Agriculture: The Sixth Circuit Allows Punitive Damages for Negligent Manufacture of Alpaca Seed

By: Meghan Jackson Tyson, Staff Member

The United States Court of Appeals for the Sixth Circuit recently decided a case regarding the allowance of punitive damages in products liability suits. Magical Farms, Inc. v. Land O'Lakes, Inc., No. 07-3568, 2009 WL 4641742 (6th Cir. Dec. 8, 2009). Magical Farms, an alpaca farm, filed suit against Land O'Lakes Farmland Feed alleging that Land O'Lakes' alpaca feed was contaminated with a toxic ingredient (salinomycin) that caused the deaths of 73 alpacas. Id. at *1. Although Magical Farms was successful on its negligence claim, the district court denied Magical Farms' request for punitive damages. Id. Specifically, the district court noted that the Ohio Legislature requires a showing of "flagrant disregard of the safety of persons who might be harmed by the product in question" for an award of punitive damages. Id. at *2-*3. The district court determined that Magical Farms did not meet this burden because "the harm caused injury to alpacas, not to humans." Id. at *2. The court of appeals refused to apply so strict a standard, stating that the Ohio Supreme Court has allowed punitive damages "where the plaintiff alleged only that the defendant consciously disregarded its rights, and specifically its property rights, rather than the safety of a person." Id. at *4. The decision of the court of appeals is significant in that it affords protection to the property interests of persons in their animals. It is interesting to note that although the appellate court was applying Ohio law, this decision could have a significant impact in Kentucky as the Kentucky Legislature has established a standard regarding the allowance of punitive damages similar to that of the Ohio Legislature. See Ky. Rev. Stat. Ann. § 411.184 (1988) (using language including "human death and bodily injury"). It is also interesting to consider whether the court would have reached the same result had the alpacas been pets as opposed to essential elements of a business enterprise.

Gregory A. Napier, “Got Gas? A Comment on Shell Petroleum, Inc. v. United States.” JNREL Vol. 19, No.2

Comment By: Gregory A. Napier, Former Staff Member; Comment originally appeared in JNREL Vol. 19, No. 2.

Abstract by: Stephanie Wurdock, Staff Member

In 2004 the United States of America faced skyrocketing prices at the gasoline pumps for the second time in decades. The country first dealt with such monolithic price hikes during the 1973 oil embargo which placed stringent restrictions on gasoline distribution and usage. President Carter's administration began to phase such controls out in 1979 which led to Congress's enactment of the "Crude Oil Windfall Profit Tax Act of 1980" (COWPTA or Act). One of the Act's main tools was a tax credit for the use of shale and tar sand oils as alternatives sources of energy. However, the definition of those substances eluded documentation and resulted in a trilogy of cases involving Shell Petroleum, Inc. ("Shell") and the United States. The most recent of which being Shell Petroleum, Inc. v. United States, 319 F.3d 1334 (Fed. Cir. 2003).

When Shell was denied tax credit for oil it produced in California during 1983 and 1984, it filed suit against the United States and was defeated both in trial and on appeal. Strike one. The company made a second attempt in 1989 and was again denied the credit. In its opinion, the Shell II court mandated that in order to qualify for the credit, a company must physically inject new technology into the oil well or otherwise use that technology to remove the highly viscous hydrocarbons from the well. Strike two. Unfazed by the court's ruling, Shell moved forward with its third suit, unsuccessfully arguing that the court's previous definitions of shale oil and tar sand oil were erroneous. Strike three. And Shell is out.

So who is right? The main question of these ground-breaking cases is whether or not Congress intended to exclude from tax credit eligibility technologies that already existed in 1980 at the time of the Act. The courts in the Shell series relied upon public policy and congressional intent to support their rulings that it did. However, a closer look at those same sources reveals that Congress may have intended to do no such thing. In fact, the Shell definitions not only seem to sacrifice any semblance of a scientific basis, but also undermine the overarching intent of Congress in creating tax incentives – to encourage domestic oil.

The impact of the Shell decisions is not a gentle one. It has numerous negative implications for the industry and the state of Alaska – the new target for large-scale drilling. The credit also creates opportunities for abuse in both direct and indirect ways. Finally, in setting such a high standard to receive the tax credit, these decisions fail to encourage or achieve domestic tar sand oil productions.

Perhaps, though the court set a couple things right by getting a lot of things wrong. Realizing that the tax credit offered potential for abuse and little else, the court preened its applicability to avoid its ineffectiveness thereby preventing such abuses.

