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INSIDE Minnesota cooperatives against some of their respective member-farmers in a dispute over
whether the HTA contracts between them were enforceable under the CEA.
The CEA requires transactions in commodity futures contracts to occur only under the
rules of a board of trade that has been designated by the Commodity Futures Trading
Water rights in Wyoming Commission (CFTC). However, it exempts from regulation contracts for any sale of a cash
commodity for deferred shipment or delivery. 7 U.S.C. § 1a(11). Such contracts are
commonly known as cash forward contracts. In the disputes before the Eighth Circuit, the
Animal confinement farmers contended that the contracts were regulated futures contracts while the cooperatives
unit permits in asserted that the contracts were unregulated cash forward contracts.
South Dakota The contracts at issue in the two cases were materially similar, though the court described
only the Grain Land contract in detail. As described by the court, the Grain Land contract
Legal effects of federal required the farmer to deliver a specified quantity and quality of grain to the cooperative at
an unspecified time. At the contracts inception, the parties designated a Chicago Board of
agency pronouncements Trade (CBOT) futures contract price for the grain to serve as a reference point in determining
the grains sale price. The sale price would be CBOT futures contract price, plus or minus the
grains basis, with the basis being the difference between the grains futures contract price
and its cash price. Though the futures contract price was set at the contracts inception, the
basis was not set until the individual farmer elected to set it. If the farmer did do so by a
specified time, the cooperative could set the basis and thereby set the grains sales price.
Because basis can fluctuate, HTA contracts placed basis-risk on the farmer. For a fee,
however, the farmer could either roll the contract into another futures contract period or
Solicitation of articles: All AALA cancel the contract. Nonetheless, the contract specified that the grain had to be delivered
members are invited to submit ar- to the cooperative sometime for the farmer to collect any gain.
ticles to the Update. Please include In the mid-1990s, while the contracts at issue were in effect, grain prices rose to the point
copies of decisions and legislation Continued on page 2
with the article. To avoid duplica-
tion of effort, please notify the Edi-
tor of your proposed article.
Cotenants claiming by adverse possession
In Buchanan v. Rediger, 975 P.2d 1235 (Kan. Ct. App. 1999), the plaintiffs are brother and
sister. The plaintiffs mother became the owner of 157 acres of farmland after the plaintiffs
IN FUTURE grandmother died. In 1968, the plaintiffs mother granted the plaintiffs father a life estate
in the farmland with the remainder to the plaintiffs. The mother died later in 1968, and the
father remarried in 1969. In 1977, the plaintiffs father died survived by his second wife and
I SSUES the plaintiffs. Thus, after the fathers death, the plaintiffs remainder interest became a
present possessory interest. The fathers second wife died in 1988 leaving her nieces and
nephews, the defendants in this case.
While attempting to obtain title insurance for the farmland in 1996, the plaintiffs
discovered a 1955 deed conveying the farmland to the plaintiffs parents as tenants in
The myth of the common. As a result, the defendants claimed that the plaintiffs father died owning only a
estate planning tax one-half interest in the property, and that the plaintiffs only had a remainder interest in one-
half of the property. Therefore, according to the defendants, upon the intestate death of the
plaintiffs father in 1977, one-half of his interest passed to his second wife that survived him,
and one-half passed to the plaintiffs. Thus, upon the fathers death, the plaintiffs owned a
three-fourths interest in the real estate. When the fathers second wife died in 1988, her one-
quarter interest in the tract passed to the defendants.
Continued on page 3
HEDGE-TO-ARRIVE/CONTINUED FROM PAGE 1
that the price of grain for immediate delivery guishing an unregulated cash forward con- whether the contracts terms are individual-
exceeded the futures contract price for a later tract from a regulated futures contract. A ized, rather than standardized. Id. (citations
delivery. In response to this price inversion, review of the CEAs legislative history was omitted).
the farmers sold their grain at the cash price more fruitful, for there the Eighth Circuit Under this approach, the Eighth Circuit
and rolled-over their HTA contracts. When found in the fact that regulated futures con- held that the HTA contracts at issue were
this happened, the cooperatives, which had tracts are not normally settled by the actual unregulated cash forward contracts, even
hedged their obligations under the contracts delivery of the commodity support for the though they had features that differentiated
by taking a short or sell position on the proposition that it is the contemplation of them from traditional cash forward contracts.
