North Dakota Farm Bureau, Inc. et al v. Attorney General of North Dakota
ORDER by Chief Judge Daniel L. Hovland granting in part and denying in part 64 Motion for Partial Summary Judgment; granting in part and denying in part 71 Motion for Summary Judgment; denying 93 Motion to Strike ; denying 104 Motion to Dismiss; denying 113 Motion for Judgment on the Pleadings. (MM)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
North Dakota Farm Bureau, Inc.,
Galegher Farms, Inc., Brian Gerrits,
Breeze Dairy Group, LLC, North Dakota
Pork Council, and Bill Price,
ORDER ON MOTIONS
Wayne Stenehjem, in his official capacity )
as Attorney General of North Dakota,
Case No. 1:16-cv-137
Farmers’ Educational and Cooperative
Union of America North Dakota Division, )
d/b/a North Dakota Farmers Union,
Dakota Resource Council, a North
Dakota Nonprofit Corporation,
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.
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 The Corporate Farming Law was originally enacted in 1932 as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
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
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
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
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
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
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
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.
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 dispute. Id. at 498. The three elements which
constitute the “irreducible constitutional minimum of standing” are injury in fact, causation, and
redressability. Lujan, 504 U.S. at 560-61.
It is important to note that an inquiry into standing is not a review of the merits of the
plaintiff’s claims. Oti Kaga, Inc. v. S.D. Hous. Dev. Auth., 342 F.3d 871, 878 (8th Cir. 2003). At
the summary judgment stage all material facts alleged must be accepted as true as long as they are
capable of proof at trial. Id. The burden is on the party responding to a summary judgment motion
to present some evidence creating an issue of material fact on the issues of injury, causation, and
redressability. Id. Generalized allegations of injury resulting from the defendant’s conduct will
suffice to establish standing at the pleading stage. See Lujan, 504 U.S. at 561; Constitution Party
of S.D. v. Nelson, 639 F.3d 417, 420 (8th Cir. 2011).
A plaintiff’s standing is distinct from the merits of the plaintiff’s cause of action. Am. Farm
Bureau Fed’n v. U.S. Envtl. Prot. Agency, 836 F.3d 963, 968 (8th Cir. 2016). Where there are
multiple plaintiffs and multiple claims, at least one plaintiff must demonstrate standing for each
claim and each form of relief being sought. Town of Chester, N.Y. v. Laroe Estates, Inc., 137 S. Ct.
1645, 1650-51 (2017). If a plaintiff lacks Article III standing, a federal court has no subject-matter
jurisdiction over the claim and the court must dismiss the action. Higgins Elec., Inc. v. O’Fallon
Fire Prot. Dist., 813 F.3d 1124, 1128 (8th Cir. 2016).
COUNT I – DORMANT COMMERCE CLAUSE
The Defendants contend the Plaintiffs do not have standing to bring a dormant Commerce
Clause claim because they have failed to introduce admissible evidence sufficient to establish that
any Plaintiff has suffered an “actual or imminent” injury that is causally connected to any state
action. The Plaintiffs contend otherwise. The Court concludes the Plaintiffs, much like the
plaintiffs in Hazeltine and Jones, have standing because the Corporate Farming Law has a direct
negative impact on their ability to raise out-of-state capital, earn income, increase farm values, and
utilize preferred business structures. See S.D. Farm Bureau, Inc. v. Hazeltine, 340 F.3d 583, 592
(8th Cir. 2003) (finding plaintiffs who expected an imminent loss of business had standing to
challenge South Dakota’s ban on corporate farming); Jones v. Gale, 470 F.3d 1261, 1267 (8th Cir.
2006) (finding plaintiffs had standing to challenge a Nebraska ban on corporate farming because the
law had a direct negative effect on their ability to earn income, borrow money, and optimize
financial planning decisions).
