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North Dakota Farm Bureau, Inc. v. Stenehjem

United States District Court, D. North Dakota

September 21, 2018

North Dakota Farm Bureau, Inc., Galegher Farms, Inc., Brian Gerrits, Breeze Dairy Group, LLC, North Dakota Pork Council, and Bill Price, Plaintiffs,
v.
Wayne Stenehjem, in his official capacity as Attorney General of North Dakota, Defendant, Farmers' Educational and Cooperative Union of America North Dakota Division, d/b/a North Dakota Farmers Union, Intervenor-Defendant, Dakota Resource Council, a North Dakota Nonprofit Corporation, Intervenor-Defendant.

          ORDER ON MOTIONS

          DANIEL L. HOVLAND, CHIEF JUDGE.

         Before the Court is Defendant North Dakota Attorney General Wayne Stenehjem's (“State”) motion for partial summary judgment filed on June 21, 2017, and the Plaintiffs' motion for summary judgment filed on July 12, 2017. See Docket Nos. 64 and 71. Also before the Court is Defendant Dakota Resource Council's (“DRC”) motion to strike filed on September 6, 2017, and Defendant Farmers' Educational and Cooperative Union of America North Dakota Division's (“Farmers Union”) motion to dismiss and, in the alternative, motion for judgment on the pleadings filed on October 4, 2017. See Docket Nos. 93, 104, and 113. The motions have been fully briefed. See Docket Nos. 65, 72, 76, 78, 79, 80, 91, 92, 93-1, 95, 96, 100, 102, 105, 109, and 110. For the reasons set forth below, the motions for summary judgment are granted in part and denied in part. The motion to strike, motion to dismiss, and motion for judgment on the pleadings are denied.

         I. BACKGROUND

         On June 2, 2016, the Plaintiffs initiated this declaratory judgment action challenging the constitutionality of Chapter 10-06.1 of the North Dakota Century Code. See Docket No. 1. The Plaintiffs filed an amended complaint on August 17, 2016. See Docket No. 19. On January 1, 2017, the Court entered an order allowing Farmers Union and the DRC to intervene as Defendants. See Docket No. 56.

         Chapter 10-06.1 is officially known as the Corporate or Limited Liability Company Farming law (“Corporate Farming Law”). The Corporate Farming Law was originally enacted in 1932 as an initiated measure. See Stenehjem ex rel. State v. Nat'l Audubon Soc'y, Inc., 844 N.W.2d 892, 897 (N.D. 2014). In its original form, the Corporate Farming Law prohibited corporations from owning farm or ranch land or engaging in the business of farming or agriculture. Id. Since 1932, the law has been amended a number of times and it now permits a number of exceptions to the general rule prohibiting corporate farming. Chapter 10-06.1 “is rooted in the desire to preserve rural agricultural land for use by family farmers” by making unlawful, with some exceptions, corporate farming and corporate ownership of farms as well as farming and ownership of farms by limited liability companies.

         The Plaintiffs specifically challenge N.D.C.C. § 10-06.1-12 (“the family farm exception”) which provides an exception for family farms to the general ban on corporate farming if the shareholders or members do not exceed fifteen in number, are family members within a specified degree of kinship, and meet other specified requirements. The family farm exception was added to the Corporate Farming Law in 1981. See State v. J.P. Lamb Land Co., 401 N.W.2d 713, 715 (N.D. 1987). The Plaintiffs contend the family farm exception is facially discriminatory and violates the Commerce Clause, the Privileges and Immunities Clause, and the Equal Protection Clause of the United States Constitution, and 42 U.S.C. § 1983. The Plaintiffs seek a declaration that the entirety of Chapter 10-06.1 is unconstitutional and an injunction prohibiting its enforcement.

The relevant provisions of Chapter 10-06.1 provide as follows:
All corporations and limited liability companies, except as otherwise provided in this chapter, are prohibited from owning or leasing land used for farming or ranching and from engaging in the business of farming or ranching. A corporation or a limited liability company may be a partner in a partnership that is in the business of farming or ranching only if that corporation or limited liability company complies with this chapter.

