Author Archives: Peggy Hall

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OSU Agricultural & Resource Law Program

Ohio Supreme Court Refuses to Hear Henry County Drainage Dispute

Litigation that arose from a drainage improvement project completed in 2002 has finally ended with a decision by the Ohio Supreme Court.  The court announced today that it will not accept the case for review, which allows the ruling by the Third District Court of Appeals in favor of the Henry County Engineer to remain in place.

Richard and Rodney Rohrs sued the county engineer  and several staff members in 2005 after a drainage project completed by the county flooded several acres of a farm field the Rohrs had rented from Gerald Westhoven.  In the late 1990s, Westhoven approached the Henry County Engineer about flooding problems on Westhoven’s farm and the possibility of cleaning out the open drainage ditch that ran between his land and the county road.  The engineer proposed an alternative solution, to lay drainage tiles and fill the ditch, and offered to classify the work as a road safety improvement project to be handled through the engineer’s budget rather than through the petition ditch process that would result in assessments on property owners.

The county engineer installed the new drainage system in 2002.  Westhoven entered into a lease for the land with the Rohrs in the Spring of 2003.  The Rohrs planted a tomato crop on the parcel; by July, part of the field was under water.   After the harvest season, the county engineer and Westhoven attempted to locate a drainage tile that could be the source of the flooding but they could not find any tile in the flooded area.  The county then installed a new catch basin near Westhoven’s property to resolve the flooding problem, with plans to tie in any field tile that Westhoven might later discover on his land.  The Rohrs continued to lease the farmland from Westhoven.

According to witness testimony, the cause of the 2003 flooding was a drainage tile and catch basin just south of Westhoven’s property that had been cut off during construction of the road improvement project drainage system; the engineer’s staff  had filled the tile and catch basin because it did not appear to be a functioning tile and did not exist on any of the county’s plans.  Excavation on the Westhoven property several years later revealed a drainage tile located just 15 feet from the filled tile and catch basin.  The newly discovered tile, which Westhoven had not previously reported to the engineer,  had a seed bag stuffed into its outlet, which was near the filled catch basin.   The Rohrs claimed that the engineer’s staff had intentionally stuffed the seed bag into the functioning tile, while the engineer’s staff claimed they did not know about the tile.   The county surmised that the seed bag had been used in the previous filling of the tile and catch basin that they had believed to be non-functioning.

The Rohrs sought $70,000 for losses to their 2003 tomato crop as a result of the flooding.  Their legal causes of action included several tort claims and violations of federal and state due process rights.  They also asked the court for a writ of mandamus to order the county to compensate them for a partial “taking” of their property by the county engineer.   The Henry County Court of Common Pleas, after seven years of litigation, rejected each of the Rohrs’ claims.

The Rohrs appealed with no avail to the Third District Court of Appeals.  The appellate court agreed with the trial court’s conclusion that state law prevented tort liability for the flooding because the county was entitled to governmental immunity under Ohio Revised Code 2744.02(A)(1) i.  The court stated that the Rohrs had failed to prove that any of the law’s exceptions to governmental immunity applied to the situation.  In response to the Rohrs’ argument that the county had committed a partial “taking” of property, the appeals court agreed with the trial court that a “taking” had not occurred for three reasons:  because the flooding was accidental and incidental rather than an intentional taking of property, because the alleged taking was not for a public use as required by the Constitution and because the Rohrs had other remedies for their harm, such as a tort claim against Westhoven and the failed tort claims against the county engineer.  As such other remedies were available, the court also agreed with the trial court that the Rohrs failed to prove violations of their due process rights.

In their request for a review by the Ohio Supreme Court, the Rohrs focused on the lower courts’ conclusions that a “taking” had not occurred.  The Henry County Farm Bureau and the Ohio Farm Bureau filed a brief in support of the Rohrs, urging the Supreme Court to accept the case and review the takings issue.  The Court today declined to accept the case by a vote of 5–2 with Justices Paul Pfeifer and Judith French dissenting.  Without a review by the Ohio Supreme Court, the appellate court decision stands as the final resolution of the case.

The decision of the Third District Court of Appeals in State ex rel. Rohrs v. Germann is available here.

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Property hazards don’t disqualify immunity under Ohio’s Recreational User Statute

Peggy Hall, Asst. Professor, OSU Extension Agricultural & Resource Law Program

We often explain the Ohio Recreational User’s Statute to farmland owners because the  law provides liability protection when someone asks to hunt, fish, snowmobile or conduct other recreational activities on the farm.  As long as the landowner grants permission for the use and does not receive a fee from the recreational user, the landowner does not owe a legal duty to assure that the premises are safe for the user.  This immunity from liability encourages those who own non-residential land to open the land for recreational activities.

Landowners always have “what if” type questions when we explain this law.  Recently, the Ohio Supreme Court answered one of those “what if” questions:  what if I modify the property in some way and create a hazardous condition that causes an injury; does the Recreational User’s Statute still protect me from liability?  The Supreme Court’s response:  yes.  But the court was not in complete agreement on the issue.

The accident at the heart of the case occurred when an 18 year old boy went sledding in a park owned by the City of Circleville, Ohio.  The boy slid head first into a wooden railroad tie which the city had transported to the park from a construction site.  The city planned to temporarily store the railroad tie and other construction debris at the park because no storage space was available at its maintenance facility.  Upon hitting the railroad tie, the boy broke his neck and became paraplegic.

