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Work Opportunity Tax Credit (WOTC)
expanded to benefit rural employers
On May 25, 2007, the President signed into law the Small Business and Work Opportunity
Act of 2007 (Act).1 The Act makes several amendments to the WOTC (I.R.C. §51), but
perhaps the most important change to the WOTC from agriculture’s standpoint is that the
WOTC now has expanded application for employers that hire new employees in a “rural
renewal county.”

For many years, federal tax law has provided employers with a tax credit for hiring
disadvantaged workers such as those that qualify for food stamps or SSI recipients.2 The
• Federal roundup credit is fairly significant – generally, a maximum of $2,400 for each eligible employee that
is hired (credit of 40 percent of the first $6,000 of wages paid to an eligible employee who
works for at least 400 hours during the first year of employment). But, a significant
• USDA administrative problem with the credit has been that the type of eligible employee required by the statute
appeals is often not available for the type of employment that exists in many small towns and rural
areas. That issue has been addressed by the Act.
• Liability insurance
coverage Credit available for hiring a “designated community resident” living in a “rural
renewal county”
The Act amends the WOTC to expand its availability to businesses in rural communi-
• State roundup ties that hire a “designated community resident.”3 That is a person who is at least 18 years
of age, but under age 40 as of the date they are hired and who has their principal place
• Federal Register of residence established in a “rural renewal” area—a county outside of a metropolitan
summary statistical area that has experienced net population declines from 1990-1994 and 1995-
1999.4 IRS has identified 31 states that have counties with the required population decline
on page four of the instructions to Form 8850.5

Cont. on p. 2

Judge concerned that alfalfa may be a little
Solicitation of articles: All AALA
members are invited to submit ar-
rascal—and other legal news
ticles to the Update. Please include In recent years, federal district courts have found environmental statute violations in the
copies of decisions and legislation way that the Animal and Plant Health Inspection Service (APHIS) regulates genetically
with the article. To avoid duplica- engineered (GE) plants. A federal judge recently fashioned an unusual remedy for a
violation: he placed a permanent injunction on an APHIS-approved cultivation of a GE
tion of effort, please notify the Editor
of your proposed article.
The case began in June 2005 when APHIS issued a Finding of No Significant Impact and
approved Monsanto Company’s petition requesting nonregulated status for GE Roundup
Ready© alfalfa. Opponents to deregulation stressed the possibility that bee pollination
could transfer the GE alfalfa’s glyphosate tolerance gene to conventional alfalfa. None-
theless, APHIS concluded that growers of conventional or organically-grown crops could
emplace reasonable quality control measures to ensure that their crops did not include
any GE alfalfa.
Alfalfa growers, the Sierra Club, and other farmer and consumer associations filed a
lawsuit, alleging that APHIS’ deregulation of GE alfalfa violated the National Environ-
mental Policy Act. Cultivation of GE alfalfa would result in spread of the glyphosate
tolerance gene to natural alfalfa, they contended, an event that would create a significant
environmental impact.
Charles R. Breyer, a judge in the U.S. District Court for the Northern District of
California, agreed with the plaintiffs. APHIS had effectively concluded, according to the
judge, that any environmental impact would be insignificant, because organic and
conventional farmers bore the responsibility to prevent genetic contamination. Despite
Cont. on page 2


Other eligibility and filing taged category. The employee only needs significant benefit to employers in rural
requirements to reside in a rural renewal county and renewal counties. The credit will definitely
For an employer to claim the credit, an remain living there until having been paid result in tax reduction when it is claimed.
employee must also be certified at or near $6,000 wages (for the full credit to be avail- That is the case because the credit, for tax
the time of hire by the state workforce agency able). Thus, employees at all income levels years beginning after 2006, offsets both regu-
for the employer’s location. If the employee can qualify the employer for the credit. lar tax and the alternative minimum tax.7
is not certified at the time of being hired, an A key point for agricultural employers is —Erin C. Herbold, Staff Attorney, Iowa
employer has only 28 days after the em- that wages that can be taken into account State University Center for Agricultural Law
ployee begins working to submit a certifica- for purposes of the credit must be subject to and Taxation and Roger A. McEowen
tion request to the state workforce agency FUTA tax. That means that wages paid in Professor in Agricultural Law and Director of
via IRS Form 8850. Once the Form is sub- kind (i.e., commodity wages) do not count. the Iowa State University Center for
mitted, the agency will send the employer a Agricultural Law and Taxation, Ames, Iowa
certification letter. In addition to filing Amount of the credit
Form 8850, the employer must file either an For the employer to be entitled to any 1
H.R. 2206, 110th Cong., 1st Sess. 2007.
ETA Form 9062 (Conditional Certification portion of the credit, the employee must Sec. 8211. Sec. 8211 is part of a larger bill
Form) or an ETA Form 9061 (Individual work at least 120 hours over the first 12 known as the U.S. Troop Readiness, Veter-
Characteristics Form) with the employer’s months after being hired. If the employee ans’ Care, Katrina Recovery, and Iraq Ac-
state WOTC coordinator for the state works more than 120 hours, but less than countability Appropriations Act of 2007.
workforce agency.6 400 hours during the first year, the credit is 2
I.R.C. §51.
The employee must not have previously 25 percent of the first $6,000 of wages paid 3
Act, §8211 (b), amending I.R.C. §51(d).
worked for the employer or be the to the employee. For qualified employees 4
employer’s dependent or a related party to who work 400 hours or more, the credit is 40 5
The five states with the most counties
the employer, and must work at least 120 percent of the first $6,000 of wages paid. designated as “rural renewal counties” are:
hours for any portion of the credit to be Texas, North Dakota, Kansas, Nebraska,
claimed. But, the employee need not be a Claiming the credit and Iowa.
low-income person or be in a disadvan- The employer claims the credit on IRS 6
ETA Form 9061 is available from the
Form 5884 and attaches it to the employer’s employer’s local public employment ser-
income tax return. vice office or at
Summary Act. §8214. The credit will, however,
The re-tooled WOTC, effective for per- reduce the employer’s wages paid deduc-
sons hired after May 25, 2007, and before tion that is claimed on Schedule C.
September 1, 2011, has the potential to be a

