Pork Producer Legal Update

PORK PRODUCER LEGALPORK PRODUCER LEGAL
UPDATEUPDATE
2015 PORK MANAGEMENT2015 PORK MANAGEMENT
CONFERENCECONFERENCE
June 18, 2015June 18, 2015
Eldon McAfeeEldon McAfee
Brick Gentry, PCBrick Gentry, PC
West Des Moines, IAWest Des Moines, IA

DES MOINES WATER WORKS LAWSUIT -DES MOINES WATER WORKS LAWSUIT -
CLEAN WATER ACTCLEAN WATER ACT
 LAWSUIT
Mar. 16, 2015; against 10 Drainage Districts
in Buena Vista, Sac, and Calhoun counties
290 paragraphs, 52 pages
“Citizen suit” in federal district court,
northern district of Iowa
No previous court decisions supporting
DMWW’s claim that field tile lines are point
sources
2

 LAWSUIT
 Allegations:
 Clean Water Act: Alleges discharges from field
tile lines are discharges from “point sources”
without an NPDES permit under the Clean Water
Act
 Iowa Code 455B: Alleges discharges from field
tile lines are discharges from “point sources”
without a permit under Iowa law
 Public, Statutory and Private Nuisance
 Trespass, Negligence, Taking without
compensation, and Due Process & Equal
Protection
3

DMWW:
Independently owned & operated
public utility
Authorized under Iowa Code, but
cannot levy taxes
Owned and funded by customers
Board appointed by mayor of Des
Moines
Installed nitrate removal facility 1992
4

 Drainage Districts:
Authorized by Iowa Code to establish and
maintain unified drainage systems to drain
farmland
Assess fees to landowners for joint drainage
tile and ditches
Other than joint drainage tile and ditches, no
legal authority over use of farmer’s land
within the districts
Question of whether districts can be sued for
compliance with Clean Water Act; money
damages vs. injunctive relief 5

 Water Sampling by DMWW:
March 18 until Dec. 30, 2014
Nitrates
Nine different locations in the drainage
districts
DMWW states that all samples have been
taken in public road right-of-way
Some evidence that some sampling has
been on farmland within drainage districts
6

Alleges discharges from field tile
lines are discharges from “point
sources” without an NPDES permit
under the Clean Water Act
Alleges districts qualify as “point
sources” due to extensive, unified,
and engineered drainage systems
7

Clean Water Act exemptions:
DMWW alleges not an ag storm
water discharge that would be
exempt under CWA because
drainage is artificially drained
groundwater, not ag storm water
runoff
DMWW alleges not “return flows
from irrigated agriculture”
8

Alleges corn - soybean crop rotation &
lack of perennial crops coupled with
extensive subsurface tile drainage
results in excessive nitrates in
groundwater that are discharged to
surface waters
Alleges surface water runoff has fewer
nitrates than tile discharges – “the
conveyance of nitrate is almost entirely
by groundwater transport”
9

NUISANCENUISANCE
Steps to help to avoid lawsuitSteps to help to avoid lawsuit
 Overall operational environmental management,
including neighbor communication and relations
 Location: separation distance, prevailing winds &
topography
 Tree buffers: existing trees and fast growing
trees planted with slower growing species
 Ventilation and exhaust fan management
 Management of manure storage and application
 Clean pigs and buildings
 Mortality handling
10

NUISANCENUISANCE
Protection for producerProtection for producer
 Insurance
 Standard farm liability policies normally don’t cover
– but producer should always check with their
insurance company and/or an attorney
 2013 Illinois court decision found that odor from hog
manure was not “traditional environmental pollution”
and therefore the pollution exclusion in the policy
did not exclude coverage for the producer
 2014 Wisconsin court decision found that manure
that polluted a well was a pollutant under the
insurance policy and the pollution exclusion in the
policy excluded coverage for the producer
11

NUISANCENUISANCE
 Insurance
 Environmental policies available
Coverage provided for odor nuisance claims
Coverage for legal and other costs of
defense
Insurance is a contract - carefully review the
policy terms to make sure there is coverage
for odor nuisance claims
Check with company as to experience with
nuisance cases and how the cases will be
defended
12