In its decision in the lawsuit filed by the boy, the trial court determined that the city was immune from liability because of the Recreational User’s Statute, which grants recreational immunity to governmental as well as private landowners.  The boy appealed the case to the Fourth District Court of Appeals, which affirmed the trial court’s decision.  The Ohio Supreme Court agreed to review the case.

The question before the court was whether the city’s action of placing the railroad ties in the park created an exception from the immunity provided by the Recreational User’s Statute.  The boy’s legal counsel argued that storage of the railroad ties and other construction debris in the park had changed the property’s essential character so that it was no longer a recreational property and should not fall under the protection of the Recreational User’s Statute.   A majority of the court disagreed, concluding that the city’s alleged creation of a hazard on the premises did not affect the city’s immunity.

“We cannot accept as reasonable any contention that the presence of a railroad tie in a public park changes its essential character as a recreational space,” wrote Justice Sharon Kennedy.  “Critics may claim that our decision reaches a harsh result.  However, the language of the recreational-user statute is plain; a property owner owes no duty to a recreational user to keep the property safe for entry or use.  Creating an exception to this immunity is a policy decision that comes within the purview of the General Assembly, not the courts. … [W]e will not create an exception by judicial fiat.”

Justice William O’Neill entered a dissenting opinion, joined by Justice Paul Pfeifer, who also wrote a separate dissent.   “[L]et’s be accurate here — we are not talking about a single railroad tie,” stated Justice O’Neill.  “That tie that crippled this child was part of an overall scheme of disposal of huge mounds of debris that the city had incredibly decided to place in the middle of a recreational park! Cover it with a light dressing of snow, and the perfect killing field was created. . . . [T]he city made a decision to dump huge mounds of debris into a city-owned park. When it did that, it lost its “recreational user” immunity entirely.”

In his dissent, Justice Pfeifer questioned the protection afforded by the Recreational User’s Statute.  The immunity provisions in those statutes, he stated, “provide unreasonable and unconstitutional protection to government entities that own property.”

What does the Court’s decision mean for agricultural landowners? 

While the case did not involve an agricultural property, the decision does have impact for agricultural landowners.  A few lessons from the case:

Affirmation of broad landowner immunity.  The court’s decision affirms the broad immunity afforded by Ohio’s Recreational User’s Statute.  We often hear questions such as “but what if I left my equipment out in the field?” or “but what if they fall into that hole I just dug?”   Based on the court’s decision, the landowner has no duty to make the property safe and won’t be liable for injuries caused by any “hazards” the landowner created on the property.   Remember that this immunity applies to “recreational users”– property visitors who have the landowner’s permission to engage in recreational activities such as hunting, fishing and snowmobiling on non-residential property and who haven’t paid the landowner for the recreational activity (with an exception for hunting lease payments; landowners may receive hunting lease payments and still retain recreational user immunity).

Take recreational permission seriously.   This lawsuit arose because someone suffered a serious injury.  Even with immunity protection, landowners should think twice about allowing recreational users on the property when highly dangerous situations are present.  If there’s a good chance that someone could suffer harm from the situation, avoid the potential of harm and simply don’t grant permission for people to be on the property.

Immunity comes at a cost.    While it can prevent landowner liability, the Recreational User’s Statute can’t stop a harmed party from taking the landowner to court.    The city incurred not only the costs of defending itself through three court hearings, involving attorney fees and the city’s time, but also the cost of negative publicity.  Surely, more responsible land management decisions would have cost less and kept someone from suffering harm.

The Ohio Supreme Court’s decision in Pauley v. Circleville is available here.  The Ohio Recreational User’s Statute is in Ohio Revised Code Sections 1533.18 and 1533.181.

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OSU to Offer Ag and Natural Resource Tax Issues Workshop

Tax preparers and farmers who file their own farm tax returns have an opportunity to participate in OSU Extension’s Agriculture and Natural Resource Tax Issues Workshop on December 19, 2013.  The day long webinar-based workshop features Professor Phil Harris of the University of Wisconsin, a leading expert in farm and natural resource tax law.  Harris will address issues specific to farm tax returns and will be available for a live question and answer session during the workshop.  Attendees can view the webinar from home or office or at one of nine facilitated host locations around the state, and can receive continuing education credit for the workshop.  Visit this site for more information.

OSU Extension’s Larry Gearhardt, field specialist in taxation, organizes the workshop in concert with the OSU Income Tax Schools, a multi-day continuing education program for those who prepare federal tax returns.   More information and the tax school schedule for this fall are available at http://go.osu.edu/taxschools.

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Farm Oil Spill Prevention Plans: Required or Not?

Confusion at Federal Level Leaves Farmers Unsure of SPCC Rule Compliance     

Peggy Hall, Asst. Professor, OSU Extension Agricultural and Resource Law Program

A common joke among attorneys is that the answer to every legal question is “maybe,” and that answer is appropriate when asking whether farms will be exempted from complying with the Oil Spill Prevention, Containment and Countermeasure (SPCC) rule.

