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VOLUME 21, NUMBER 7, WHOLE NUMBER 248 JUNE 2004

No deferral where payment received by agent
(payments constructively received)
One of the basic elements of federal income tax law has been the doctrine of constructive
receipt.1 The doctrine of constructive receipt has been frequently litigated in agriculture2
and, most recently, was applied to a fact situation involving year-end payments made
by a value-added cooperative.3

I NSIDE The doctrine of constructive receipt
Income is constructively received when it is credited to the taxpayer’s account, set
apart, for the taxpayer, made available so the taxpayer could have drawn on it or could
have drawn upon the amount if notice of intent to withdraw had been given.4 As the
• Ag law bibliography regulations note-
“However, income is not constructively received if the taxpayer’s control of its receipt
• Iowa’s right to farm is subject to substantial limitations or restrictions.”5
law declared Thus, IRS has successfully argued that a check is income in the year received (even if
unconstitutional it is lost) and not two years later when the check is reissued,6 the proceeds of livestock
sold and delivered one year with proceeds received the following year are constructively
received in the earlier year7 and government farm payments are income in the year the
• Alternatives to right funds are available to the taxpayer.8
to farm law protection IRS has also argued, successfully, that sales to a purchaser considered to be an agent
of the seller are considered ineligible for deferral of income tax liability.9
• Phosophorus
Scherbart v. Comm’r
management policy In the 2004 Tax Court case of Scherbart v. Commissioner,10 the taxpayer was a member
of a cooperative, Minnesota Corn Processors (MCP), which was owned by corn produc-
ers for the purpose of marketing and processing their corn. Under a document denomi-
Solicitation of articles: All AALA nated as the Uniform Marketing Agreement, the taxpayer designated MCP as the
members are invited to submit ar- taxpayer’s agent. The taxpayer was obligated to deliver bushels of corn equal to the
ticles to the Update. Please include number of “Units of Equity Participation” held in MCP.
copies of decisions and legislation with MCP made “value added” payments to its members subsequent to each of the three
the article. To avoid duplication of required delivery periods for corn during the year and, in addition, made discretionary
year-end value-added payments determined after the close of MCP’s fiscal year ending
effort, please notify the Editor of your
September 30. The year-end payments were not mandatory and were based on MCP’s
proposed article.
“net proceeds.”11
In 1995, the taxpayer attempted to defer the year-end value added payment for 1995
to 1996 (as the taxpayer had done in 1994 and in each year since becoming a member of
MCP “in the early 1980s.”12
Citing the regulations13 and Warren v. United States,14 in which a cotton gin acted as
taxpayer’s agent in collecting and holding the proceeds of cotton sale, the Tax Court held

IN FUTURE
that MCP served as taxpayer’s agent for making the corn sales and receiving sales income
with the only limitations placed on taxpayer’s receipt of income being self-imposed.
Therefore, the limitations were ineffective to achieve a deferral for tax purposes with the

ISSUES
taxpayer constructively receiving the year-end value added payments during the taxable
years in issue.15

Possible solution
In the 1982 Fifth Circuit Court of Appeals case, Busby v. United States,16 the sale of a
cotton crop on a deferred basis was successful in withstanding an IRS challenge where
• Conservation Security an irrevocable escrow account was established by the cotton gin with no right by the
Program interim taxpayer to the funds until the following year.17 The deferred payment was the result of
final rule an arm’s length agreement and was held by the court to shift the income to the next
year.18 Although there may be resistance to the time and possible expense involved with
such an irrevocable escrow account, and there is always the risk of an IRS challenge,
particularly in another Court of Appeals area, the irrevocable escrow does offer one
possible solution.
Cont. on p. 2