This case involves six plaintiffs. The Plaintiffs meet the Article III standing requirement if
any one of them has standing to sue. N.D. v. Heydinger, 825 F.3d 912, 917 (8th Cir. 2016). When
a state statute is alleged to violate the dormant Commerce Clause, plaintiffs have standing if the law
“has a direct negative effect on their borrowing power, financial strength, and fiscal planning.”
Jones, 470 F.3d at 1267; Heydinger, 825 F.3d at 917. An injury can be actual or threatened. Keller
v. City of Fremont, 719 F.3d 931, 947 (8th Cir. 2013). Plaintiffs have standing to challenge the
facial validity of a law when they allege an “actual, well-founded fear the law will be enforced
against them.” Id. It is undisputed the State regularly enforces the Corporate Farming Law. As the
declarations of Gerrits, Price, and Galegher demonstrate, the Plaintiffs have a reasonable belief,
based upon the plain text of the statute, that the Corporate Farming Law will be enforced against
them to their economic detriment. See Docket Nos. 81, 82, and 85. Thus, they have standing to
assert a facial challenge to the constitutionality of the law.
Plaintiff Breeze Dairy Group is a Wisconsin LLC, and its chief executive officer is Brian
Gerrits. Gerrits asserts in his declaration that Breeze Dairy would like to expand its dairy operations
into North Dakota but cannot do so based on the plain language of the Corporate Farming Law
which permits only “domestic” entities from farming in North Dakota. The Corporate Farming Law
also requires at least one member or shareholder to “reside on or operate the farm or ranch.” Breeze
Dairy and Gerrits contend these restrictions prevent Breeze Dairy from expanding its farming
operations into North Dakota, thus causing them economic harm.
Plaintiff Bill Price is a fourth generation North Dakota farmer and rancher. He has been
engaged in multiple farming, ranching, and consulting operations in North Dakota over the last 25+
years. One such operation is the Price Cattle Ranch, a limited liability partnership. Price would like
to bring out-of-state capital into his operations through corporate investments, but contends he is
prohibited from doing so by the Corporate Farming Law. Price contends this prohibition causes him
Plaintiff Galegher Farms, Inc. is a North Dakota corporation established in 1986. John
Galegher, Jr., is the president and owner of Galegher Farms. It leases approximately 3,100 acres
of North Dakota farmland for crop farming purposes. Galegher Farms would like to access
out-of-state capital through corporate investment in order to fund its operations but is prohibited
from doing so by the Corporate Farming Law. This prohibition increases the cost of capital
investments and thus harms Galegher Farms economically.
These injuries to Gerrits, Breeze Dairy, Price, and Galegher are comparable to the economic
harms suffered by the plaintiffs in Jones and Hazeltine. See Jones, 470 F.3d at 1267; Hazeltine, 340
F.3d at 592. A negative effect on borrowing power or denial of business opportunity constitute
sufficient injury for Article III standing purposes. Hazeltine, 340 F.3d at 592. The Plaintiffs in this
case have shown such an injury.
Contrary to the suggestion of the Defendants, the Plaintiffs here, who raise a facial challenge
to the Corporate Farming Law, are not required to show they applied for and were denied certificates
to farm in North Dakota in order to demonstrate an injury. It is not necessary for a plaintiff to show
that he had contracted with an out-of-state company in order to show the injury necessary for
standing to exist. Jones, 470 F.3d at 1267. This is because “‘plaintiffs have standing to challenge
the facial validity of a regulation notwithstanding the pre-enforcement nature of a lawsuit, where
the impact of the regulation is direct and immediate and they allege an actual, well-founded fear that
the law will be enforced against them.’” Keller, 719 F.3d at 947 (quoting Gray v. City of Valley
Park, 567 F.3d 976, 984 (8th Cir.2009)). The Plaintiffs’ fears that the Corporate Farming Law will
be enforced against them are well-supported by the plain language of the law and reinforced by the
undisputed fact that the North Dakota Attorney General regularly enforces the law which provides
for civil penalties and court-ordered divestment as remedies for violation of the law. See Heydinger,
825 F.3d at 917; see also Stenehjem ex rel. State v. Nat’l Audubon Soc’y, Inc., No. 47-2009-C-425
(Stutsman County Dist. Ct. Dec. 12, 2011) (“NAS I”); Stenehjem ex rel. State v. Crosslands, Inc.,
No. 20-05-C-002 (Griggs County Dist. Ct. June 5, 2009) (“Crosslands I ”). The Defendants’
contention that the Plaintiffs have misinterpreted the Corporate Farming Law is unpersuasive as
such an argument goes to the merits of the Plaintiffs’ claims; such an examination being
impermissible when assessing standing. Warth, 422 U.S. at 500 (“standing in no way depends on
the merits of the plaintiff’s contention that particular conduct is illegal”).
