Iowa Court of Appeals Allows Pipeline Crop Damages Claim to Continue

February 23, 2016 | Kristine A. Tidgren

During it's last public meeting on February 19, the Iowa Utilities Board stated that it will present its order regarding the Dakota Access LLC petition to build a crude oil pipeline across Iowa on March 9 or 10. That order will also determine whether Dakota Access will be allowed to exercise eminent domain over the nearly 300 tracts of land for which voluntary easements have not been granted.

Either way that decision goes, a recent case from the Iowa Court of Appeals gives new insight into ongoing “crop damages” arising from a pipeline. This case should be of interest to those who already have a pipeline running through their property, as well as those who may host such a pipeline in the future.

Background Facts

The plaintiff was a farmer who cash rented his parents’ farmland. The parents had granted a pipeline easement to a natural gas company in 1999. The permanent right of way comprised 7.94 acres. The company paid the parents $26,232 for the easement, including a temporary work space over 7.22 acres. The company also paid the parents $117,662 as a “restoration” payment. This payment included damages for two years of corn crop loss, land restoration, rock removal, dust abatement, “inconvenience of production,” livestock relocation, and drain tiling. In exchange for receiving the damages payment, the parents executed a release agreeing that the company would owe them nothing further with respect to those damages.

After the pipeline was installed and the restoration activities completed in 2000, the company no longer disturbed the farmland. The farmer continued to cash rent the ground. Until 2012, the company conducted a “goodwill” program through which it voluntarily offered to pay landowners the yield differential between crops grown on the easement area and crops grown off the easement area. The company calculated its offer of damages using data collected by a certified agronomist. The farmer had rejected the company’s voluntary offers beginning in 2010. He argued that he was entitled to greater “crop losses.”

In 2013, the farmer filed a breach of contract action against the company, arguing that he was a third-party beneficiary of the easement agreement his parents had signed with the company. The farmer’s lawsuit alleged that the company had failed to pay crop losses required under that agreement.

District Court

The company filed a motion for summary judgment, arguing that the farmer was not seeking “crop damages,” but damages to soil productivity. As such, the company argued that the farmer had no legal interest to assert a claim for soil productivity and that his parents had released any such claims they had against the company. The district court agreed with the company and entered judgment in its favor. Specifically, the district court found that the farmer’s claim was one for injury to the land where his crops were growing, not damage to the crops themselves. The district court went on to explain that any dispute the tenant farmer had with his ability to grow crops in the easement area was one he had to take up with his parents, the landlords. The district court suggested that a tenant could negotiate a lower rental rate with a landlord if he found that an easement area was defective.

Iowa Court of Appeals

The Iowa Court of Appeals disagreed, reversing the district court’s ruling and allowing the farmer’s claim to continue to trial. In his appeal, the farmer again argued that he was not seeking damages for a defect in the land, but instead was seeking ongoing “crop damages” contemplated by the agreement. The company agreed that if the farmer were entitled to crop damages, he would have standing as a tenant to collect them. The company urged, however, that the farmer’s claim was merely for injury to the land. The company also contended that the farmer’s parents were fully paid for any damages to the land and had released the company from any further claims.

The court first noted that the farmer was not seeking a duplicate payment for crop damages that the company had previously paid to the parents. The company had paid only two years of crop damages to the parents under their release agreement. The court then looked at the language of the easement agreement and found that the company agreed to “pay for damages to crops” arising from the “laying, constructing, maintaining, operating, repairing, replacing or removing” the pipeline. Thus, the court turned to examine the ultimate question of whether the farmer was requesting damages to crops, which he could collect, or damages to land, which he could not collect.

The decision was difficult because the farmer was not asserting that the crops had encountered physical harm, such as injury or destruction from hail or a machine. The company argued that without actual injury or destruction, any alleged damages stemmed from decreased soil productivity and could not be considered “crop damages.”

The court ruled that the term “crop damages” could encompass more than physical damage to the standing crop. The court clarified that the farmer was seeking “crop damages” caused—not by decreased soil fertility—but by the constant heat generated by the pipeline. The farmer and his crop adjuster testified that heat radiating from the use of the pipeline dried the soil in and nearby the right of way, reducing his crop yields. The court found that the farmer and his adjuster were competent to testify to this effect, even if they were unable to scientifically explain the effect on the plant itself.

The company admitted that the pipeline could cause increases in surface soil temperature. The company presented evidence, however, that this increase in temperature caused minimal or no impact on crop yields.

The court found that the question of which evidence was most credible was one for the fact finder. Consequently, the court sent the case back to the district court for a trial on the issue of whether the operation of the pipeline had caused recoverable continuing losses to the farmer’s crops. The company has not asked the Iowa Supreme Court to review the case.

Conclusion

While the question of whether the heat of the pipeline had actually caused crop damages was not resolved in this appeal, the case opened the door for proof of such a claim. Parties should review any easement agreements before signing them to see if they are agreeing to release a claim for such damages. This case also suggests that parties who have reduced yields on a pipeline easement may have a claim for ongoing crop damages (provided they have not previously released such claims).

The case is Tiemessen v. Alliance Pipeline L.P., No. 14-1727 (Iowa Ct. App. Jan. 27, 2016).