NUISANCENUISANCE
 Nuisance defense laws
 All states have some type of law
 Most favorable court decisions to producer
 Indiana - 2014
 Missouri Supreme Court decision – 4/14/15
 2011 Missouri law that established a nuisance
defense for Missouri livestock and crop farms
limiting lawsuit damages to loss of property
value and medical costs is constitutional
 Least favorable court decisions to producer
 Iowa – 1998 and 2004 Supreme Court decisions
finding laws unconstitutional
13

CONTRACT FEEDING INSURANCE
Standard farm liability policies do not
normally cover a contract feeder’s
liability for livestock death loss from the
contract feeder’s negligence, etc. due to
the “care, custody or control” policy
exclusion
Policy endorsements are available to
provide contract feeders with coverage
for this exclusion
Coverage for this potential liability must
be considered by all contract feeders
14

POLICY ENDORSEMENT
 Livestock Care, Custody or Control Coverage
 We will pay those sums that the insured becomes
legally obligated to pay as damages due to physical
injury to a “Covered Animal” caused by “specified
causes of loss.”
 Covered Animal means the animal(s) owned by
others which are listed and described in the
Schedule.
 Specified Causes of Loss means the following: fire,;
lightning; explosion; smoke; vandalism; sinkhole
collapse; electrocution; falling objects; suffocation;
and weight of ice, snow or sleet.
15

POLICY ENDORSEMENT
 Policy – exclusions from liability coverage:
 Custom feeding – if more than $2,000 12 month
receipts
 Property damage to property rented to, occupied or
used by or in the care of an insured
 Endorsement - Custom Feeding
 Liability and Medical Payments to Others Coverage
is extended to apply to “custom feeding” operations
performed by you.
 The exclusions under Liability and Medical
Payments to Others Coverage pertaining to
“custom feeding” are deleted.
16

Practical Points:
 Know exactly what policy covers
 Make sure any contract feeding endorsement
covers what you need covered
 Make sure losses other than hogs fed under
contract are covered
 Get coverage even if the owner of the pigs has
coverage
 Review and understand contract feeding
agreements regarding insurance and any
assumption of liabilities
17

SWINE CONTRACTS –after 6/18/08
 Packers & Stockyards requirements for
production contracts:
Contract Growers -Right to Cancel
The later of 3 business days or any date
stated in the contract
Contract must clearly disclose the right,
the method and the deadline for
cancelling
Additional Capital Investments
Disclosure statement on first page –
additional large capital investments may
be required, if not required, can disclose
that none will be required
18

SWINE CONTRACTS
Packers & Stockyards requirements:
Marketing & Production Contracts -
Choice of Law and Venue
Legal forum located in the
Federal judicial district in which
the principal part of the
production takes place
Contract may specify which state
law applies, unless prohibited by
state law
19

LIVESTOCK & POULTRY
CONTRACTS – after 6/18/08
Packers & Stockyards requirements:
All Livestock or Poultry Contracts –
Arbitration
Any contract requiring arbitration
must contain a provision allowing
producer, before entering the
contract, to decline to be bound by
the arbitration provision
Contract must conspicuously
disclose the producer’s right to
decline
Also see final GIPSA rule 20

CONTRACTS - GIPSA FINAL RULE
 USDA Grain Inspection, Packers & Stockyards
Administration (GIPSA)
 Applies to contracts “entered into, amended,
altered, modified, renewed or extended” after
Feb. 7, 2012
 Three areas of regulation in final rule:
Additional capital investments criteria
(production contracts)
Reasonable period of time to remedy a
breach of contract (production contracts)
Arbitration (production and marketing
contracts)
21

CONTRACTS - GIPSA FINAL RULE
The rules do not include all criteria
GIPSA will look at to determine a
violation
Rule states these are the criteria
GIPSA may consider to determine
a violation
Rule uses the term “including but
not limited to” when listing the
criteria GIPSA may consider
22

DEFINITIONS
Additional capital investment:
$12,500 or more per structure paid by
grower over the life of the contract
beyond the initial investment for growing
and raising facilities, including cost of
upgrades to structure and equipment
and goods and professional services
directly attributable to additional cap
investment
Does not include maintenance or repair
23

ADD’L CAP. INVEST. CRITERIA
Criteria GIPSA may consider to
determine whether a requirement
that a grower must make add’l
capital invest. over the life of the
contract is a violation (including
but not limited to):
Was grower given discretion to
decide against add’l capital
investment
24