N.D.C.C. § 10-06.1-02.

This chapter does not prohibit a domestic corporation or a domestic limited liability company from owning real estate and engaging in the business of farming or ranching, if the corporation meets all the requirements of chapter 10-19.1 or the limited liability company meets all the requirements of chapter 10-32.1 which are not inconsistent with this chapter. The following requirements also apply:
1. If a corporation, the corporation must not have more than fifteen shareholders. If a limited liability company, the limited liability company must not have more than fifteen members.
2. Each shareholder or member must be related to each of the other shareholders or members within one of the following degrees of kinship or affinity: parent, son, daughter, stepson, stepdaughter, grandparent, grandson, granddaughter, brother, sister, uncle, aunt, nephew, niece, great-grandparent, great-grandchild, first cousin, or the spouse of a person so related.
3. Each shareholder or member must be an individual or one of the following:
a. A trust for the benefit of an individual or a class of individuals who are related to every shareholder of the corporation or member of the limited liability company within the degrees of kinship or affinity specified in this section.
b. An estate of a decedent who was related to every shareholder of the corporation or member of the limited liability company within the degrees of kinship or affinity specified in this section.
4. A trust or an estate may not be a shareholder or member if the beneficiaries of the trust or the estate together with the other shareholders or members are more than fifteen in number.
5. Each individual who is a shareholder or member must be a citizen of the United States or a permanent resident alien of the United States.
6. If a corporation, the officers and directors of the corporation must be shareholders who are actively engaged in operating the farm or ranch and at least one of the corporation's shareholders must be an individual residing on or operating the farm or ranch. If a limited liability company, the governors and managers of the limited liability company must be members who are actively engaged in operating the farm or ranch and at least one of its members must be an individual residing on or operating the farm or ranch.
7. An annual average of at least sixty-five percent of the gross income of the corporation or limited liability company over the previous five years, or for each year of its existence, if less than five years, must have been derived from farming or ranching operations.
8. The income of the corporation or limited liability company from nonfarm rent, nonfarm royalties, dividends, interest, and annuities cannot exceed twenty percent of the gross income of the corporation or limited liability company.

N.D.C.C. § 10-06.1-12 (emphasis added). The dispute between the parties largely centers on the meaning of the word “domestic” and the phrases “actively engaged in operating the farm or ranch” and “residing on or operating the farm or ranch” in Section 10-06.1-12.

         Plaintiff North Dakota Farm Bureau (“Farm Bureau”) is a non-profit corporation organized under the laws of North Dakota, with its principal place of business in Fargo, North Dakota. The Farm Bureau's voluntary membership consists of more than 26, 000 farm, ranch, and rural families residing in North Dakota. The mission of the Farm Bureau is to advocate for agriculture and enhance the economic opportunities of its membership while promoting individual freedoms and self-reliance. The Farm Bureau contends the Corporate Farming Law interferes with its ability to fulfill its organizational purpose and injures it members because the law prohibits farmers from utilizing beneficial business structures and limits the value of their farms and ranches.

         Plaintiff Galegher Farms, Inc., is a farming corporation organized under the laws of North Dakota, with its principal place of business in Thompson, North Dakota. Galegher Farms leases approximately 3, 100 acres of North Dakota farmland for crop farming purposes. The president and vice-president of Galegher Farms are first cousins and currently meet the kinship requirements of Chapter 10-06.1-12. However, the president's son and the vice-president's nephew have expressed interest in becoming shareholders in the corporation but cannot as they do not meet the kinship requirements of Section 10-06.1-12. Galegher Farms contends it is harmed by the Corporate Farming Law's kinship requirements.