The Court finds the Plaintiffs have established, for purposes of standing, an actual and wellfounded fear, supported by admissible evidence, that the Corporate Farming Law may be enforced
against them. Having determined that a concrete and imminent injury has been shown, there can
be no question that the injury has been caused by state action which can be redressed by a favorable
ruling and a properly tailored injunction. Jones, 470 F.3d at 1267; Keller, 719 F.3d at 947-48
(noting that when state action is subject to a facial challenge by a plaintiff who is a target or object
of that action there is usually little question that the action has caused the plaintiff injury, and that
a judgment and injunction preventing the action will redress it).
COUNT III – EQUAL PROTECTION CLAUSE
Farmers Union contends in its motion to dismiss that the Plaintiffs do not have standing to
pursue an Equal Protection challenge to Chapter 10-06.1 because they have not suffered any
concrete harm. The Plaintiffs allege in the amended complaint that Chapter 10-06.1 allows some
North Dakota corporations and LLCs the opportunity to own farm land or ranch land in North
Dakota while denying the same opportunities to out-of-state entities. Specifically, Plaintiffs contend
Section 10-06.1-12 creates exceptions to the general prohibition on owning farmland and ranchland
for only domestic corporations and domestic limited liability companies, thereby treating them
differently than it does foreign corporations and foreign limited liability companies. See Docket No.
19, ¶ 113.
The basic underlying principle of the Equal Protection Clause requires “the government to
treat similarly situated people alike.” Klinger v. Dep’t of Corr., 31 F.3d 727, 731 (8th Cir. 1994).
As the Plaintiffs read Section 10-06.1-12, the family farm exception violates the simple command
of the Equal Protection Clause, by treating corporations and limited liability companies interested
or engaged in the business of farming and ranching differently based on where they are incorporated
or organized. While the Defendants disagree with this reading of the family farm exception, it is
certainly reasonable, and standing in no way depends on the merits of a plaintiff’s claim or
contention that particular conduct is prohibited by law. Warth, 422 U.S. at 500. The Plaintiffs have
alleged they are harmed by the family farm exception as they are not “domestic” entities and thus
are unable to take advantage of it, and it limits their access to out-of-state capital. These allegations
are supported by declarations (see Docket Nos. 81, 82, 83, 85, and 97) setting forth specific facts
which the Court must accept as true for purposes of determining standing. Lujan, 504 U.S. at 561.