CBOT equal to their HTA buy obligations, physical delivery of the subject commodity In the course of reaching this conclusion, the
experienced losses in their short futures po- that is the hallmark of an unregulated cash- court noted that the parties were either in the
sitions. As a result, they were forced to add forward contract. Grain Land Coop v. Kar business of producing or receiving grain and
to their margin accounts. Seeking to stem Kim Farms, Inc., 1999 WL 1179095 at *4 that the HTAs bore little resemblance to
these losses, the cooperatives took various (footnote omitted). In light of this proposi- futures contracts traded on the CBOT in that
steps. Grain Land, for example, terminated tion, the court commented that [i]n order to they were not offered to the general public
its outstanding HTA contracts and required determine whether a transaction is an un- and were individually negotiated and not
farmers to sign new contracts that offered regulated cash-forward contract, we must standardized.
protection to the cooperative against such decide whether there is a legitimate expecta- The court also found that the roll-over
losses. The farmers who later became liti- tion that physical delivery of the actual com- feature merely postponed delivery and did
gants against Grain Land declined to sign a modity by the seller to the original contract- not negate a delivery obligation altogether.
new contract. ing buyer will occur in the future. Id. (quot- While the cancellation feature in the Grain
Though various state law claims were at ing Andersons, Inc. v. Horton Farms, Inc., Land contract could negate delivery, the
issue, the central issue was whether the CEA 166 F.2d 308, 318 (6th Cir. 1998)) (other court observed that the contract provided
applied to the contracts. Turning first to the citations omitted). that no gains could be realized by the farmer
CEA itself, the Eighth Circuit found scant As to the method for resolving whether unless the grain was delivered. As to both of
guidance in the Acts language for distin- actual physical delivery of the commodity these features, the court rejected the conten-
was contemplated, the Eighth Circuit adopted tion that a mutually enforceable delivery
an individualized multi-factor approach used obligation is necessary to place a transaction
by other courts in HTA and other disputes. In outside the reach of the CEA. Id. at *6
general, the factors considered include the (citations omitted). Such a purely contract-
intentions of the parties, the terms of the based analysis, the court reasoned, would
contract, the course of dealing between the expand the gravitational pull of the CEA
parties, and any other relevant factors.... Id. beyond what is suggested by the congres-
at *5. More specifically, this approach scru- sional policies underlying the vague text of
tinizes each transaction for such characteris- [the cash forward contract exclusion]. Id.
VOL. 17, NO. 1, WHOLE NO. 194 December 1999 tics as whether the parties are in the business On the other hand, the court found that a
of obtaining or producing the subject com- contractual obligation to deliver was suffi-
AALA Editor..........................Linda Grim McCormick
Rt. 2, Box 292A, 2816 C.R. 163
modity; whether they are capable of deliver- cient to bring the contract within the cash
Alvin, TX 77511 ing or receiving the commodity in the quan- forward contract exclusion, notwithstanding
Phone: (281) 388-0155 tities provided for in the contract; whether
FAX: (281) 388-0155
the farmers lack of subjective intent to de-
E-mail: lgmccormick@teacher.esc4.com there is a definite date of delivery; whether liver the commodity. Haren v. Conrad Coop-
American Agricultural Law Association website: http:// the agreement explicitly requires actual deliv- erative, 1999 WL 1161525 at *1.
www.aglaw-assn.org
ery, as opposed to allowing the delivery ob- Christopher R. Kelley, Assistant
Contributing Editors: Roger A. McEowen, Kansas State ligation to be rolled indefinitely; whether Professor of Law, University of Arkansas,
University; Christopher R. Kelley, University of Arkansas.
For AALA membership information, contact William P.
payment takes place only upon delivery; and Of Counsel, Vann Law Firm, Camilla, GA
Babione, Office of the Executive Director, Robert A. Leflar
Law Center, University of Arkansas, Fayetteville, AR 72701.
