Category: Ag Law

On January 1^st of this year a program silently went into effect that could impact millions of business owners throughout the United States. The program, Corporate Transparency Act (CTA), is based off of a statute enacted through a defense appropriations bill passed in 2021 and the purpose of the law is to make many small business owners register their business entities and ownership structures with the United States Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). This is not related to the annual filings that business owners across the southeast U.S. do on an annual basis with their respective Secretary of States’ offices. This new program is aimed at preventing tax fraud and money laundering through the use of “shell companies.” Shell companies are often described as businesses with little to no assets and unknown ownership interests which makes them an ideal way to hide the flow of money through the entity. The CTA, or sometimes referred to as Beneficial Ownership Interest reporting, requires that most small, registered business entities (Limited Liability Companies, Subchapter S Corporations, C Corporations, Limited Partnerships, Limited Liability Partnerships, etc.) disclose to FinCEN any owners that control more than 25% of the entity and anyone that exercises substantial control over the entity such as corporate officers or managers. There is no exemption for agricultural business entities.

For existing entities, owners have until the end of 2024 to submit the report through FinCEN’s online portal or they may be subject to monetary penalties (up to $500 per day for failure to report after the first of the year) or criminal penalties (of up to $10,000 in fines and 2 years imprisonment.) Information about the new reporting requirements is slowly being disseminated; however, another wrinkle has appeared. On March 1, 2024, a federal trial court in Alabama ruled in a motion for summary judgment that the CTA was unconstitutional because “it exceeds the Constitution’s limits on the legislative branch.” This ruling currently only applies to the plaintiff (the National Small Business Association) and not to the country as a whole. This is likely to be the beginning of legal proceedings across the country on the issue. Still, in the meantime, small, state-registered business owners across the country need to be aware of their current reporting requirements. 

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Rumley, Rusty. “The Corporate Transparency Act and Your (Potential) Duty to Register Your Business.” Southern Ag Today 4(10.5). March 8, 2024. Permalink

In November 2022, Texas, New Mexico, and Colorado reached an agreement to resolve the long-standing dispute between the states over whether New Mexico delivers appropriate amounts of water to Texas under the Rio Grande Compact. However, the United States objects to the agreement and asserts that the federal government must agree before any agreement is implemented. The Special Master recommended that the United States Supreme Court approve the agreement over the objections of the federal government. The Court recently agreed to hear oral arguments on the issue on March 20. The decision raises important questions about the role of the federal government in water allocation agreements between states, which have traditionally held absolute authority with respect to water rights. 

The decision will be important to agriculture since agricultural water withdrawals generally constitute the leading use of water. Agricultural withdrawals also form the focus of many interstate water disputes. Several producer groups and agricultural irrigation organizations have filed friend-of-court briefs supporting approval of the agreement.

Texas filed a complaint in 2013, alleging that New Mexico was not delivering the amount of water to Texas required under the Rio Grande Compact. In 2014, the Court allowed the federal government to intervene in the case, and the federal government filed its own complaint, noting that the United States has an obligation to deliver water from the Rio Grande to Mexico under a treaty between the nations, and the federal government manages a large water project on the river. In 2018 the Court denied New Mexico’s motion to dismiss both complaints. 

After years of negotiation, the states reached an agreement that bases water allocations on a hydrologic formula and provides penalties against New Mexico for annual or cumulative departures from that allocation that exceed certain amounts. The penalties are in the form of allocated water transfers from New Mexico to Texas.

The agreement is unique and may provide a model for future agreements. A decision by the Court that allows the federal government to exert control over agreements between the states on water allocation would interject even more uncertainty. The federal government could conceivably regulate the use of surface water and groundwater for agricultural production within the states, a role that states jealously guard. Twenty-three states have filed a friend-of-court brief urging the Court to approve the agreement.

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Richards, Jesse, and Tiffany Lashmet. “United States Supreme Court to Hear Oral Arguments in Texas v. New Mexico Water Dispute.” Southern Ag Today 4(6.5). February 9, 2024. Permalink

2023 was a landmark year for Clean Water Act (“CWA”) regulation with a new definition of the key term “waters of the United States” (“WOTUS”) issued by the Environmental Protection Agency (“EPA”) at the start of the year, a Supreme Court decision released in May, and an updated WOTUS definition from EPA in August. While 2024 is unlikely to be as dynamic as the previous year, on-going lawsuits challenging EPA’s updated WOTUS definition will continue to impact how the CWA is implemented throughout the country.