May 10, 2013 was the compliance deadline for the EPA rule requiring SPCC plans for farms storing above a threshold amount of oil.  But several legislators have spoken out against the regulation and intend to exempt most farms from its requirements.   As we reported in an earlier post, legislators successfully delayed EPA’s ability to enforce the SPCC rule against farms until September 23, 2013, and also drafted the legislation to exempt many farms from the SPCC rule.  But while the Senate and House have each passed proposals with SPCC exemption language, they’ve used two different bills to do so–the Senate’s Water Resources Development Act and the House’s Farm Bill.  Neither bill has passed both chambers and the SPCC exemption remains in limbo today, the date after which the EPA may begin enforcing the rule.

In mid-August, two sponsors of the exemption, Senators Inhofe (R-OK) and Pryor (R-AR), sent a letter to EPA Administrator Gina McCarthy regarding SPCC enforcement.  The letter clarified that Congress plans to exempt most farms from the rule and suggested that the EPA should not attempt to retroactively enforce the rule back to the original compliance date of May 10, 2013.  Time will tell whether the senators’ letter will prevent EPA from penalizing farms that did not have an SPCC plan by May 10 but had an oil spill anytime after the May 10 compliance deadline.

What Should Farmers do about SPCC Plans now?

Farmers who have been waiting to see if Congress would exempt them from the SPCC rule have to make a decision:  comply now or risk penalties for non-compliance.  A few considerations may help the decision-making process:

  • Operating without an SPCC plan carries financial risk.  If a farm that is subject to the SPCC rule does not have a plan but does have an oil spill that discharges into a waterway, the farm will incur additional penalties for failing to have and implement an SPCC plan.  These penalties vary depending upon the size of the facility and the severity of the spill; our research revealed recent fines ranging from $1,500 to over $55,000.  Our research also shows the cost of an SPCC plan from a certified engineer or consulting firm to begin at around $1,000, with higher costs for larger farms.
  • Only certain farms must comply with SPCC.   Farms that store less than 1,320 gallons of diesel, gasoline, hydraulic oil, lube oil, crop oil or vegetable oil aboveground or less than 42,000 gallons below ground do not need an SPCC plan.   All other farms might need an SPCC plan if it’s possible that spilled oil could discharge into a waterway.  To learn more about whether a farm is subject to the SPCC plan rule, visit here.
  • Smaller, lower-risk farms can “self-certify” their SPCC plan.  The SPCC rule allows farms with smaller oil storage and no history of significant oil spills (“Tier I farms”) to create and implement an SPCC plan; other farms require certification by an engineer.  The EPA provides a model template for  Tier I farms on their website.  Be aware, however, that preparing the plan requires some work:  a thorough assessment of the farm’s oil storage, selection and installation of appropriate containment measures and proper training and response practices.  For those who don’t want to prepare their own plan, consider a consultant.  Consulting companies offer services such as assessment, consultation, plan development, certification and future inspections.
  • A farm may be able to seek a compliance deadline extension.   The SPCC rule allows a farm that couldn’t meet the compliance deadline to submit a written request for an extension to the EPA regional administrator for the state where the farm is located.  There are several reasons EPA may grant an extension:  because a Professional Engineer (PE) isn’t available to create and certify a plan, if the farm is located in an area impacted by floods, or because facility modifications could not be completed before the deadline.  For more on seeking an extension, visit this link.
  • Insurance coverage may be at risk.  Non-compliance with the law can negate insurance coverage; most insurers would likely deem the failure to have an SPCC plan after September 23, 2013 as “non-compliant.”
  • Oil storage containment is good risk management.  Even without the SPCC rule, assessing and managing oil storage and handling practices on the farm can pay off.  Consider the recent case of an Ohio farm with a leaking oil tank that polluted a nearby waterway; the farm paid over $15,000 in fines and cleanup costs.

While “maybe” is a good answer to whether Congress will exempt many farms from the SPCC rule, it isn’t a good answer to whether farmers should ignore the SPCC regulation because of the confusion in Congress.  For more on SPCC and agriculture, visit the EPA’s web page.

 

 

 

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Ohio Court Upholds Jury Verdict against Adverse Possession Claim

Peggy Kirk Hall, Asst. Professor, OSUE Agricultural & Resource Law Program     .

A recent decision by the Ohio Court of Appeals addressed two important legal standards: the proof necessary to claim title to another’s land by adverse possession and conditions allowing a trial court to set aside a jury’s verdict.

The case, Kiesel v. Hovis, centers on a land dispute between two adjacent farms in Sandusky County, Ohio.   A recent land survey established a new legal description and a boundary line between the farms; the survey placed the boundary line 126 feet east of a ditch that the Kiesels had previously considered the boundary.   Since the new boundary reduced their parcel by seven acres, the Kiesels filed a lawsuit, claiming title to the seven acres of land by adverse possession.

Adverse possession is an old law; its historical purpose was to encourage settlement of the frontier by rewarding “squatters” who put land into productive use.  Today, adverse possession is a controversial law used to try to resolve misunderstandings about boundaries established long ago.  A party claiming land by adverse possession must prove that he or his predecessors had exclusive, continuous possession of the disputed land for at least 21 years and that the possession was open, notorious and adverse to the legal title holder.   If the party proves each element of adverse possession, the court will order a new deed that changes title to the property.