Was the add’l cap investment
requirement result of coercion or
retaliation, or threats of coercion or
retaliation
Does other party to contract intend to
reduce or substantially reduce or end
production operations within 12
months, absent a catastrophic or
natural disaster or other emergency
(bankruptcy)
25

Were some growers required to
make additional cap investments
while others similarly situated were
not required to make the same
investments
The age of and recent upgrades to
grower’s operations
Can the cost of the investments be
reasonably expected to be recouped
26

Was grower given a reasonable
time period to implement the
required investment
Equipment changes required for
equipment previously approved
and accepted if equipment is
functioning as intended, unless
grower is paid adequate
compensation incentives
27

REASONABLE PERIOD OF TIME TO
REMEDY BREACH OF CONTRACT
Criteria GIPSA may consider to
determine whether a grower has been
given a reasonable period of time to
remedy a breach of contract that could
lead to contract termination (including
but not limited to the following but not
including animal welfare or food safety
concerns):
Was grower provided written notice of
the breach upon initial discovery of the
breach
28

Did the notice of breach include:
a description of the act and the
section of the contract breached
When the breach occurred
How the grower can remedy the
breach
A date that provides a
reasonable period of time to
remedy the breach
29

Did the other party take into
account the grower’s ongoing
responsibilities related to raising
and handling swine under their
care when setting the date to
remedy a breach
Was grower given reasonable
time after the notice of breach to
rebut the alleged breach.
30

ARBITRATION
Any marketing or production
contract that requires arbitration
must have the following clause
on the signature page in bold,
conspicuous print
If neither option is signed,
arbitration will be deemed to
have been declined
31

ARBITRATION
“Right to Decline Arbitration. A poultry grower, livestock
producer or swine production contract grower has the right to
decline to be bound by the arbitration provisions set forth in
this agreement. A poultry grower, livestock producer or swine
production contract grower shall indicate whether or not it
desires to be bound by the arbitration provisions by signing
one of the following statements; failure to choose an option
will be treated as if the poultry grower, livestock producer or
swine production contract grower declined to be bound by the
arbitration provisions set forth in this Agreement:
I decline to be bound by the arbitration provisions set forth in
this Agreement ____________
I accept the arbitration provisions as set forth in this
Agreement____________”
32

ARBITRATION
Criteria GIPSA may consider to determine if
grower or producer has meaningful opportunity
to participate fully in arbitration process
(including but not limited to):
Bold conspicuous printed clause describing the
following so that grower or producer can make
an informed decision on whether to elect
arbitration:
who pays arbitration costs,
the arbitration process,
any limitations on legal rights and remedies
so grower can decide whether to elect
arbitration
33

ARBITRATION
Are cost and time limits reasonable
Is there access to and opportunity to
engage in reasonable discovery of
information held by processor or
contractor
Is arbitration used only to resolve
disputes under the contract
Is a “reasoned, written opinion based on
applicable law, legal principles and
precedent” from the arbitrator required
34

ARBITRATION
 Feb. 3, 2015 GIPSA letter:
 GIPSA is using the following criteria when
reviewing swine production contracts that contain
an arbitration provision:
 Does the contract conspicuously disclose the
right of the grower to decline arbitrations before
signing the contract?
 Is the disclosure on the signature page?
 Are all costs of arbitration to be paid by the
grower disclosed in bold conspicuous print?
 Does the contract describe the details of
arbitration process?
 Is it clear that the grower will give up the right to
file a lawsuit in court?
35

ARBITRATION
 Does the arbitration provision specify that the
grower is giving up the right to a jury trial?
 Does the provision disclose that the grower is
agreeing that an arbitrator is making legal decisions
and not a judge or jury?
 Is the grower prohibited from joining other growers
in bringing a joint or class action in arbitration?
 If the grower must begin arbitration before the
statute of limitations runs, is that disclosed?
 Does the provision make it clear that the right of
appeal is usually limited to whether the arbitrator
was guilty of fraud, partiality, or corruption?
36

ARBITRATION
 Is the grower given at lease one year after
discovering the breach or cause of action to begin
arbitration?
 Is the grower given a reasonable opportunity to
obtain information held by the packer or swine
contractor? If not, is this disclosed to the grower?
 Is arbitration limited to disputes governed by the
contract?
 Is a “reasoned, written opinion” based on applicable
law, etc. required?
 GIPSA’s letter states that contracts that do not comply
with these criteria be modified to comply or that the
arbitration provision be removed from the contract
37

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