Agriculture Law: 02-05

8/14/2019 Agriculture Law: 02-05

1/8FEBRUARY 2005 AGRICULTURAL LAW UPDATE 1

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VOLUME 22, NUMBER 3, WHOLE NUMBER 256 FEBRUARY 2005

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F UTUREN SSUES

Solicitation of articles: All AALAmembers are invited to submit articlesto the Update. Please include copies of decisions and legislation with the ar-ticle. To avoid duplication of effort,

please notify the Editor of your proposed article.

Agricultural law bibliography 4thquarter 2004

CAFO water regulationsinvalidated

Renewable Energy andEnergy EfficiencyProgram

New specialty journal onfood law

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Cont. on page 2

National Organic Program final rule challengedas inconsistent with the Organic FoodsProduction Act of 1990In Arthur Harvey v. Ann Veneman , 396 F.3d 28 (1st Cir. 2005), the United States Court ofAppeals for the First Circuit addressed possible conflicts between the NationalOrganic Program Final Rule, 7 C.F.R. Part 205, which became effective on October 21,2002, and the Organic Foods Production Act (OFPA) of 1990, 7 U.S.C. 6501-6522. Seid. Specifically, there were eight claims of inconsistency raised by Arthur Harvey, aproducer and handler of organic crops, an inspector employed by USDA-accreditedcertifiers, and a consumer of organic products. See id. The overall question posed byHarvey was whether the OFPA fulfilled its purpose in light of the final rule. See id. The

First Circuit explained that the three purposes of the OFPA were to: (1) establishnational standards for the marketing of organically produced products, (2) ensureconsumers that organically produced products meet a consistent standard, and (3)facilitate the interstate commerce of organic products. See id.

Harvey argued that 205.606 of the final rule allowed the introduction of anynonorganic ingredient into processed products whenever an individual certifierdetermined that the ingredient was not commercially available in organic form. Seid. at 35. Part of the language of 205.606 provides that [a]ny nonorganically producedagricultural product may be used in accordance with the restrictions specified in thissection and when the product is not commercially available in organic form. IdHarvey argued that this language violated the Act by not requiring all specificexemptions to the Acts ban on nonorganic substances to be listed on the National Listafter notice and comment rulemaking. See id. In essence, Harvey argued that anindividual certifier could make the decision that a particular product was not availablein organic form and thus allow use of the product without first going through notice and

comment rulemaking and having the product placed on the National List. See id.The USDA argued that Harveys interpretation of 205.606 was incorrect. See idUSDA argued that the specific language referred to by Harvey did not create a blanketexception, but instead further defined the limitations of any addition to the NationalList. See id. The court agreed with USDA but remanded back to the district court for adeclaratory judgment that this particular section does not establish a blanket exemp-tion to the National List requirements. See id. at 36. The court recognized that Harveysinterpretation, though contrary to OFPAs requirements, was a plausible interpreta-

The driving force behind the bill that ultimately became the American Jobs CreationAct of 2004 1 was pressure from the World Trade Organization to repeal the Extra-Territorial Income Exclusion Act of 2000. 2 That Act had been branded as inconsistentwith international trade agreements by WTO in early 2002. 3 The resultant legislationcontained far more than repeal of the 2000 Act, which the legislation accomplished,and included a successor to the repealed legislation which has virtually nothing to dowith international trade. 5 That provision, a deduction for domestic productionactivities, is available to taxpayers with gross receipts derived from property whichwas manufactured, produced, grown, or extracted in the United States. 6

In mid-January 2005, the Internal Revenue Service issued interim guidance on keyprovisions of the domestic production deduction and announced that IRS and theTreasury Department are developing regulations regarding the deduction. 7 Theprovision is first effective for tax years beginning after December 31, 2004. 8 The interimguidance provides some assistance in planning for the deduction, first claimable on2005 returns, but leaves several major concerns unresolved.

The deduction starts out at three percent (for 2005 and 2006), rises to six percent for

Guidance on new domestic production deduction

Cont. on page 2


2/82 AGRICULTURAL LAW UPDATE FEBRUARY 2005

VOL. 22, NO. 3, WHOLE NO. 256 FEBRUARY 2005AALA Editor..........................Linda Grim McCormick

2816 C.R. 163, Alvin, TX 77511Phone: (281) 388-0155

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E. Harl, Ames, IA; Barclay Rogers, Sacramento, CA; JoshuaT. Crain, Fayetteville, AR.

For AALA membership information, contact RobertAchenbach, Interim Executive Director, AALA, P.O. Box2025, Eugene, OR 97405. Phone 541-485-1090. [email protected].

Agricultural Law Update is published by the AmericanAgricultural Law Association, Publication office:CountyLine Printing, Inc. 6292 NE 14 Street, Des Moines, IA50313. All rights reserved. First class postage paid at DesMoines, IA 50313.

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Views expressed herein are those of the individualauthors and should not be interpreted as statements ofpolicy by the American Agricultural Law Association.

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ORGANIC/ CONTINUED FROM PAGE 1

tion of the language and would thereforenot simply affirm the district courts rulingwithout additional clarification on themanner of interpretation. See id.

Harvey argued that the OFPA implicitlyprohibited the certification of organic in-gredients or the use of non-USDA seals onproducts containing between 70 and 94%organic ingredients because 6505(a)(1)(B) of the Act forbids labelingthat implies, directly or indirectly, that [a]product is produced and handled usingorganic methods when it was not pro-duced or handled in such a way. Id.

The court explained that Harveys argu-ment relied on two premises: (1) that theAct allows for only USDA certificationwhich cannot be decoupled from privatecertification, and (2) that the Act does notcontemplate certification of ingredients.See id. The court explained, however, thatthe premises were not supported by theAct. See id. Namely, the court explainedthat the Act did not mention private certi-fication and, therefore, could not address

the coupled or uncoupled nature of pri-vate and USDA certification. See id. The

court also explained that the Act was silentas to the certification of ingredients asorganic. See id.