By the end of 2023, the current WOTUS definition that EPA released last August was enjoined in twenty-seven states. These states initially filed three separate lawsuits against EPA to challenge the WOTUS definition the agency released in early 2023. They have since updated those lawsuits to address the updated WOTUS rule EPA released following the Supreme Court’s ruling in Sackett v. EPA to conform the definition to the Court’s decision. 

The arguments raised by the plaintiff states in all three lawsuits are largely similar. In their initial filings challenging the first of EPA’s 2023 WOTUS definitions, plaintiffs in State of Texas v. EPA, No. 3:23-cv-00017 (S.D. Tex.), State of West Virginia v. EPA, No. 3:23-cv-00032 (D. N.D.), and Commonwealth of Kentucky v. EPA, No. 23-5343 (6th Cir.) raised three primary claims. First, that the 2023 WOTUS definition exceeded the authority granted to EPA by the CWA. Second, that the definition violates the Tenth Amendment of the United States Constitution which delegates the power to regulate land and water resources to the states. Finally, the definition violates the Major Questions Doctrine because Congress did not give EPA clear authorization to adopt the 2023 WOTUS rule.

After the Supreme Court issued its decision in Sackett v. EPA, all three of the lawsuits challenging EPA’s WOTUS rule were stayed while EPA revised the definition to bring it in line with the Court’s ruling. EPA released its updated WOTUS definition in August, removing references to wetlands that did not share a continuous surface connection with jurisdictional waters, and references to any waters that were not “relatively permanent.” Shortly afterwards, the plaintiff states revived their lawsuits, pivoting to challenge EPA’s updated WOTUS rule.

The amended lawsuits make largely the same arguments against the updated 2023 WOTUS rule as they did against the initial 2023 WOTUS rule. Once again, the states argue that the WOTUS definition exceeds the authority granted under the CWA, claiming that the updated definition incorporates waters that are outside of the relatively permanent test the Supreme Court articulated in the Sackett ruling. Similarly, the states claim that updated definition continues to violate both the Tenth Amendment and the Major Questions Doctrine by regulating an area of vast economic importance without clear Congressional authorization. Additionally, the states claim that the updated WOTUS definition was issued without an opportunity for public comment in violation of federal law.

The National Agricultural Law Center will continue to provide updates as these cases progress. For more information on WOTUS, check out the resources available on our website.

Rollins, Brigit. “WOTUS Update.” Southern Ag Today 4(5.5). February 2, 2024. Permalink

On November 2, 2023, USDA published the final rule to amend organic livestock and poultry production standards. According to USDA, the purpose of the final rule is to “clarify aspects of the existing USDA organic regulations that are not interpreted or enforced in a consistent manner” and to “better assure consumers that organic livestock products meet a consistent standard, as intended by the Organic Foods Production Act.”

The final rule amends livestock care and production practices. In the updated livestock care and production standard section, USDA provided a list of prohibited physical alterations for both avian and mammalian species. The rule affirms that treatment of animal with a synthetic substance not on the approved list or with a non-synthetic substance on the prohibited list would cause the animal to lose its organic status. The rule further affirms that producers may not withhold treatment from an animal even if the animal would lose its organic status.

The final rule also separates the existing living conditions standard into two distinct sections – living conditions for mammalian species, which includes honeybees, and living conditions for avian species. For the mammalian living condition standard, producers must provide enough space for animals to lie down, stand up, and fully stretch their limbs and allow animals to express normal behavioral patterns over a twenty-four-hour period. Additionally, the final rule outlines when mammalian animals may be housed individually or must be housed in groups. Further, the final rule clarifies that animals may be temporarily confined for breeding, but they may not be confined to observe estrus or to confirm pregnancy. For avian species, the final rule describes the requirements for indoor and outdoor spaces, providing producers with two options for calculating the amount of space needed. Lastly the avian living conditions section prohibits total confinement of birds but also provides a list of circumstances that allow for temporary confinement. 

Additionally, the final rule creates a standard for transportation and slaughter. Producers are required to ensure organic animals are clearly identified as organic during transport and the identity must be able to be traced for the duration of transport. Producers must also have procedures in place to address emergency problems like livestock escaping. The new section requires modes of transportation to have season-appropriate ventilation and bedding appropriate for the species and mode of transportation. Lastly, the new section reiterates that organic producers must follow all Food Safety Inspection Service laws, regulations, and directives. 

Most operations must comply with the new requirements by January 2, 2025, which is one year after the effective date of the rule. However, there are limited exceptions for some avian, broiler, and layer operations. Current certified organic producers will be required to comply with these new regulations to remain certified. Producers seeking to become certified organic will also be required to comply with these new regulations. 

For more resources on the National Organic Program, click here.