JUNE 2004 AGRICULTURAL LAW UPDATE 1
CONSTRUCTIVE RECEIPT/CONTINUED FROM PAGE 1

9
--Neil E. Harl, Charles F. Curtiss Arnwine v. Comm’r, 696 F.2d 1102 (5th cable escrow account established by cotton
Distinguished Professor in Agriculture and Cir. 1983), rev’g, 76 T.C. 532 (1981)(cotton gin with no right by taxpayer to funds until
Emeritus Professor of Economics, gin (acting on seller’s behalf insofar as following year.
10
Iowa State University distribution of proceeds of crop sales con- T.C. Memo 2004-143.
11
cerned) received proceeds which were in- Id.
12
Reprinted with permission from the July come to producer-seller); Williams v. United Id.
9, 2004 Agricultural Law Digest, States, 219 F.2d 523 (5th Cir. 1955)(receipt by 13
Treas. Reg. § 1.451-2(a).
14
Vol. 15, No. 14. agent is receipt by principal; escrow ar- 613 F.2d 591 (5th Cir. 1980).
15
rangement unilateral and not product of Scherbart v. Comm’r, T.C. Memo. 2004-
bona fide arm’s length negotiation); Warren 143.
1
Treas. Reg. § 1.451-2. See generally 4 v. United States, 613 F.2d 591 (5 th Cir. 16
679 F.2d 48 (5th Cir. 1980).
17
Harl, Agricultural Law section 1980)(cotton gin acted as taxpayer’s agent Id.
18
25.03[2](2004); Harl, Agricultural Law in collecting and holding proceeds of cot- Id. See Maurer and Harl, “Using Es-
Manual § 4.01[1][b](2004). ton sale); P.R. Farms, Inc. v. Comm’r, 820 crow Accounts and Letters of Credit to
2
E.g., Warren v. United States, 613 F.2d F.2d 1084 (9th Cir. 1982), aff’g,T.C. Memo Assure Payment Under Credit Sales Agree-
591 (5th Cir. 1980). 1984-549 (sale of fruit by agent; proceeds ments,” 14 J. Agr. Tax & L. 3, 17 (1992). See
3
Scherbart v. Comm’r, T.C. Memo. 2004- includible in taxpayer’s income in year of also Reed v. Comm’r, 723 F.2d 138, 145-148
143. sale even though not remitted to taxpayer (1st Cir. 1983)(taxable income not recog-
4
Treas. Reg. § 1.451-2(a). until later year). Compare Busby v. United nized until funds payable from escrow ac-
5
Id. States, 679 F.2d 48 (5th Cir. 1982)(sale of count).
6
Walter v. United States, 148 F.3d 1027 (8th cotton crop on deferred basis with irrevo-
Cir. 1998)(cash basis seller of livestock).
7
Romine v. Comm’r, 25 T.C. 859 (1956).
8
Rev. Rul. 68-44, 1968-1 C.B. 191.
Agricultural law bibliography/Cont. from page 2
• Malhoit & Black, The Power of ing Battle to Save Texas’s Most Precious
Small Schools: Achieving Equal Educational Resource, 35 Tex. Tech. L. Rev. 101-134
Opportunity Through Academic Success and (2004)
Democratic Citizenship, pp. 50-98 Note, Abandoning the PIA Standard: a
• Dayton, Rural Children, Rural Comment on ... (In re General Adjudication
Schools, and Public School Funding Litiga- of All Rights to Use Water in Gila River
tion: a Real Problem in Search of a Real System and Source [Gila V], 35 P.3d 68,
Solution, pp. 99-132 Ariz. 2001), 9 Mich. J. Race & L. 235-268
• Shavers, Rethinking the Equity vs. (2003).
VOL. 21, NO. 7, WHOLE NO. 248 JUNE 2004 Adequacy Debate: Implications for Rural
AALA Editor..........................Linda Grim McCormick
School Finance Reform Litigation, pp. 133- If you desire a copy of any article or
2816 C.R. 163, Alvin, TX 77511 189 further information, please contact the
Phone: (281) 388-0155
E-mail:
• Winston, Rural Schools in Law School Library nearest your office.
lgmccormick@academicplanet.com America: Will No Child be Left Behind? The The NCALRI website <http://
Contributing Editors: Neil E. Harl, Iowa State University;
Elusive Quest For Equal Educational Op- www.nationalaglawcenter.org > has a
Drew L. Kershen, Oklahoma University, Norman, OK; portunities, pp 190-210. very extensive Agricultural Law Bibliog-
Barclay Rogers, San Franscisco, CA; Jeffrey A. Mollet,
HIghland, IL; Douglas Beegle, Alyssa Dodd, Charles
raphy. If you are looking for agricultural
Abdalla, Penn State University; Douglas Goodlander, SCC; Sustainable & organic farming law articles, please consult this biblio-
Johan Berger, PDA; Jennifer Weld, USDA-ARS, Jerry
Martin, Penn State.
Note, Making Coffee Good to the Last Drop: graphic resource on the NCALRI website.
Laying the Foundation for Sustainability in —Drew L. Kershen, Professor of Law,
For AALA membership information, contact Robert
Achenbach, Interim Executive Director, AALA, P.O. Box
the International Coffee Trade, 16 Geo. Int’l. The University of Oklahoma,
2025, Eugene, OR 97405. Phone 541-485-1090. E-mail Envtl. L. Rev. 247-280 (2004). Norman, OK
RobertA@aglaw-assn.org.

Agricultural Law Update is published by the American Uniform Commercial Code
Agricultural Law Association, Publication office:
CountyLine Printing, Inc. 6292 NE 14th Street, Des Moines,
Article Nine
IA 50313. All rights reserved. First class postage paid at Des Case Note, Revised Article 9 Brings Uncer- Agricultural tax and law seminars
Moines, IA 50313.
tainty to Holders of Agricultural Landlord’s August 24-27, 2004
This publication is designed to provide accurate and Liens (Nef v. Ag Servs. of Am., Inc., 79 Ark. Interstate Holiday Inn, Grand Island,
authoritative information in regard to the subject matter
App. 100, 86 S.W.3d 4, 2002, No. 02-00032), NE
covered. It is sold with the understanding that the publisher Topics include: farm and ranch es-
is not engaged in rendering legal, accounting, or other 56 Ark. L. Rev. 871- 901 (2004).
professional service. If legal advice or other expert tate planning and income tax by Dr.
assistance is required, the services of a competent
Pullen, Revised Article 9 of the Uniform Neil E. Harl; farm and ranch business
professional should be sought. Commercial Code and Agricultural Liens in planning and agricultural commer-
Views expressed herein are those of the individual
Texas, 40 Tex. J. Bus. L. 1-36 (2004). cial and property law with taxation
authors and should not be interpreted as statements of
policy by the American Agricultural Law Association.
by Roger A. McEowen.
Water rights: agriculturally related For further information, contact Rob-
Letters and editorial contributions are welcome and Comment, Comedy of Errors or Confed- ert Achenbach at 541-302-1958 or by
should be directed to Linda Grim McCormick, Editor, 2816
C.R. 163, Alvin, TX 77511.
eracy of Dunces? The Idaho Constitution, e-mail, Robert@agrilawpress.com
State Politics, and the Idaho Watersheds
Copyright 2004 by American Agricultural Law
Association. No part of this newsletter may be reproduced
Project Litigation, 40 Idaho L. Rev. 187-223
or transmitted in any form or by any means, electronic or (2003)
mechanical, including photocopying, recording, or by any
information storage or retrieval system, without
Comment, Hung Out to Dry?: Groundwa-
permission in writing from the publisher. ter Conservation Districts and the Continu-