Legal effects/Continued from page 2 Cotenants/Continued from page 1 which recognized the possibility that a co-
interpretive rule is interpreting a legislative The plaintiffs claimed full ownership of the tenant who is granted what appears to be the
rule, a court will give the interpretive rule real estate under the theory of adverse pos- entire interest in property may hold it adverse
great deference. This deference may be the session, and the defendants claimed a one- to undisclosed co-tenants. The court rea-
same as, or nearly the same as, Chevron quarter interest in accordance with the 1955 soned that the case was consistent with Kan.
deference. Consequently, through deference, deed. The trial court ruled that the plaintiffs Stat. Ann. § 60-503, which allows a claim of
interpretive rules can have a legally binding were co-tenants with the defendants and adverse possession based upon a good faith
effect, notwithstanding the fact that they do that a co-tenant could not acquire title by belief of ownership of the disputed property
not have to be promulgated through the adverse possession absent a clear ouster. The for a period of fifteen years. Accordingly, the
rulemaking processes specified in the APA. trial court also ruled that without knowledge plaintiffs were awarded title to the tract as
of the co-tenancy the plaintiffs possession tenants in common.
could not be adverse. Roger A. McEowen,
The Kansas Court of Appeals reversed, Kansas State University
citing a 1905 Kansas Supreme Court case
Most federal administrative agencies have determining whether to make new law by agency statement of general or particular
been given the authority by Congress to rulemaking or by adjudication. NLRB v. Bell applicability and future effect designed to
make rules that legally bind private parties, Aerospace Co., Div. of Textron, Inc., 416 U.S. implement, interpret, or prescribe law or policy
the courts, and the agency itself. See gener- 267, 293-94 (1974). The APA, however, dis- or describing the organization, procedure, or
ally Cornelieus M. Kerwin, Rulemaking: tinguishes rulemaking from adjudica- practice requirements of an agency, the APA
How Government Agencies Write Law and tion. Under the APA, adjudications result in definition of a rule, if read literally, is
Make Policy (1994)(developing the thesis orders, not rules. 5 U.S.C. § 551(7). broad enough to encompass virtually any
that rulemaking is the single most important Rules and rulemaking are potentially statement an agency might make in any
function performed by agencies). Not all confusing subjects for at least two reasons. context. 1 Kenneth Culp Davis & Richard J.
pronouncements that an agency might char- First, agencies make rules in several ways. Pierce, Jr., Administrative Law Treatise § 6.1
acterize or treat as binding rules are legally These include formal or on the record (1994)[Davis & Pierce](citations omitted).
binding, yet federal agencies sometimes treat rulemaking under APA §§ 553, 556, and 557; Or, as Professor Anthony notes:
nonbinding rules as if they were legally bind- informal or notice and comment Issuances encompassed by this definition
ing. Consequently, private parties and the rulemaking under APA § 553; and rulemaking come in a myriad of formats and bear a
courts often must draw the distinction be- through adjudication. Agencies also an- myriad of labels: legislative rules, interpre-
tween nonbinding and legally binding rules. nounce what they characterize as rules by tive rules, opinion letters, policy statements,
This article offers an overview of the law publishing press releases, internal handbooks, policies, program policy letters, Dear Col-
governing this distinction. and other guidances, the contents of which league letters, regulatory guidance letters,
The beginning point for any discussion of do not also appear in the Federal Register, a rule interpretations, guidances, guidelines,
federal agency rules is the Administrative process sometimes referred to as publica- staff instructions, manuals, questions-and-
Procedure Act (APA). In relevant part, the tion rulemaking. Peter L. Strauss, The answers, bulletins, advisory circulars, mod-
APA provides that a rule is the whole or Rulemaking Continuum, 41 Duke L.J. 1463, els, enforcement policies, action levels,
a part of an agency statement of general or 1467 (1992)[Strauss](footnote omitted). press releases, testimony before Congress,
particular applicability and future effect de- Agencies often resort to such publication and many others.
signed to implement, interpret, or prescribe rulemaking or nonrule rulemaking be- Anthony, supra, at 1320 (footnote omitted).