Unknown Economic Effects of Greenhouse Gas Regulation on Agriculture May be Forestalled

By: Anthony Cash, Staff Member

The Southwest Farm Press recently reported that the American Farm Bureau Federation ("AFBF") voted at their annual meeting to oppose "cap and trade legislation," such as the American Clean Energy and Security Act ("ACES") that was passed by the House of Representatives on June 26, 2009, and any attempt by the EPA to regulate green house gases under the Clean Air Act. Top Concerns of AFBF Delegates, Southwest Farm Press, Jan. 15, 2010, http://southwestfarmpress.com/news/afbf-concerns-0115/ (last visited Jan. 21, 2010). However, commentators have pointed out that the economic impact of ACES or any greenhouse gas regulation on farmers is widely contested, with the AFBF estimating income losses to farmers at $5 Billion by 2020 and Iowa State's Center for Agricultural and Rural Development arguing that there will be very little impact to farmers. USDA Climate Bill Analysis: Ag Gains, Southwest Farm Press, Jan. 15, 2010, http://southwestfarmpress.com/legislative/laws-column-0118/ (last visited Jan. 21 2010).

With such widely varying economic analysis, it is difficult for lay persons to understand exactly what impact such legislation would have on agriculture, generally, and in the state of Kentucky, specifically. Clearly, more public debate is needed on the issue to fully vet the claims proffered by various groups. However, such a debate cannot fully occur if the Environmental Protection Agency succeeds in its attempts to regulate greenhouse gas emissions through the powers granted to it under the Clean Air Act. This action by the EPA follows from the Supreme Court case of Massachusetts v. EPA, in which Justice Stevens wrote for a five member majority. Justice Stevens wrote, "In short, EPA has offered no reasoned explanation for its refusal to decide whether greenhouse gases cause or contribute to climate change." Massachusetts v. Envtl. Prot. Agency, 549 U.S. 497, 534 (2007).

As James Madison, speaking of the importance of the Senate in Federalist No. 63, articulated "[T]here are particular moments in public affairs . . . when the people may call for measures which they themselves will afterwards be most ready to lament and condemn. In these critical moments, how salutary will be the interference of some temperate and respectable body of citizens[.]" The Federalist No. 63 (James Madison). Thus, the recent renewal of attempts by Senator Lisa Murkowski of Alaska to pass legislation that would foreclose the EPA's ability to regulate greenhouse gases, regardless of the motivations behind the legislation or the wisdom of a policy regulating greenhouse gas emissions, may enable a more meaningful public discourse on the possible economic effects of such legislation on agriculture in the United States and fulfill an important function of the United States' bicameral system of legislature.

Crossroads: The Collision of Bankruptcy's Automatic Stay and Environmental Law’s Injunctive Relief

By: Adam M. Back , Former Staff Member; Note Published in JNREL Vol. 20, No.1

Abstract by: Addison Schreck, Staff Member

The goals and policies of environmental law and bankruptcy law are not concepts generally thought to be of much consequence to one another. However, when a polluting company approaches insolvency, the interaction between the two becomes significantly more apparent. The Bankruptcy Code's automatic stay, as well as its creditor priority provisions, 11 U.S.C. § 362 and 11 U.S.C. § 726 respectively, bring the conflict between the two fields into the limelight.

The automatic stay provisions act to suspend any government enforcement proceedings including environmental ones. This accompanied by the government's status as a low priority creditor under § 726 make the situation a unique one. In general, the policy behind the government's low priority is sound. It is the government's inherent duty to foster economic well-being. Therefore, it makes sense that they would allow their own coffers to go wanting so that private creditors can be paid. However, the public policy argument which is generally applicable is not as appropriate in this case.

Environmental incidents are by their nature worsened by the passage of time. Therefore, the impediments created by the provisions of the Bankruptcy Code oftentimes force governmental agencies to pursue injunctive actions to remedy the situation. Such actions can force the insolvent party even further into debt and also result in sub-sufficient cleanup efforts due to the entity's already depleted resources and lack of expertise. While an environmental exception has been proposed to the automatic stay provisions of the Bankruptcy Act, perhaps the most promising solution proposed is heightening the government's priority during the distribution of a bankrupt entity's assets.

Given the current volatile state of the economy, bankruptcy law promises to be an area that will see developments over the coming years. Whether and to what extent these changes will give deference to environmental concerns is as yet unknown, but it is clear that the current state of affairs does not appropriately address the competing interests at hand.