2 AGRICULTURAL LAW UPDATE JUNE 2004
Agricultural law bibliography: 1st quarter 2004
Administrative law L.J. 233-254 (2003). the Trade of Genetically Modified Organ-
Muth et al, The Fable of the Bees Revisited: Comment, Industry-based Solutions to In- isms Violate International Trade Law?, 23
Causes and Consequences of the U.S. Honey dustry-specific Pollution: Finding Sustain- Nw. J. Int’l. L. & Bus. 239-261 (2002).
Program, 46 J. L. & Econ. 479-516 (2003). able Solutions to Pollution From Livestock Note, The Door Opens Slightly: Recent Eu-
Waste, 15 Colo. J. Int’l Envtl. L. & Pol’y ropean Union Regulations on Genetically
Aquaculture 153-179 (2004). Modified Products and the Ongoing United
Comment. Regulating Seaweed Harvest- Comment, Poultry, Waste, and Pollution: States-European Union GM Product Dis-
ing in Maine: the Public and Private Inter- the Lack of Enforcement of Maryland’s Wa- pute, 16 Geo. Int’l. Envtl. L. Rev. 281-300
ests in an Emerging Marine Resource Indus- ter Quality Improvement Act, 62 Md. L. (2004).
try, 7 Ocean & Coastal L.J. 329-352 (2002). Rev. 1054-1075 (2003). Note, The Case for Coca and Cocaine:
Craig, “No Comment” on Deep Ripping: Bolivia’s March to Economic Freedom, 13
Biotechnology Wetlands and the Clean Water Act after Minn. J. Global Trade 57-86 (2004).
Mansour, Regulating Biotechnology: Sci- Borden Ranch, 34 Envtl. L. Rep. News &
ence, Ethics, Law and Governance Meet Head Analysis 10028-10039 (2004). Land use regulation
on in the Age of Informed Ignorance, 21 Note, Coping With CAFOs: How Much Land use planning and farm-
Temp. Envtl. L. & Tech. L. 93-102 (2003). Notice Must a Citizen Give? (Community land preservation tech-
Symposium: Confidence-Building Mea- Ass’n for Restoration of the Environment v. niques
sures for Genetically Modified Foods, 44 Henry Bosma Dairy, 305 F.3d 943, 9th Cir. Richardson, Downzoning, Fairness and
Jurimetrics J.1-160 (2003). 2002), 68 Mo. L. Rev. 959-982 (2003). Farmland Protection, 19 J. Land Use &
• Marchant, Introduction, pp. 1-4 Envtl. L. 59-90 (2003).
• Redick, Stewardship for Biotech Farm labor
Crops: Strategies for Improving Global Con- General & social welfare Patents, trademarks & trade secrets
sumer Confidence, pp. 5-39 Case Note, The Supreme Court of Nebraska’s Bagley, Patent First, Ask Questions Later:
• Mandel, Confidence-building Attempt to Apply the Farm or Ranch Laborer Morality and Biotechnology in Patent Law,
Measures for Genetically Modified Prod- Exemption of Nebraska Revised Statutes sec- 45 Wm. & Mary L. Rev. 469-547 (2003).
ucts: Stakeholder Teamwork on Regulatory tion 48-106(2) Sticks Out Like a Sore Thumb Comment, An Exploration of the Unin-
Proposals, pp 41-61 (Larsen v. D B Feedyards, Inc., 264 Neb. 483, tended Temporal Extension of the Plant
• Bratspies, Bridging the Genetic Di- 648 N.W.2d 306, 2002), 37 Creighton L. Patent Term, 42 Duquesne L. Rev. 137-158
vide: Confidence-building Measures for Ge- Rev. 161-196 (2003). (2004).
netically Modified Crops, pp. 63-79
• Vandegrift & Gould, Issues Sur- Farm policy and legislative analysis Pesticides
rounding the International Regulation of Domestic Bergkamp & Hanekamp, The Draft
