Agricultural Leases, or A Horse is a Horse

A single horse

A horse, a horse! My kingdom has a horse.*

If you have been following the United States Senate hearings on the nomination of Judge Neil Gorsuch for the Supreme Court, you may have heard some discussions about how judges should read statutes and the constitution. Without getting too technical, while at the same time trying to avoid the risk of oversimplification, the Senators have been talking principally about two schools of thought. One is that judges should read the words and apply them, period, whatever the result. The second school is that judges should read the words in the context of the problem the writers were trying to resolve and give them a meaning that the writers intended, or would have intended if they had foreseen the problem in the case before the court, even if the writers did not use exactly the right words.

The Iowa Supreme Court last month decided a case that is an instructive example of how these two theories play out when courts read statutes that, if applied according to their plain meaning, could lead to absurd results. The case involved a statute addressing the definition of agricultural leases. The particular question was, “Does a single horse make a farm?”  Porter vs. Harden (Iowa S. Ct. No. 15–0683, Filed March 10, 2017 Amended March 13, 2017). In answering the question, the majority of the court employed the context based rule whereas the dissent, and the Iowa Court of Appeals before it, employed the plain meaning rule.

The question arose in the setting of a lease termination and the answer was important because Iowa law gives tenants differing protections depending on the type of property being leased and the duration of the lease. For example, residential tenants are given more protections than commercial tenants because generally residential tenants have much less bargaining power and sophistication than commercial tenants who have the means to negotiate with their landlords.  

Farm tenants, since 1939, have been given certain statutory protections because of the seasonal nature of the business and the historical importance of agriculture to Iowa. Particularly, in terminating a farm tenancy, the landlord must follow timelines set by the legislature.  Generally, the law requires written notice of termination to be given on or before September 1, with termination to occur the following March 1. This assures that there is sufficient time for the tenant to harvest growing crops and for the parties to negotiate a new lease or find other land to rent, or find another tenant. A 2006 amendment to the statute added grazing to the existing list of agricultural activities.

The parties in the Porter case had a month to month lease. In those cases, either party has the power to cancel the lease by giving 30 days notice to the other party, if the subject of the lease is not agricultural land. Porter, the landlord, gave Harden, the tenant, notice that it was canceling the lease in 30 days, thus following the legal requirements for terminating a month to month lease. The tenants on this six-acre property, which was their primary residence, claimed they were entitled to the much longer notice required to terminate a farm tenancy because they had a horse grazing on the property. They claimed that a close reading of the statute regarding farm leases required only one grazing animal to qualify the property as a farm. The district court did not agree and ruled in the landlord’s favor saying, “the keeping of one 38-year old horse does not make this a farm tenancy.” The tenant appealed.

The Iowa Court of Appeals reversed the district court and ruled that, even though it might be an absurd result, as the statute was written, the definition of livestock “means an animal …”. Reading the statute strictly, one old horse could make a farm tenancy.  The landlord asked the Supreme Court to review the Court of Appeals’ decision.

The Supreme Court looked again at the statute and decided the Court of Appeals was reading the statute too literally. To determine what the legislature meant required reading the statute in context of its purpose as well other statutes addressing the same or similar subject matter. It then said, “just as we would not conclude that someone with a small vegetable garden ‘produces crops . . . on the land’ …, we think it would be questionable to hold that someone keeping an old mare at the homestead ‘provides for the care and feeding of livestock on the land’ within the meaning of the same statute.”  

The Court emphasized that it would assume the legislature intended a reasonable interpretation of the statute and imprinted a primary purpose test on the statute. That is, one must look at the property to see if its main object was the growing of crops or the feeding of livestock. By accepting the “one old mare” argument, any tenant anywhere could create a farm merely by bringing an old horse or a few chickens onto the property. Probably not what the legislature intended.

However, one justice dissented essentially adopting the Court of Appeals reasoning. When a statute’s language is plain and unambiguous, a court should look no further than the statute. Here the statute says “an animal.” Even though the result may be absurd, it is up to the legislature to fix it, not the courts. The courts have only to apply the statute as written, even if poorly written. If the legislature does not like the result, it can rewrite the statute.

If you have questions about this case, or other issues involving leases, you need not hesitate to contact us.

Apologies to William Shakespeare’s play, Richard III,  Act-V, Scene-IV.

Eminent Domain and the Bakken Pipeline

Iowa farm land is subject to eminent domain under specific circumstances.
An Iowa farm. The Iowa legislature determines when Iowa land is subject to eminent domain.