The court stated that the regulationswere reasonable in light of the overallscheme of OFPA. See id. The court ex-plained that the information sought by therule would allow the Secretary to identifyand track certifiers on a product-by-prod-uct basis, create consumer confidencethat the specified ingredients are indeedorganic, and provide the name of thecertifier, which may be useful to someconsumers. Id. at 7.

Harvey next argued that two sections ofthe rule directly contravened the languageof the Act that provides that handlingoperations shall not, with respect to anyagricultural product covered by this title...add any synthetic ingredient during theprocessing or any postharvest handlingof this product. Id. at 38. The court agreedwith Harvey and rejected USDAs argu-ment that 6517 of the Act allowed thelisting of synthetics for use in the handling

of products labeled organic. See id. Fur-ther attempts by USDA to argue that 6517 of the Act was ambiguous, thus allow-ing the Secretary to draft a reasonablereconciliation, were rebuffed by the court,which noted that the Act was not ambigu-ous. Id.

Harvey argued that 205.101(b)(1) ofthe final rule that excluded handling op-erations that sold products pre-packagedthat would not undergo any further pro-cessing violated the requirements of cer-tification and other OFPA requirements.See id.at 40. However, the court noted thatthe purpose of 6510 of the Act was to

prevent contamination or exposure tocontamination by products. See id. Be-cause of the pre-packaged form of the

products in question, and their status ofremaining packaged, the court held thatthe certification requirement for thosehandlers was irrelevant. See id.

Harvey challenged 205.501(a)(11)(IV)of the rule, which prohibits certifyingagents from giving advice or providingconsultancy services, to certification ap-plicants or certified operations, for over-coming identified barriers to certification.Id. at 41. Harvey argued that the rulesection expanded the Acts prohibition onsuch activity for remuneration, being si-lent concerning such activities where therewas no remuneration. See id. Further,Harvey argued that to prohibit such con-sultation was a violation of the FirstAmendment to the U.S. Constitutions freespeech protections. See id.

The court noted, however, that what theAct sought to avoid were conflicts of inter-est between certifiers and those that were

being certified. See id. The court noted thatthe situation where a certifier gives ad-vice to an entity being certified that turns

out to be erroneous is then in the positionto either report the violation to USDA orretract the advice. See id. This, the courtexplained, was the type of conflict the Actsought to avoid. See id. The court agreedwith USDAs interpretation. See id.

Harvey challenged the rule addressingthe conversion of dairy cows to organicproduction. See id.at 43. The Act providesthat cows whose milk products will be soldlabeled as organic must be raised in ac-cordance with the Act for a period of 12months prior to the sale of such milk ormilk products. See id. The rule, however,allows for less stringent requirements

during a conversion from traditional toorganic production. See id. Specifically,the rule allows a producer to feed the dairy

20072009) and plateaus at nine percentafter 2009 of the lesser of (1) the qualifiedproduction activities income of the tax-able year, or (2) the taxpayers taxableincome for the year. 9 The taxable incomelimitation excludes taxpayers with cur-rent year net operating losses or NOLcarryovers that eliminate current yeartaxable income. 10 For an individual, ad-

justed gross income is substituted for tax-able income. 11 The deduction cannot ex-ceed 50 percent of the W-2 wages of theemployer for the taxable year. 12 The termW-2 wages includes amounts required to

be included on statements under I.R.C. 6051(a)(3), (8). That includes wages as de-fined in I.R.C. 3401(a) (which does notinclude any remuneration, other thancash, for agricultural labor), and electivedeferrals.

The term qualified production activi-ties income equals the taxpayers do-

mestic production gross receipts overthe sum of the cost of goods sold, otherexpenses allocable to such receipts and aratable portion of other expenses andlosses not directly allocable to such re-ceipts. 13 A key part of the provision is thedefinition of domestic production grossreceipts which includes gross receiptsderived from any lease, rental, license,sale, exchange or other disposition ofqualifying production property which wasmanufactured, produced, grown, or ex-tracted by the taxpayer in whole or sig-nificant part within the United States. 1The provision makes specific reference toseveral areas of economic activity in ad-dition including the generation of electric-ity, construction performed and engineer-ing or architectural services performed inthe United States. 15

The deduction is allowed for alternative

Guidance/Cont. from page 1

Continued on page 7

Continued on page 7



Agricultural law bibliography4th quarter 2004

Cont. on p. 6

Animals animal rightsDuckler, On Redefining the Boundaries of

Animal Ownership: Burdens and Benefitsof Evidencing Animals Personalities , 10Animal L. 63-86 2004.

BiotechnologyFederoff & Brown, Mendel in the Kitchen:

A Scientists View of Genetically Modified Foods (National Academy of SciencesJoseph Henry Press) 2004.

Note, The Debate Over Genetically Modified Crops in the United States: Reassessment of Notions of Harm, Difference, and Choice , 54 Case W. Res. L.Rev. 889-916 2004.

Stewart, Genetically Modified Planet: Environmental Impacts of Genetically Engineered Plants (Oxford Univ. Press)2004.

Symposium: National and Global Implications of Genetically-Modified Organisms: Law, Ethics & Science , 34Cumberland L. Rev. 415-464 2003.

Bowles, Andhra, Pradesh, India,as a Case Study in Perspectives on GMOs ,415-426.

Brussel, Engineering a Solutionto Market Failure: A Disclosure Regime

for Genetically Modified Organisms , 427-435.

Prakash & Conko, Relevance of Genetically Modified Crops to DevelopingCountries , 437-444.