Adventitious Presence and Biotechnology, Chen, Filburn’s Legacy, 52 Emory L.J. 1719- REACH Regime: Costs and Benefits of Pre-
pp. 81-98 1769 (2003). cautionary Chemical Regulation, 11 Envtl.
• Marchant & Askland, GM Foods: Liability 167-180 (2003).
Potential Public Consultation and Participa- Food and drug law Case Note, Application of Aquatic Pesti-
tion Mechanisms, pp. 99-137 Covelli & Hohots, The Health Regulation cides to Irrigation Canals, a Discharge, Which
• Powell, Blaine & Chapman, En- of Biotech Foods Under the WTO Agree- Requires a Clean Water Act Permit? (Head-
hancing Consumer Confidence in Agricul- ments, 6 J. Int’l Econ. L. 773-795 (2003). waters, Inc. v. Talent Irrigation District, 243
tural Biotechnology and Genetically Engi- Note, Souring La Dolce Vita? Has Euro- F.3d 526, 9th Cir. 2001), 25 U. Hawaii L.
neered Foods, pp. 139-152 pean Union Regulation Ruined Italian Cui- Rev. 629-650 (2003).
• Maienschein, Confidence Build- sine or is There Hope Yet For Traditional
ing: In What, For Whom, and Why? pp. 153- Products?, 21 B.U. Int’l L.J. 373-397 (2003). Rural development
160. Note, The Supreme Beef Case: an Opportu- Chen, Subsidized Rural Telephony and the
nity to Rethink Federal Food Safety Regula- Public Interest: a Case Study in Cooperative
Environmental issues tion (Supreme Beef Processors, Inc. v. USDA, Federalism and its Pitfalls, 2 J. on Telecom-
Bishop, Tilley & Bamzai, Counting the 113 F. Supp. 2d 1048, N.D. Tex. 2000 [Su- munications & High Tech. L. 307-373
Hands on Borden Ranch, 34 Envtl. L. Rep. preme Beef I]; and Supreme Beef Processors, (2003).
News & Analysis 10040-10044 (2004). Inc. v. USDA, 275 F.3d 432, 5th Cir. 2001 Miller, Rural Development Considerations
Case Note, A Sinkhole in the Swampbuster. [Supreme Beef II]), 16 Loy. Consumer L. for Growth Management, 43 Nat. Resources
(Downer v. United States, Acting by & Rev. 159-174 (2004). J. 781-801 (2003).
Through the United States Department of Symposium, Equitable and Adequate Fund-
Agriculture and Soil Conservation Service, Hunting, recreation & wildlife ing for Rural Schools: Ensuring Equal Edu-
97 F.3d 999, 8th Cir. 1996), 7 Great Plains Comment, Chronic Wasting Disease of Deer cational Opportunity for All Students, 82
Nat. Res. J. 89-102 (2003). and Elk: a Call for National Management, 33 Neb. L. Rev. 1-210 (2003)
Case Note, The Effect of Wetland Restora- Envtl. L. 1059-1092 (2003). • Strange, Equitable and Adequate
tion Agreements Under the Swampbuster Swan, Peaceful Arms: Hunting and Sport Funding for Rural Schools: Ensuring Equal
Act. (Branstad v. Veneman, 212 F. Supp. 2d Shooting, 8 Tex. Rev. L. & Pol. 189-211 Educational Opportunity for all Students,
976, N.D. Iowa 2002), 11 Mo. Envtl. L. & (2003). pp. 1-8
Pol’y Rev. 80-88 (2003). • Bastress, The Impact of Litigation
Case Note, The Unclear Future of the Haze International trade on Rural Students: From Free Textbooks to
Rule—a Successful Challenge and a Major Comment, The ABCs and NTBs of GMOs: School Consolidation, pp. 9-49
Setback (Am. Corn Growers Ass’n v. EPA, the Great European Union-United States Cont. on page 2
291 F.3d 1, D.C. Cir. 2002), 14 Vill. Envtl. Trade Debate—do European Restrictions on