Conservation Easements: Striking a Balance between Public and Private Wishes

By: Jessica Drake, Staff Member

In 2010, the Bluegrass Conservancy reached its goal of protecting 10,000 acres of farmlands in the Bluegrass Region. Andy Mead, Saving the Bluegrass Farm by Farm, Lexington Herald Leader, Jan. 9, 2010, available at http://www.kentucky.com/home_garden/story/1088648.html (last visited Jan. 20, 2010). The conservancy, like many in the United States, is a private, non-profit organization that encourages the protection of farms like those in Kentucky through innovative, legal means such as conservation easements. Bluegrass Conservancy, http://www.bluegrassconservancy.org/index.html (last visited Jan. 20, 2010). These easements require the voluntary relinquishment of "sticks" of private landowners' "bundle of rights" that accompanies landownership. These "sticks" inevitably restrict the ability for land to be developed and require the preservation of the property in its current state and for its current uses. In Kentucky, specifically, many horse and agricultural farm owners find the prospect increasingly appealing in order to protect their land from being sold to build strip malls and subdivisions, with the added benefit of tax breaks. Id. While the documents establishing these easement protections are usually flexible and tailored to the land at issue, they are, by definition, perpetual in duration and not generally susceptible to alteration or termination. Kentucky Revised Statutes § 382.810-382.860 (2010).

As lawyers and critical thinkers, we must always question our policies and decisions. Are conservation easements the way to go?

Conservation Easements are not created without opportunity costs. These lands will be labored with dead hand control – limiting the ability of future generations to change/sell the land according to their own needs and desires. Is it possible for conservation easements written today to allow enough room for future developments and changed circumstances? Many are concerned with the possibility that the present uses may become obsolete or even detrimental to the collective generations of the future, but find refuge in the ability of the law to cope. Nancy A. McLaughlin, Conservation Easements – A Troubled Adolescence, 26 J. Land Resources & Envtl. L. 47 (2005); Barton H. Thompson, Jr., The Trouble with Time: Influencing the Conservation Choices of Future Generations, 44 Nat. Resources J. 601 (2004). The Trouble with Time, in fact,
asserts that while these are valid concerns, the law has built in mechanisms to deal with unanticipated changed circumstances, and the benefits of perpetual conservation, such as lower transactional costs and hard barriers for future development, far outweigh the problems. Id. at 608-613. Kentucky courts also have this same ability to terminate or modify a conservation easement in certain situations. Kentucky Revised Statutes § 382.810-382.860 (2010). Still, is this enough of a safety valve?

On the other hand, some landowners feel that placing negative covenants upon their property is not enough. While it currently appears that these negative covenants will be enforceable in state courts by the private or public entities that "own" the "development stick," many feel that things could change. National Public Radio recently reported about one Michigan woman who desired to never to leave her "easement protected" land. David Baron, Landowner Calls on Death to Save Her Farm (NPR broadcast Dec. 30, 2009), available at http://www.npr.org/templates/story/story.php?storyId=121752798. In order to carry out this wish, she intended to require, at her death, to be buried on her precious property according to the ideas of the "green burial movement". Green Burials, http://www.greenburials.org/ (last visited January 23, 2010) (this movement is one that encourages people to be buried in either bio-degradable casket, shroud, or favorite blanket to ensure the most natural burial possible). She discussed her desire to assure the preservation of her land as well as giving back to it even after her death. Id. In fact, she has invited others to join her in this mission – an invitation that several of her friends have accepted. Id. The idea of her burial will just make it that much harder for someone to build something like "a bookstore" on her property. Id.

Ultimately, the law rarely makes everyone happy, as lines must be drawn at some point. However, conservation easements have, over time, become not only an innovative way but also a reliable way to strike the balance between public interests and private landownership. The world only has so much land and if it continues to be developed each time huge sums of money are at stake, our environment will be increasingly harmed. Regions like the Bluegrass may look to the option of conservative easements to ensure the continuation of not only their environment but also historic industries like raising horses. While some, like Joan Graham, would argue that these easements are not enough – that the land must become something more sacred than legally prohibited – it must be recognized that the future is unpredictable. The law then must allow for unknown possibilities that could change the current outlook of such land. In any event, our future generations, while maybe having to change the legal restrictions upon the land, will at least have it to fight over.

Drinkable Water is a Pollutant?: Northern Plains Resource Council v. Fidelity Exploration

By: Laura L. Mays, Former Staff Member; This Comment was originally published in JNREL Vol. 20 No. 1.