For instance, Breeze Dairy is a Wisconsin LLC and thus not a “domestic” LLC as the Plaintiffs read
Section 10-06.1-12. Any member of the Farm Bureau or Pork Council seeking to take advantage
of the family farm exception through the use of a “foreign” corporation or LLC would be unable to
do so, while this would not be the case for “domestic” entities. The Court concludes that the
Plaintiffs have adequately alleged how Chapter 10-06.1 injures them by treating them differently
than it does domestic corporations and LLCs and individuals seeking to establish entities to own
farmland or ranchland in North Dakota. Therefore, the Plaintiffs have standing to pursue an Equal
COUNT IV – 42 U.S.C. § 1983
In order to state a claim under 42 U.S.C. § 1983, a plaintiff must allege the violation of a
right, privilege, or immunity secured by the Constitution and laws of the United States, and must
show that the alleged deprivation was committed by a person acting under color of state law,
regulation, or ordinance. Neighborhood Enterprises, Inc. v. City of St. Louis, 540 F.3d 882, 885 (8th
Cir. 2008). Section 1983 does not itself create substantive rights or confer standing, but rather
provides a remedy for the deprivations of rights established elsewhere. Tarsney v. O’Keefe, 225
F.3d 929, 939 (8th Cir. 2000). “Standing must be established on another basis before a section 1983
claim can proceed.” Id. In other words, a plaintiff who challenges the constitutionality of a state
statute using Section 1983 must establish only the traditional elements of Article III standing for the
underlying claim as there are no “Section 1983-specific” standing requirements. See Virginia v.
Am. Booksellers Ass’n, Inc., 484 U.S. 383, 392 (1988) (finding standing to bring a claim under
Section 1983 existed because “the law is aimed directly at plaintiffs, who, if their interpretation of
the statute is correct, will have to take significant and costly compliance measures or risk criminal
prosecution”). Because the Plaintiffs have demonstrated they have standing to pursue their dormant
Commerce Clause and Equal Protection claims, they also have standing to pursue relief under 42
U.S.C. § 1983. As North Dakota Attorney General Wayne Stenehjem is the state official charged
with enforcing Chapter 10-06.1, it was entirely appropriate to name him as a defendant in his official
capacity. Farmers Union’s arguments to the contrary go to the merits of a Section 1983 claim rather
than the standing issue and are unpersuasive.
JUDGMENT ON THE PLEADINGS
In the alternative to its standing argument, Farmers Union contends the amended complaint
mischaracterizes and inaccurately describes the requirements of the Corporate Farming Law such
that judgment on the pleadings is warranted.
The Plaintiffs maintain these alleged
mischaracterizations are simply their substantive position as to the proper interpretation and
application of Chapter 10-06.1. The Court agrees that these interpretive disagreements are not
mischaracterizations that would justify judgment on the pleadings. Rather, such disputes go to the
heart of the case and will be resolved below in relation to the summary judgment motions.
Accordingly, Farmers Union’s motion for judgment on the pleadings is denied.
DORMANT COMMERCE CLAUSE
The State and the Plaintiffs have both moved for summary judgment on the Plaintiffs’
dormant Commerce Clause claim. Summary judgment is appropriate when the evidence, viewed
in a light most favorable to the non-moving party, indicates that no genuine issues of material fact
exist and that the moving party is entitled to judgment as a matter of law. Davison v. City of
Minneapolis, Minn., 490 F.3d 648, 654 (8th Cir. 2007); see Fed. R. Civ. P. 56(a). Summary
judgment is not appropriate if there are factual disputes that may affect the outcome of the case
under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
An issue of material fact is genuine if the evidence would allow a reasonable jury to return a verdict
for the non-moving party. Id.
The Court must inquire whether the evidence presents a sufficient disagreement to require
the submission of the case to a jury or whether the evidence is so one-sided that one party must
prevail as a matter of law. Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir.
2005). The moving party bears the responsibility of informing the court of the basis for the motion
and identifying the portions of the record which demonstrate the absence of a genuine issue of
material fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011). The nonmoving party may not rely merely on allegations or denials in its own pleading; rather, its response
must set out specific facts showing a genuine issue for trial. Id.; Fed. R. Civ. P. 56(c)(1). The court
must consider the substantive standard of proof when ruling on a motion for summary judgment.
Anderson, 477 U.S. at 252.
The Plaintiffs’ dormant Commerce Clause contentions are two-fold. First, the Plaintiffs
maintain that Section 10-06.1-12 of the Corporate Farming Law, known as the family farm
exception, prohibits out-of-state individuals and corporations from engaging in farming or ranching
in North Dakota. See Docket No. 19, ¶¶ 36, 51, 57, and 70. Second, the Plaintiffs contend the
family farm exception prevents North Dakota farmers from utilizing outside capital in their
operations, or entering into business relationships with out-of-state corporations. See Docket No.