JUNE 2004 AGRICULTURAL LAW UPDATE 3
Iowa’s right to farm law declared unconstitutional
By Barclay Rogers

The Iowa Supreme Court has declared that this chapter or under principles of com- tion. Pork Xtra appealed the decision argu-
state’s right to farm law unconstitutional. mon law, and the animal feeding opera- ing that the district court erred in allowing
In its June 16, 2004 decision in Gacke v. Pork tion shall not be found to interfere with the nuisance case to proceed because it was
Xtra, No. 02-0417, 2004 WL 1344973 (Iowa another person’s comfortable use and barred by Iowa’s right to farm law.
2004), the Iowa Supreme Court held that enjoyment of the person’s life or prop- The Iowa Supreme Court relied on its
the right to farm statute amounted to an erty under any other cause of action. earlier decision in Bormann to conclude that
unconstitutional taking and imposed an However, this section shall not apply if the right to farm law created an easement
unduly oppressive burden on property the person bringing the actions proves over the Gacke’s property. In Bormann, the
owners who would be precluded from bring- that an injury to the person or damage to Iowa Supreme Court determined that im-
ing nuisance lawsuits because of the immu- the person’s property is proximately munity protections from nuisance lawsuits
nity protections provided by the statute. caused by either of the following: in areas designated as agricultural zones
The Gacke decision builds upon the Iowa created easements over the land affected
Supreme Court’s earlier ruling in Bormann a. The failure to comply with a federal by the nuisance. Bormann, 584 N.W.2d at
v. Board of Supervisors in and for Kossuth statute or regulation or a state statute or 316. The court held that the right to main-
County, 584 N.W.2d 309 (Iowa 1998), in rule which applies to the animal feeding tain a nuisance was an easement and that a
which the court held unconstitutional a operation. physical invasion of the property was not
statute providing for immunity from nui- necessary for the intrusion to become a
sance lawsuits in designated agricultural b. Both of the following: taking. Id. at 321. Accordingly, the court
areas. treated the nuisance protections as a per se
(1) The animal feeding operation unrea- taking, requiring compensation without
Right to farm laws sonably and for substantial periods of regard to the state’s interest in establishing
Right to farm laws exist in all fifty states time interferes with the person’s com- the protections. Id. at 316. The statute grant-
in one form or another. In general, these fortable use and enjoyment of the person’s ing nuisance immunity was therefore “a
laws were designed to protect agricultural life or property. taking of private property for public use
operations from encroaching urban sprawl. without the payment of just compensation
See Jesse J. Richardson, Jr. & Theodore A. (2) The animal feeding operation failed to in violation of the Fifth Amendment to the
Feitshans, Nuisance Revisited After Buchanan use existing prudent generally accepted Federal Constitution … [and] article I, sec-
and Bormann, 5 Drake J. Agric. L. 121, 127- management practices reasonable for the tion 18 of the Iowa Constitution.” Id. The
8 (2000) (“As more urban dwellers moved operation. court’s decision in Bormann recognized that
into agricultural areas, ‘nuisance’ lawsuits the nuisance protections “took one of the
by those urbanites threatened the existence Iowa Code § 657.11. sticks (the right to not be subject to unrea-
of many farms”). States and localities sonable interference with the reasonable
adopted right to farm laws to shield agri- Iowa’s right to farm law use of your land) from the bundle repre-
cultural operations from nuisance lawsuits. unconstitutional senting the property rights of the farmer’s
The Iowa right to farm law for animal Uncompensated taking in violation of the neighbor.” Richardson & Feitshans, Nui-
operations is typical of most right to farm takings clause of the Iowa Constitution sance Revisited After Buchanan and Bormann,
statutes and provides: In Gacke, the Iowa Supreme Court held 5 Drake J. Agric. L. at 133.
1. The purpose of this section is to protect that the right to farm statute constituted an The Bormann decision hearkens back to
animal agricultural producers who man- uncompensated taking under the Iowa con- the debate, familiar to all first year law
age their operations according to state stitution. Having decided that the statute students, over whether one party can ob-
and federal requirements from the costs violated the Iowa constitution, the court tain the right to pollute a neighbor’s prop-
of defending nuisance suits, which nega- declined to address whether the statute erty. In Boomer v. Atlantic Cement Co., 309
tively impact upon Iowa’s competitive also violated the Takings Clause of the N.Y.S.2d 312 (N.Y. 1970), the New York
economic position and discourage per- Federal Constitution. Court of Appeals ruled that a large cement
sons from entering into animal agricul- In 1996, Pork Xtra, a farming corpora- plant could avoid the issuance of an injunc-
tural production. This section is intended tion, built two hog confinement buildings tion by paying the plaintiffs’ damages for
to promote the expansion of animal agri- approximately 1,300 feet from the house future operation of the plant as a nuisance.
culture in this state by protecting per- that Joseph and Linda Gacke have resided The dissent in Boomer argued that “the
sons engaged in the care and feeding of in since 1974. The Gackes filed a lawsuit in majority is, in effect, licensing a continuing
animals. The general assembly has bal- 2000 alleging that Pork Xtra’s operation wrong” and is “impos[ing] servitude on
anced all competing interests and de- was a nuisance. In the lawsuit, the Gackes land, without the consent of the owner, by
clares its intent to protect and preserve sought compensatory and punitive dam- payment of permanent damages where the
animal agricultural production opera- ages for the diminution in the value of their continuing impairment of land is for a pri-
tions. property and pain and suffering; they also vate use.” Boomer, 309 N.Y.S.2d at 321
sought an injunction restraining the defen- (Jasen, J., dissenting). The Boomer dissent
2. An animal feeding operation, as de- dant from operating a nuisance. After trial, essentially became the majority’s reason-
fined in section 459.102, shall not be found the district court found that the hog con- ing in Bormann.
to be a public or private nuisance under finement facilities were a nuisance and In Gacke, Pork Xtra argued that the Iowa
awarded the Gackes $50,000 for loss in Supreme Court had incorrectly concluded
property value and $46,500 in compensa- in Bormann that the protections from nui-
Barclay Rogers is an attorney for the Sierra tory damages for past inconvenience, emo- sance lawsuits were per se takings and that
Club, where his practice focuses primarily on tional distress, and pain and suffering. The instead they should be analyzed according
environmental issues involving agricultural court, however, refused to award punitive to the balancing test developed in Penn
production. damages and declined to issue an injunc- Central Transportation Co. v. City of New