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Capaldo, Samantha. “USDA Finalizes Rule on Organic Livestock and Poultry Standards.” Southern Ag Today 4(4.5). January 26, 2024. Permalink

The False Claims Act, enacted in 1863, is intended to safeguard honesty and fair dealing with federal governmental programs.^[1] Given that private crop insurers sell and service multi-peril crop insurance policies that are reinsured by the federal government,^[2] the federal crop insurance program comes within the scope and ambit of the False Claims Act as well.  Under the False Claims Act, liability can be imposed upon any person “who knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”^[3] The False Claims Act statute provides a provision for relators to file qui tam lawsuits on behalf of the United States government to recover damages in cases in which materially false or fraudulent claims were paid by the United States government.^[4]

The case of United States ex. rel. Kraemer v. United Dairies, L.L.P. presented a qui tam relator filing a False Claims Act claim against a dairy farm, its partners and agents after payment of a federal crop insurance claim.^[5] The claim involved the “coarse grain” insurance provisions.^[6] While corn may be planted for use as either grain or silage, the insurance coverage for grain differs for both.^[7] The Risk Management Agency’s Crop Insurance Handbook requires insured to “report insurable acreage by unit and by type (grain or silage) according to the intended method of harvest; however, a variety of corn adapted for use as silage only is not insurable as grain and must be insured as silage.”^[8] The dairy farm in the case insured all of the brown mid rib corn^[9] it planted as grain, although it harvested a substantial percentage of the grain as silage.^[10] The decision to insure the brown mid rib corn as grain was completed on the advice of the dairy farm’s insurance agents.^[11]

The United States District Court for the District of Minnesota held that although the dairy farm submitted materially false claims, the relator failed to prove the “knowledge” element required for False Claims Act claims.^[12]

On appeal. the United States Court of Appeals for the Eighth Circuit focused heavily on the relator’s argument that the dairy farm fraudulent submitted false Acreage Reporting Forms with their crop insurance applications in order to obtain crop insurance proceeds.^[13] The definition of a “claim” under the False Claims Act is “any request or demand … for money or property.”^[14] The Eighth Circuit Court of Appeals in Kraemer observed that an insurance application is not the same thing as a claim under the False Claims Act.^[15] In addition, the Eighth Circuit Court of Appeals noted that although the dairy farm insured the corn crop as grain when some or all of the crop is intended to be harvested as silage, this purported misrepresentation was not “material” for purposes of the False Claims Act since no insurance claim form was presented into evidence for the trial court.^[16] As the court noted, “If an insurance claim was filed, the appraisal became part of a thorough audit by the AIP. Each Defendant passed every audit and the claim was paid.”^[17]

The Kraemer case is thus an excellent illustration of the interaction between the federal crop insurance program and the False Claims Act, especially the limitations of the False Claims Act in crop insurance cases.

Nothing in this article is intended to create an attorney-client relationship and does not constitute legal advice.

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^[1] See The False Claims Act, U.S. Department of Justice (Apr. 4, 2023), available at: https://www.justice.gov/civil/false-claims-act

^[2] See About the Risk Management Agency, United States Department of Agriculture Risk Management Agency (2023), available at: https://www.rma.usda.gov/About-RMA/

^[3] See 31 U.S.C. § 3729(a)(1)(A) (2023).

^[4] See 31 U.S.C. § 3730(b) (2023).

^[5] See United States ex. rel. Kraemer v. United Dairies, L.L.P., 82 F.4th 595 (8th Cir. 2023)

^[6] See United States ex. rel. Kraemer v. United Dairies, L.L.P., 82 F.4th at 599; see also 7 C.F.R. § 457.113 (2023).

^[7] See United States ex. rel. Kraemer v. United Dairies, L.L.P., 82 F.4th at 599.

^[8] Id.

^[9] Id. Brown mid rib corn (“BMR”) is “a seed variety developed and marketed as highly digestible when chopped as silage, which significantly increases the milk output of dairy cows. However, BMR also produces quality grain yields, so BMR can be combined for grain if it is not chopped for silage.”

^[10] Id.

^[11] Id.

^[12] See United States ex. rel. Kraemer v. United Dairies, L.L.P., Civ. No. 16-3092, 2022 WL 959771 at *2 (D. Minn. Mar. 30, 2022).

^[13] See United States ex. rel. Kraemer v. United Dairies, L.L.P., 82 F.4th at 602.

^[14] See 31 U.S.C. § 3729(b)(2)(A) (2023).

^[15] Id. at 603.

^[16] Id. at 604.

^[17] Id.

Marzan, Chad, and Paul Georinger. “Federal Crop Insurance and the False Claims Act.” Southern Ag Today 3(52.5). December 29, 2023. Permalink

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