Offering Evidence to Prove Adverse Possession

Landowners often ask what type of evidence will prove the elements of adverse possession.  In this case, the Kiesels offered proof through the testimony of several witnesses.   Two farmers testified that they had farmed the disputed land for the Kiesels’ predecessor from 1975 to 1993, although one farmer stated that he didn’t believe all of the land had belonged to the predecessor.   The Kiesels also testified, stating that they had owned the land since 1993, had farmed up to the ditch for ten years,  had placed the land into the Conservation Enhancement Reserve program in 2003 and still received annual payments from the government for the land.

Hovis, the neighboring landowner and defendant in the case, offered witnesses to dispute the Kiesels’ claims.  The surveyor for Hovis testified that the new boundary line was consistent with old legal descriptions for other parcels and with old tax maps.  The surveyor also stated that early maps did not show the ditch; a ditch did not appear on any government map until 1959.  Hovis called a witness from the county auditor’s office, who testified that the new survey line was consistent with old tax maps and that the auditor’s office had  ordered the new survey because the old legal description was ambiguous.  Hovis also testified that his father had owned the land since 1966, that he and his father had paid taxes for the disputed strip since that time, and that his father and the owner previous to Kiesels were friends but that he didn’t know whether they had an agreement about the use of the land in question.  In reference to whether he had given the Kiesels permission to use the land, Hovis testified that he had never said anything but had consented to the use by his inaction, as it was difficult to get his equipment across the ditch to access the land.

Who Gets the Land?

As is often the situation in adverse possession cases, the jury sided with the legal title holder.  A unanimous verdict by the jury rejected the Kiesels’ claim of adverse possession and ruled in favor of Hovis.

A Court’s Power to Set Aside a Jury Verdict

After the jury verdict, the Kiesels asked  the court for a “judgment notwithstanding the verdict.”  This motion argues that the court should set aside a jury verdict because reasonable minds could have come to only one conclusion based on the evidence submitted, and that conclusion was opposite the jury’s decision.   The trial court agreed and granted the Kiesels’ motion to replace the jury’s verdict, commenting that the jury had “lost its way.”   Hovis immediately appealed the court’s decision to the court of appeals, arguing that sufficient evidence existed to refute the claim of adverse possession, the trial court had used the wrong standard for determining whether to set aside the jury’s decision, and  the trial court had invaded the “province of the jury.”

The Review by the Court of Appeals

The Sixth District Court of Appeals reinstated the jury’s verdict.  The trial court’s conclusion that the jury had “lost its way” was “patently the wrong standard to use,” the court of appeals stated.  Instead, the trial court should have determined whether reasonable minds could have disagreed on the decision.  Examining all of the witness testimony, the appeals court concluded that the testimony was not conclusive either way;  reasonable minds could have examined the evidence and reached different conclusions about whether the Kiesels had proven adverse possession.  For this reason, the trial court erred by setting aside the jury’s verdict.

Lessons Learned

The case reminds us once again of the difficulty of proving adverse possession.  Imagine the jury’s challenge:  whether to take land from one landowner and give it to another.   The difficulty of this task is likely one reason that adverse possession claims are hard to win; another could be that “permission” for the use by the title owner is a defense to the claim that the use was “adverse” or against the wishes of the owner.   While the Kiesels and predecessors had clearly used the land in dispute for more than 21 years, they weren’t able to convince the jury that their use was adverse.  Hovis, on the other hand, apparently established enough evidence to suggest that both he and his predecessor had allowed the use of the land since it was on the other side of the ditch and not easily accessible, thereby giving permission for the use.  The law of adverse possession does not allow a party to claim the land of one who has given permission or “acquiesced” in the use of his or her land by another, even if the other party mistakenly believes he or she owns the land.

This case also reminds us about the role of juries and judges in our legal system.  While a trial court judge can disagree with a jury, the judge does not have automatic authority to deprive the jury of its decision.  Only if there’s no uncertainty about the interpretation of evidence–no room for reasonable minds to disagree about what the evidence proves–can a court step in and replace a jury’s verdict.   This is an important principle of our legal process, intended to balance power between the people and the courts.

Time will tell whether the Kiesels invoke another significant component of our legal process–the right to request a review of the appellate court’s decision by the Ohio Supreme Court.

The appellate court’s decision in Kiesel v. Hovis is here.

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Township Trustees, Farmers and Problem Trees, Weeds and Vegetation: Let’s all Follow the Legal Process

Peggy Hall, Asst. Professor, OSU Extension Agricultural & Resource Law Program           .

Tree obstructions, unwanted vegetation and noxious weeds are serious matters for Ohio farmers, which is why several Ohio laws provide mechanisms for addressing these problems through the board of township trustees.   Two recent Ohio court cases illustrate the practical impacts of the laws and demonstrate the consequences of both following and failing to follow the processes provided by these laws.

The first case, Kilroy v. Jackson Township, concerned the clearing of weeds and vegetation in a partition fence row.   The case recently resulted in a judgment of over $56,000 against the board of trustees of Jackson Township in Montgomery County, including an unusual finding of personal liability against each trustee.  The court determined that the trustees failed to perform a settlement agreement with the Kilroys concerning the clearing of their neighbor’s fence row.  The settlement agreement arose from a lawsuit filed by the Kilroys asking the court to require the township trustees to perform their legal duties to have the neighbor’s fence row cleared of weeds and vegetation.