4 AGRICULTURAL LAW UPDATE JUNE 2004
York, 438 U.S. 104 (1978). Under Penn Cen- exercise of its police power.” Gacke, 2004 regard for the personal and property rights
tral, so-called regulatory takings—those that WL 1344973, * 7. of his neighbor.” Gacke, 2004 WL 1344973, *
fall short of per se takings–are subject to a In evaluating the right to farm law, the 10.
balancing test that weighs the economic Iowa Supreme Court held that it was an The Gacke and Bormann decisions cast
impact of the regulation, the government’s unreasonable use of the police power and into doubt the constitutionality of right to
interference with investment backed ex- therefore ran afoul of the inalienable rights farm laws across the country. At heart, all
pectations, and the character of the clause. The court ruled that the “oppressive of these laws sacrifice the rights of ag-
government’s action to determine whether effect of the statutory immunity … distin- grieved neighbors for the corresponding
an unconstitutional taking has occurred. Id. guishes this case from those where the benefit of agriculture. While this shifting of
at 124. The Iowa Supreme Court declined to plaintiffs are simply adversely affected by rights has been generally accepted by the
retreat from Bormann, reasoning that the statute.” Gacke, 2004 WL 1344973, * 10 public, the changing face of agriculture –
“[w]hether the nuisance easement created distinguishing May’s Drug Stores v. State particularly the concentration in the live-
by section 657.11(2) is based on a physical Tax Comm’n, 45 N.W.2d. 245, 250 (Iowa stock sector – may bring further pressure to
invasion of particulates from the confine- 1950). The court also distinguished Gravert bear on right to farm laws. See Neil D.
ment facilities or is viewed as a v. Nebergall, 539 N.W.2d 184 (Iowa 1995), a Hamilton, A Changing Agricultural Law for
nontrespassory invasion akin to the flying case in which the Iowa Supreme Court a Changing Agriculture, 4 Drake J. Agric. L.
of aircraft over land, it is a taking under upheld a mandatory contribution to a par- 41, 58 (1999) (“[S]everal developments re-
Iowa’s constitution.” Gacke, 2004 WL tition fence against a challenge under the flect the continued industrialization of ag-
1344973, * 4. inalienable rights clause, on the grounds riculture, both as to changes in scale and in
The court, however, determined that the that “the Gackes receive no particular ben- the public impression of what agriculture is
plaintiffs’ remedy under the takings theory efit from the nuisance immunity granted to and how deserving it is for special legal
was limited to the diminution of property their neighbors other than that inuring to consideration”).
values and did not include damages for the public in general” and that they “sus- A recent survey of cases concerning right
pain and suffering, emotional distress, and tain significant hardship” in the form of a to farm laws revealed that “more than half
the like. The court noted that “[t]he stan- continuing nuisance. Gacke, 2004 WL of the litigation around right to farm stat-
dard of compensation required for the tak- 1344973, * 9. The court looked to two factors utes has involved the nuisance conditions
ing of an easement is the decrease in value to support its conclusion that the immunity allegedly created by large livestock facili-
of the dominant estate … resulting from the provisions violated the inalienable rights ties, rather than nonlivestock commercial
taking of the easement,” and explained that clause: (1) the Gackes had vested rights in farms.” Andrew C. Hanson, Wisconsin’s
this measure is “the difference in fair mar- their property, including considerable ex- Right to Farm Law, 75-Dec Wis. Law. 10, 61
ket value of the property before and imme- penditures associated with improving the (2002). “Of the cases in which livestock
diately after imposition of the easement.” property, and (2) the statute would essen- operations sought the protection of a state
Id. at * 5 (internal citations and quotations tially leave them with no right of recovery. right to farm law, roughly two-thirds re-
omitted). The court concluded that Id. The court concluded that Iowa’s right to lated to alleged nuisance conditions by large
“[b]ecause the recovery of diminution-in- farm statute “as applied to the Gackes is confinements” and relatively few cases con-
value damages fully compensates the bur- unduly oppressive and, therefore, not a cerned small confinements or other types
dened property owners for the unlawful reasonable exercise of the state’s police of livestock facilities. Id. Perhaps most
taking of an easement, the restrictions of power.” Id. at 10. telling of all, “[w]hen the defendants raised
the Takings Clause end at that point.” Id. The court went on to order a new trial a right to farm as an affirmative defense,
because it concluded that the district court plaintiffs prevailed three quarters of the
Unreasonable exercise of police power in had erroneously admitted prejudicial hear- time.” Id.
violation of the inalienable rights clause of say evidence during trial.
the Iowa Constitution Conclusion
The Iowa Supreme Court then analyzed Implications of Gacke and Bormann The Gacke and Bormann decisions have
the right to farm statute under the inalien- decisions focused the agricultural law community’s
able rights clause of the state constitution, Right to farm statutes create special pro- attention on the viability of right to farm
which provides: tections for agricultural operations while statutes. Are these statutes justified? Do
All men are, by nature, free and equal imposing burdens on the general public. they serve a public interest or do they
and have certain inalienable rights – The Iowa Supreme Court termed these spe- simply benefit the few? Do they work an
among which are those of enjoying and cial protections “flagrantly” unconstitu- unfair hardship on the general public that
defending life and liberty, acquiring, tional and remarked that “[w]hen all the outweighs any corresponding benefit? The
possessing and protecting property, and varnish is removed, the challenged statu- Iowa Supreme Court has left little room for
pursuing and obtaining safety and hap- tory scheme amounts to a commandeering doubt as to its answers.
piness. of valuable property rights without com-
pensating the owners, and sacrificing those
Iowa Const., Art I, § 1. The court noted that rights for the economic advantage of the
the right to use and enjoy property, the few.” Bormann, 584 N.W.2d at 322. The
basis of nuisance law, had long been recog- court further stated in Bormann that “[i]n
nized as an inalienable right under the Iowa short, it appropriates valuable private prop-
constitution. Gacke, 2004 WL 1344973, * 8 erty interests and awards them to strang-
citing State v. Osborne, 154 N.W. 294 (Iowa ers.” Id. In Gacke, the court was less vitri-
1915). The court explained that inalienable olic but nevertheless concluded that “one
rights were not absolute but were “subject property owner – the producer – is given
to reasonable regulation by the state in the the right to use his property without due

