Dillon Law PC

No Matter where it comes from  its Still covered

Agricultural  law  covers a lot of territory. Here, the farm law includes elements from  the world of patent law and contracts. A farmer bought soybeans with Round Up technology in seed traits and signed the tech agreement that comes along with the purchase. The agreement required single use and no seed saving. The farmer sold the beans to the local elevator and then proceeded to purchase soybeans from that elevator and replanted them for a second crop soybean planting. Monsanto was not happy and sued. The farmer's legal theory as that he had complied with the seed tech agreement the first time when he sold and it was just his good fortune that the seed's purchase from the Coop included round up ready beans. The court disagreed with the farmer to the tune of $84,456.00.   

I would hope that this farmer didn't run this theory by an Iowa Agriculture Lawyer.  It doesn't pass the "smell test," that is to say, if is smells funny it probably won't be funny to a court. The farm operator was trying to "end run" the seed company's investment in the technology. It is interesting to note that the seed saving was done in 1999, the ruling was issued in 2011. That's a lot of resources and farmer/lawyer time that could have been spent elsewhere, with likely better results.

Farm Divorce

After 18 years, the husband who worked in manufacturing and also cash rented 130 acres to this father (that he owned prior to marriage) was divorced from his wife. The trial court considered the value of the gifts the husband had received from his family  and split their value between the parties. The court was able to do this because the husband wasn't able to prove the gift was just to him , not to  the married couple.  Further, the court went on to determine that the rent, which was low, would be considered an asset available to allocate child support. A pre nuptial agreement, drafted by an Iowa ag lawyer would have served the husband well.

Federal Regulators tell Iowa Regulators how to regulate Iowa Waters

The EPA approved the Iowa DNR's designation of various waterways for recreational and aquatic life uses in over 400 waterways and denied the state's designation in 89 others. This press release bothers me. Two levels of government validating each other's regulation decisions seems like self perpetuating government and I don't see the benefits of having a federal agency available to validate the State's actions. If the state doesn't get it right, the citizens should be able to enforce the law directly against the state, not rely on a federal regulatory agency to approve what the State decides to do with its waters.

Outlook

I listened to a presentation by a pair of economists yesterday. One is a Keynesian and an Austrian Economist. One indicated 2012 is going to be a year of growth and the other indicated dark times ahead. Both make compelling presentations based on statistics and assumptions. I learned long ago the three types of lies in this world are lies, damn lies and statistics. Couple that with the old joke where the shipwrecked economist finds a can of food and says to his friend, "We are saved, we just need to assume we have a can opener" and I was left in exactly the same position as I was before I listened to the both of them. It is hard to make decisions on what world does or may do, I think I will instead make decisions after gathering data and then put a plan in action.

HSUS( Human Society of the United States) has removed United Egg Producers  (representing 87% of egg producers) from the field of battle. United Egg and HSUS have jointly asked the federal government to impose national animal welfare standards for egg production.  Skipping over the state's rights and the concept of a limited federal government,  this national mandate would set the slippery slope for national level regulation of all animal production. Slippery slope is lawyer speak for once it is allowed in one context, it will be the jumping off point for further efforts to erode the previous way things were handled. When I read this, I couldn't help but think of the Wylde Nept song "The Gallows Wait" . The song's title and the lyric "my life was purchased with his lies" fit right in with the HSUS, PETA and other anti production groups methodologies. They lie and mislead the public while using government at all levels to build a structure  that will kill off the animal production industry.

HSUS wants regulations so that they can slowly tighten them to achieve their stated goal of the end of animal production. Iowa Farmers and their lawyers need to be aware, as this slow, insidious campaign will impact them and if left unchecked expose the operators to increased fines and fees, driving small operations bankrupt and slicing margins further for those that can handle the additional regulatory burden. From ballot initiatives in Arizona to local ordnances in Chicago, it is clear that these efforts are not the random acts of fringe operators, but rather a coordinated effort towards a specific goal.

Fighting back against this latest  attack  via  letter to the House Ag Committee include  the American Sheep Industry, the American Farm Bureau , the National Cattlemen’s Beef Association, the National Milk Producers Federation, the National Pork Producers Council  and the National Turkey Federation.  They assert, correctly, that creating national standards is not the appropriate method of regulating agriculture. Local producer groups should be just as concerned . Iowa is a top egg producer and the new standards would hit this state right away.

In a related front, PETA continues its efforts to guide the public’s perception against farmers. In Illinois, they have requested permission to place road side memorials on the highways where cattle haulers had wrecks that resulted in the death of cattle.  Not surprisingly, the markers that they want to erect would be placed in suburban Chicago and northwest of Peoria. Apparently where they die is just as important as dying.