VOL. 24, NO. 8 WHOLE NO. 285 AUGUST 2007
AALA Editor..........................Linda Grim McCormick Alfalfa/Cont. from p. 1
APHIS’ conclusion, Judge Breyer could find alfalfa seed and hay. Harvested GE alfalfa
2816 C.R. 163, Alvin, TX 77511
Phone: (281) 388-0155
no evidence that the agency had investi- must be stored in designated and clearly
E-mail: gated if farmers could actually protect their labeled containers. And in the most contro-
crops from genetic contamination. versial condition, APHIS must gather in-
Contributing Editors: Roger McEowen, Iowa State
University; Erin C. Herbold, Iowa State University; Thomas On February 13, 2007, the judge held that formation about the locations of GE alfalfa
A. Lawler, Parkersburg, Iowa; Phill Jones, Virginia Tech; APHIS had failed to take a “hard look” at seed production sites and GE alfalfa hay
Robert P. Achenbach, Eugene, OR.
the environmental impacts of its deregula- fields and reveal this information to the
For AALA membership information, contact Robert tion decision, a step required by the Na- public. This would enable producers of con-
Achenbach, Executive Director, AALA, P.O. Box 2025,
Eugene, OR 97405. Phone 541-485-1090. E-mail
tional Environmental Policy Act. He granted ventional or organically-grown alfalfa to plaintiffs’ motion for summary judgment decide if they should test their crops for
on the claim that APHIS must prepare an contamination.
Agricultural Law Update is published by the American
Agricultural Law Association, Publication office: County Environmental Impact Statement (EIS). APHIS has requested that the judge
Line Printing, Inc. 6292 N.E. 14th Street Des Moines, IA On March 2, the plaintiffs filed a request amend the conditions, including the wide-
50313, Des Moines, IA 50313. All rights reserved. First class
postage paid at Des Moines, IA 50313. for a permanent injunction to block APHIS’ spread disclosure of specific locations of GE
deregulation of the GE alfalfa until the alfalfa fields. Previous disclosures of GE
This publication is designed to provide accurate and
authoritative information in regard to the subject matter
agency performed its environmental re- crop locations, the agency noted, triggered
covered. It is sold with the understanding that the publisher view. The judge granted plaintiffs’ request vandalism and intimidation of farmers.
is not engaged in rendering legal, accounting, or other on May 3. First, the judge vacated APHIS’ USDA spokeswoman Rachel Iadicicco
professional service. If legal advice or other expert
assistance is required, the services of a competent June 2005 determination of nonregulated told the Associated Press that the court-
professional should be sought. status for the GE alfalfa. Then, the judge imposed environmental study could take
Views expressed herein are those of the individual instructed the agency to prepare an EIS and up to two years to complete. Monsanto
authors and should not be interpreted as statements of reconsider the deregulation petition. APHIS Company announced that the company is
policy by the American Agricultural Law Association.
must complete its EIS and again decide to reviewing its options, including the possi-
Letters and editorial contributions are welcome and deregulate before farmers can plant bility of an appeal.
should be directed to Linda Grim McCormick, Editor, 2816 Roundup Ready alfalfa.
C.R. 163, Alvin, TX 77511, 281-388-0155.
Meanwhile, farmers had planted 220,000 EPO makes a meal of soy patent, while
Copyright 2007 by American Agricultural Law acres of GE alfalfa before the ban. Judge court issues toxic verdict
Association. No part of this newsletter may be reproduced
or transmitted in any form or by any means, electronic or Breyer decided that the alfalfa may be In another unusual May 3 decision, the
mechanical, including photocopying, recording, or by any grown, harvested, and sold under certain European Patent Office (EPO) revoked
information storage or retrieval system, without permission
in writing from the publisher.
conditions. For instance, farmers must ap- Monsanto’s patent EP301749B1 with claims
ply APHIS-approved procedures to clean for the genetic modification of soybean
farm equipment used in GE alfalfa produc- plants. The EPO took this action 13 years
tion to minimize the risk of the spread of GE after the patent’s grant.
Cont. on page 3

Federal Roundup
Clean Water Act water flow and quality of the nearby creeks. ment plan under AgriPlan through AgriBiz
The defendants were cited for violation of The court also held that the wetlands were which obtained health insurance for the
the Clean Water Act for filling wetlands. waters of the United States under the Jus- taxpayers and children. The husband paid
The defendant argued that the wetlands tice Kennedy standard in that the wetlands the premiums for this policy. The taxpayers
were not under the jurisdiction of the CWA had a significant nexus to the creeks in incurred medical expenses in one tax year
because the wetlands were not “waters of providing ecological improvement func- and the husband included deductions for
the United States” as defined by the CWA. tions for the creeks. The court held that the the insurance premiums and the medical
The case had been remanded to the trial defendant’s wetlands were subject to the expenses on Schedule F as employee ben-
court for a determination using the holding jurisdiction of the CWA as waters of the efit program expenses. The court held that
of Rapanos v. United States, 126 S.Ct. 2208 United States. United States v. Cundiff, the insurance premiums did not qualify for
(2006). The court examined Rapanos for the 2007 U.S. Dist. LEXIS 22832 (W.D. Ky. the deduction because the insurance policy
proper standard to be applied and held that 2007). was not obtained by the husband for the
a wetland would meet the definition of wife as an employee. The court also held
waters of the United States if the wetland Taxation of employee benefits that the medical expenses were also not
met either the plurality decision or the Jus- The taxpayers, husband and wife, owned deductible because the taxpayers failed to
tice Kennedy standard of Rapanos. The court and operated a farm. The wife was also provide credible evidence that the expenses
then proceeded to determine whether the employed off the farm. The taxpayers en- were incurred by the wife and paid by the
defendant’s wetlands met either standard. tered into an employment agreement un- husband as an ordinary and necessary ex-
The court held that the wetlands were wa- der which the wife was to be paid a monthly pense of the farm business. See Harl, “Can
ters of the United States under the plurality salary in compensation for tasks completed Section 105 Plan Costs Be Deducted on
standard in that the wetlands had a con- on the farm. The court found that the wife Schedule F,” 18 Agri. L. Dig. 105 (2007).
tinuous surface connection with nearby did perform those tasks and the monthly Albers v. Comm’r, T.C. Memo. 2007-44.
waters of the United States, noting that the salary, less withholding, was paid. The Cont. on page 7
wetlands had a significant impact on the husband obtained a medical reimburse-

