex-husband in satisfaction of the petitioner's alimony obligation.  The petitioner claimed a deductible loss on the transfer.  The IRS disallowed the loss and the court agreed.  The loss wasn't deductible because the transfer was incident to a divorce, and the transfer was not deductible as alimony because it was not in the form of cash or its equivalent.  Mehriary v. Comr., T.C. Memo. 2015-126.

The defendants owned mineral rights which they leased in 2004.  The plaintiff subsequently acquired the lease.  With respect to oil production, the lease provided for a 25 percent royalty for the "market value at the well of all oil and hydrocarbons." As for gas production, the lease provided for a 25 percent royalty "of the price actually received by Lessee" from gas produced under the lease that was marketed.  The plaintiff owned the wells, but then sold oil and gas production from the wells to a third party that owned the gathering lines and transported the production through pipelines for ultimate sale to customers.  The plaintiff was paid based on a weighted average selling prices received by the third party buyer.  Downstream production costs were factored in when computing the amount that the plaintiff received.  The plaintiff based its royalty computation for purposes of determining the amount paid to the defendants by taking into account those downstream production costs.  Such calculation made sense because the plaintiff and, in turn, the defendants would benefit from the higher value of the market-ready oil and gas.  The defendants claimed that they amount of royalty paid to them shouldn't bear any post-production (post-extraction) costs (except for their portion of production taxes).  An overriding royalty clause granted the plaintiff production from wells bottomed on neighboring properties that were reached by horizontal wells drilled on the defendants' properties.  The defendants were granted a 5 percent royalty on this production.  The defendants also argued for no reduction for post-production costs on this royalty because it referred to a "perpetual cost-free...overriding royalty of 5 percent (5%) of gross production obtained."  The court held that the oil royalty clause language ("market value at the well") meant that the defendants shared in post-production expenses, but that the gas royalty clause language ("of the price actually received by Lessee") meant that the plaintiff solely bore the post-production expenses.  The overriding royalty language ("perpetual cost-free...overriding royalty), the court held, could reasonably be interpreted to bar the deduction for post-production expenses when computing the defendants' royalty.  Four justices dissented on the construction of the overriding royalty clause.  Chesapeake Exploration, L.L.C., et al. v. Hyder, et al., No. 14-0302, 2015 Tex. LEXIS 554 (Tex. Sup. Ct. Jun. 12, 2015).   

The plaintiff, a peat moss mining company, sought the approval of the Corps of Engineer (COE) to harvest a swamp (wetland) for peat moss to use in landscaping projects.  The COE issued a jurisdictional determination that the swamp was a wetland subject to the permit requirements of the Clean Water Act (CWA).  The plaintiff sought to challenge the COE determination, but the trial court, in a highly disingenuous opinion in light of the unanimous U.S. Supreme Court opinion in Sackett v. Environmental Protection Agency, 132 S. Ct. 1367 (2012), ruled for the COE, holding that the plaintiff had three options:  (1) abandon the project; (2) seek a federal permit costing over $270,000; or (3) proceed with the project and risk fines of up to $75,000 daily and/or criminal sanctions including imprisonment.  On appeal, the court unanimously reversed, strongly criticizing the trial court's opinion.  Based on Sackett, the court held that COE Jurisdictional Determinations constitute final agency actions that are immediately appealable in court.  The court noted that to hold elsewise would allow the COE to effectively kill the project without any determination of whether it's position as to jurisdiction over the wetland at issue was correct in light of Rapanos v. United States, 547 U.S. 715 (U.S. 2006).  The court noted that the COE had deliberately left vague the "definitions used to make jurisdictional determinations" so as to expand its regulatory reach.  While the COE claimed that the jurisdictional determination was merely advisory and that the plaintiff had adequate ways to contest the determination, the court determined that such alternatives were cost prohibitive and futile.  The court stated that the COE's assertion that the jurisdictional determination (and the trial court's opinion) was merely advisory ignored reality and had a powerful coercive effect.  The court held that the Fifth Circuit, which reached the opposition conclusion with respect to a COE Jurisdictional Determination in Belle Co., LLC v. United States Army Corps. of Engineers, 761 F.3d 383 (5th cir. 2014), cert. den., 83 U.S.L.W. 3291 (U.S. Mar. 23, 2015), misapplied the Supreme Court's decision in Sackett.  Hawkes Co., Inc., et al. v. United States Army Corps of Engineers, No. 13-3067, 2015 U.S. App. LEXIS 5810 (8th Cir. Apr. 10, 2015), rev'g., 963 F. Supp. 2d 868 (D. Minn. 2013).  In a later decision, the court denied a petition to rehear the case en banc and by the panel.  Hawkes Co., Inc., et al. v. United States Army Corps of Engineers, No. 13-3067, 2015 U.S. App. LEXIS 11697 (8th Cir. Jul. 7, 2015).