laws or policy or describing the organization, cause of real and perceived delays and diffi- Obviously not every statement an agency
procedure, or practice requirements of an culties associated with APA rulemaking. might make in any context is a rule within
agency.... 5 U.S.C. § 551(4). As suggested by Thomas O. McGarity, Some Thoughts on the meaning of APA § 551(4). As a practical
this definition, unless Congress specifically Deossifying the Rulemaking Process, 41 matter, private parties who deal with federal
authorizes otherwise, rules must be prospec- Duke L.J. 1385, 1393 (1992); see also 1 George agencies are concerned primarily, if not exclu-
tive in effect, not retroactive. Bowen v. C. Coggins, Public Natural Resources Law § sively, with rules that have a legally binding
Georgetown Univ. Hospital, 488 U.S. 204 7.03[2][d] (1990)(discussing the evolution of effect on the public, the courts, and the
(1988). Thus, in general, a legally binding rule the USDA Forest Service Manual and the agency. If any statement regarding agency
regulates the future conduct of either groups legal status of its contents). When agencies rules can be made with certainty, it is that
of persons or a single person; it is essentially attempt to enforce rules made through this valid legislative rules have that effect.
legislative in nature, not only because it op- form of rulemaking, the distinction between Nonetheless, as previously noted, agencies
erates in the future but also because it is nonbinding and legally binding rules is invari- sometimes treat nonlegislative rules as if they
primarily concerned with policy consider- ably an issue. were legislative rules. Professor Anthony
ations. Administrative Conference of the A second source of potential confusion is characterizes such rules as spurious rules.
United States, A Guide to Federal Agency the common division of rules into four Robert A. Anthony, Interpretive Rules,
Rulemaking 40 (2d ed. 1991)[Federal Agency categories: legislative rules; general state- Legislative Rules and Spurious Rules:
Rulemaking](quoting Attorney Generals ments of policy; interpretive (or interpreta- Lifting the Smog, 8 Admin. L.J. 1, 10
Manual on the Administrative Procedure tive) rules; and rules of agency organization, (1994)(Such rules have no legal force, but
Act 14-15 (1947)). procedure, or practice. Although some courts because they are treated as binding by the
Agency rules are the product of agency and commentators equate legislative rules agency, they are spuriously given the appear-
rulemaking. The APA defines rulemaking with substantive rules, others maintain this ance of legal force. (footnote omitted)).
as the process for formulating, amending, or synonymous treatment is misleading. See Therefore, the determination of whether a
repealing a rule. 5 U.S.C. § 551(5). The Robert A. Anthony, Interpretive Rules, Policy rule has the legally binding effect of a
object of the rule making proceeding is the Statements, Guidances, Manuals, and the legislative rule requires distinguishing legis-
implementation or prescription of law or policy LikeShould Federal Agencies Use Them lative rules from spurious rules and other
for the future, rather than the evaluation of To Bind the Public?, 41 Duke L.J. 1311, 1321- statements issued by an agency.
a respondents past conduct. Federal Agency 27 (1992)[Anthony]. Professor Anthony ob-
Rulemaking, supra, at 40 (quoting Attorney serves that substantive standards can be found Legislative rules
Generals Manual on the Administrative Pro- in legislative rules, interpretive rules, and A legislative rule is a substantive rule imple-
cedure Act 14-15 (1947)). This objective and policy statements. As discussed below, the menting a statute that the agency is statuto-
the provision of rulemaking procedures in the latter two categories are not, by definition, rily empowered to make and that is duly
APA notwithstanding, the United States legislative rules. promulgated under APA § 553. Professor
Supreme Court has held that agencies are Notwithstanding the fact that rules can be Anthony would add that the agency also
generally free to use their own judgment in divided into four categories, the APA does must intend to make a legislative rule, not an
not expressly define the differences between interpretive rule or a policy statement. An-
legislative rules, interpretive rules, policy state- thony, supra, at 1322 (listing six requirements
Christopher R. Kelley is Assistant Professor ments, and procedural rules. It does not even that must be met by a legislative rule). See also
of Law, University of Arkansas and is Of use the term legislative rules. Instead, by American Mining Congress v. Mine Safety &
Counsel to the Vann Law Firm, Camilla, GA. defining a rule as the whole or part of an Health Admin., 995 F.2d 1106, 1109 (D.C.
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William P. Babione, University of Arkansas School of Law, Fayetteville, AR 72701. 501/575-7369; bbabione@comp.uark.edu