Echols, The WTO Biotechnology

Dispute , 445-464.Corporate farming (restrictions oncorporate farming/family farmpreservation)Special Issue: Amendment E Litigationand Issues Related to the Regulation of Corporate Farming by the States: South

Dakota Farm Bureau v. Hazeltine , 49 S.D.L. Rev. 599-886 2004.

Crissman, Foreword , 599-606.Canney & Davidson, Intervenor

Appellants Opening Brief , 607-622.Barnett, Best & Giedd, Appellants

Opening Brief , 622-645.Stenberg, Brief of the State of

Nebraska as Amicus Curiae , 646-660.Broom, Brief of Amicus Curiae

Holstein et al , 661-673.Fulton & Gerdes, Brief of Appellees

Montana-Dakota Utilities et al, 674-684.Tonner, Brief of Appellees and

Cross-Appellants Hilben , 685-700.Gregerson & Day, Brief of

Appellees and Cross-Appellants South Dakota Farm Bureau et a l, 701-718.

Barnett, Best & Giedd, Reply Brief of Appellants, 719-742.

Rademacher et al, Brief of AmicusCuriae American Farm Bureau Federation ,

743-758.Gregerson & Day, Reply Brief of

Appelleee and Cross-Appellants South Dakota Farm Bureau et al , 759-768.

Stokes & Moeller, Brief of AmicusCuriae National Farmers Union et al , 769-776.

Canney, Amendment E: APersonal Perspective on Defending itsConstitutionality , 777-780.

Fulton, Amendment E: TheConstitutional Dimensions of Unintended Consequences , 781-786.

Redlin & Redlin, Amendment E, Rural Communities and the Family Farm ,787-794.

Stokes & Brekken, The EighthCircuit Grants Corporate Interests a NewWeapon Against State Regulation in South

Dakota Farm Bureau v. Hazeltine , 795-803.

Note, The Past, Present and Future of Anti-Corporate Farming Laws

in South Dakota: Purposeful Discrimination or PermissiveProtectionism? , 804-823.

Student Article, The Economic Liberty Rationale in the Dormant Commerce Clause , 824-843.

Student Article, Discriminationin the Dormant Commerce Clause , 844-866.

Energy issuesNote, The Answer, My Friend, Is in the Wind

Rights Contract Act: Proposed LegislationGoverning Wind Rights Contracts , 89 IowaL. Rev. 1775-1800 2004.

Farm laborAliens

Baker, Agricultural Guestworker Programsin the United States , 10 Tex. Hispanic J. L.& Poly, 79-114 2004.

Food and Drug lawComment, A Castle in the Sky: The IllusoryPromise of Labeling Genetically Modified Food in Europe , 23 Pa. St. Intl L. Rev. 173-201 2004.

Gilhooley, Reexamining the Labeling for Biotechnology in Foods: The SpeciesConnection , 82 Neb. L. Rev. 1088-1125 2004.

Note, The New Codex AlimentariusCommission Standard for Food Created with Modern Biotechnology: Implications

for the EC GMO Frameworks Compliancewith the SPS Agreemen t, 25 Mich. N J. IntlL. 813-843 2004.

Note, WTO and GMOs: Analyzing the European Communitys Recent Regulations Covering the Labeling of Genetically Modified Organisms , 25 Mich.J. Intl L. 771-811 2004.

Hunger & food issuesZhang, Food Security: Food Trade Regimeand Food Aid Regime , 7 J. Intl Econ. L. 565-584 2004.

Hunting, recreation & wildlifeDecker, Dont Forget to Wear Your Hunter Orange (or Flack Jacket): A Critique onthe Lack of Criminal Prosecution of

Hunting Accidents, 56 S.C. L. Rev. 135-1__ 2004.

International tradeComment, Genetically Modified Organismsand the Precautionary Principle: How theGMO Dispute Before the World TradeOrganization Could Decide the Fate of

International GMO Regulation , 22 Temp.Envtl. L. & Tech. J. 171-193 2004.

Note, Coffee, Mexicos Other Bean: An Examination of the Globalization of theCoffee Industry, its Impact on Mexican

Villages, and the Possibility of Survivingthe Grind , 3 Wash. U. Global Stud. L. Rev.887-907 2004.

Land reformRose, Womens Land Access in Post-Conflict Rwanda: Bridging the Gap

Between Customary Land Law and Pending Land Legislation , 13 Tex. J. Women & L.197-250 2004.

Livestock and Packers & StockyardsAbramson, Mad Cow Disease: An

Approach to its Containment , 7 J. HealthCare L. & Poly 316-362 2004 .

Patents, trademarks & trade secretsComment, Schmeiser v. Monsanto : A CaseComment , 42 Alberta L. Rev. 553-559 2004.

Ong (ed.), Intellectual Property and Biological Resources (Marshall CavendishAcademic) 2004.

Pires de Carvalho, The Problem of GenePatents , 3 Wash. U. Global Stud.L. Rev.701-753 2004.

Willnegger, Conference Report on theWIPO-UPOV Symposium on IntellectualProperty Rights in Plant Technology , 35Intl Rev. Intell. Prop. & Competition L. 543-550 2004.

Pesticides, herbicides, insecticides,fungicides, fertilizersBusch & Mincarelli, Mad Science and Mad Cows: The Case for EPA Regulation of Prionicidal Substances , 34 Envtl. L. Rep.News & Analysis 10897-10911 2004.

SurveysMolina, The Last Ten Years of Mexican

Agriculture , 12 U. S.Mex. L. J. 77-81 2004.



By Barclay Rogers

The U.S. Second Circuit Court of Appealshas invalidated significant parts of thefederal regulations governing water pol-lution from concentrated animal feedingoperations (CAFOs). In Waterkeeper v.EPA , ___ F.3d ___, 2005 WL 453139 (2 nd Cir.February 28, 2005), the Second Circuit heldthat the CAFO regulations violated theClean Water Act because they failed toincorporate restrictions on the land appli-cation of waste into permit requirements,did not include sufficient controls to meetwater quality standards, and unlawfullypresumed that certain large operationswere required to obtain permits. The ap-pellate court also upheld significant partsof the regulatory scheme.