On certified question from the federal district court as part of a class action, the court held that an agricultural employer has a legal obligation to separately pay piece-rate workers for their rest breaks.  On a second certified question, the court held that, in the absence of a separate agreement, the rate of pay for rest breaks must equal at least the greater of the applicable minimum wage or the pieceworker's regular rate of pay (calculated as the worker's total weekly piece work earnings, divided by the hours worked by the worker during such period, excluding break times).  Under state regulatory law, an employer must cover the cost of 10-minute rest breaks every four hours for all workers in all industries.  The court was silent as to whether the court's ruling was to be applied retroactively.  It is anticipated that the court's decision could lead to lawsuits against agricultural operations claiming pay for workers' unproductive activities such as walking to and from fields, emptying picking bags and moving ladders, etc.  It is also anticipated that the court's decision will result in higher harvest costs for apples in the amount of approximately $1 per apple bin.  Demetrio, et al. v. Sakuma Brothers Farms, Inc., No. 90932-6, 2015 Wash. LEXIS 807 (Wash. Sup. Ct. Jul. 16, 2015).  

The plaintiff owned 120 acres of farmland that was mostly irrigated by pivot irrigation.  However, the pivot could not reach a 6.5 acre corner which was irrigated by gravity irrigation fed by a pipe running along a fence line.  The defendant allegedly damaged a section of the pipe while removing and replacing fence.  The plaintiff discovered the damage in July of 2011 and the damaged pipe needed to be repaired by June 1 of 2012 to avoid crop damage in the 6.5 acre corner.  The plaintiff took the pipe in for a repair estimate on May 15 of 2012 and was told that the repair could be completed by June 1 at a cost of $1,772.40.  However, the plaintiff did not authorize the repair because he believed that the defendant's insurance company needed to approve the repairs.  The plaintiff had the financial ability to pay for the repair at that time.  On June 5, 2012, the defendant requested an estimate and offered to pay the plaintiff $1,772.40 to fix the pipe and offered the same amount in writing on August 21, 2012.  The pipe was not repaired in time for the 2012 crop year, but was repaired in time for the 2013 crop year at a cost of $2,854.83.  The plaintiff paid for the repair and was not compensated by the defendant.  The plaintiff sued in May of 2013 seeking $13,578.62 in damages for the cost of the pipe repair and the lost 2012 crop profits.  The trial court awarded the plaintiff $2,854.83 for the cost of the pipe repair, but nothing for lost profits because the plaintiff did not seek to repair the pipe within a reasonable amount of time. On appeal, the court affirmed.  The court determined that the plaintiff failed to mitigate damages by not simply paying for the pipe repair before June 1, 2012, and then being able to profit from the crops planted on the 6.5 acre tract.  The court noted that the plaintiff stood to profit from the impacted tract nearly four times the cost of repairing the pipe.  In addition, the defendant did not do anything to prevent the plaintiff from paying for the repair to the pipe to avoid the lost profits from the 2012 crop year.  Tedd Bish Farm, Inc. v. Southwest Fencing Services, LLC, 291 Neb. 527 (2015). 

The parties, owners of adjacent residential tracts, were in a battle over water drainage.  The plaintiffs claimed that the defendants unlawfully constructed an earthern berm that obstructed the flow of water in a drainageway and caused the water to back-up onto the plaintiffs' property.  The plaintiffs also claimed that the defendants altered the course of another drainageway, moving it closer to the plaintiffs' property line which would endanger their property in the event of a major rainfall.  The defendants sought an injunction to stop the plaintiffs from pumping water onto their property and an order for money damages for loss of trees due to excessive water. The plaintiffs were discharging water via a sump pump through an underground pipe so that water would not get into their basement.  The pipe was connected to another pipe beneath the defendants' property, but the system failed and the plaintiffs began discharging the water at the property line.  The defendants then obtained a permit to build a second culvert and an earthen berm where the plaintiffs' dewatering well discharged the groundwater.  A pipe was installed through the berm to facilitate drainage.  Ultimately, water backed-up onto the plaintiffs' property.  When the plaintiffs discontinued the use of their dewatering well, problems ceased.  The trial court denied the plaintiffs' request for injunctive relief and also denied the defendants' counterclaim for tree damage/loss and denied an injunction that would bar the plaintiffs from discharging water via the dewatering well.  On appeal, the court affirmed.  The court noted that the water at issue was comprised of both surface and ground water, but the pooling issue involved groundwater that was pumped from the plaintiffs' sump pump and dewatering well.  The court applied the common enemy rule to the ground water and held that the defendants were free, as owners of the servient estate, to dam the water if necessary and reasonable under the circumstances.  The court held that the defendants' conduct was reasonable.  Thus, the plaintiffs were not entitled to an injunction on that issue.  The court also determined that the defendants were not entitled to money damages for their trees due to a lack of proof of causation.  The court also determined that the defendants were not entitled to injunctive relief stopping the plaintiffs from using their dewatering well.  Kobza v. Bowers, 23 Neb. App. 118 (2015).