Abstract by: Andrew Leung, Staff Member

In deciding Northern Plains Resource Council v. Fidelity Exploration, 325 F.3d 1155 (9th Cir. 2003), the Ninth Circuit held that naturally occurring groundwater in an unaltered state is a pollutant under the Clean Water Act (CWA) and should be treated accordingly. "Drinkable Water is a Pollutant?: Northern Plains Resource Council v. Fidelity Exploration" examines the court's analysis and explains the probably harmful effects that this holding will have on the coal industry in the Commonwealth of Kentucky and the country at large.

The "pollutant" in question is groundwater removed from natural aquifers through the harvesting of Coal-Bed Methane (CBM). CBM is a naturally occurring deposit of methane that exists in situations where coal is saturated with groundwater, thus trapping methane inside the coal. When CBM deposits are tapped, the miners must also remove the groundwater deposits in order to achieve the ideal pressurization at the mining site.

In Fidelity Exploration, Fidelity Exploration and Development Company extracted CBM from the Powder River Basin in Montana for commercial sale. The groundwater that was brought to the surface was transported to and deposited in the nearby Tongue River. It should be noted that the dissolved solids level in the groundwater was nearly triple that of the river. When this fact was publicized, The Northern Plain Resource Council (NPRC) filed citizen suit in the District Court for the District of Montana. The district court granted summary judgment for Fidelity, but NPRC timely appealed to the Ninth Circuit.

The Clean Water Act proscribes that transport and discharge of a pollutant from a "point source" into "navigable waters" is unlawful. In the case at hand, the "point source" is the underground aquifer from which the CBM was harvested, and the "navigable wate[r]" is the Tongue River. Although defendant Fidelity noted that the water was disposed of in its natural state, the Ninth Circuit found that CBM water was "industrial water" because it was produced as a byproduct of an industrial activity. Ironically, the court conceded that the same water was generally potable, and could be used for agricultural means.

This holding effectively dissuades coal companies from exploiting the CBM deposits that often accompany the coal deposits that they already mine. By imposing this obstacle, coal companies are not likely to change their practice of allowing CBM to escape into the atmosphere, where it contributes to global warming. Fidelity Exploration serves as one of those rare instances where a strict protectionist approach to the environment via literal interpretation of statutes may actually serve to cause greater harm than good.

Study to be Conducted on the Impact of Horses on the Environment

By: Katherine Huddleston, Staff Member

The United States Department of Agriculture ("USDA") has begun a five-year educational project entitled, "Environmental Impact of Equine Operations." Natalie Voss, Environmental Impact Study to Include UK Faculty Member, THEHORSE.COM, Jan. 13, 2010, http://www.thehorse.com/ViewArticle.aspx?ID=15628. While the equine industry has a long and rich history, very little is known about the potential its environmental impact. Id. This project was initiated by Michael Westendorf, PhD, of Rutgers University and proposes to combine the efforts of "Cooperative Extension agents and university faculty" from 12 states. Currently the states being studied include: Connecticut, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Alabama, New Jersey, North Carolina, Pennsylvania, South Dakota, and Vermont. Id. Kentucky joined this list just last week when the Department of Agricultural Economics at the University of Kentucky announced that assistant director, Jill Stowe, PhD, would take part in the project. Id.

Participants will soon begin research; the results of which they hope to circulate widely at the close of the five-year term. Id. Potential research topics include "the effects of manure and fertilizer runoff on soil and groundwater," which has been shown to affect water environments, as well as how horses' diets and medications can affect "life in the soil and water." Id. With the "Go Green" movement taking hold across the country, these researchers are hoping to find the best balance between "the safety of the horse and … the well-being of the environment," says Stowe. Id.

The results of the studies will likely affect the industry both here in Kentucky and nationwide. While the overall impact of the equine industry on the environment is likely very slight in comparison to the cattle and other large livestock industries, the project will hopefully find concrete and manageable ways in which the industry can join in the fight for a more environmentally friendly society. Id.

CRUDE EVALUATIONS: DO COURTS PROPERLY CONSIDER THE COSTS OF FOREIGN ENERGY RELIANCE?

By: LeeAnne Edmonds Applegate, Former Staff Member. This Comment was originally published in JNREL Vol. 20 No. 1.