Alfalfa/Cont. from page 2
In July 1988, Agracetus filed the patent creased expression in corn and claims to the idea to modify the coding sequence of
application, which describes particle bom- transgenic corn plants resistant to insects. the Bt toxin gene to increase the G+C con-
bardment methods for genetically altering In December 2004, Judge Sue L. Robinson tent to more than 60% would not have been
soybean plants. The EPO granted the patent of the Delaware District Court held that obvious. In one line of argument, Syngenta
in March 1994 with claims to genetic engi- defendants had not infringed Syngenta’s asserted that the patent application focused
neering methods, and soybeans and seeds ‘185 and ‘100 patents as a matter of law. on GE tobacco plants and that the same
that contain a genetic alteration. Monsanto These patents focus on methods for opti- codon substitution strategy could not rea-
acquired Agracetus in 1996 and became the mizing codons for more efficient expres- sonably be expected to succeed in corn.
owner of the soybean patent. sion of Bt insecticidal proteins in corn. The The court pointed out, however, that the
For years, opponents fought against the judge decided that the codon usage of de- application includes a scorched earth state-
patent, alleging that it gave Monsanto de fendants’ products does not fall within the ment: “there is good reason to believe and
facto control over all GM soybeans. The scope of the ‘185 and ‘100 patent claims. A expect that the increased efficiency of ex-
patent’s adversaries realized one victory in jury then found the ‘865 patent invalid on pression achieved in tobacco through the
2003 when the EPO struck a claim to a the grounds of obviousness and lack of use of the method and coding region of the
method of genetically altering any kind of written description. present invention will be equally appli-
plant with particle bombardment. The Syngenta appealed the jury verdict to the cable in other plant species, as it is in to-
agency decided that the patent lacks suffi- U.S. Court of Appeals for the Federal Cir- bacco.” The Federal Circuit found substan-
cient disclosure for such a broad claim and cuit. On May 3, the Federal Circuit affirmed. tial evidence to support the jury’s verdict
limited claims to soybean plants. The relevant claims of the ‘865 patent on obviousness.
Now, the EPO has revoked the soybean cover transgenic corn plants that produce a —Phill Jones
claims on the basis that the claims lacked Bt protein encoded by a recombinant gene Reprinted with permission from the July
novelty. An EPO spokesman said that the that has a G+C content of at least about 60%. 2007 ISB News Report
decision is final with no further appeals The key prior art reference presented to the Selected sources
available. Since the patent would have ex- jury for an obviousness consideration was a Elias P. 2007. Judge Prohibits Planting of
pired in 2008, elimination of the soybean published patent application of Kenneth A. Genetically Engineered Alfalfa Until Gov-
claims should yield limited practical ef- Barton and Michael J. Miller, a U.S. Patent ernment Can Study It. Associated Press
fects. However, the legal basis for the deci- Application Publication No. 2001/003849. (May 3, 2007). Geertson Seed Farms et al. v.
sion may significantly impact the abgiotech The document teaches that Bt genes have a Mike Johanns and Monsanto Company, Civil
industry. The EPO will publish an explana- high proportion of codons rich in A+T, while Action C 06-01075 (N.D. Cal., May 3, 2007).
tion of its decision by the end of the year. plants generally have codons rich in G+C. Available at the U.S. District Court for the
Battles over Bacillus thuringiensis technol- Barton and Miller describe a method for Northern District of California website
ogy continue. In July 2002, Syngenta filed a enhancing Bt toxin expression in GE plants (
lawsuit claiming that Monsanto and other by selecting codons that reflect the G+C Syngenta Seeds, Inc. v. Monsanto Company
companies infringed at least one of U.S. bias. et al., Docket No. 2006-1203 (May 3, 2007).
Patent Nos. 6,075,185; 6,320,100; and While conceding that the general notion Available at:
6,403,865. These patents include claims to of substituting codons rich in G+C may
synthetic Bt toxin genes designed for in- have been obvious, Syngenta insisted that

