Center for Agricultural Law and Taxation
As we move into 2020, we're dedicating this post to reviewing important agricultural law developments from the past year. Most of these issues continue to evolve, and we look forward to providing updates as they occur. Happy new year!
Supreme Court Considers Whether Permit Required for Indirect Point Source Pollution
On February 19, 2019, the United States Supreme Court granted certiorari in a Clean Water Act (CWA) case with far-reaching implications for many industries, including agriculture. The case is Hawai‘i Wildlife Fund v. Cnty. of Maui, 886 F.3d 737 (9th Cir. 2018), and the question is: Does the CWA require an NPDES permit when pollutants originate from a point source but are conveyed to navigable waters by a nonpoint source, such as groundwater?
In County of Maui, the Ninth Circuit ruled that the county had violated the CWA by discharging pollutants from a point source into navigable waters without an NPDES permit. What makes the case unique is that the point sources at issue—wastewater injection wells—did not discharge the pollutants directly into the navigable water, the Pacific Ocean. Rather, the county injected the pollutant (treated wastewater called effluent) into groundwater, which carried the effluent from the point source to the navigable water. The Ninth Circuit ruled that because the indirect discharges were “fairly traceable” from the injection wells to the Ocean, an NPDES permit was required. On April 12, 2018, the Fourth Circuit generally followed the reasoning of the Ninth Circuit in County of Maui in Upstate Forever v. Kinder Morgan Energy Partners, L.P., 887 F.3d 637 (4th Cir. 2018). On September 24, 2018, the Sixth Circuit took a different approach in two cases and held that the Clean Water Act does not apply to pollutants that travel through groundwater before entering navigable waters. Tennessee Clean Water Network, et al. v. TVA , 905 F.3d 436 (6th Cir. 2018); Kentucky Waterways Alliance v. Kentucky Utilities Co., 905 F.3d 925 (6th Cir. 2018). This split in circuits led to the Supreme Court agreeing to hear the case. On April 12, 2019, the EPA issued its first interpretive statement on this issue, contending that Congress intended, in establishing the NPDES program, to leave the regulation of all releases of pollutants to groundwater to the states. See 4 Fed. Reg. 16,810 (April 23, 2019).
At oral arguments on November 6, 2019, the Justices raised a number of questions. Justice Breyer expressed concern that if the Court embraced the County of Maui’s position, one could just end the pipe “35 feet from the ocean,” knowing that the pollution would be carried to a navigable water. This, he stated, would be “an absolute road map for people who want to avoid the point source regulation.” On the other hand, even Justice Breyer was concerned about a limiting principle, “But I am worried about 500 million people or something suddenly discovering that they have to go apply for a permit for the EPA.” At least five justices seem poised to reject “fairly traceable” or “proximate cause” as a reasonable limiting principle. Justice Roberts, for example, stated, “Now traceability is a technological issue because we know that the water, including the pollutants, has gotten to whatever it is, the ocean or something, whatever the jurisdictional water is. It's just a question of how sophisticated the instruments are that can trace it...so that doesn’t seem to me to be a significant limitation.” And he continued, “Proximate cause is notoriously manipulable.” This is clearly a complex issue without a straightforward solution.
The Court will issue its opinion in 2020. In resolving a question that has remained unsettled for 46 years, the opinion is of significant import. It may determine whether a meaningful distinction remains between point source and nonpoint source pollution under the CWA and just how that distinction is made. The impact on agricultural producers and landowners will wholly depend upon the holding. We will be watching.
2015 Clean Water Rule Repealed / New WOTUS Rule In Progress
2019 was the year that the embattled 2015 Clean Water Rule (also known as WOTUS) was finally repealed. WOTUS defines which waters are subject to the jurisdiction of the federal Clean Water Act. On Thursday, September 12, 2019, the Environmental Protection Agency and the Department of the Army released a final rule to repeal the 2015 Rule, and the repeal was effective December 23, 2019.
