Appeals Court Considers Nebraska’s Corporate Farming Ban

Published July 1, 2006

On May 19, attorneys finished filing briefs in the U.S. Court of Appeals for the Eighth Circuit regarding a Nebraska law banning corporate farming.

The case is an appeal from the federal district court in Nebraska, which in December 2005 ruled the state’s corporate farming ban violates the U.S. Constitution’s Commerce Clause and the Americans with Disabilities Act.

Property Rights Restrictions

Nebraska’s Initiative 300 (I-300), enacted in 1982, bans corporations from acquiring farmland or participating in the act of farming. Exceptions are made for corporations created and run by family farmers.

I-300 proponents claim the law is necessary to preserve family farms, which can have difficulty competing against corporate farms that produce crops and raise livestock more economically due to economies of scale and efficiency. Proponents of the ban also claim it is necessary to protect the environment, asserting that family farmers are better stewards of land and natural resources than corporations are.

During the past few years, several persons challenged the initiative in federal district court. They have claimed it infringes on individuals’ rights to own and sell property and their rights to equal treatment in obtaining financing for farming activities and in training apprentices to manage farmland (particularly in the case of retiring family farmers).

Infringing on Interstate Commerce

According to a December 15, 2005 decision of the federal district court in Nebraska, substantial evidence showed I-300 violated the U.S. Constitution’s Commerce Clause, which prohibits states from enacting laws that discriminate against or unduly burden interstate commerce. According to the court, the purpose underlying I-300–as expressed to voters through speeches, radio broadcasts, and news articles during the petition process and preceding the ballot vote–was to prevent “outside investors” from purchasing Nebraska farmland.

Accordingly, the court ruled, “there is substantial evidence to support the premise that Initiative 300 was conceived and born in a protectionist fervor. The ballot title and the language of Initiative 300 alone are persuasive evidence that Initiative 300 had a discriminatory purpose … clearly indicat[ing] that people living and working in Nebraska, and their families, will be given favored treatment.

“Initiative 300 on its face, therefore, favors Nebraska residents, and people who are in such close proximity to Nebraska farms and ranches that a daily commute is physically and economically feasible for them,” the court explained.

“Such discrimination based on origin causes a state to ‘isolate itself from the national economy,’ and constitutes facial discrimination under the dormant Commerce Clause,” added the court. The dormant Commerce Clause is the legal principle, as interpreted by the Supreme Court, that implicit in the Commerce Clause is the corollary that authority over interstate commerce is reserved to the U.S. Congress alone, and that states may not engage in state-vs.-state economic protectionism. The court’s statement indicates I-300 has just such an impermissible effect.

Disability Discrimination

Moreover, ruled the court, I-300 violates the Americans with Disabilities Act.

Among the plaintiffs challenging the law were persons with mobility impairments that made it impossible for them to continue actively farming their property. Under I-300, mobility-impaired farmers who could no longer live on and farm their land could not form limited liability corporations to achieve the same economic benefits as non-disabled farmers who could live on and farm their land were able to obtain.

Lesser Restrictions Not Considered

Regarding I-300 proponents’ stated concerns for protecting the environment and the family farm lifestyle, the court ruled the state failed to consider other means of achieving these goals. For example, “one might question whether environmental regulations were considered as a less drastic and perhaps more effective alternative,” stated the court.

“If the drafters’ concern was the promotion of local economic development, one might question whether requiring family farm and ranch limited-liability entities to hire resident managers or to lease to qualified tenants was considered as a less drastic and perhaps more effective alternative,” the court added.

“I don’t see how taking away property rights through I-300 helps Nebraska family farmers,” said Sterling Burnett, senior fellow at the National Center for Policy Analysis. “They are competing with products produced in the world market, where corporate farms do exist. The real effect of the law is to foreclose management and conveyance options that previously existed. It benefits the family farmer to have an apprentice run the farm or to sell the farm to the highest bidder upon retirement.”

Now that briefs have been filed with the federal appellate court, the court will determine whether oral arguments are necessary. It will likely render its decision near the end of 2006 or in 2007.

James Hoare ([email protected]) is an attorney practicing in Syracuse, New York.