Ohio Revised Code 971.34 allows a landowner in a rural area to ask a neighbor to clear his or her side of a partition fence between the properties and, if the landowner fails to do so, to petition the township trustees to step in and resolve the problem.  The trustees must view the property and determine whether the fence row contains brush, briers, weeds and vegetation and if so, “shall cause them to be cut, by letting the work to the lowest bidder, or by entering into a private contract therefor.” The Kilroys petitioned the trustees under this process after their neighbors failed to clear the fence row when requested, but the trustees did not act on the petition or arrange for removal of the vegetation.

After the Kilroys filed suit against the trustees and the neighbors, the parties entered into a settlement agreement in which the neighbors agreed to clear the fence row and the trustees agreed to have the row cleared if the neighbors didn’t do the work.  The Kilroys later filed a second complaint alleging breach of the settlement agreement after neither the trustees nor the neighbors cleared the fence row.  The second complaint included individual claims against the trustees for intentional interference with a contract and civil conspiracy.  The neighbors finally cleared the fence row, but the Kilroys maintained the lawsuit against the trustees.  The parties entered into a second settlement agreement in which the trustees agreed to pay the sum of $15,000 and to issue an apology letter to the Kilroys.  Eventually, the matter ended up in court again for a breach of the agreement because the Kilroys did not receive either the $15,000 or the apology letter.   The trial court determined that the trustees had signed the settlement agreement in both their official and individual capacities and had subsequently breached the agreement; the court awarded the Kilroys $15,000 as specified in the agreement plus an additional $37,558 in attorney fees and $3,888 for fees paid to expert witnesses.  The trustees filed an appeal, but the Second District Court of Appeals agreed with the trial court’s decision.

Contrast the Kilroy case with a second dispute in Sterling Township, Brown County, where a farmer could not drive his new combine down a township road because of overgrown trees and brush along the road.  The farmer asked the trustees to trim the trees and vegetation but the trustees did not do so.  The farmer then trimmed the vegetation himself and submitted an invoice to the township for $1,863.  When the township did not pay the invoice, the farmer filed a lawsuit claiming that the township trustees had failed in their duty to keep the road free of obstructions and had also failed to eliminate a known safety hazard.  Included in the suit was a request to remove the trustees from office for failure to perform their official duties.  The Brown County Municipal Court dismissed the farmer’s case and the farmer filed an appeal on the claim alleging that the trustees had failed their statutory duty to maintain the roadway.

The court of appeals analyzed Ohio Revised Code sections 5571.02 and 5579.08, which state that a township shall keep its roadways in good repair and shall cut or destroy all brush, briers, vines, and noxious weeds growing along the roadways between the first and twentieth days of June, August and, if necessary, September.  The court noted that these sections of law do not provide the process for a private cause of action against the trustees as demanded by the farmer.  To enforce the law, the farmer must follow the proper legal process, explained the court, which is to first formally request the trustees to perform the action and then ask the court for an order compelling the action, referred to as a “writ of mandamus,” if they fail to do so.

In this case, the farmer did not formally present his request to have the trees trimmed to the township trustees.   He had called each trustee personally by phone and had visited one trustee at his home.  The County Prosecutor had advised the farmer to make an official complaint to the trustees, but the farmer never attended a trustee meeting or made a formal complaint about the vegetation.  By choosing instead to take matters into his own hands and trim the trees and vegetation himself, the farmer had “self-imposed” his own damages, said the court.  Seeking reimbursement for his own work was not the proper method for enforcing the township’s duty to clear the vegetation.

The lesson here should be clear to both township trustees and farmers.  Ohio law establishes duties and remedies for dealing with trees, weeds and vegetation in rural areas; township trustees must perform these duties and farmers must know how to seek a remedy.  The different outcomes from these cases illustrate the importance of knowing and following the proper legal process.

Read Kilroy v. Jackson Township here and Mezger v. Horton here.  See Ohio Revised Code sections here: 971.34 and 5579.08

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Maintaining Animals is not a Fundamental Right, Court Reminds Us

Peggy Hall, Asst. Professor, OSUE Agricultural & Resource Law Program       .

Does an Ohio resident have a constitutional right to keep rabbits, goats, chickens, horses, cows, ducks, turkeys, geese or other fowl on his or her property?  No, according to a recent decision by Ohio’s Eighth District Court of Appeals.  Nor does a city ordinance that prohibits the keeping of such animals violate the federal or state constitutions.

A resident of Bedford, Ohio raised the challenge after being found guilty of a minor misdemeanor for keeping a pygmy goal and four chickens at his home, in contradiction to a city ordinance.  The resident claimed that the city ordinance violates the U.S. Constitution and Ohio Constitution, Article 1, Section 1, which provides:  “All men are, by nature, free and independent, and have certain inalienable rights, among which are those of enjoying and defending life and liberty, acquiring, possessing, and protecting property, and seeking and obtaining happiness and safety.”

But the court noted that the Ohio Constitution also states in Article 1, Section 19 that “Private property shall ever be held inviolate, but subservient to the public welfare,”  which allows a law to interfere with private rights to accomplish a valid public welfare purpose.   Where a law does affect private rights, the court explained that it must scrutinize the law and its purpose.  Interferences with fundamental private  rights require the most strict scrutiny, but the court quickly followed precedents set by other Ohio courts to reiterate that the right to maintain animals is not a fundamental right.  Thus, under a lower level of judicial scrutiny, a law that interferes with the right to keep animals will be upheld if the law is “rationally related to a legitimate government interest.”  According to the court, the Bedford ordinance surpasses this test because the law protects the public from unsanitary conditions and noxious odors by prohibiting certain animals in an urban area.