The intent is clear, continue to provide increased costs of production and turn the public against the industry. Food should be a personal experience and modern ag producers need to remember that our end customer is not the cooperative or the dairy, but the end consumer. Keeping them connected to the farm and educated are key battle fronts in the never ending  guerrilla war wages against production ag by anti ag groups. If you don’t pay attention to the ground work being laid by opposing forces ,pretty soon all that  is left to do is put your head in the noose of the custom built gallows. At t hat point, it doesn't' t matter who you have representing you, a farming lawyer  or or some hack off the street.

Time to Grow Up

I would like you to consider buying my manufacturing business with the following facts. It grosses $350,000-$500,000, the price for its product varies upto 50% in a year’s time, your suppliers will not likely sign a long term contract to lock in  your critical raw materials, the industry faces increasing regulation and hefty fines and you will have to serve as the human resources manager, environmental compliance officer, accounting and  legal department, marketing department, facilities manager, and purchasing department and primary equipment operator on the manufacturing floor. Weather and politics halfway around the world will determine the market price of your product on any given day. Oh, and the previous owner is allowed to drop by, be critical your operation methods, choices and marketing and scoff at you if you try anything new. Finally, you will pay full price for every piece of equipment the company has purchased regardless of state of repair or usefulness.

Not interested? Can’t find a bank to lend you the money?  If I tell you it was  farm operation,  suddenly all those factors  don’t seem to matter, but they should. The farm operator of today needs to grow up and face the cold hard truth that the rest of the world considers them a business and act the same.  Farm operators too often rely upon a handshake and a gut feeling that all will go well when interacting with its suppliers. Consider the last building erected on your property.  Did you ask for a performance bond from the contractor, ask for lien waivers before making final payment, or even reduce the agreement to a contract that you understood?  How about your employees,  do you withhold taxes like the government says you should, do you provide training and safety equipment for t hem? When the building starts to lean to the left and the employee loses an eye on the job, it is too late to apply a fix. 

Many farm operators express their disgust for marketing and frustration with the inability to capture a profit for their operations.  The solution is to get smart on the topic and make enough time in your schedule to devote the proper amount of attention to it Or , hire it done. That’s what other businesses do, they focus on what they do well and outsource the rest. Yes,  a charge goes with that outsourcing and if you hire it all away, why are you in the business anyway.

The same principle holds true for legal issues.  Having an Iowa Agricultural Law Attorney  who is aware of the legal pitfalls of contracting, federal and state regulations and debt collection   can make  you money.  On the other hand, attempting to  collect from a farmer who has filed bankruptcy on your own can cost you fines to the federal government for violation of federal bankruptcy law.

When was the last time you evaluated your farm business and determined what departments you are not paying attention to and what can you do about it. This may be the difference between  the operation passing to the next generation and  your farm ground being the nothing more than a farm name on some one else’s  yield monitor.

With the new year, consider the following steps to grow your business and keep  it out of harms way

1.       Pull your annual credit report. Get an identity protection policy.

2.       Check  your insurance policy against what you actually own. Take pictures of valuable items and data plates on equipment.

3.       Update your balance sheet and cash flow statements.

4.       Invest in an off site back up system for your data and photos

5.       Review your contracts and calendar expiration dates on services.

6.       Block out your family vacation time and identify how to cover your operations for planned absences. Block off the county fair, the 4^th of July or what ever major events you know are coming up.

7.       Set a goal for the year’s income and identify what you will do with that achieved goal.

8.       Review your estate plan and life insurance coverage.

9.       Discuss with your parents their estate plan and consider if you have the assets to participate in their plan for you.

10.   Identify capital improvements and develop a plan to fund them

My father told me long ago walk towards where everyone else is running from. Pretty solid observation. It seems like Congress is running from planning past the end of the 2012 election cycle, so maybe walking towards more detailed planning is in order. Maybe it is part of the DNA of being an Iowa Ag Attorney, but the idea of waiting until the last minute does not appeal to me. Some planning that we should all consider include:

1. How much insurance do I need to replace my buildings (house, sheds, bins)… really…. The 1982 Grain bin actual cash value will not pour the cement on a replacement bin if a straight line wind takes it down.

2. How much life insurance do I need to cover my debt and the void in earnings left by my untimely departure. Am an still "sexy" enough to even get term at reasonable rates? The basic idea on term insurance is that insurance companies rent the polices to you for a set period of time. And just like landlords, they prefer young, fit renters with no drama or history of family trouble. The older you get, the higher the rent you are going to have to pay.

