Farm Management Update

Quarterly Publication of Ohio State University Extension

Fall 2003

Appeals Court Rules on Hog Farm Lawsuit

Peggy Hall, Ag and Rural Law Program

An appellate court has halted the temporary victory for a Darke County farm family taken to court over construction of a hog facility. The Court of Appeals reversed an earlier court decision awarding the farmers damages for profits lost as a result of the lawsuit.

Neighbors of farmers Tony and Anita Knapke filed the lawsuit in 1998, seeking an injunction to prevent construction of a 2,000 hog facility and waste lagoon system for its potential "nuisance" effects on the neighborhood. The Knapkes filed a counterclaim against the neighbors, alleging that the lawsuit prevented them from moving forward on their business opportunity and would result in lost profits and attorney fees. The Darke County Court of Common Pleas denied the request for an injunction, and the Knapkes proceeded with construction of the facility. The Common Pleas Court then addressed the counterclaim and awarded the Knapkes $144,450 for attorney fees and lost profits caused by the delay in construction.

The neighbors appealed the case to the Second District Court of Appeals, claiming that the trial court should have issued the injunction and should not have awarded damages on the counterclaim. In its opinion issued February 28, 2003, the appellate court decided that the trial court's denial of the injunction was proper. The Court's decision on this issue focused on a technicalitythe fact that the neighbors specifically sought the injunction against the facility's proposed manure lagoons, but the Knapkes built manure pits rather than lagoons. The appeals court reasoned that the trial court could not have erred by failing to prevent the construction of manure lagoons if the lagoons were never constructed. By resolving the issue in this fashion, the court never reached the question of whether the trial judge should have granted an injunction based upon the neighbors' allegations that the facility would be a public nuisance.

The appellate court agreed with the neighbors, however, on their argument that the Court of Common Pleas should not have awarded lost profit damages and attorney fees to the Knapkes. The damage award exceeded the amount the trial court was authorized to award, according to the appeals court. When the neighbors filed the lawsuit, Ohio law required them to post a bond with the court of at least $500, pursuant to Ohio Revised Code Section 3767.03. The purpose of this bond requirement is "to secure to the defendant any damages the defendant may sustain and the reasonable attorney's fees the defendant may incur in defending the action if the action is wrongfully brought, not prosecuted to final judgment, is dismissed, or is not maintained, or if it is finally decided that an injunction should not have been granted." A defendant in an unsuccessful injunction action, therefore, may use the bond to recover damages suffered as a result of the action.

However, the court of appeals read the bonding provisions as setting

Defendants of such lawsuits should request bond amounts that include the cost of every possible harm that might result from the action, and should not allow other parties to directly pay attorney fees associated with defending the action.

a limit on the amount of damages the defendant could recover, stating, "[t]hese provisions limit the amount of the awards to the amount of the bond, and limit a defendant's recourse on those awards to a proceeding against the bond the plaintiff posted." If a defendant feels that the bond amount is insufficient to cover potential damages, said the court, the defendant can request an increase in the amount of the bond. At the case's outset, attorneys for the Knapkes asked the trial court to increase the required bond above $500, but the court never responded to the request. Therefore, the court of appeals concluded that the Knapkes' damages could not exceed $500, the amount of the bond posted by the neighbors.

The appellate court's decision is curious, and contrary to principles of equity instilled within the law of remedies. If a defendant's amount of recovery is limited to the amount of the bond, defendants will logically seek higher bonds. Higher bonding requirements have the potential of creating a "chilling effect" on injunctive actions, an effect that could most harm plaintiffs of lesser economic standing. Limiting damages to the amount of the bond could also harm defendants, as the court has the discretion to set the bond amount and can refuse a request to increase a bond, as occurred in the Knapke case. In effect, the court dictates the amount of the defendant's damages at the outset of the case, when determining the extent of potential damages is most difficult.

The final issue addressed by the appellate court involved the amount of attorney fees awarded to the Knapkes. Under the nuisance injunction provisions described above, the defendant can recover damages for "the attorney fees incurred by the defendant in defending the action." However, because Cooper Farms, Inc., and Ohio Livestock Coalition's Family Farm Support Fund paid the Knapke attorneys, the court held that the Knapkes themselves did not incur attorney fees and could not recover damages for the fees paid by others.

The Knapkes have asked the Supreme Court of Ohio to review the appellate court decision, but the Court has not yet determined whether it will review the case. In the meantime, the current decision by the Second District Court of Appeals creates two issues of concern for parties subject to injunction suits based upon claims of nuisance. Defendants of such lawsuits should request bond amounts that include the cost of every possible harm that might result from the action, and should not allow other parties to directly pay attorney fees associated with defending the action.