All is not lost for city dwellers who want farm animals, however.  Recognizing the popularity of “urban farms” and “backyard chickens,” the court explained that residents in urban areas can petition their lawmakers to allow such animals as pets.  The local government could permit the animals while protecting public safety and welfare through building requirements or restrictions on the number of animals, the court explained.

The Bedford case is not unusual, but illustrates a continuing trend in conflicts over keeping animals in urban areas.  To read the court’s opinion, see City of Bedford v. James L. Deal, here.

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New Law will Resolve Court’s Disagreement over Priority to Failed Grain Handler Proceeds

Peggy Hall, Asst. Professor, OSUE Agricultural &  Resource Law Program

The Ohio legislature has already addressed a legal issue that recently created discord on Ohio’s Sixth District Court of Appeals.  In its recent decision in Ohio Department of Agriculture v. Central Erie Supply & Elevator Association, the appeals court disagreed over how to interpret the statutory lien provisions in Ohio’s Agricultural Commodity Handler’s Law.  The majority held that the  statutory lien favors farmer claimants over all other interests while the dissent argued that the statute is “entirely silent” on the issue of priorities between farmers and competing parties who have security interests in the proceeds of a failed grain handler.  Obviously attuned to the problem, the Ohio legislature revised the  law just over a month ago to include language that removes any doubt on the matter.

Ohio’s Agricultural Commodity Handler’s law contains many provisions designed to protect farmers from the risks of doing business with a grain elevator or other grain handler.  If a handler suffers financial distress before paying farmers who’ve deposited grain with the handler, the law establishes an automatic statutory lien on behalf of the farmers.  The law grants the Director of the Ohio Department of Agriculture power to enforce the statutory lien against the grain handler and distribute lien proceeds among the unpaid farmers.  The law also states that the commodity handler’s law takes precedence over any conflicting provisions for secured transactions in another section of Ohio law, Ohio Revised Code section 1309.

In the Central Erie Supply case, the question before the court was whether the statutory lien for the farmers had priority over a $425,691 security interest established by Citizens Banking Company, a creditor of the failed grain handler.  The panel of judges examined the commodity handler’s law and reached opposite conclusions.  The majority concluded that the law conflicted with R.C. section 1309 and thus took precedence over the bank’s security interest that was established under section 1309.  The dissent argued that the language about conflicts between the different laws referred only to the issue of how to distribute proceeds between farmers and did not pertain to other security interests established under R.C. section 1309.  Both sides did agree, however, that the issue of priority between farmers and other security interests is a matter for the legislature, not the courts.  “Yet, unless and until the legislature acts, we are bound to interpret the law as it is currently written, not as we wish it to be,” stated dissenting Judge Yarbrough.

The Ohio legislature did act on the matter–and did so before the court had even issued its ruling.  In late June of this year, the legislature approved S.B. 66 (see our earlier post) and added this language to the commodity handler’s law:  “The lien established under this section shall have priority over all competing lien claims asserted against the  agricultural commodity assets.”   The legislation ascertains that upon its effective date of October 11, 2013, a statutory lien established under the commodity handler’s law will be first in line ahead of all other liens claimed against the assets of a failed grain handler.  Until October 11, the Central Erie Supply decision bolsters an argument seeking the same order of priority stated in the new law.   Based on the recent actions of the legislature and the court of appeals, the commodity handler’s statutory lien now has a few more teeth.

Read the Central Erie Supply decision here, S.B. 66 here and the Agricultural Commodity Handler’s Law here.

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Will a Personal Guaranty Trump LLC Financial Liability Protection?

Erin Porta, OSUE Agricultural and Resource Law Extern and Peggy Hall, Asst. Professor, OSUE Agricultural and Resource Law Program

Like much of the business world, many Ohio farmers are choosing to operate as Limited Liability Companies (LLCs) to gain personal liability protection for LLC members and ample estate, tax, management and business succession advantages.

Under Ohio’s LLC statute (ORC § 1705), an LLC is treated as a separate legal entity apart from its owners. Thus, the general rule places the debts, obligations, and liabilities of an LLC, whether arising in contract, tort, or otherwise, solely on the shoulders of the LLC—not its members or managers. LLC members and managers stand to lose only the money they’ve invested in the LLC, not their own house, car or other personal possessions.

Increasingly, those who deal with LLCs are finding ways around this personal liability “shield.”  One strategy that is becoming more frequent among lenders, landlords and other businesses doing business with LLCs is to require a personal guaranty from individual LLC members or managers.  The personal guaranty binds the LLC members or managers to a promise to be personally liable for the debts and liabilities of the LLC.