         Plaintiff Brian Gerrits is an individual who resides in De Pere, Wisconsin. Gerrits is a member of a Wisconsin limited liability company, Breeze Dairy Group, LLC, that engages in dairy farming in Wisconsin. Gerrits contends Chapter 10-06.1 prohibits him and Breeze Dairy from expanding into North Dakota which limits his ability to earn a living in his chosen occupation.

         Plaintiff Breeze Dairy Group, LLC (“Breeze Dairy”) is an LLC incorporated in the State of Wisconsin. Breeze Dairy was founded in 2003 in response to the changing farming economy. Breeze Dairy was formed in 2003 by five families who merged their dairy operations into a single limited liability company. Breeze Dairy contends it is not a “domestic” LLC as defined by North Dakota's Corporate Farming Law. For these reasons, Breeze Dairy contends it cannot expand into North Dakota and thus is harmed by Chapter 10-06.1.

         Plaintiff North Dakota Pork Council (“Pork Council”) is a non-profit corporation organized under the laws of North Dakota. The Pork Council promotes the interests of pork producers and provides them with educational resources and services which enhance profitability. The Pork Council contends Chapter 10-06.1 interferes with its ability to fulfill its mission to help pork producers enhance profitably as it precludes them from utilizing beneficial business structures and limits the value of the pork production operations located within the state; causes them harm by limiting the number of pork producers in North Dakota, which in turn reduces its membership; and limits its members access to capital and thus limits the number of pork producers within North Dakota, which negatively impacts the Pork Council's membership.

         Plaintiff Bill Price is an individual who resides in Center, North Dakota. Price is a farmer and rancher involved in multiple farming and ranching operations in North Dakota, including the Price Cattle Ranch which is organized as a limited liability partnership. Several of the operations in which Price is involved in have been unable to utilize the corporate business structure due to their inability to meet the requirements in Chapter 10-06.1, and they have also been unable to bring in capital through corporate investments. Price is the managing partner of Price Cattle Ranch. Price contends he would prefer to operate Price Cattle Ranch as a corporation or limited liability company but is prohibited by Chapter 10-06.1 from doing so. Price also contends the next generation of the Price family will not be able to continue the Price Cattle Ranch as they do not meet the kinship requirements of Section 10-06.1-12.

         Defendant Wayne Stenehjem is the Attorney General for the State of North Dakota. As Attorney General, Stenehjem is charged with enforcing Chapter 10-06.1. The enforcement provisions include court-ordered divestment and civil penalties. See N.D.C.C. § 10-06.1-24.

         Defendant Farmers Union is a non-profit organization founded in 1927 to provide assistance to farm families. Farmers Union is the largest general farm organization in North Dakota, with 45, 500 member families. Farmers Union works to advance family farms and ranches and the quality of life for North Dakotans through member advocacy, educational programs, cooperative initiatives, and insurance services. In the early 1930s, Farmers Union drafted the language for what would ultimately become North Dakota's Corporate Farming Law. Farmers Union has long been committed to preserving and has actively defended North Dakota's Corporate Farming Law which it sees as the foundation of family farms, rural communities, the State's agrarian heritage, and stewardship of natural resources.

         Defendant DRC is a nonprofit organization formed in 1978 with the purpose of protecting North Dakota's rural communities, family farms, agricultural economy, soil, land, and water. The DRC consists of approximately 1, 000 members, more than half of whom are farmers and ranchers

         II. LEGAL DISCUSSION

         A. MOTION TO STRIKE

         The DRC moves to strike portions of the declarations of John L. Galegher, Jr. (Docket No. 81), Brian Gerrits (Docket. No. 82), Tamra Heins (Docket No. 84), and Bill Price (Docket No. 85) filed by the Plaintiffs in support of their motion for summary judgment. See Docket No. 93. The DRC contends the declarations do not comply with Rule 56(c) of the Federal Rules of Civil Procedure. The Plaintiffs maintain they have complied with the requirements of Rule 56(c).