Background: CAFO water regulationsThe Clean Water Act identifies con-

centrated animal feeding operations as

a point source of pollution and thusrequires application of controls to curbpollution from these operations. See 33U.S.C. 1362(14) (defining point sourceas any discernible, confined and discreteconveyance, including but not limited toanyconcentrated animal feedingoperationfrom which pollutants are ormay be discharged.) As point sources,CAFOs must obtain discharge permitsunder the National Pollutant DischargeElimination System (NPDES) that includemandatory pollution controls. See33 U.S.C. 1342 (authorizing discharges from pointsources pursuant to permits that include,

among other things, effluent limitations based upon specified pollution controltechnologies and water quality limitations.)Any discharge from a CAFO without apermit is a violation of the Clean WaterAct. See33 U.S.C. 301(a) (stating that thedischarge of any pollutant by any personshall be unlawful unless pursuant to aNPDES permit).

The U.S. Environmental ProtectionAgency (EPA) first promulgated regula-tions to control water pollution fromCAFOs in 1974 and 1976. These regula-tions, however, were confusing and poorlyenforced, which led the U.S. General Ac-counting Office (GAO), 1 the investiga-tive arm of Congress, to report that manyoperations that EPA believes are pollutingthe nations waters remain unregulated.General Accounting Office, Livestock Agri-culture, Increased EPA Oversight Will Improve

Environmental Program for Concentrated Ani-mal Feeding Operations , GAO 03-285 (2003),h t t p : / / w w w. g a o . g o v / n e w. i t e m s /d03285.pdf. The GAO identified two majorshortcomings in the regulatory program:(1) exemptions in the regulations allowedapproximately 60 percent of large CAFOsto avoid permit requirements and pollu-tion controls, and (2) insufficient EPA over-sight resulted in inadequate implementa-tion of the program at the state level. Id.at 3.

Prompted by a lawsuit requiring EPA torevise its CAFO regulatory program, EPA

began the process of updating its regula-tions by publishing proposed rules in theFederal Register in January 2001. See 66Fed. Reg. 2959 (January 30, 2001). Theproposed regulations proved to be quitecontroversial, spawning roughly 11,000public comments on the proposed regula-tory scheme. EPA published two addi-tional notices of data availability on the

proposed CAFO regulations one in No-vember 2001, 66 Fed. Reg. 58556, the otherin July 2002, 67 Fed. Reg. 48099 with eachgenerating additional public comment.Finally, on February 12, 2003, EPA pub-lished its final regulations addressingwater pollution from CAFOs. See 68 Fed.Reg. 7176 (February 12, 2003).

Under the final regulations, an animalfeeding operation (AFO) is defined as alot or facility where animals are con-fined for 45 days or more within a 12-month period, and on which crops are notgrown. CAFOs are AFOs that confine morethan a specified number of animals, and

are divided into three categories: Large,Medium, and Small. Large CAFOs arethose that confine more than a set numberof animals (e.g., 700 mature dairy cows);medium CAFOs confine a smaller num-

ber of animals (e.g., 200 to 699 maturedairy cows) and discharge pollutants intowaters of the United States; and smallCAFOs are any AFOs designated by EPAor the state that are not Medium or LargeCAFOs. 40 C.F.R. 122.23(b).

The final regulations require all largeCAFOs to apply for permit coverage, un-less a CAFO can demonstrate that it hasno potential to discharge. To qualify forthis permit exception, a CAFO must es-tablish that there is nopotential for adischarge of manure, litter or associatedprocess wastewater that was generatedwhile the operation was a CAFO, otherthan agricultural stormwater from the landapplication areas. 40 C.F.R. 122.23(f)(1).A CAFO that has received a no potentialto discharge determination remains li-able under the Clean Water Act for dis-charges to navigable waters.

All CAFO NPDES permits must include:(1) Nutrient management plans, includingprocedures to implement applicable ef-fluent limitations and standards; (2) spe-

cific record keeping obligations, includingmaintenance of nutrient managementplans and off-site manure transferrecords; and (3) annual reporting of thenumber of animals in confinement and theamount of manure land applied. 40 C.F.R. 122.42(e).

Additionally, each animal category mustmeet specific effluent limitation guide-lines. For example, beef, dairy, swine, andpoultry operations must implement bestmanagement practices for the land appli-cation of manure based upon the nutrientmanagement plan and subject to certainsetback requirements. Beef, dairy, swine,and poultry CAFOs are expressly allowedto discharge from the land applicationarea so long as the waste is applied inaccordance with a nutrient managementplan. In contrast, horse and sheep CAFOscannot discharge except in an overflowevent from a facility built to contain allwastes plus the runoff from a 10-year, 24-

hour storm event. See generally 40 C.F.R.Part 412.

CAFO water regulations invalidatedEnvironmental and farm groups chal-

lenged the final regulations from oppos-ing sides. Environmental groups 2 arguedthat the regulations did not go far enoughtoward solving the water quality prob-lems associated with CAFOs, and chal-lenged the regulations on multiple frontsincluding: (1) the regulations violated theClean Water Act because they did notincorporate the nutrient managementplans into Clean Water Act permits, (2) the

regulatory scheme unlawfully applied theagricultural stormwater exemption toCAFOs, (3) the technological controlsembodied in the regulations were insuffi-cient, and (4) the regulations did not pro-tect water quality. Farm groups 3 chal-lenged the regulations as overly stringentfor two principal reasons: (1) the regula-tions unlawfully extended the permit re-quirements to all large CAFOs, and (2) theEPA exceeded its authority by regulatingrunoff from land application areas.