19, ¶¶ 36, 70, 71, and 78. Specifically, the Plaintiffs object to the phrases “domestic corporation”
or “domestic limited liability company” and “actively engaged in operating the farm or ranch” and
“residing on or operating the farm or ranch” found in the language of the family farm exception.
The Commerce Clause grants to Congress the power “[t]o regulate Commerce . . . among
the several States.” U.S. Const. Art. I, § 8. The Commerce Clause has long been understood to have
a “negative or dormant implication.” S. Union Co. v. Mo. Public Serv. Comm’n, 289 F.3d 503, 507
(8th Cir. 2002). The dormant Commerce Clause prohibits states from “enact[ing] laws that
discriminate against or unduly burden interstate commerce.” Hazeltine, 340 F.3d at 592. The
purpose of the dormant Commerce Clause is to prevent states from promulgating protectionist
policies which would inhibit free trade among the states. Id. The Commerce Clause “reflect[s] a
central concern of the Framers that was an immediate reason for calling the Constitutional
Convention: the conviction that in order to succeed, the new Union would have to avoid the
tendencies toward economic Balkanization that had plagued relations among the Colonies and later
among the States under the Articles of Confederation.” Hughes v. Okla., 441 U.S. 322, 325 (1979).
When a state law is challenged on dormant Commerce Clause grounds it is subject to a twotiered analysis. Hazeltine, 340 F.3d at 593. The first tier analysis requires the court to determine
whether the law discriminates against interstate commerce.
Jones, 470 F.3d at 1267.
“Discrimination in this context means the ‘differential treatment of in-state and out-of-state
economic interests that benefits the former and burdens the later.’” Hazeltine, 340 F.3d at 593
(quoting Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93, 99 (1994)). A law can
discriminate in three ways: 1) it can discriminate on its face; 2) it can have a discriminatory purpose;
or 3) it can have a discriminatory effect. Jones, 470 F.3d at 1267; Hazeltine, 340 F.3d at 593. If a
state law is determined to be discriminatory, it is per se invalid unless the state can show, under
rigorous scrutiny, that it has no other means to advance the legitimate state interest. Jones, 470 F.3d
at 1270; Hazeltine, 340 F.3d at 593. If a law is found non-discriminatory under a first tier analysis,
the second tier analysis, otherwise known as the Pike balancing test, provides the law will be found
unconstitutional “if the burden it imposes on interstate commerce ‘is clearly excessive in relation
to its putative local benefits.’” Hazeltine, 340 F.3d at 593 (quoting Pike v. Bruce Church, Inc., 397
U.S. 137, 142 (1970)).
The Court will first address whether the Corporate Farming Law discriminates on its face.
In order to do that, the Court must address the two clauses in the family farm exception which the
Plaintiffs contend violate the dormant Commerce Clause.
The disputed portion of Section 10-06.1-12 which references “domestic corporation” and
“domestic limited liability company” provides as follows:
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.
N.D.C.C. § 10-06.1-12 (emphasis added). The Corporate Farming Law does not define “domestic
corporation” or “domestic limited liability company” but it does incorporate North Dakota’s
Business Corporation Act (N.D.C.C. ch. 10-19.1) and North Dakota’s Limited Liability Company
Act (N.D.C.C. ch. 10-32.1). See N.D.C.C. §§ 10-06.1-13 and 10-06.1-14. These Acts are fully
applicable to the family farm exception, “except when inconsistent with the intent of this chapter”
and thus the Court will look to them for definitions. Id.