USDA administrative appeals – it’s more than going through the motions
By Thomas A. Lawler, Erin C. Herbold, “good faith”6 or pursued mitigation.7 Ap- pendent from all other USDA agencies and
and Roger A. McEowen parently, the plaintiff believed that doing offices at all levels.18 Based on these factors,
so would have amounted to his agreement the court reasoned that the USDA adminis-
A great deal of governmental regulation of (or acquiescence) with the NRCS wetland trative appeal process (at least as applied to
agriculture is conducted via administrative determination.8 The county FSA affirmed wetland determinations) was adversarial
agencies that promulgate regulations and the NRCS’ determination, and the plaintiff in nature, and that the plaintiff had a duty
make decisions. This is particularly true filed an administrative appeal with the to develop the administrative record and
concerning the regulation of agricultural USDA’s National Appeals Division (USDA preserve legal issues for eventual judicial
activities. Usually, a farmer or rancher’s NAD). USDA NAD affirmed the county review.19 The court also noted that it had
contact with an administrative agency is in FSA’s decision, and the plaintiff further previously required issue exhaustion in a
the context of participation in an agency- appealed administratively to the USDA wetland determination case.20
administered program, or being cited for Deputy Director. The Deputy Director like-
failure to comply with either a statutory or wise affirmed. After exhausting all admin- The preserved issue – wetland
administrative rule. Consequently, it is criti- istrative appeals, the plaintiff filed suit in manipulation
cal for agricultural clients to have a general federal district court.9 The plaintiff did preserve the issue of
understanding of how administrative agen- whether the removal of woody vegetation
cies must first be dealt with in accordance Exhaustion of administrative appeals in from a wetland, by itself, constitutes an
with the particular agency’s own proce- wetlands cases illegal manipulation of a wetland. The plain-
dural rules before the matter can be ad- The plaintiff clearly exhausted his ad- tiff claimed that USDA also had to prove
dressed by a court of law. This is known as ministrative remedies before filing suit in that the removal of woody vegetation from
exhausting administrative remedies.1 But, federal district court – there was no admin- a wetland had an actual impact on the wet-
does the exhaustion of administrative rem- istrative body remaining that could hear an land or reduced its water flow. The appli-
edies by completing the administrative ap- appeal. So, the plaintiff was entitled to move cable statute defines a “converted wetland”
peal process also require that legal issues his case to federal court. However, at the as a “wetland that has been drained,
must be raised during the administrative district court, the plaintiff raised several dredged, filled, leveled, or otherwise ma-
process so as to be preserved for judicial issues that had not been raised during the nipulated (including any activity that re-
review? That issue was recently addressed administrative appeal process. The plain- sults in impairing or reducing the flow,
in a case involving converted wetlands. tiff argued that NRCS improperly relied on circulation, or reach of water) for the pur-
data from field visits that occurred at times pose or to have the effect of making the
The facts of Ballanger2 outside of the crop growing season; that production of an agricultural commodity
The plaintiff is an Iowa resident who NRCS did not follow the proper wetland possible…”.21 The governing regulation
owns and operates farmland in Missouri. determination methodology; and that NRCS similarly defines a converted wetland as a
Upon his purchase of the farmland at issue failed to determine whether his conversion “wetland that has been drained, dredged,
in 1996, the seller informed the plaintiff that activities had a minimal effect on wetland filled, leveled, or otherwise manipulated
the farm did not contain any wetlands and functions. The court ruled that it could not (including the removal of woody vegeta-
no wetland delineation had been made. consider these issues because the plaintiff tion or any activity that results in impairing
The plaintiff cleared woody vegetation and had not raised them during the administra- or reducing the flow and circulation of
other plants from approximately five acres tive appeal process—it was insufficient for water) for the purpose or to have the effect
of the property for conversion to crop pro- the plaintiff to merely exhaust administra- of making possible the production of an
duction and then enrolled the property in tive remedies. Instead, the court ruled that agricultural commodity…”.22 The trial court
the farm program. In 2002, the local Farm the plaintiff must also raise and exhaust ruled that the parenthetical language in the
Service Agency (FSA) sought a determina- legal issues in the administrative process statute merely illustrated the type of activ-
tion from the Natural Resources Conserva- (known as “issue exhaustion) in order to ity that could qualify as a wetland manipu-
tion Service (NRCS) that the plaintiff’s farm, preserve them for further review in the lation. The plaintiff, however, argued that
for crop year 2000, was in compliance with judicial process. The plaintiff appealed. the parenthetical language of the regula-
the highly erodible and wetland provisions The United States Court of Appeals for tion impermissibly expanded the scope of
of the 1985 Farm Bill.3 The wetland provi- the Eighth Circuit affirmed.10 The court the statute. The trial court disagreed, as did
sions of that legislation prohibit the conver- noted that the U.S. Supreme Court, in Sims the Eighth Circuit. Under the standard of
sion of “wetlands” to crop production on v. Apfel,11 established the rule that issue deference that is generally granted to agency
land enrolled in the farm program.4 NRCS exhaustion applies in administrative ap- interpretations of statutory language,23 and
made field visits to the plaintiff’s farm in peal proceedings if required by statute or, if agency interpretation of its own regula-
2002 and again in late 2003, ultimately con- no statute applies, if the proceeding is tion,24 the court upheld the agency’s deter-
cluding that the plaintiff had converted 4.5 adversarial in nature.12 In applying the mination that the removal of woody veg-
acres of wetlands.5 Sims13 rule to this case, the court noted that etation from a wetland for the purpose of
The plaintiff appealed the NRCS’ deci- while no statute requires issue exhaustion bringing the land into crop production is an
sion to the county FSA, specifically stating in the context of wetland appeals, the appli- illegal manipulation, and that separate proof
that he had not sought an exception for cable regulations (after the filing of an ap- of an impact on water flow is not required.25
peal) prohibit ex parte communications
between NAD officers or employees and Handling administrative agency appeals
Thomas A. Lawler is Partner, Lawler & interested persons,14 provide for the sub- Clearly, the lesson of Ballanger26 is that
Swanson, P.L.C., Parkersburg, Iowa. poenaing of evidence and witnesses15 and producers must take care to preserve evi-
Erin C. Herbold is Staff Attorney, Iowa State generally describe a process that is similar dence, all disputed factual issues, and raise
University Center for Agricultural Law and to a trial.16 In addition, the regulations state all potential legal issues during the admin-
Taxation, Ames, Iowa. that the party challenging an agency deci- istrative process that could help their case
Roger A. McEowen is Leonard Dolezal Profes- sion bears the burden of proof to establish upon eventual judicial review. While it is
sor in Agricultural Law and Director, Iowa by a preponderance of the evidence that the not the rule that issue exhaustion automati-
State University Center for Agricultural Taxa- agency decision was erroneous.17 The regu- cally applies in administrative appeal pro-
tion and Law, Ames, Iowa. lations also specify that the NAD is inde- ceedings, it is the general rule. As such,