A great deal of ink has been spilled writing about the Bakken Pipeline currently being built across Iowa and how eminent domain is being used to acquire the land for the project. Not all of the writings have been entirely clear and some of the statements quoted in articles have not been entirely accurate. This post attempts to provide readers enough information about a) the power of eminent domain and b) the Iowa Utilities Board (IUB) decision about the Bakken Pipeline to provide at least a basic understanding of the issue. For those who are interested, the complete decision can be found here (PDF).

For those who are unfamiliar with the power of eminent domain, it is the power of the government to take private property for a public purpose. The government has to pay for the property it takes, but it has the right to force private property owners to sell. At the outset, that power rests entirely with the Iowa legislature, but the legislature can delegate the power to other entities. It has done so many times. For example, it granted the power of eminent domain to the Iowa Department of Transportation to aid in the construction of highways. Interstate pipeline companies are vested with the power of eminent domain when they receive a permit to construct and operate in Iowa. However, they can use eminent domain only under the conditions set out in the permit. So the first step for a pipeline company is to get a permit, and to get a permit it must petition the IUB.

In the Iowa Code, the legislature gave the IUB the authority to grant permits to build and operate interstate pipelines in Iowa. However, the IUB can grant the permits, along with the power of eminent domain, only after following the procedures and meeting the criteria that the legislature set out in the law.

On January 20, 2015, Dakota Access, LLC, filed a Petition for Hazardous Liquid Pipeline Permit with the IUB asking to build 346 miles of 30-inch diameter crude oil pipeline diagonally through 18 Iowa counties. The work is part of a 1,168 mile project to carry oil from the Bakken area near Stanley, North Dakota, to an oil transfer station, or hub, near Patoka, Illinois. Initially, the proposed pipeline will have a capacity of approximately 450,000 barrels per day, which can be increased to 570,000 barrels per day.

As provided for in the law, the IUB took evidence from Dakota Access, as well as from proponents and opponents of the project. The first issue for the board was to determine whether the project would “promote the public convenience and necessity.” To make this determination, the IUB said it needed to consider and balance the public use and public benefits of the pipeline against the public and private costs and detriments. The parties, both proponents and opponents, presented voluminous and vigorously contested evidence regarding the project’s costs and benefits, including the effects on global warming from oil production, the world oil market, energy independence and security, the safety of rail shipments versus pipelines, the impact of freeing up rail cars for grain shipments, alternative energy sources, the extent of the Bakken reserves, the economic activity produced during construction of the project, the annual property taxes generated, the impact on cultural resources, the safety of the operation, and the plans for spill remediation.

In a more than 150 page Final Decision and Order filed March 10, 2016, the IUB reviewed the evidence and concluded that the public convenience and necessity favored the pipeline. Underlying the IUB’s decision is its conclusion that the evidence showed the demand for oil was such that the Bakken oil would be extracted and transported from the oil fields to refineries one way or another. With that in mind, the IUB considered the evidence and determined that two factors, safety and economic benefits to Iowa, weighed most heavily in favor of granting a permit and the attendant limited power of eminent domain. Addressing safety first, the IUB considered two alternative methods of transporting the oil, pipeline and rail (trucking was given only a passing reference). Citing a U.S. Department of Transportation study that found the spill incident rate for transport of crude oil by rail is three to four times higher than the spill incident rate for pipeline transport on a ton-mile basis, the IUB decided that the pipeline was the safer and, therefore, preferred mode. Next, the board said the economic benefits to Iowa generated by the project were significant; $800 million during construction and $27 million in annual property taxes.

Turning to the costs and detriments, the IUB first found the environmental harm flowing from the pipeline’s construction and operation could be sufficiently mitigated. Dakota Access was in compliance with federal environmental regulations, and the proposed design and construction specifications exceeded federal safety standards for pipelines. Regarding the impacts on private property owners whose land would be used for the project, the board imposed certain conditions that it determined would protect them. Those protections include requirements to bury the pipeline 48 inches deep and to replace the topsoil that is removed when the trenches are dug. Furthermore, the owners will be entitled to compensation for the taking of their land.

With that, the board issued the permit and granted Dakota Access the power of eminent domain to acquire any property it could not purchase from property owners acting voluntarily. Several project opponents who disagreed with the IUB’s decision appealed to the Iowa District Court and asked the court to stay the IUB’s decision while the case was on appeal. The court denied the stay request and so, pending the court’s final ruling, Dakota Access may proceed with the project, including proceeding with using the power of eminent domain. We are now awaiting the court’s review of the IUB’s decision granting the permit.