Chapter 10-19.1 (the Business Corporation Act) defines “domestic corporation” as “a
corporation, other than a foreign corporation, organized for profit and incorporated under or
governed by this chapter.” N.D.C.C. § 10-19.1-01(16). It defines the term “foreign corporation,”
as “a corporation organized for profit which is incorporated under laws other than the laws of this
state for a purpose for which a corporation may be incorporated under this chapter.” N.D.C.C. §
10-19.01(26). It defines “domestic limited liability company” as “a limited liability company, other
than a foreign limited liability company, organized under or governed by chapter 10-32.1.”
N.D.C.C. § 10.19.1-01(34). It defines the term “foreign limited liability company,” as “a limited
liability company organized under laws other than the laws of this state for a purpose for which a
limited liability company may be organized under chapter 10-32.1.” N.D.C.C. § 10-19.01(27).
Chapter 10-32.1 (the North Dakota LLC Act) defines “domestic corporation” as “a
corporation, other than a foreign corporation, organized for profit and incorporated under chapter
10-19.1.” N.D.C.C. § 10-32.1-02(9). It defines “domestic limited liability company” as “a limited
liability company, other than a foreign limited liability company, organized under or governed by
this chapter excluding a nonprofit limited liability company organized under or governed by chapter
10-36.” N.D.C.C. § 10-32.1-02(28). It defines the terms “foreign corporation” and “foreign limited
liability company,” virtually identically to the North Dakota Business Corporation Act. N.D.C.C.
§§ 10-32.1-02(20) and (21).
From the plain language of these definitions, it is clear that the family farm exception
requires the entity to be a North Dakota corporation or a limited liability company in order for the
exception to apply. The Court finds that such a requirement would clearly discriminate against outof-state interests in violation of the dormant Commerce Clause under current Eighth Circuit case
law. See Jones, 470 F.3d at 1267 (stating differential treatment of in-state and out-of-state entities
that benefits the former while burdening the latter violates the dormant Commerce Clause).
However, the Defendants maintain this interpretation of the term “domestic” is incorrect.
The Defendants contend the word “domestic” means “within the United States.” This position is
taken by the North Dakota Attorney General, a position which effectively ignores the plain language
of the statute and the laws it incorporates. The Defendants maintain this interpretation is permissible
because the term “domestic” is ambiguous. The Defendants contend the meaning they afford the
term “domestic” is supported by the legislative history, a state district court opinion, and is
reasonable because it avoids constitutional infirmity. The Court finds that the Defendants’
interpretation of the word “domestic” is unreasonable and clearly contrary to the plain language of
the Corporate Farming Law and the state laws it incorporates.
Because the North Dakota Attorney General’s interpretation is inconsistent with the clear
and unambiguous statutory language, that interpretation need not be given deference. Delorme v.
N.D. Dep’t of Human Servs., 492 N.W.2d 585, 587-88 (N.D. 1992) (noting agency interpretation
of statutory language should be given deference if the statutory language is ambiguous but not if the
statutory language is clear, plain, and unambiguous). A statute is ambiguous if it is susceptible to
“differing but rational meanings.” Id. at 588. Statutory language must be given its most natural and
obvious meaning. Jones, 470 F.3d at 1268; Little v. Tracy, 497 N.W.2d 700, 705 (N.D. 1993)
(noting that when the wording of a statute is unambiguous, “the letter of it is not to be disregarded
under the pretext of pursuing its spirit”).
In this case, the terms “domestic corporation” and “domestic limited liability company” are
expressly defined in Chapters 10-19.1 and 10-32.1 to mean a corporation or limited liability
company created under the laws of North Dakota. N.D.C.C. §§ 10-19.1-01(16), (26), (27), and (34)
and N.D.C.C. §§ 10-32.1-02(9), (20), (21), and (28). By incorporating the requirements of Chapters
10-19.1 and 10-32.1, the Corporate Farming Law necessarily adopts those Chapters’ definitions of
“domestic corporation” and “domestic limited liability company.” See N.D.C.C. §§ 10-06.1.13 and
10-06.1-14. The household dictionary definitions provided by the Defendants are unpersuasive
when the statute and the laws it incorporates define the terms in question. In addition, Black’s Law
Dictionary defines a “domestic corporation” as one “organized and chartered under the laws of a
state” while a “foreign corporation” is one “organized and chartered under the laws of another state.”