agricultural producers should seriously con- 7
Under the 1996 Farm Bill, a farmed wet- 20
Downer v. United States, 97 F.3d 999 (8th
sider retaining legal counsel at the beginning land located in a cropped field can be drained Cir. 1996) (alternative holding of court was
of the administrative appeal process, and without sacrificing farm program benefit eligi- that plaintiff, at the administrative appeal stage,
practitioners should communicate to clients bility if another wetland is created elsewhere. failed to present evidence concerning the ex-
the need and rationale for representation. See 16 U.S.C. §3822(f)(2). istence or non-existence of natural wetlands
The plaintiff was represented by counsel on his property, and failed to carry the burden
But see, Gold Dollar Warehouse, Inc. v. only during a portion of the administrative of proof). While not referenced by the court,
Glickman, 211 F.3d 93 (4th Cir. 2000) (plaintiff process. issue exhaustion was also required in another
not required to exhaust administrative rem-
While the farmland at issue was in Mis- wetlands case. See Holly Hill Farms Corp. v.
edies before challenging imposition of per- souri, the plaintiff resided in Iowa. Hence, United States, 447 F.3d 258 (4th Cir. 2006)
sonal liability for violation of tobacco market jurisdiction was properly with the federal dis- (government’s failure to make minimal effects
quotas where plaintiff made facial challenge to trict court for the district of the plaintiff’s resi- determination (16 U.S.C. §3822(f)(1)) not plain
regulation). dence – in this instance, the Federal District error; landowners raised minimal effects ex-
Ballanger v. Johanns, No. 06-3889, 2007 Court for the Southern District of Iowa. The emption for first time on appeal).
U.S. App. LEXIS 18245 (8th Cir. Aug. 1, 2007). lead author began representing the plaintiff 21
16 U.S.C. §3801(a)(6)(A).
See 16 U.S.C. §3821. after the administrative appeal process had 22
7 C.F.R. §12.2(a).
“Converted wetland” is defined as “wet- been exhausted. 23
See, e.g., Fults v. Sanders, 442 F.3d 1088
land that has been drained, dredged, filled,
Ballanger v. Johanns, No. 06-3889, 2007 (8th Cir. 2006).
leveled, or otherwise manipulated (including U.S. App. LEXIS 18245 (8th Cir. Aug. 1, 2007). 24
See, e.g., Thomas Jefferson University v.
any activity that results in impairing or reduc-
530 U.S. 103 (2000). Shalala, 512 U.S. 504 (1994). The party
ing the flow, circulation, or reach of water) for
In a non-adversarial agency proceeding, challenging an administrative agency’s regu-
the purpose or to have the effect of making the the administrative agency is responsible for latory interpretation of statutory language must
production of an agricultural commodity pos- identifying issues and developing the record. show that the agency’s interpretation is arbi-
sible…”. 16 U.S.C. §3801(a)(6)(A). In an adversarial proceeding, each party must trary, capricious, and not otherwise in accor-
The 4.5 acres were determined to be develop the factual bases for its claims and dance with the law. See, e.g., Chevron v.
wetlands due to the presence of hydric soil, raise those desired to be preserved for any Natural Resources Defense Council, Inc., 467
hydrophytic vegetation, wetland drainage pat- future appeal. Issue exhaustion was not re- U.S. 837 (1984).
terns and oxidized root channels in the upper quired in Sims (involving a social security 25
The plaintiff cited a proposed regulation
foot of soil – all wetland characteristics. See 16 proceeding) because an administrative law (67 Fed. Reg. 19699, 19701 (2002)) to support
U.S.C. §3801(a)(18). The finding resulted in judge served an investigative role and was his argument that the government had to sepa-
the plaintiff being ineligible for USDA farm required to develop the record. As such, the rately prove that the wetland’s water flow had
program payments as of the 1996 crop year, administrative proceedings were inquisitorial been impaired. But, the court refused to apply
and triggered repayment of all amounts the and not adversarial. the regulation as an expression of the USDA’s
plaintiff had received since that time, plus
530 U.S. 103 (2000). interpretation of the statute because the regu-
7 C.F.R. §11.5. lation had not been finalized, and because the
Under the 1996 Farm Bill, a “good faith”
Id. §11.8(a)(2). regulation would not have, in any event, ap-
exemption is provided to producers who inad-
Id. §11.8(c)(5)(ii). plied to the plaintiff (the plaintiff made no
vertently drain a wetland. Under the rule, if the
Id. §11.8(e). argument that he removed the woody vegeta-
wetland is restored within one year of drain-
Id. §11.2 tion in order to restore the land to a more
age, no penalty applies. See 16 U.S.C.
The U.S. Supreme Court, in Sims, also natural, properly functioning wetland state).
§3822(h)(2). noted that issue exhaustion is not disfavored 26
No. 06-3889, 2007 U.S. App. LEXIS 18245
and that it is required as a general rule. (8th Cir. Aug. 1, 2007).