Nutrient management plans must be part of Clean Water Act permit

The final regulations require CAFOs todevelop and implement nutrient manage-ment plans that establish land applicationrates in an effort to minimize phosphorusand nitrogen transport from the field tosurface waters 40 C.F.R. 412.4(c)(2).While establishing substantive limitationson the land application of waste, nutrientmanagement plans were not required to

be reviewed by the permitting authority,included in the permit, or subjected topublic scrutiny. The Second Circuitstrongly disapproved of this self-permit-ting scheme because it does not ensurethat the Large CAFOs will, in fact, develop

CAFO water regulations invalidated

Barclay Rogers is a staff attorney at the SierraClub, which is one of the plaintiffs in this case.The views expressed herein are the authorsalone, and do not necessarily represent the viewsof the Sierra Club.



Cont. on p. 6

nutrient management plansand wasteapplication ratesthat comply with all ap-plicable effluent limitations and stan-dards. Waterkeeper , Slip Op. at 23.

The appellate court noted that mostglaringly, the CAFO Rule fails to requirethat permitting authorities review thenutrient management plans developed

by Large CAFOs before issuing a permitthat authorizes land application dis-charges. Id. at 19. The court also invali-dated the rules because they failed toincorporate the land application rates andother restrictions set forth in nutrientmanagement plans into the terms of CleanWater Act permits. The court reasonedthat the nutrient management plans con-stituted effluent limitations, which bydefinition must be included in permits,

because they imposed limitations on landapplication discharges. Id. at 25. Accord-ing to the court, [b]ecause we believethat the terms of the nutrient manage-ment plans constitute effluent limitations,we hold the CAFO Ruleby failing to re-

quire that the terms of the nutrient man-agement plans be included in NPDES per-mitsviolates the Clean Water Act and isotherwise arbitrary and capricious in vio-lation of the Administrative ProcedureAct. Finally, the court found that [t]heCAFO Rule deprives the public of theopportunity for the sort of regulatory par-ticipation that the Act guarantees be-cause the Rule effectively shields the nu-trient management plans from public scru-tiny and comment. Id. at 26. The courtconcluded that the failure to subject nutri-ent management plans to public scrutinyviolates the Acts public participation

requirements in a number of respects.Id.

CAFOs not required to obtain Clean Water Act permit absent discharge

The final regulations require all LargeCAFOs to apply for permits unless theycan demonstrate that they have no poten-tial to discharge. The regulations adopteda guilty until proven innocent approach,presuming discharges and thus trigger-ing the permit requirement for all LargeCAFOs unless they could make a showingthat they had no potential to discharge.The Second Circuit disapproved of thisapproach, and held that EPA had exceededits authority by requiring permits for facili-ties that did not discharge to navigablewaters.

According to the court, unless there isa discharge of any pollutant, there is noviolation of the Act, and point sources are,accordingly, neither statutorily obligatedto comply with EPA regulations for pointsource discharges, nor are they statuto-rily obligated to seek or obtain an NPDESpermit. Id. at 29. EPA had argued that allCAFOs have the potential to discharge,and therefore, should be required to ob-tain Clean Water Act permits. EPA pointed

to the statutory definition of point source,which includes discrete conveyances fromwhich pollutants are or may be dis-charged, as support for this argument. 33U.S.C. 1362(14). The court rejected thisargument on the ground that EPAcannotpoint to any provision of the stat-ute that gives operational effect to themay be language in the manner in whichthe EPA seeks to do so here, and deter-mined that the federal regulations vio-lated the Clean Water Act because theyimposed obligations on all CAFOs re-gardless of whether or not they have, infact, added any pollutants to the navi-gable waters, i.e., discharged any pollut-ants. Waterkeeper , Slip Op. at 30.

Agricultural stormwater exemption upheldThe federal regulations include an

elaborate scheme for controlling dis-charges from land application areas. Theregulations state that [l]and applicationdischarges from a CAFO are subject toNPDES requirements, but these dis-

charges are exempt from regulation tothe extent that they qualify as agricul-tural stormwater discharges.40 C.F.R.122.23(e). According to the regulations,where manure, litter or process waste-water has been applied in accordancewith site specific nutrient managementpracticesas specified in [the nutrientmanagement plan], a discharge of ma-nure, litter or process wastewater fromland areas under the control of a CAFO isan agricultural stormwater discharge. 40C.F.R. 122.23(e). Therefore, under thefederal regulatory scheme, land applica-tion discharges are regulated through the

nutrient management planning process but are not subject to additional CleanWater Act requirements because theyare treated as agricultural stormwaterdischarges, which Congress has exemptedfrom the definition of point source. See 33U.S.C. 1362(14) (the term point sourcedoes not include agricultural stormwaterdischarges and return flows from irrigatedagriculture).

The federal regulations regulate landapplication discharges through nutrientmanagement plans but stop short of im-posing the full panoply of requirementstypically associated with point source dis-charges. Significantly, the Clean Waterrequires all point source discharges tomeet both technological and water-qual-ity based standards. However, the federalregulations apply only technological stan-dards to the land application area andexempt land application discharges fromhaving to meet water quality standards bylabeling them agricultural stormwater.The preamble to the regulations makesthis abundantly clear:

[W]here a CAFO is land applying ma-nure, litter, or other process wastewa-ter in accordance with site specific prac-tices designed to ensure appropriate

agricultural utilization of nutrients, nofurther effluent limitations will be au-thorized, for example, to ensure compli-ance with water quality standards. Anyremaining discharge of manure or pro-cess wastewaters would be covered bythe agricultural storm water exemptionand would be considered nonpointsource runoff.