3. Are all my assets covered that I want covered? Have I compared what the insurance company  thinks I have with what I know I have? Are they valued correctly?

4. When was the last time I looked at my estate plan, does it reflect what I really want to happen?

5. Agreements with partners. If you signed up for an LLC with your brother five years ago when you were both single and had no kids, have the buy sell agreements you had in place kept up with changes in your life and your partners?

6. If i was disabled, how would I cash flow my life style and the life style of my  kids?

Just some items to think about, failure to plan leaves to bankruptcy, excess taxes and trouble. Run the facts of your operation over with your lawyer, you may find his  professional paranoia can find, fix or prevent problems for you before they start.

But you promised!  Published in NE Iowa Farmer Dec 2011

                How many times do parents hear the clarion call of children demanding justice for a promise made.  The world of agricultural law can take a page from the parent to consider the recent activities of our government.

                First, as a recap, the EPA promised that it would not regulate dust created by  farm operations. Now, the House proposed a bill to  cement that pledge into law. Now the Executive branch is welching and threatening to veto because, essentially, “we already told you that we weren’t going to regulate that.” In the shifting sands of Washington politics, I will take a code section over a promise any day.

                Closer to home we make promises all the time. Some promises are so important, they have to be reduced to writing, like the promise to sell land. With the Des Moines Register reporting  $20,000 per acre land prices in western Iowa, a promise made when the leaves were on the trees now looks like a bad bargain when the snow kisses the ground. A dissatisfied land owner (or perhaps her heirs) may try to wiggle out of  a previous commitment to sell at a set price. The buyer who invests enough in his operation to have an Iowa ag lawyer involved form the get go will be in a better position to fend off the seller’s remorse. No contract is air tight, but when the seller’s options are limited to bankruptcy, being declared incompetent or claiming fraud, it is a far better position to be in than arguing over what the hand written contract on the back of last week’s grocery receipts means.

                Insurance agents also make promises. They often promise to cover your property in the event of a loss. This is why the are agents, meaning they have a special relationship with you as a customer, called a fiduciary duty.  Some times they fail in this duty. The failure can take many forms, such as a failing to tell the bank that the new pick up truck is covered with insurance (which could result in a repossession), falsely certifying a seed type is planted for crop insurance (which can mean non coverage in the event of a crop loss), or even failing to actually insure a piece of property  (which could leave you on your own when your combine head hits the school bus). The best way to ensure an insurance agent’s promises are kept are to review exactly what is written down and what the agent is actually covering. Failing to tell an agent about a new piece of equipment timely (usually with in 30 days) could mean trouble when the brand new grain cart has a tree fall on it.

                Promises happen in estate planning too. I am familiar with a neighbor of a family friend who has promised his farm at his death to at least four young farmers in the area. One night over drinks, they found out about the promise each had been made.  All were in the same boat, and the boat  wasn’t making port anytime soon. Many times, children of farm operators remember promises to parcels of ground long since sold or exchanged by the growing operation.  These promises cannot be enforced,  hurt feelings aside.  Documentation and written estate plans with clear guidance and communications can prevent  misunderstandings and litigation.

Who Says Agricultural Law isn’t important?

The fate of the health care bill passed recently and the subject of a Supreme Court hearing in the future may rest on the antics of an Ohio farmer from the 1930s. A farmer, Wickard, exceeded a production quota for wheat (which was either sold, consumed by livestock and baked  into bread). The USDA levied a fine for exceeding production quota and Wickard resisted.  Wickard lost. It is a case reviewed by every first year law student, as it is cited as the leading edge of the authority of the Federal Congress to regulate interstate commerce. The health care debate is, in court anyway, framed on whether or not the Federal Congress of the republic (which is supposed to be a limited government) is regulating trade between the states in the enactment of this health care legislation. This isn’t the only time the Ohio farmer has shaped a nation, as the interstate commerce clause (bolstered by the Wickard ruling), was used to strike down segregation laws in the 1960s. It remains an open question of the Wickard decision will harvest another  victory for proponents of the use of the interstate commerce clause as a method to club the members states of the republic into line with uniform legislation.

While striking up a conversation with your Iowa Ag Law Attorney about Wickard vs. Filburn may induce post traumatic stress syndrome, its a clear example  of how important the legal system views prior case law and why the selection of judges today can shape the future.

Today, the California bankruptcy court issued a ruling confirming what a real Iowa ag lawyer should already know, that golf is not "agro tourism."  A debtor in bankruptcy was attempting to avoid some zoning issues by asserting that the 18 hole golf course was an agricultural use and therefore doesn't have to follow zoning regulations.