While personal guaranties are becoming a ubiquitous part of doing business, their legal implications are far from routine. When faced with a demand for a personal guaranty, here are several important points LLC members or managers should keep in mind:

  1. A valid personal guaranty will negate the personal liability protection provided by the LLC.  By signing a personal guaranty you are essentially waiving your LLC personal limited liability shield. For example, if the LLC cannot repay the loan you guaranteed, the creditor may come after your personal assets. However, the personal guaranty will not negate other LLC liability protections, such as liability for torts committed by the business.
  2. The word “guaranty” is not necessary to create a personal guaranty.  There are no formal magic words required for the formation of a personal guaranty; it is sufficient if the document contains words that unequivocally create a promise to answer for the debt of another.[i] Examples of language that create a personal guaranty include:  a party “guarantees” an obligation of another; a party agrees to immediately undertake the obligations of borrowers upon written notice of default from the creditor; a creditor has the right to “call” upon the LLC manager to make payments due from the LLC; or the LLC manager agrees to be “responsible for” an obligation when due.[ii]
  3. How you sign may matter.  Ohio cases indicate that signing your name followed by your business title (“John Doe, President”) on an agreement that contains personal guaranty language does not negate personal liability or shift liability to the LLC. [iii]  However,  disclosing that you are representing the LLC by using “by,” “per,” “on behalf of” and indicating the name of the business may deem the agreement ambiguous and prevent personal liability. [iv]  There is a major hurdle to this strategy, however:  the other party must accept this form of signature—a tall order considering it would essentially render the personal guaranty agreement meaningless.
  4. You will almost always be responsible for the entire debt. The personal guaranty agreement will specify your obligations; however, most create unconditional joint and several liability for all who sign the agreement. In other words, each LLC member or manager who signs is responsible for the full amount of the debt and the bank may pursue any and all LLC members or managers who signed the guaranty.
  5. Some personal guaranties live beyond the original transaction.  A guaranty may be restricted to a single transaction or may continue to apply to some or all future transactions.  Phrases such as “now or at any time hereafter,”  “all obligations however and whenever incurred,” and “now existing or hereafter contracted” are examples of language that may create a personal guaranty for future transactions of the LLC.  Under Ohio law, a guaranty will likely not be interpreted as one that continues into the future absent this type of language, which displays a clear intent to be bound in the future.[v]   Where the guaranty is a continuing guaranty, it remains effective until the LLC manager or member clearly communicates an intent to revoke and no longer be bound by the guaranty.[vi]
  6. Some lenders or property owners are willing to negotiate. While personal guaranties are becoming very common, they can be negotiable and tailored to your company’s situation.  Some businesses automatically include personal guaranty agreements or language in their standard business transactions and it’s possible that a deal could go through without the guaranty .[vii]  For example, an LLC that can show adequate capital in its reserves may be able to negotiate a loan without a personal guaranty.  Alternatives to a personal guaranty, such as larger security deposits or letters of credit, may also be negotiated.  If the person or business insists on having a personal guaranty, there are still ways to limit personal risk such as proposing an endpoint to the guaranty when certain conditions are met (dollar amount caps, no default for a set period of time); subjecting only certain personal assets to the guaranty;  ensuring the guaranty is limited to the particular transaction at hand and not future transactions and exempting a spouse of an LLC manager or member from the guaranty.
  7. Ignorance is not bliss. Claims that a party thought he or she was signing something other than a personal guaranty, did not read the entire document, or was not made aware of the personal guaranty have generally not been well received by Ohio’s courts as reasons to negate a personal guaranty.[viii]  To void a personal guaranty on the basis of “ignorance,” there must be evidence demonstrating that a party committed fraud in securing a personal guaranty from another party—a hard standard to meet.
  8. Personal guaranties are not the only way to waive LLC personal liability protection. Be aware that co-signing a loan, signing a contract in your own name, pledging personal property as collateral, acting without authority, or making fraudulent representations or omissions when applying for the loan may also place your personal assets at risk.

Nearly any sort of business deal can involve a personal guaranty. The following recent Ohio court case [ix] demonstrates how a simple personal guaranty can have lasting consequences:

  • The owner of an Ohio building company submitted a credit application to a supplier in order to purchase materials on credit.  As part of the credit application, the owner signed a personal guaranty for the company’s transactions.  The guaranty included language stating that it was “a continuing guaranty for all sales heretofore and hereafter made” between the two companies until “the time that notice of the termination of this guaranty shall be received, in writing, by personal mail at the principal office of (the supplier).”
  • Upon approval of the credit application, the owner of the building company purchased materials on credit and promptly paid the supplier in full.  The owner of the building company then continued to purchase materials from the supplier on credit for over a decade and the building company paid the amounts due.  However, thirteen years after the personal guaranty and original purchase was made, the building company was unable to pay for its purchases.
  • The supplier alleged that the owner of the building company was personally liable by way of the thirteen year old personal guaranty, which the building company owner had failed to terminate or revoke in writing.
  • The court enforced the personal guaranty, despite the building company owner’s belief that he guaranteed payment only for the original purchase of materials.  In holding the building company owner personally liable for the company’s debt, he court pointed to the language in the original guaranty which used the word “continuing,” and noted that the guaranty did not have language limiting its duration or application to any specific purchase.

This case is a good reminder that failing to understand or negotiate personal guaranty language can lead to serious and unintended results for the managers or members of LLCs.

* * *

For information on organizing an LLC, see Robert Moore & Barry Ward, OSU Extension, Fact Sheet: Starting, Organizing, and Managing an LLC for a Farm Business, available at http://ohioline.osu.edu/bst-fact/pdf/LLC_Farm_Business.pdf.