Liability insurance coverage cases
The following three cases from Kansas, New which were negligently mixed in with the Finally, in Bituminous Casualty Corp. v.
Hampshire and Iowa each address liability cattle feed. The court granted summary Sand Livestock Systems, Inc., 728 N.W.2d 216
insurance coverage. judgment to the insurance company reliev- (Iowa 2007), the plaintiff was employed by
In Judd Ranch, Inc. v. Glaser Trucking Ser- ing it of any liability for damages that could a livestock company and died from carbon
vice, Inc., 2007 U.S. Dist. LEXIS 37628 (D. be awarded to the plaintiff. monoxide poisoning as a result of an im-
Kan. 2007), the plaintiff purchased cattle In Carter v. Concord General Mutual Ins. properly installed propane power washer.
feed which was delivered by one of the Co., 2007 N.H. LEXIS 87 (N.H. 2007), the The defendant livestock company sought
defendants. The plaintiff alleged that the plaintiff was injured during a “hay ride” on indemnity and legal defense from its insur-
defendant had failed to properly clean the a farm when the wagon ran over the ance company. The insurance company re-
trailer before loading the cattle feed and plaintiff’s foot. The plaintiff sued the defen- fused both requests, citing an exclusion in
that some aluminum fragments were mixed dant insurance company after the insur- the commercial insurance policy for bodily
into the cattle feed, causing damage to the ance company denied coverage because the injury caused by pollution. The policy de-
plaintiff’s cattle when it ate the feed. The farm wagon was not a trailer as defined in fined pollutants as “any solid, liquid, gas-
defendant sought to recover any damages the insurance policy. The policy provided a eous or thermal irritant or contaminant,
from its liability insurance company. The definition of trailer as something that could including smoke, vapor, soot, fumes, acids,
insurance company refused to agree to pay be towed behind an automobile or pickup. alkalis, chemicals and waste.” The issue
any damages which might be awarded be- The farm wagon was being pulled by a was submitted to the state supreme court as
cause the insurance policy excluded cover- tractor and the defendant argued that the a certified question from the federal district
age of damages caused by the discharge of tractor-pulled wagon did not meet the policy court. The Iowa Supreme Court held that
pollutants by the defendant trucking com- definition of trailer. The court examined the insurance policy exclusion for injury
pany. The plaintiff and trucking company the photographs of the wagon and noted caused by pollutants applied to carbon
argued that the policy was ambiguous in its that the wagon had no lights, fenders, fender monoxide gas emitted from machinery. See
definition of pollutant and that aluminum guards, or flaps; therefore, the wagon was also Bituminous Casualty Corp. v. Sand Live-
fragments were not a pollutant. The court not suited for towing by an automobile or stock Systems, Inc., 2005 U.S. Dist. LEXIS
found that the pollutant exclusion in the pickup on the highway and was not a trailer 12276 (N.D. Iowa 2005).
policy was clear and unambiguous and was as defined by the policy. —Robert P. Achenbach, Jr. AALA
broad enough to cover aluminum fragments Executive Director

NEBRASKA. Partnership property. The plain- the grain bin components purchased in removed on the disputed strip by the de-
tiff and defendant were brothers who Indiana and the taxpayer argued that the fendants. The fence was in disrepair and
formed a partnership with another brother components were exempt from the use tax, did not follow a straight line but wandered
to operate a farming business. The partners under Minn. Stat. § 297A.01, as products with the topography of the land. The evi-
purchased a farm on auction, paying 10 “used in the processing, drying and/or han- dence also showed that the fence served
percent of the purchase price but the farm dling of a grain commodity.” The state only as a pasture division fence on the
was titled in the name of their mother who argued that grain bins were not exempt original ranch and never served as a bound-
financed the remainder of the purchase and the use of the grain bins in a grain ary line. The trial court entered judgment
price through a loan. The partnership made drying system did not make the bins them- for the defendants because the fence was
improvements on the farm, operated the selves exempt from the use tax. The court insubstantial and was a fence of conve-
farm, paid taxes but no rent for the first noted that the statute also specifically de- nience creating a permissive use of the
eight years. After eight years, the partner- clares that grain bins were not farm ma- disputed strip by the plaintiffs. Addison v.
ship made rent payments which were suf- chinery and held that the grain bins were Handrich, 2007 Wyo. LEXIS 119 (Wyo.
ficient for the mother to make the loan subject to the use tax when purchased by 2007).
payments and taxes. The property was not the taxpayer and that the purpose or use of
listed as partnership property on the local the grain bins as part of a grain drying ARKANSAS. Adverse possession—fence. The
tax rolls. The mother testified that she system was irrelevant to the taxable nature defendant and successors had owned their
considered the farm to be hers. The court of the bins themselves when purchased by land for over 50 years and had fenced their
held that the presumption applied that prop- the taxpayer. Custom Ag Service of land to include the disputed stip of land.
erty purchased with partnership funds was Montevideo, Inc. v. Comm’r, 728 N.W.2d The land was fairly wild and wooded but
partnership property unless the presump- 910 (Minn. 2007). was used by the defendants for livestock
tion was rebutted with significant evidence pasturing, horse riding, hunting, harvest-
of a contrary intention. The court held that MONTANA. Contract barter provision. The ing timber, and permissive use by guests
the evidence of the mother’s ownership plaintiff entered into a contract to purchase and the public. The land was also posted
was not sufficient to show that the parties a horse from the defendant. The oral sales with locally recognized purple paint. The
intended the farm to be solely her property. contract provided for an initial payment of plaintiff purchased the neighboring land
Mogensen v. Mogensen, 729 N.W.2d 44 $1500 and for the plaintiff’s son to provide in 2004 and a survey indicated that the
(Neb. 2007). farm labor for the remaining $1500 pur- disputed strip was within the titled land
chase price. The contract also provided for belonging to the plaintiff. The trial court
INDIANA. State personal property tax. The the horse to remain with the defendant until found that the defendant and successors
taxpayer was a turkey producer/processor all payments were made, with the costs of had obtained title to the disputed land by
which raised turkeys from eggs produced feed and veterinary services to be paid by adverse possession because of the long term
in its own breeder facility. The young poults the plaintiff. The son worked the required and varied uses of the land within the
are raised by independently-owned grow- hours and submitted a bill for the wages but fenced area. The plaintiff pointed to the
ing facilities and eventually shipped to pro- the defendant refused to pay. The son filed poor condition of the fence, the defendant’s
cessing facilities owned by the taxpayer. a wage and hour claim with the state and failure to object to claims of title to the land
The taxpayer claimed that 94 percent of the obtained a judgment for the back wages. when the plaintiff first moved in and to the
turkey products were shipped out-of-state The defendant allowed delivery of the horse defendant’s questioning of title to real es-
and claimed an interstate commerce ex- but refused to execute a bill of sale for the tate brokers. The court held that such ac-
emption from state personal property tax horse because $568 in feed and veterinary tions were relevant to the defendant’s hos-
on 94 percent of its inventory, including expenses were not paid. The plaintiff of- tile intent but insufficient to override the
turkeys at the growing facilities. The state fered $1500 to settle but the defendant re- trial jury’s finding that the defendant’s other
rejected most of the exemption claim, rul- fused. The plaintiff sued for the bill of sale. actions established open and notorious
ing that the turkeys were not part of the The trial court held that the barter provision possession of the land within the fence.
processing operation inventory until they voided the entire contract but the appellate Stewart v. Morgan, 2007 Ark. App. LEXIS
arrived at the processing plant. The court court held that the trial court properly ex- 512 (Ark. Ct. App. 2007).
held that Ind. Code § 6-1.1-3-11 defined cised the void barter provision and enforced
processor inventory as property that “will the remaining provisions of the contract. NEW JERSEY. Searches. The defendant pled
be used” in the processing operation; there- Wolfe v. Newman, 2007 Mont. LEXIS 348 guilty to maintaining a controlled danger-
fore, because the taxpayer remained the (Mont. 2007). ous substance (marijuana) production fa-
owner of the turkeys while the turkeys cility. The defendant moved to suppress
were at the growing facilities and the tur- WYOMING. Adverse possession—fence. The evidence obtained when the police flew
keys were intended for the processing op- two properties had once been part of the over the defendant’s farm corn field and
eration, the turkeys were eligible for the same ranch. The plaintiffs purchased their spotted the marijuana growing in the
interstate commerce exemption from per- parcel from the ranch owner and their par- middle of the field. The court held that the
sonal property tax. Perdue Farms, Inc. v. cel was enclosed by a single fence which defendant did not have any expectation of
Boone Township Assessor, 2007 Ind. Tax they treated as the boundary to their land. privacy for the field from inspection by
LEXIS 46 (Ind. Tax Ct. 2007). The plaintiffs planted the land with blue helicopter. The court held that the first
Robert spruce trees, including the area in dispute observation of the marijuana was inciden-
on the north side of the southern boundary. tal to the locating of the farm by air and that
MINNESOTA. State use tax. The taxpayer The defendants purchased their parcel from the corn field was not part of the residence
was a Minnesota corporation that sold and someone who had purchased the parcel so as to be protected by the expectation of
installed grain drying systems. The tax- from the ranch owner. A survey was per- privacy associated with the residence. State
payer purchased some of the components formed, showing the true boundary line of New Jersey v. Marolda, 2007 N.J. Super
from an Indiana company and used the north of the fence so the defendants had the LEXIS 246 (N.J. Super. 2007).
components in new systems or as addi- fence removed and built a new fence on the —Robert P. Achenbach,Jr., AALA
tional parts of existing systems owned by true boundary. The plaintiffs filed suit to Executive Director
customers. The state assessed a use tax on quiet title and for damages for the trees