I am glad to see that not even the wildly liberal and expansive thinking judicial system of the west coast bought that argument. If they had, it would be what is referred to as " a slippery slope".  Bird watching would be next, followed by hiking and photography. Every case serves as a jumping off point for new applications of the law.

Closer to home, Floyd County Iowa is implementing zoning Ordinances  for agriculture areas to require farmers to get a permit to build a building. This is a great example of government creep, first is a simple permit, then its building code, then its good bye  to the very flexible nature of farm life that draws the hardy spirit to the country side.

I understand about 20 farmers showed up and contested the matter, with the aid of the regional Farm Bureau. I wonder how many of those farmers paid attention to the county supervisor's race that put those rule makers in power. I wonder how many small town lawyers are paying attention.

Grain and livestock prices have gone up and down in the last quarter decade. Farmland values have gone up every year for during that same time period with interest rates doing exactly the opposite. Bankruptcies in farm operations are rarer than an original prom dress.  Some of those years have been slight bumps, but most have been giant leaps, with Kansas City Federal land bank indicating Nebraska land values jumped 40% last year. That type of steady action is the type of dance partner everybody looks for.

Average farmland values in Iowa has moved from upper $2,000s per acre in 2005 to an easily over $7000 per acre in 2011, which choice parcels selling over $12,000-$16,500. Right now 50% of farm ground is rented and the majority of Iowa farm ground is held by those over 65 years old.

Where those purchasers of farm ground buy their pencils is apparently a secret, because the pencils most folks use determine that those prices are solid business acquisitions do not come up with a buy recommendation.
Who is buying the ground? Investor’s see a safe bet instead of the wild party girl of the stock market and farmers are dancing with the partner they know, soil.
What is going to stop the music and send the dance partners home? Corn prices losing ½ of the value back to the $4.00 range (which five years ago sounded great), along with the input industries (seed, crop protection, fertilizer and chemical) continuing to  rocket upward costs to capture the high prices of the product produced can quickly change the tune. Companies have invested heavily in GMO products and are now moving to crop protection products outside the seed to keep increasing profits and yield. They will not lower prices when commodity prices fall.

Interest rates also play a key. Some predict 6-7% interest in the post 2012 Election years, other predict 4%, however most agree that low interest rates that we see regularly now are going to be a thing of the past. This cuts into operating cash for the over extended farm operator and makes farm land look way less tantalizing to outside investors. Moving interest from the near nil level of today to 4% can cut deep into the per acre return that has to pay the inputs, the rent, the machinery and the light bill.
Most look at a capital return on investment to determine the value of farm ground. They take the interest rate available and compare it to what the return per acre is available via production or rental. The problem with that model is to sustain the per acre analysis with a change in interest rates, requires an increase in the rent obtained, which is unlikely when prices fall and inputs remain high. A farm lawyer should suggest a pure profit per acre approach, with assumptions built in for rising costs and declining return, reflect the true value in the future of the land. Maybe some of those dancers should stay home and wash their hair instead.
  

The Congress of the 2000s just can't let the practice of estate law and planning untouched. The congress has modified estate tax law more times in the last ten years than in any other time period and the changes are often times swift and dramatic. Even when they don't intend to, Congress has a way of fouling up everybody's plans. Putting it writing helps, but keeping your eye on Congress is required.

The drama budget of this late summer created a new law. This law raised the debt limit  and created a congressional panel referred to as the  “Super Committee".   They are required to come up with deficit reduction legislation to be this year.   Its recommendations to Congress go public on November 23 with a vote up or down by December  23.   Failure to agree triggers some automatic spending cuts. Congress can act awful fast when it wants to and it perceives votes and seats are on the line.

The plan may include an attack on $5,000,000 exemption to gift and estate tax.  Talks and whispers suggest that the committee will change the   exclusion amount from $5 million to $1 million on New Years Day or sooner. That is less than two months away. Quite frankly, it would be low hanging fruit to adjust this amount in the eyes of the representatives who have up to 50% of their voting base not paying any tax at all.

Couple this change with the high level of land prices, commodity prices and equipment values and many farmers who just updated estate plans or those who don’t pay attention at all may be caught unaware.  Having an Iowa Farm law attorney may be a wise investment to understand the true  value of your assets. 

Land prices are up 30 percent in some areas, demand for equipment remains strong and some hint at inflation. These factors can all lead to  drifting into tax brackets that you never dreamed you would be involved in.

Bottom line is that if your estate plan include agricultural ground  and any sort of gifting plans, you need to contact an Iowa Agricultural law attorney and found out how an Iowa Ag Law lawyer can help you maximize the current exemptions under the law.