JUNE 2004 AGRICULTURAL LAW UPDATE 5
Alternatives to right to farm law protection
New Thunderbird, new Harley Davidson. and due diligence. Some local governments operations.
New house in the country sans the smog are investigating and adopting special dis-
and rat race of the big city. Life is a dream, closure rules to be signed by those purchas- Even local developers are aware of this
especially since the new T-Bird and Hog ing property in any unincorporated areas. issue, as evidenced by preemptive language
have the classic looks but the fit, finish, and These statements are specifically directed found in the 21-page disclosure document
technology of today. And the house in the at the rural and agricultural issues and at a for Green Oak Estates in New Caney, Mont-
country is a 3,500 square foot dream with a minimum require the buyer to acknowl- gomery County, Texas, available online at
pool, great room, walk-out basement, and edge the potential nuisance issues before www.providianhomes.com/
the sweet smell of the dairy down the road? the sale is completed. Sample language providianhomes_disclaimer.pdf:
If you are quiet, you can actually hear the T- follows:
Bird racing back to the city lawyer’s office The Grantees acknowledge that this prop- Agricultural Operations: The Commu-
to file a lawsuit. erty lies partially or wholly within an nity is located near areas where land may
This is a more and more common occur- agricultural part of ____________County be used for agricultural purposes. Many
rence as those fulfilling the dream of living that is involved with the production of procedures normal and necessary to the
in the country find they have failed to ad- food and related agricultural products operation of agricultural uses such as
equately investigate or understand all that and that such farming activities include, field crops, vineyard, orchards, dairy
living in the country entails. Well water, but are not limited to, activities that cause and poultry farms, and feed lots result in
septic systems, slow moving vehicles: those noise, dust, and odors. The Grantees fur- noise, noxious odors (particularly fertil-
who have never lived in rural America ther acknowledge that they have met and izer odor), chemical spraying, dust, irri-
often get a rude awakening when they dis- talked with the owner of the adjacent gation or other potentially detrimental
cover these joys of country living. The end land(s) and are familiar with the use of effects to residential use of adjacent prop-
result is sometimes bad neighbors and liti- such property. erties. Purchaser should carefully inves-
gation against the seller of the property and tigate in person the potential impact of
the farmer. Some states have codified such provi- such noise, odor, dust, spraying, irriga-
By now, nearly every agricultural state sions. For example, Alaska Stat. 34.70.050 tion or other effects resulting from the
has enacted legislation that provides farm- provides that a: nearby agricultural uses, as these condi-
ers with some protection for their farming disclosure statement must [be provided tions may be disturbing to certain sensi-
operations. These are the right to farm that will] include a provision that noti- tive individuals.
laws, and they have been at least partially fies transferees
successful in stopping litigation instituted … Obviously a contractual disclosure may
by neighbors of farming operations, espe- (3) that they are responsible for deter- provide a potential developer or buyer a leg
cially those cases relying on nuisance as the mining whether, in the vicinity of the up on the investigative process, and per-
cause of action. Still, problems arise either property that is the subject of the trans- haps support a cause of action at a later
because of the lack of the buyer’s knowl- ferees potential real estate transaction, date if found to be erroneous or misleading.
edge of rural life, a lack of communication there is an agricultural facility or agricul- Still the goal of disclosure is to allow a
between buyer, seller, and their respective tural operation that might produce odor, prudent develop or buyer the opportunity
agents, or because circumstances can fumes, dust, blowing snow, smoke, burn- to speed up the investigation and either
quickly change. ing, vibrations, noise, insects, rodents, avoid a future problem or move forward
Are there any alternatives? It seems that the operation of machinery including air- with the comfort of knowing that any con-
the old caveat emptor theory is being sup- craft, and other inconveniences or dis- cerns have been dealt with appropriately.
planted by a movement toward disclosure comforts as a result of lawful agricultural —Jeffrey A. Mollet, Highland, Illinois

Phosphorus management policy/Cont. from page 7

Likewise, plans must be reviewed by a certified reviewer under Summary of new PDIP cost share rates for phosphorus-based
the PA Department of Agriculture Nutrient Management Certifica- nutrient management plans.
tion Program who has also completed the P Index and RUSLE Operation Size Maximum Cost Maximum Cost
trainings. The SCC will assist with reviews where the local Share Rate Share Payment
reviewer has not yet had this training. 0-85 Acres 75% of actual costs Maximum = $640.00
per operation
Financial assistance for phosphorus-based planning 86-200 Acres 75% of actual costs Maximum = $7.50
Finally, because of the increased planning costs associated with per acre
this new policy, the SCC adopted new higher cost share rates under 200 + Acres 75% of actual costs Maximum = $1500.00
the Plan Development Incentives Program (PDIP). This additional per operation
cost share is available for all nutrient management plans submitted
for approval after May 25, 2004 that include a phosphorus compo-
nent (See the table below). Details on the cost share program --This Fact Sheet was published through Penn State Cooperative
including eligibility and how to apply can be obtained from your Extension by Douglas Beegle, Alyssa Dodd, Charles Abdalla, Penn
local county conservation district nutrient management staff or State University with assistance from Douglas Goodlander, SCC;
from the Nutrient Management Staff at the Pennsylvania Depart- Johan Berger, PDA; Jennifer Weld, USDA-ARS, and Jerry Martin,
ment of Agriculture (PDA) (717-772-4187). Penn State.