68 Fed. Reg. 7198.Environmental groups challenged the

use of the agricultural stormwater ex-emption for CAFOs as inconsistent withthe Clean Water Act, while farm groupscontended that the land application ofwaste should be governed exclusively byvoluntary programs for nonpoint sourcepollution. The Second Circuit rejected theenvironmental groups argument that theagricultural stormwater exemption is in-appropriate because CAFOs are indus-trial as opposed to agricultural sources,explaining that we cannot say that theEPA has impermissibly treated CAFOs asagricultural in character. Waterkeeper , Slip

Op. at 37. The appellate court also rejectedthe farm groups argument that land ap-plication areas are not subject to the CleanWater Act regulatory controls by con-cluding that the Act not only permits, butdemands, that land application discharges

be construed as discharges from a CAFOto the extent that they are not otherwiseagricultural stormwater. Id. at 39.

The Second Circuit interpreted its ear-lier holding in Concerned Area Residents fothe Environment v. Southview Farm , 34 F.3d114 (2d Cir. 1994), and reasoned that adischarge from an area under the controlof a CAFO can be considered either a

CAFO discharge that is subject to regula-tion or an agricultural stormwater dis-charge that is not subject to regulation.Waterkeeper , Slip Op. at 35. According tothe court, [w]hether or not a discharge isregulable turned, in the [Southview]Courts view, on the primary cause of thedischarge. Id. The court concluded thatdischarges from land areas under thecontrol of a CAFO can and should beregulated, but where a CAFO has takensteps to ensure appropriate agriculturalutilization of the nutrients in manure, lit-ter, and process wastewater, it should not

be held accountable for any dischargethat is primarily the result of precipita-tion. Id. at 36.

While finding that land application dis-charges were subject to the Clean WaterActs permitting program, the court failedto require that these discharges satisfywater quality standards. Environmentalgroups had argued that discharges fromthe land application areas were dischargesfrom a point source and thus were re-quired to meet water quality-based efflu-ent limitations. See33 U.S.C. 1312(a). Thecourt rejected the environmental groupsargument with respect to land application



Torts and insuranceHowarth, Civil Liability for GM Farming:GM Crops and the Existing Law , 12 Envtl.Liability 185-195 2004.

Van Tassel, The Introduction of BiotechFoods to the Tort System: Creating a New Duty to Identify , 72 U. Cin. L. Rev. 1645-17052004.

Veterinary lawNunalee & Weedon, Modern Trends inVeterinary Malpractice: How Our

Evolving Attitudes Toward Non-Human Animals Will Change Veterinary Medicine10 Animal L. 125-161 2004.

Water rights: agriculturally relatedGlennon, Water Follies: Groundwater Pumping and the Fate of Americas FreshWater (Island Press) 2004.

If you desire a copy of any article or further information, please contact the Law School

Library nearest your office. The National AgLaw Center website < http://www.nationalaglawcenter.org > http://www.aglaw-assn.org has a very extensive

Agricultural Law Bibliography. If you arelooking for agricultural law articles, pleaseconsult this bibliographic resource on the

National AgLaw Center website. Drew L. Kershen, Professor of Law,

The University of Oklahoma,

discharges, reasoning that [a]griculturalstormwater discharges are, after all, statu-torily exempt from any effluent limita-tions, including [water quality-based ef-fluent limitations], because they are notpoint source discharges. Waterkeeper , SlipOp. at 61. The court, however, went on tohold that EPA had failed to justify the lackof water quality-based regulation for pro-duction area discharges, but specificallyupheld EPAs regulatory scheme for landapplication discharges.

Pathogen controls and improvements to production area controls required

The Second Circuit upheld the majorityof the technological limitations for CAFOswith two exceptions. First, the court ruledthat the regulations violated the CleanWater Act because they failed to estab-lish controls for fecal coliform and otherpathogens. Id. at 56. According to the court,[t]he Act requires that the EPA select the

best pollutant control technology for re-

ducing pathogens, and we must enforcethat requirement. Id. Second, the courtfound insufficient support in the adminis-trative record to justify EPAs decision todeviate from the total prohibition ondischarges from the production area ofswine, poultry, and veal CAFOs set forthin the proposed rule. In the final rule, EPAreplaced the total prohibition with arequirement that facilities be constructedto contain runoff from a 100-year, 24-hourrainfall event, or implement alternativeperformance standards. The court con-cluded that because the EPA did notindicate, until the adoption of the final rule,

that it was considering either the 100-year,24-hour rainfall event option or the possibility of alternative performance stan-dards, we find that the EPAs decision toadopt such provisions as part of the [newsource performance standards] for swine,poultry, and veal violates the Clean Wa-ter Acts public participation require-ments. Id. at 60.

Implications of CAFO rule decisionThe Second Circuit invalidated signifi-

cant parts of the federal regulatory sys-tem for CAFOsmany of which will re-quire substantial modifications to the per-mitting scheme to comply with the courtsdecision. While it is difficult to judge theexact impact of the courts decision, atleast three issues warrant special consid-eration: (1) the impact of the ruling onexisting, or soon to be issued, Clean Wa-ter Act permits for CAFOs; (2) the role thatthe permitting authority and the public willplay in developing and implementing nu-trient management plans; and (3) the scopeof EPAs authority to require CAFOs toobtain permits.

Numerous states and other permittingauthorities have begun the process ofupdating their regulations and issuing

permits to CAFOs in a manner consistentwith the federal regulations. The SecondCircuits decision invalidating significantaspects of the federal regulatory systemcasts into doubt many state permit sys-tems for CAFOs. Most states will likelysuspend their CAFO permitting activitiesuntil further instruction from EPA, but itremains unclear what impact the courtdecision will have on existing permits.