[i] Sherwin Williams Co. v. Chem-Fab, Inc., 6th Dist. No. L-05-1375, 2006-Ohio-3864, ¶ 10.Nesco Sales & Rental v. Superior Elec. Co., 2007-Ohio-844 (Ohio Ct. App. Mar. 1, 2007).

[ii] 38 Am. Jur. 2d Guaranty § 6

[iii] Hursh Builders Supply Co., Inc. v. Clendenin, 2002-Ohio-4671 (Ohio Ct. App. Sept. 3, 2002); George Ballas Leasing, Inc. v. State Security Service, Inc. (Dec. 31, 1991), Lucas App. No. L-91-069; Spicer v. James (1985), 21 Ohio App.3d 222, 223, 487 N.E.2d 353; 17 Ohio St. 215.

[iv] George Ballas Leasing, Inc. v. State Security Service, Inc.(Dec. 31, 1991), Lucas App. No. L-91-069 citing Spicer v. James (1985), 21 Ohio App.3d 222, 223, 487 N.E.2d 353; 17 Ohio St. 215.

[v] Rosy Blue, NV v. Lane, 767 F. Supp. 2d 860 (S.D. Ohio 2011). See also, G.F. Bus. Equip., Inc. v. Liston, 7 Ohio App. 3d 223, 454 N.E.2d 1358 (1982) (holding that a guaranty assuring payment for all goods purchased was a continuing guaranty for an open account where it failed to limit its duration, and parties contemplated a succession of credits in a future course of dealings for an indefinite time).

[vi] Jae Co. v. Heitmeyer Builders, Inc., 2009-Ohio-2851 (Ohio Ct. App. June 16, 2009).

[vii] FPC Fin. v. Wood, 2007-Ohio-1098 (Ohio Ct. App. Mar. 12, 2007) (holding that a personal guaranty form signed as a part of a lease packet, but not essential to the deal, was unenforceable due to a lack of consideration).

[viii] Nesco Sales & Rental v. Superior Elec. Co., 2007-Ohio-844 (Ohio Ct. App. Mar. 1, 2007); Campco Distributors, Inc. v. Fries, 42 Ohio App. 3d 200, 537 N.E.2d 661 (1987).

[ix] Jae Co. v. Heitmeyer Builders, Inc., 2009-Ohio-2851 (Ohio Ct. App. June 16, 2009).

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Though SPCC Rule is not Enforceable, Farm Fuel Spills Still Prove Costly

Catharine Daniels, Attorney, OSUE Agricultural & Resource Law Program.   

Back in April, we alerted readers to Congress delaying the requirement for farm oil spill prevention plans (find post here).  The US EPA had set a deadline of May 10, 2013 for all farms to have their Oil Spill Prevention, Control, and Countermeasure (SPCC) Plans in place. However, Congress delayed EPA’s ability to enforce the regulation until September 26, 2013, under an amendment to H.R. 933.  While this delay in enforcement may cause some farmers to think twice about preparing or amending an SPCC plan, a recent Ohio Court of Appeals decision shows how costly fuel spills can be and highlights the importance of good fuel management practices on the farm.

In Ohio Environmental Protection Agency v. Lowry, a 250-gallon fuel tank in Jefferson Township had rusted through and completely drained 250 gallons of fuel oil that had been filled just a few days before. The Jefferson Township Fire Department received a call about a fuel odor coming from the property where the fuel tank was located and a “visible sheen” was evident on a local waterway.  The fire department contacted the Ohio Environmental Protection Agency (OEPA) because the spill was over 50 gallons.  OEPA sent a response team to assess the damage and work with the property owner to remedy the situation.  OEPA informed the property owner that he should obtain a contractor to clean up the fuel and that if he failed to do so,  OEPA would secure a contractor and bill the property owner for the costs as authorized by Ohio law in Ohio Revised Code Section 3745.12.

The property owner failed to obtain a contractor for the clean up.  OEPA hired Environmental Enterprises, Inc. to perform the work and presented the property owner with the bill for $15, 855.92.  The matter proceeded to court, where the property owner argued that because petroleum spills are exempt from chargeable cleanup costs under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the court should interpret Ohio’s law similarly and exempt him from cleanup liability.  The trial court did not agree.

The Court of Appeals also disagreed with the property owner, stating that even if fuel oil is considered a hazardous substance for purposes of the federal CERCLA, the federal law “does not control the determination” of whether a spill posed a risk to the environment requiring emergency action under Ohio law.  According to Ohio Revised Code Section 3745.12, any person responsible for the unauthorized spill, release, or discharge of material into or upon the environment “that requires emergency action to protect the public health or safety or the environment,” is liable to OEPA for costs incurred in the cleanup.  Ohio law focuses on when emergency action is required as opposed to CERCLA’s approach of defining types of hazardous waste cleanups allowed as chargeable cleanup costs.

The lesson from the Lowry case is that even though the US EPA cannot currently enforce the requirement for SPCC plans, farmers should take fuel management seriously.   OEPA has the authority to respond to a fuel spill and require a property owner to pay for the cleanup, which can be costly.  Though not now required by federal law, farmers should take all precautions when managing fuel and minimize the risks of a fuel spill.

Read full case here.

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