6 AGRICULTURAL LAW UPDATE JUNE 2004
Interim phosphorus management policy for nutrient management plans in
Pennsylvania
A major policy change has occurred in Index, in upcoming Act 6 regulation revi- changes are required to address phospho-
Pennsylvania’s nutrient management pro- sions. This interim policy on phosphorus is rus. Use of any other approach to address
gram. In May 2004 the State Conservation consistent with the proposed revisions to phosphorus application will require review
Commission (SCC) adopted a new interim the regulations. by the SCC.
policy requiring Pennsylvania Nutrient
Management Act (Act 6) plans to include a Why was the interim policy adopted? The Phosphorus Index
phosphorus application component. The SCC’s Interim Phosphorus Policy The P Index is a field evaluation tool that
Phosphorus (P) has been of concern to was developed in response to a May 2004 was developed to identify areas that have a
farmers and other water quality stakehold- decision by the Pennsylvania Environmen- high vulnerability or risk of phosphorus
ers for some time. Excess nutrients, par- tal Hearing Board (EHB). This decision loss to surface water bodies. The Pennsyl-
ticularly phosphorus in freshwater, increase arose from a local citizens group’s appeal vania P Index was developed by scientists
biological activity in water systems, thereby of a nutrient management plan approval. at the USDA Agricultural Research Service
speeding up the process called eutrophica- The EHB ruled in favor of the citizens group (ARS) Pasture Systems and Watershed
tion. Eutrophication is the most common specifically citing their concern that the Act Management Research Unit at University
reason for impairment of surface waters for 6 regulations, and the plan, did not address Park, PA and Penn State University Col-
fishing, recreation, industrial and domestic nutrients other than nitrogen. Specifically, lege of Agricultural Sciences. It is the out-
water uses. they stated that application rates for phos- come of a major state and regional effort as
While concerns about eutrophication, and phorus are required to be included in a part of an international research and devel-
the potential environmental impact of phos- plan. The Board ruled that opment endeavor to produce a manage-
phorus, have existed and been part of man- Act 6 requires the SCC to consider phos- ment approach that protects water quality
agement recommendations for some time, phorus and other nutrients within the nu- from phosphorus pollution and enables
concerns with nitrogen (N) have received trient management plan. The ruling is avail- sustainable, economic animal agricultural
more attention. As scientific evidence clari- able at: http://www.ehb.verilaw.com/ production.
fying the importance of phosphorus in water democorpus/Converted/ This tool combines indicators of phos-
quality protection grew and concerns about 50012372002189.pdf phorus sources and of phosphorus trans-
impaired uses of surface water increased, As a result of the EHB decision, the SCC port. The phosphorus source factors used
public policy makers turned more attention decided to immediately implement an in- in the Pennsylvania P Index are the Mehlich-
to phosphorus management. In early 2003, terim policy on phosphorus management. 3 soil test phosphorus, fertilizer phospho-
the US Environmental Protection Agency This interim policy is consistent with the rus application rate and method, and ma-
(EPA) adopted new regulations for Con- proposal evolving as part of the review of nure phosphorus application rate, method,
centrated Animal Feeding Operations the Act 6 regulations. The Interim Phos- and phosphorus availability. The transport
(CAFOs) that require nutrient management phorus Policy will only be in effect until the factors used are soil erosion, runoff poten-
plans based on both nitrogen and phospho- proposed regulations are finalized, ex- tial, subsurface drainage, distance to a wa-
rus. Regulations to implement these fed- pected sometime in early 2005. The Penn- ter body, and an evaluation of management
eral requirements are currently being de- sylvania Nutrient Management Program practices that impact how phosphorus is
veloped for Pennsylvania. Also, in 2003, can be found on line at the web site: http:/ potentially lost from a field. These factors
PA Natural Resources Conservation Ser- /panutrientmgmt.cas.psu.edu/. are combined in a simple calculation to
vice (NRCS) implemented a revised 590 arrive at a P Index value for the field. The P
Standard for Nutrient Management, con- Who is affected? Index value indicates whether the manure
sistent with the NRCS national standard The interim policy applies to all concen- application rate may be limited and/or other
for nutrient management. This national stan- trated animal operations (CAOs), concen- management practices may be required to
dard requires nitrogen and phosphorus- trated animal feeding operations (CAFOs) address phosphorus concerns. Other man-
based nutrient management plans for farm- and volunteer operations submitting Act 6 agement practices may include installation
ers receiving financial or technical assis- nutrient management plans or plan amend- of best management practices to reduce
tance from US Department of Agriculture ments to the SCC or conservation district transport potential, such as common ero-
(USDA). after May 25, 2004. The policy also states sion control practices or buffers. Alterna-
One important outcome of this changing that the SCC is to be consulted concerning tively, changes in the time or method of
emphasis on phosphorus was increased plans under review at the time the policy manure application may reduce the risk of
research on environmental phosphorus is- took effect. phosphorus loss to the point where manure
sues. An offshoot of this research was the can be applied.
development of the Phosphorus Index (P Implementation of the interim policy The P Index is an effective method of
Index). By targeting, the P Index has the As of May 25, 2004 all nutrient manage- addressing phosphorus in manure applica-
potential for reducing costs to farmers and ment plans submitted for approval under tions because it addresses phosphorus loss
government agencies by focusing their Act 6 are to include a phosphorus applica- from croplands by focusing on the critical
management and financial resources tion component. The SCC recommended factors found to impact phosphorus loss.
on areas most likely to contribute phos- approach to address phosphorus is the P The index identifies those fields that are
phorus to surface waters. Index. This process will build on the exist- likely to affect water quality by the loss of
Phosphorus management concerns have ing nitrogen-based planning process. De- soluble and sediment phosphorus and lim-
been integral to the process of adapting veloping a plan that includes phosphorus its application rates or directs the imple-
state policies to new scientific information under this policy does not require starting mentation of other management practices,
and federal policies. As a result of its re- from scratch. The approach is to develop a as the situation warrants. This same ap-
view of the state’s current nutrient man- nitrogen-based nutrient management plan, proach is currently in use by NRCS in PA as
agement regulations after five years of run- as required under the current Act 6 regula- part of their 590 Standard for Nutrient
ning the program, the SCC has proposed tions, and then evaluate this plan using the Management.
that phosphorus be addressed, using the P P Index to determine if management Cont. on p. 6

JUNE 2004 AGRICULTURAL LAW UPDATE 7
The 25th Annual Educational Symposium of the American Agricultural Law
Association is quickly approaching on October 1 and 2, 2004 in Des Moines,
Iowa. This year’s conference has something for everyone. Session topics
range from international trade to farm taxation, as well as a session on
ethics that will discuss challenging ethical problems confronted by
attorneys with agricultural interests. This year, the traditional Ag. Law
Update presentations are expanded to 30 minutes each to provide greater
review of the year’s developments. Registration brochures will be mailed as
soon as all presentations have been confirmed. Members can make hotel
arrangements now by calling the Hotel Fort Des Moines at 1-800-532-1466 and
telling them that you plan to attend the AALA conference. A special dinner
for students attending the conference has been planned for the evening of
Oct. 1, 2004 sponsored by the Drake Ag. Law Student Ass’n.

8 AGRICULTURAL LAW UPDATE JUNE 2004