Federal Register summary from July 28, 2007 to August 10, 2007
gust 6, 2007, it will begin operating a toll- PACKERS AND STOCKYARDS ACT.
COOPERATIVES. The IRS has adopted free telephone number for use by conven- The GIPSA has issued proposed regula-
as final regulations which provide that all tional and organic alfalfa farmers and pro- tions amending the regulations concerning
Subchapter T cooperatives must make their spective alfalfa farmers to inquire about records to be furnished poultry growers
income tax returns on Form 1120-C,”U.S. the proximity of their farms or field to and sellers. The regulations list the records
Income Tax Return for Cooperative Asso- Roundup Ready alfalfa. This action is be- live poultry dealers (poultry companies)
ciations,” or such other form as may be ing taken in compliance with a judgment must furnish poultry growers, including
designated by the Commissioner. The infor- and order in Geertson Seed Farms, et al. v. requirements for the timing and contents of
mation that Subchapter T cooperatives will Johanns, 2007 U.S. Dist. LEXIS 48383 (N.D. poultry grow-out contracts. The proposed
be required to provide on new Form 1120-C Calif 2007). (See related report in this issue amendments would require poultry com-
will assist taxpayers and the IRS in deter- of the Agricultural Law Update on page 1.) panies to timely deliver a copy of an offered
mining the appropriate filing deadline. These 72 Fed. Reg. 43222 (Aug. 3, 2007). contract to growers; to include information
regulations apply to returns for taxable years about any Performance Improvement Plans
ending on or after December 31, 2007. In LIVESTOCK MANDATORY RE- in contracts; to include provisions for writ-
addition, taxpayers may rely on the regula- PORTING. The AMS has issued proposed ten termination notices in contracts; and
tions in filing returns for taxable years end- regulations reauthorizing and amending notwithstanding a confidentiality provision,
ing on or after December 31, 2006, and be- the Livestock Mandatory Reporting pro- allow growers to discuss the terms of con-
fore December 31, 2007. 72 Fed. Reg. 41441 gram as required by the Livestock Manda- tracts with designated individuals. 72 Fed.
(July 30, 2007). tory Reporting Act of 1999, as extended by Reg. 41952 (Aug. 1, 2007).
legislation in 2006. 72 Fed. Reg. 44671 (Au- —Robert P. Achenbach, Jr., AALA
GENETICALLY MODIFIED ORGAN- gust 8, 2007). Executive Director
ISMS. APHIS has announced that, on Au-