         Rule 56(c) requires that an affidavit or declaration used to support a summary judgment motion must be made upon personal knowledge and that the content of the affidavit consists of facts that would be admissible at trial. A careful review of the declarations to which the DRC has objected reveals the Plaintiffs have complied with the rule. In this case, the Court is faced with cross-motions for summary judgment in a declaratory judgment action challenging the constitutionality of a state law. The declarations in question relate to the issue of standing and whether the Plaintiffs have suffered an injury. In this context, the witnesses are competent to give their lay opinions as to the impact of the Corporate Farming Law on themselves, their farming operations, their membership, and the organizations they operate. The Court would permit such testimony at trial. As such, the Court finds the DRC's contentions meritless and the motion is denied.

         B. STANDING

         The State contends the Plaintiffs lack standing to bring their Commerce Clause claim. Farmers Union contends the Plaintiffs lack standing to bring their claims for violation of the Commerce Clause (Count I), the Privileges and Immunities Clause (Count II), and the Equal Protection Clause (Count III) and 42 U.S.C. § 1983 (Count IV). The Plaintiffs concede their Privileges and Immunities Clause claim (Count II) should be dismissed as it is foreclosed by case law from the Eighth Circuit Court of Appeals. Upon careful review of the entire record, the Court concludes, for the reasons set forth below, that the Plaintiffs have standing.

         Federal Rule of Criminal Procedure 12(b)(1) governs motions to dismiss for lack of subject matter jurisdiction. “Subject matter jurisdiction defines the court's authority to hear a given type of case.” Carlsbad Tech., Inc. v. HIF Bio, Inc., 556 U.S. 635, 639 (2009). Jurisdictional issues are a matter for the Court to resolve prior to trial. Osborn v. United States, 918 F.2d 724, 729 (8th Cir. 1990).

         A federal district court's diversity jurisdiction is limited to civil actions where the matter in controversy exceeds $75, 000 and is between citizens of different states. 28 U.S.C. § 1332(a)(1). It is well-established that diversity of citizenship is determined at the time the action is filed, and complete diversity among all parties is required under 28 U.S.C. § 1332 to invoke federal jurisdiction. Associated Ins. Mgmt. Corp. v. Ark. Gen. Agency, Inc., 149 F.3d 794, 796 (8th Cir. 1998). “Complete diversity of citizenship exists where no defendant holds citizenship in the same state where any plaintiff holds citizenship.” OnePoint Solutions, LLC v. Borchert, 486 F.3d 342, 346 (8th Cir. 2007). An LLC's citizenship is the citizenship of each of its members. Id.

         “A court deciding a motion under Rule 12(b)(1) must distinguish between a ‘facial attack' and a ‘factual attack'” on jurisdiction. Osborn, 918 F.2d at 729 n.6. In a facial attack, “the court restricts itself to the face of the pleadings, and the non-moving party receives the same protections as it would defending against a motion brought under Rule 12(b)(6).” Id. (internal citations omitted). “In a factual attack, the court considers matters outside the pleadings, and the non-moving party does not have the benefit of 12(b)(6) safeguards.” Id. (internal citation omitted). In this case, the facts are disputed, numerous affidavits have been submitted, and cross-motions for summary judgment are also pending. Thus, the Court will treat the motion as a factual attack, consider material outside the pleadings, and not assume the facts asserted in the complaint are true in ruling on the motion. See Branson Label, Inc. v. City of Branson, 793 F.3d 910, 915 (8th Cir. 2015).

         Article III of the United States Constitution limits the subject matter jurisdiction of federal courts to “cases” and “controversies.” U.S. Const. art. III, § 2. This jurisdictional limitation requires every plaintiff to demonstrate it has standing when bringing an action in federal court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). “It is the responsibility of the complainant clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute and the exercise of the court's remedial powers.” Warth v. Seldin, 422 U.S. 490, 518 (1975). The essence of standing is whether the party invoking federal jurisdiction is entitled to have the court decide the merits of the ...


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