This repeal finalized step one of a two-step process the Trump administration began in 2017 to replace the 2015 Rule, which has been the subject of court challenges since its inception. Step two is to finalize the replacement rule. On December 11, 2018, the agencies released a proposed replacement WOTUS Rule, which was published February 14, 2019. As proposed, the rule would significantly narrow the scope of WOTUS, particularly in comparison to the 2015 Rule. The proposed rule states that to be WOTUS, adjacent wetlands must actually abut other jurisdictional waters or have a direct hydrological surface connection to other jurisdictional water in a typical year. It is expected that the agencies will finalize the rule, which generated more than 700,000 public comments, early in 2020. In the meantime, the rule repealing the 2015 Rule “recodifies” pre-2015 “waters of the United States” regulations until such time as the replacement rule is finalized. This means that the agencies are applying 1986 guidance, informed by a 2006 U.S. Supreme Court decision, on a nationwide basis. Because of ongoing litigation, more than half the states never were subject to the 2015 Rule. The repeal of WOTUS means that all U.S. landowners are again subject to the same rule.
New lawsuits have been filed by environmental groups, 14 states, and others alleging that the agencies’ repeal of the 2015 Rule was arbitrary and unlawful and that it does not meet the Clean Water Act’s objectives to restore and maintain water quality. WOTUS developments—and their associated controversy—are sure to continue into 2020 and beyond.
Federal Takings Claims May Now Be Brought Directly to Federal Court
The United States Supreme Court Supreme Court issued a ruling in June of 2019 holding that landowners are no longer effectively required to exhaust state remedies before filling a Fifth Amendment federal takings claim in federal court. Knick v. Township of Scott, Pa., No. 17-647 (U.S. 2019). This case, which overruled long-standing precedent, broadens the options available to landowners who claim that a state or municipality has taken their property without just compensation.
The full impact this case will have on landowners and governments remains to be seen, but it will likely significantly change the litigation landscape. State inverse condemnation actions are routinely brought where a landowner—without receiving just compensation—has suffered permanent damage to property because of governmental action, where a state or local law has deprived a landowner of full use or enjoyment of his or her property, or where a zoning or other ordinance so burdens the landowner’s use of property, as to constitute an unconstitutional taking. Takings cases arising under these facts may now be filed directly in federal court, without first seeking a state court remedy. This is a wide new door to a federal forum that will, in many case, become the new first choice.
Hemp Goes Mainstream
Hemp fields will soon be dotting the countryside. On October 29, 2019, USDA issued an interim final rule for the establishment of a Domestic Hemp Production Program. The rule implements provisions within the 2018 Farm Bill authorizing the production and transportation of hemp. The rule is effective from October 31, 2019, through November 1, 2021. Under the new Domestic Hemp Production Program (Program), states or tribes may choose to regulate hemp production within their jurisdictions by submitting a plan for approval to the USDA. If a state or tribe chooses not to adopt its own plan, producers may grow hemp in those jurisdictions (if it is otherwise legal to grow) pursuant to a federal plan developed by the USDA. The interim final rule establishes the technical requirements for the Program, specifically setting forth the details for:
- Maintaining information on the land on which hemp is produced
- Testing the THC concentration levels for hemp
- Disposing of non-compliant plants
- Compliance provisions
- Handling violations
The Iowa Department of Agriculture and Land Stewardship submitted its state plan to the USDA for approval on Dec. 11, 2019. It is not legal to grow, possess, buy or sell hemp in Iowa until the USDA approves the state plan and the Department publishes notice of the approval in the Iowa Administrative Bulletin. Hemp production will not be legalized until the 2020 growing season at the earliest, depending on the timing of the review and approval process. Growers must check their specific state or tribal law to determine whether growing hemp is authorized in 2020.
Despite the new law, growers should remember that new crops come with many risks. In the preamble to the interim final rule, USDA notes that hemp production in the U.S. has seen a resurgence in the last five years; however, it remains unclear whether consumer demand will meet the supply. The agency notes that the high prices for hemp have been driven primarily by demand for use in producing CBD. USDA states that if FDA does not provide clarity about their plans for future regulation of CBD, there will continue to be uncertainty and downward pressure on the CBD portion of the hemp market. 2020 is sure to hold more updates.