The Second Circuit envisions a muchmore active role for the permitting au-thority and the public in developing andimplementing nutrient managementplans. These plans, which under the fed-eral regulations were prepared by CAFOswith limited regulatory oversight and nopublic scrutiny, will now be reviewed bythe permitting authority, incorporated inthe permit requirements, and subjectedto public notice and comment. Nutrientmanagement planning, which is in manyways the linchpin of the CAFO regulatorysystem, will likely become more stringent

because of regulatory supervision and

public scrutiny. Once the land applicationrates and other nutrient management planrestrictions are incorporated into CleanWater Act permits, they will be enforce-able by citizens. Therefore, CAFOs will berequired to strictly adhere to nutrientmanagement plans to avoid potential li-ability.

Finally, the Second Circuits decisioncalls into question EPAs authority to regu-late CAFOs through the Clean Water Actpermitting program. Some are interpret-ing the courts decision limiting EPAs abil-ity to regulate discharges, as opposed topotential discharges, as greatly curtailing

the regulatory system for CAFOs. SeePhilip Brasher, Ruling may exempt hog farms ,Des Moines Register (March 2, 2005) (quot-ing Gene Tinker of the Iowa Departmentof Natural Resources as saying that[b]ecause Iowa law bars such discharges,virtually all confinement operations would

be exempt from the EPA rules under thecourts ruling). While a state law may bardischarges from CAFO production areas,it does not mean they do not occur, andany facility that has discharged, must stillobtain a Clean Water Act permit. Forexample, since 1992, there have been morethan 350 documented waste dischargesfrom over 170 CAFOs in Iowa, includingmany from lagoons and other aspects ofthe production area of confinement op-erations. In addition, discharges from theland application area are violations of theClean Water Act, unless the CAFOs isoperating under a permit that includes anapproved nutrient management plan. SeeWaterkeeper , Slip Op. at 39-40 (any landapplication discharge that is not agricul-tural stormwater is, definitionally, a dis-charge from a CAFO that can be regu-lated as a point source discharge). There-fore, unless a CAFO has a nutrient man-agement plan that has been reviewed by

the permitting authority, subjected to pub-lic notice and comment, and incorporatedinto a permit, the CAFO would violate theClean Water Act each time it dischargesfrom its land application area.

ConclusionThe Second Circuits decision in

Waterkeeper v. EPA represents a majormilestone concerning regulation of waterpollution from CAFOs. The appellate courtdealt several serious blows to the federalregulatory system for CAFOs and invali-dated important aspects of the water pol-lution regulations. The exact reach of thiscourt decision will not be know for sometime, but for now, it is clear that CAFOregulation has a long way to go beforemeeting the minimum requirements ofthe Clean Water Act.

1 The General Accounting Office hassince changed its name to the Govern-ment Accountability Office.

2 The Environmental Petitioners included

Waterkeeper Alliance, American LittoralSociety, Sierra Club, and Natural Re-sources Defense Council.

3 The Farm Petitioners included Ameri-can Farm Bureau Federation, NationalChicken Council, and National Pork Pro-ducers Council.

CAFO/Cont. from page 5

Bibliography/Cont. from page 6



Organic /C ont. from p. 2 cattle an 80% organic feed for the first ninemonths of the conversion process, asopposed to the 100% required under theAct. See id. The Secretary characterizesthe challenged regulation, which providesfor a phased conversion process, as anexception to this requirement. Id. TheSecretary defended the position by pro-viding that the Act is silent as to dairyconversion and further that the Act doesnot define the meaning of handled or-ganically and thus the Secretary may fillthis gap with a reasonable interpretation.Id.

The court disagreed. See id. It noted thatthe twelve-month requirement of the Acthad no meaning if not applied to convert-ing herds. See id. Additionally, the courtstated that the term handled organicallyhad been dealt with by the Secretary byvirtue of the 100% feed requirement. Id. at13. It therefore held that the final ruleallowing a converting herd to be fed a dietof only 80% organic feed for a period of 9

months was in conflict with the Act. See id.Harvey challenged 205.501(b)(2) of thefinal rule that, which prohibits a certifyingagent from requiring compliance with any... practices other than those provided forin the Act and the regulations ... as acondition of use of the agents identifyingmark. Id. at 44. Harvey argued that thiswould suppress competition among us-ers of organic production and handlingmethods, create consumer confusion, andlimit consumer choice. Id. He also arguedFirst Amendment implications for the firsttime and the court refused to address theargument. See id.

The court held that 205.501(b)(2) of thefinal rule did not frustrate the purpose ofthe Act, as Harvey alleged, but that itfurthered the purpose of the Act. See id.at45. The court explained that the goal of anational standard was furthered by re-quiring consistency. See id. Further, be-cause the Act did not speak to the issue ofmore stringent private standards or cer-tification requirements, the court, underChevron U.S.A., Inc., v. Natural ResourcesDefense Council, Inc. 467 U.S. 867 (1984),considered the Secretarys interpretationsreasonable. See id.

Joshua T. Crain, Graduate Assistant,National Agriculture Law Center

This material is based on work supported by theU.S. Department of Agriculture under Agree-ment No. 59-8201-9-115. Any opinions, find-ings, conclusions, or recommendations expressedin this article are those of the author and do notnecessarily reflect the view of the U.S. Depart-ment of Agriculture.