Abstract by: Ramsey Groves, Staff Member

Montana Wilderness Ass'n. v. Fry, 310 F. Supp. 2d 1127 (D. Mont. 2004) was decided by the United States District Court for the District of Montana. In this crucial case, the court enjoined the continued use of a natural gas pipeline based on violations of the National Environmental Policy Act of 1969 (NEPA). In issuing the injunction, the court weighed the public interest in protecting the environment against the potential economic harm to the energy company. However, the court failed to consider the economic harm to the public. Arguably, the court erred because the policies and goals of NEPA indicate the relevance of economic harm to the public. On multiple occasions, the courts of the Ninth Circuit have exhibited faulty analysis of energy issues by refusing to consider the economic harm to the public despite the requirements of the NEPA.

The NEPA states that its goals include "identify[ing] and developing methods and procedures . . . which will insure that presently unquantified environmental amenities and values may be given appropriate consideration in decision-making along with economic and technical considerations." Thus, the NEPA states in no uncertain terms that economic impact should be considered. However, in Montana Wilderness Ass'n v. Fry, the Ninth Circuit recognized that the remedy for a NEPA violation is ordinarily an injunction, and the court stated that the factors to be considered include harm to the public and harm to the parties. The court further stated, "A third party's financial damages from an injunction generally do not outweigh potential harm to the environment." Based on this statement, the Ninth Circuit clearly places more weight on the environmental impact factor.

When balancing factors that include harm to the public, it is reasonable to expect a court to give appropriate consideration to economic harm to the public. This is certainly true when one considers the rising price of oil. This is of great importance because of the widespread use of petroleum products in our culture and the profound effect of these products on our national economy. Rising oil prices not only increase transportation and heating costs, but they also impact the costs of household items made from petroleum derivatives, such as diapers, deodorant, aspirin, dentures, golf balls, and compact discs.

Fortunately, not all circuits have the same view as the Ninth Circuit. The D.C. Circuit recognizes the value in reducing U.S. dependency on foreign oil. As such, the D.C. Circuit takes a more expansive approach by considering all of the factors articulated by Congress, including the economic harm to the public.

The Ninth Circuit clearly fails to comply with the NEPA policy of weighing economic harms. This circuit is the largest in the country geographically and includes within its jurisdiction the oil-producing states of California and Alaska. The Ninth Circuit's view is particularly troubling because, by failing to consider the impact of increased energy costs on the public, there is certainly a potential for great damage to the economy. Absent a Supreme Court decision mandating that the standards of NEPA are to be considered in their entirety, the Ninth Circuit is likely to maintain its problematic position.

Horse sales tax exemption: Good for the industry, bad for the state?

By: Adrianne Crow, Staff Member

According to a recent article in the Lexington Herald-Leader, some Kentucky citizens have begun to question tax exemptions provided to horse sales and the impact of this exemption on the state's economy. Janet Patton, Horseman say exemption crucial for Ky., Lexington Herald-Leader, Jan. 17, 2010, available athttp://www.kentucky.com/horse_racing/story/1099255.html (last visited Jan. 20, 2010). Kentucky Revised Statute § 139.531 provides exemptions for sales tax and use tax for the sale or use of horses made for breeding purposes only as well as for the sale of horses less than two years of age bought by out-of-state residents who take the horses out of Kentucky. Ky. Rev. Stat. Ann. § 139.531(2) (2009).

Based on estimates supplied by the state, this practice has cost the Kentucky almost $220 million in lost revenue from 2004 to 2010. See Patton. For example, SheikhMohammed bin RashidalMaktoum of Dubai, Kentucky's top buyer of thoroughbreds, has purchased more than $60 million in broodmares at Keeneland's fall sales since 2002. Id. Had these purchases been taxed at Kentucky's rate of six percent, they would have generated more than $3.6 million by themselves. Id. During this time of budget short-falls and overall cut-backs in our state, some suggest that it is time to reevaluate Kentucky's tax code.

However, others worry that that taxing more sales would cost Kentucky a competitive edge in the horse industry, which is already hurting. Those in the horse industry are afraid that if Kentucky imposes a sales tax, buyers will simply go to other states that offer exemptions, including Maryland, New York, California, Florida, Pennsylvania and Texas. Id. Additionally, those who support keeping the tax exemptions point out that the horse industry is taxed in ways that other agriculture sectors are not. Jay Blanton, spokesman for Keeneland, explained "that sales of many horses, including those of racehorses, are taxed, and that horse farms pay sales taxes that other agricultural enterprises don't. Feed and hay for cattle, for instance, are exempt while the same products for horses are taxed." Id.

During these continued tough economic times for people in Kentucky and across the country, these issues regarding tax reform are surely to be debated by our legislators in the near future.