Trade Troubles Trigger Another Year of Market Facilitation Program Payments
The farm economy continued to struggle in 2019, leading to a May 23, 2019, announcement of another market facilitation program (MFP). The 2019 MFP authorized up to $14.5 billion in direct payments to producers, structured in up to three sets of payments. Two rounds of payments were issued in 2019, and a third could be made in 2020.
Producers were eligible if they:
- Have an average adjusted gross income for tax years 2014, 2015, and 2016 of less than $900,000 OR
- Derive at least 75 percent of their adjusted gross income from farming or ranching (this provision was made possible by the 2019 Disaster Relief Act)
More than $20 billion in direct MFP payments were made to farmers in 2018-19.
On December 13, 2019, the Office of the U.S. Trade Representative announced that the U.S. and China had reached “Phase One of a trade deal.” Short on details, the announcement stated, “The Phase One agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years.” Whether the U.S.-China trade war will recede remains to be seen. A third round of MFP payments from the 2019 appropriation will depend upon how the trade climate evolves over the next several weeks. The MFP payments made to farmers in 2018 and 2019 have comprised a significant portion of farm income and have served to stabilize a struggling farm economy. On another trade front, the U.S. House of Representatives approved the U.S.-Mexico-Canada Agreement (USMCA) on December 19, 2019. The Agreement should come before the Senate in early 2020. Trade is a key story that will continue to develop in the new year.
Flooding and Other Natural Disasters Impact Many Farmers
As if trade wars were not enough, many U.S. farmers were also hit with unprecedented weather disasters in 2019, leading to even more financial woes. On June 6, 2019, President Trump signed into law H.R., 2157, a $19.1 billion disaster relief bill. This package included $3,005,442,000 in direct farm disaster assistance for:
Necessary expenses related to losses of crops (including milk, on-farm stored commodities, crops prevented from planting in 2019, and harvested adulterated wine grapes), trees, bushes, and vines, as a consequence of Hurricanes Michael and Florence, other hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires occurring in calendar years 2018 and 2019 under such terms and conditions as determined by the Secretary.
In September, USDA announced the WHIP + Program to administer disaster aid to farmers. Details on the program are available on the USDA website. As part of the disaster package, producers who filed prevented planting insurance claims due to flooding or excess moisture in the 2019 calendar year were eligible for a “bonus” or “top up” payment totaling 10% of their indemnity (an additional 5% was provided to producers who purchased harvest price option coverage). WHIP+ also provided prevented planting assistance to uninsured producers and Noninsured Disaster Assistance Program (NAP) producers.
Producers who would normally have sold crops in 2020 are entitled to defer recognition of income from 2019 disaster payments until 2020, in the same way that they may defer recognition of income from crop insurance. These producers should discuss the advisability of this option with their tax advisors.
Chapter 12 Bankruptcy Limit Is Raised
As many farmers continued to struggle with high debt and uncertain markets, new attention was focused in 2019 on remedies for financially distressed farmers. On August 23, 2019, President Trump signed into law the Family Farmer Relief Act of 2019. This law increased the amount of debt a farmer may have—yet still remain a “family farmer” eligible for Chapter 12 bankruptcy protection—from $4,411,400 (indexed for inflation) to $10,000,000.
The industry is watching to see what impact this change might have. Recent statistics from the U.S. Bankruptcy Courts show that Chapter 12 bankruptcy filings increased to 580 between October 1, 2018, and September 30, 2019 from 468 in the prior 12-month period. Although farm income has remained stable in 2019 due to MFP and disaster-aid payments, farm debt is at a record high. The 2019 American Bankers’ Association Lenders’ Survey remarked, “The agricultural economy and farm income remained stressed in 2019 with limited signs of improvement in 2020. The majority of agricultural lenders surveyed noted compression in farm profitability this year (82.5%), and there was consensus in profitability declines across all reporting regions.” USDA has established a Farm and Ranch Stress Assistance Network to connect individuals who are engaged in farming, ranching, and other agriculture-related occupations to stress assistance programs.