The National AgLaw Center is a federally fundedresearch institution located at the University of

Arkansas School of Law, Fayetteville.

minimum tax purposes 16 and is availablefor passthrough entities and coopera-tives 17 as well as for individual taxpay-ers. 18

Trade or business requirementThe statute specifically provides that

this section shall be applied by only tak-ing into account items which are attribut-able to the actual conduct of a trade or busi-ness.19 The interim guidance mirrors thestatute in identical language. 20 That couldwell spell bad news for farm landlords whoare not materially participating under alease. 21 However, neither the statute northe interim guidance indicate which mean-ing of trade or business is to be used inimplementing the provision. Several dif-ferent definitions of the term trade or

business are in use.The least demanding is the meaning of

the term for purposes of income averag-ing for farmers and fishermen. 22 For pur-poses of that provision, rental income

under a share-rent lease is treated asincome from a farming business (a re-quirement of eligibility for income aver-aging is that the individual be engaged ina farming business 23); whether the land-lord is participating in the operation isimmaterial. 24 Thus, a non-materially par-ticipating share rent landlord appears to

be eligible.25One notch up the scale is the require-

ment for purposes of expense methoddepreciation which specifies that the tax-payer must meaningfully participate(s)in the management or operations of thetrade or business. 26 The regulations makethe point that it is a facts and circum-stances test. 27

The standard test, imposed for severalpurposes including liability for self-em-ployment tax, 28 the material participationtest for special use valuation purposes 29and material participation for recaptureunder the family-owned business deduc-tion, 30 is the well-known test of materialparticipation. That test is not met by non-materially participating farm landlords,who normally file on Form 4835 ratherthan Schedule F.

The term active management wascreated by Congress in 1981 which substi-tutes for material participation in the caseof surviving spouses who acquire realproperty from a deceased spouse forpurposes of special use valuation. 31

Finally, a more demanding meaning ofthe term material participation wasimposed in 1986 for purposes of determin-ing whether an activity is considered apassive activity under the passive lossrules. 32 That meaning of the term requiresthat the taxpayer be involved in the activ-ity on a basis which is regular, continu-ous, and substantial. 33

In conclusionFor non-materially participating land-

lords, including those in retirement andthose who are disabled as well as thosewho simply choose not to be substantiallyinvolved in the farming operation underthe lease, the question of which meaningof the term trade or business is imposedon the provision authorizing the new de-duction 34 takes on great importance. Itshould also be noted that the provisionimposing the standard material partici-pation test also contains a bar on impu-tation of activities of an agent such as afarm manager to the land owner. 35

The Internal Revenue Service is urgedto resolve this issue at an early date.Rendering non-material participationlandlords ineligible for the deduction es-sentially imposes a 3 to 9 percent taxon the decision to operate under a non-material participation share lease.

Neil E. Harl, Charles F. CurtissDistinguished Professor in Agriculture and

Emeritus Professor of EconomicsIowa State University

Reprinted with permission from Volume 16Number 4 of the February 25, 2005

Agricultural Law Digest

1 Pub. L. No. 108-357, 118 Stat. 1418 (2004).See Harl, American Jobs Creation Act of2004: Selected Provisions, 15 Agric. L. Dig161 (2004).

2 Pub. L. No. 106-519, 114 Stat. 2423 (2000).3 See generally 4 Harl, Agricultural Law

27.03 (2004); Harl, Agricultural Law Manual 4.02 (2004).

4 American Jobs Creation Act of 2004,Sec. 101, hereinafter AJCA.

5 I.R.C. 199, enacted by AJCA, Sec. 102.6 I.R.C. 199(c).7 Notice 2005-14, I.R.B. 2005-7.8 AJCA, Sec. 102(e).9 I.R.C. 199(a).10 See I.R.C. 63, 172.11 I.R.C. 199(d)(2).12 I.R.C. 199(b)(1).13 I.R.C. 199(c)(1).14 I.R.C. 199(c)(4).15 I.R.C. 199(c)(4)(A)(i).16 I.R.C. 199(d)(6).17 I.R.C. 199(d)(3).18 I.R.C. 199(d)(1), (2).19 I.R.C. 199(d)(5) (emphasis added).20 Notice 2005-14, I.R.B. 2005-7.21 See I.R.C. 1402(a)(1).22 I.R.C. 1301.23 I.R.C. 1301.24 Treas. Reg. 1.1301-1(b)(2).25 Id.26 Treas. Reg. 1.179-2(c)(6)(ii).27 Id.28 I.R.C. 1402(a)(1).29 See I.R.C. 2032A(e)(6).30 I.R.C. 2057(b)(1)(D)(ii), 2057(f)(1)(A)31 I.R.C. 2032A(b)(5).32 I.R.C. 469(c)(1).33 I.R.C. 469(h)(1).34 I.R.C. 199.35 See I.R.C. 1402(a)(1).

Guidance/cont. from page 2



From the Executive Director:Membership renewals : second notice letters have been sent to members who have not yet sent in their 2005 dues.

Please give the letter your immediate attention so that you can be included in the printed Membership Directory whichwill be printed with the current membership as of April 1, 2005. Please give me a call (541-485-1090) or e-mail([email protected]) if you have any questions about your membership status. Also, dont forget the 2005 Member-ship Recruitment Program (see the January 2005 Update). I can provide you with membership brochures, sample copiesof the Update , and 2004 conference brochures for use in recruiting new members. Recruit a member and get a chance towin a cash prize equal to the registration fee to the 2005 annual conference.

Update Articles : I want to most strongly encourage all AALA members (including students) to submit long and shortarticles for the Update. The value of every members work in agricultural law can be greatly enhanced when shared with

the other members of the agricultural law community. It is difficult enough for one member to be aware of all thecontinuing rapid economic, technological, and governmental changes in agricultural law. Thus, it is vitally important tohear from all members about the developments in their area. Just let Linda McCormick ([email protected]) know thatyou are planning to make a submission so that she can avoid duplication of effort.

Annual Conference : The 2005 Annual Agricultural Law Symposium is October 7 and 8 at the Country Club Plaza Marriottin Kansas City, MO. I am currently investigating possible locations for the 2006 and 2007 conferences. I would welcomecomments and suggestions about any of these three conference locations.

Robert Achenbach, AALA Executive DirectorP.O. Box 2025Eugene, OR 97402Ph 541-485-1090 Fax 541-302-1958

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Agriculture Law: 02-05