Federal roundup/Cont. from page 3
Oral lease forceable because the attorney failed to affirmed. Farmers Bank of Hamburg v.
The debtor entered into a written six-year obtain permission to charge attorney’s fees, USDA, 2007 U.S. App. LEXIS 17228 (8th Cir.
lease of crop land under which the debtor as required by Section 330, and to disclose 2007); aff’g, 2006 U.S. Dist. LEXIS 266193
was to pay one-third of the crop as rent. The payments on the note, as required by Sec- (E.D. Ark. 2006).
debtor remained on the land after the expi- tion 329. The court ordered the attorney to
ration of the lease and filed for bankruptcy. return all payments made on the note. In re Migrant agricultural labor
The landlord objected to the debtor’s as- Brown, 2007 Bankr. LEXIS 2211 (Bankr. The plaintiffs were workers hired in Texas
sumption of the lease, arguing that the lease N.D. Okla. 2007). to detassel and rogue corn in Indiana. The
had terminated under a written notice given seed corn grower in Indiana hired an inde-
to the debtor. The debtor claimed that the Guaranteed loans pendent contractor to obtain workers for
parties had entered into an oral lease in 2004 The plaintiff bank agreed to loan a tomato the tasks. The contractor told the workers
under which the landlord agreed to extend growers’ cooperative $9 million over three that they would work 72-84 hours per week
the lease for eight years and reduce the rent loans and sought to have the loans guaran- and receive free housing. However, the
to one-fourth of the crop in exchange for the teed by the defendant, Rural Business-Co- plaintiffs worked only 20 hours per weeek
installation of a sprinkler irrigation system operative Service (the agency). The first and the housing was substandard. The
on the property. The irrigation system was two loans were made and guaranteed by plaintiffs sued the contractor and seed
installed and the debtor paid only one-fourth the agency but the loans were in default by comopany for the lost wages and failure to
of the crops as rent after the sprinkler sys- the time the application for guarantee of provide adequate housing. At trial, the seed
tem was installed. The court held that the the third loan was made. The defendant’s company was granted summary judgment
debtor’s and landlord’s partial performance loan officer was found to have misrepre- because the trail court ruled that the seed
under the alleged oral lease did not remove sented the financial condition of the coop- company was not the employer of the plain-
the lease from application of the statute of erative in applying for the third loan guar- tiffs. The court held that the seed company
frauds because no misconduct or fraud was antee and did not disclose that some of the could not be held liable under the Migrant
alleged on the part of the landlord; there- third loan proceeds were used to cure the and Seasonal Agricultural Workers Protec-
fore, the court denied assumption of the defaults on the first two loans. All three tion Act, 29 U.S.C. sections 1801-72, as an
lease by the debtor. In re Johnson, 2007 loans defaulted and the bank sought pay- employer for promises made by the inde-
Bankr. LEXIS 2549 (Bankr. D. Kan. 2007). ment under the guarantees by the agency. pendent contractor in Texas beyond what
The agency argued that the plaintiff bank the contractor was authorized by the seed
Chapter 12 bankruptcy attorney fees had violated the terms of the guarantee by company. However, after the plaintiffs ar-
The attorney for Chapter 12 debtors was failing to monitor the financial affairs of rived in Indiana and began working, the
approved by the court, but the case was the cooperative, specifically in failing to seed company became their employer and
dismissed before a plan was confirmed. The obtain a required financial audit before was liable for violations of MSAWPA
court retained jurisdiction over the case to making the third loan. In addition, the proven by the plaintiffs. The court noted
conclude administration of the estates. The agency argued that the plaintiff bank had that the seed company provided all the
attorney did not seek court approval for made loans to an ineligible borrower and tools, transportation and housing and the
attorney’s fees incurred during the Chapter allowed the borrower to use borrowed contractor did not have any other clients or
12 case. Instead, the attorney approached funds to pay off prior debts. The district business assets. Reyes v. Remington Hy-
the debtors privately and obtained a prom- court held that the agency properly denied brid Seed Co., 2007 U.S. App. LEXIS 17231
issory note for the bankruptcy and non- the claim for payment on the guarantee (7th Cir. 2007).
bankruptcy legal fees. The debtors made because of the bank’s violation of the regu- —Robert P. Achenbach,Jr., AALA
several payments on the note. The court lations, guarantee agreements, and gen- Executie Director
held that the promissory note was unen- eral fiduciary duties. The appellate court

AALA Membership Survey
In an effort to improve membership benefits, the AALA membership committee has created an online survey that gives members a
chance to let us know about how members feel about their membership in the AALA. You can access the survey from the AALA web
site home page (the first page after the “enter” page). You will need to log on in order to take the survey but responses will be
anonymous. Please take the survey before September 15, 2007 to give the membership committee time to digest the results and report
findings and recommendations to the AALA board at the October conference board meeting.

New AALA Fax Number
I’ve been having trouble with receiving faxes on a consistent basis and decided to change to a dedicated fax number. The new
AALA fax number is 541-302-8169. The new number will also be displayed on the AALA web site and all AALA correspondence.

2007 Annual Conference
It’s less than two months before the 2007 Annual Agricultural Law Symposium at the Westin San Diego Hotel (formerly a Wyndham
hotel) in sunny downtown San Diego, CA, October 19-20, 2007. Mark your calendars and plan a trip to enjoy the sights (Gaslight
District), sounds (sea gulls and trolley bells), animals (San Diego Zoo and Seaworld) and sunshine. The program has been posted on
the AALA web site with a registration form. If you would like extra copies of the conference brochures to distribute in your area,
please let me know by e-mail. Special note: The room block expires on September 17, 2007, and the rooms will be then be available
only at the regular retail rate.
A substantial block of rooms has been reserved at the conference rate for Thursday and Friday evenings. However, there is a
smaller number of rooms available at the conference rate on Wednesday and Saturday night. So, if you plan to come a day early or
stay a day late, you may not be able to get the conference rate for all days. However, if you are prevented from getting the conference
rate on Wednesday or Saturday, please let me know and I will try to get an increase in the room blocks for these days. If you seek a
reservation that includes these early/late days, the hotel reservation service may tell you that the conference rate is not available
because the block is full for one or more of these early/late days. If this happens to you, please contact Ann Gonzalez, reservations
manager at the Westin San Diego, at 619-338-3675 and she will help you get your rooms at the conference rate, if at all possible. In any
case, the conference rate should still be available for the conference nights (i.e. Thursday and Friday). Room blocks are limited
because the association is severely penalized financially if the room blocks are not filled.
Robert P. Achenbach, Jr,
AALA Executive Director