Affordable Care Act is Threatened by Federal Appeals Court Ruling
The Affordable Care Act received a blow from the United States Court of Appeals for the Fifth Circuit just before year end. On December 18, 2019, a divided panel of the Fifth Circuit ruled that the individual mandate in the Affordable Care Act is unconstitutional in light of changes made by the Tax Cuts and Jobs Act of 2017 (TCJA). Texas v. U.S., No. 19-10011 (5th Cir. Dec. 18, 2019). Although the lower court had ruled that this infirmity rendered the entire ACA unconstitutional, the Fifth Circuit (in a 2-1 decision) remanded the case to the Texas district court for a more precise determination of whether the unconstitutional individual mandate is severable from the ACA as a whole.
In reaching its decision, the Fifth Circuit relied on Nat’l Fed’n of Indep. Businesses v. Sebelius (NFIB), 567 U.S. 519 (2012), in which the U.S. Supreme Court decided that the ACA’s individual mandate could be read as a tax on an individual’s decision not to purchase insurance, which was a constitutional exercise of Congress’ taxing powers under Article I of the U.S. Constitution. The Fifth Circuit reasoned that such a conclusion could only be drawn when the shared responsibility payment produced revenue. Because the TCJA set the individual shared responsibility payment to zero, the shared responsibility payment no longer produces revenue, and the individual mandate has lost its constitutional footing.
For the time being, it is status quo. A number of states, however, including Iowa, have filed a petition asking the U.S. Supreme Court to immediately review the case. They urge that the Fifth Circuit’s decision has created uncertainty about the status of the Affordable Care Act that must be resolved. While possible, it appears unlikely that the U.S. Supreme Court will step in to consider this issue before the case has worked its way back through the system. And because 2020 (and another election) may be behind us before that happens, stay tuned for future wrangling. In the meantime, the affordability of healthcare remains a very tough problem for many farmers, adding to an already difficult economic environment.
Agricultural States Gird Up Right to Farm Laws
In the wake of high profile agricultural nuisance verdicts in North Carolina in 2018, lawmakers in agricultural states across the country reviewed their right to farm laws in 2019, with some taking action to strengthen them. Nebraska (LB 227), West Virginia (S.B. 393), Washington (HB1011), Utah (SB 93S3), and Oklahoma (HB 2373) all enacted new laws to strengthen the rights of farmers in their states. Georgia (HB 546) and other states may consider similar legislation in 2020.
Right to farm laws remain an important defense to nuisance litigation seeking to restrain agricultural operations. 2020 will no doubt see additional developments. On a related front, some litigants sued states in 2019, arguing that the states’ regulation of agricultural production is causing environmental harm. Missouri is facing a lawsuit challenging a new law preventing counties from imposing stricter regulations on CAFOs than those of the state. Iowa is facing a lawsuit demanding mandatory limits on nitrogen and phosphorus pollution and a moratorium on new and expanding hog confinement facilities. The Iowa Supreme Court has agreed to consider whether that lawsuit can continue. We will be monitoring these and other related developments closely in 2020.
Iowa’s Agricultural Trespass Law is Challenged
Iowa’s attempts to protect agricultural producers from unauthorized intrusion met with fierce court resistance in 2019. On January 9, 2019, the United States District Court for the Southern District of Iowa declared Iowa’s 2012 Agricultural Production Facility Fraud statute unconstitutional. Animal Legal Defense Fund v. Reynolds, No.4:17-cv-00362 (S.D. Iowa 2019). This was one in a series of recent federal courts rulings invalidating so-called “ag gag” laws around the country. The federal court ruled that the Iowa law, as written, violated the First Amendment of the United States Constitution.
In response, the State of Iowa appealed the decision to the United States Court of Appeals for the Eighth Circuit, and the Iowa Legislature passed a new agricultural trespass law, SF 519, which went into effect March 14, 2019. Five advocacy groups filed a lawsuit challenging the law in April, and on December 2, 2019, the U.S. District Court for the Southern District of Iowa issued a preliminary injunction preventing Iowa from enforcing the law pending a ruling on the merits.
The Eighth Circuit will likely be left to ultimately determine the validity of both of these laws. We will watch for developments in 2020.