Black’s Law Dictionary (9th ed. 2009). The Black’s Law Dictionary’s definitions are consistent
with the statutory definitions provided for under North Dakota law.
As for the decision of the North Dakota state district court in NAS I, giving the term
“domestic” the broad definition proposed by the State, the Court finds it unpersuasive. The state
district court offered scant analysis in support of its conclusion and simply found the State’s
argument persuasive and supported by the legislative history. The lack of analysis renders the
opinion unhelpful. The apparent reliance on legislative history misses the mark as well. It is
improper to resort to legislative history when the statute itself is plainly unambiguous. See Olson
v. Job Serv. N.D., 827 N.W.2d 36, 40 (N.D. 2013) (noting that if the language of a statute is
unambiguous, “legislative intent is presumed clear from the face of the statute”); Olson v. Fairview
Health Servs. of Minn., 831 F.3d 1063, 1071 (8th Cir. 2016) (noting legislative history should only
be consulted when a statute contains textual ambiguity).
While the broad meaning of the term “domestic” offered by the State is understandable from
the standpoint of avoiding a dormant Commerce Clause violation, accepting the State’s construction
would render the Corporate Farming Law’s incorporation of Chapters 10-19.1 and 10-32.1
meaningless. Because the Court can find no ambiguity in the term “domestic” as used in Section
10-06.1-12, and because when the term “domestic” is given its plain and ordinary meaning it gives
preference to North Dakota entities, the Court finds this provision of the Corporate Farming Law
clearly violates the dormant Commerce Clause.
Section 10-06.1-12(6), provides as follows:
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.
N.D.C.C. § 10-06.1-12(6) (emphasis added). The Plaintiffs contend the emphasized language
(“operational requirements”) amounts to a requirement that at least one member or shareholder
reside on the farm and such a requirement violates the dormant Commerce Clause. See Jones, 470
F.3d at 1268 (finding the requirement of Nebraska law that at least one family member reside on or
engage in the daily labor or management of the farm violated the dormant Commerce Clause as it
favored Nebraska residents). A requirement that someone reside on or work on the farm clearly
violates the dormant Commerce Clause. Id. Neither of the operational requirements are defined by
the Corporate Farming Law.
The Defendants maintain North Dakota’s family farm exception does not contain a day-today labor requirement, and it is not necessary for any shareholder to reside on the farm.
Specifically, they contend the family farm exception’s first requirement that a shareholder be
“actively engaged in operating the farm or ranch” can be met by a shareholder performing
management activities off-site. The Defendants argue the second requirement that at least one
shareholder be “residing on or operating the farm or ranch” can also be satisfied by either residing
on the farm or making operational decisions from afar and without a physical presence on the farm.
The argument as to both requirements is essentially the same, namely the farm may be managed or
operated from a distance or remotely without requiring a physical presence on the farm. For
example, a non-resident shareholder living off the farm and outside North Dakota may operate a
North Dakota family farm through management decisions made by that individual and the actual
planting, harvesting, and other operations may be contracted out to independent entities which
perform custom agriculture services.
The dispute over the operational requirements essentially comes down to whether a physical
presence in North Dakota is required to satisfy the statutory language. The Plaintiffs contend a
physical presence is required while the Defendants contend no physical presence is required and
management from a distance is acceptable. It is undisputed that if the Plaintiffs are correct, the
dormant Commerce Clause is violated. Both parties have asserted reasonable interpretations of the
statutory language which is not defined by the law itself.
The Defendants point to North Dakota Attorney General Opinion 82-25 (April 12, 1982)
(“NDAG 82-25”), NAS I, and Crosslands I to support their interpretation of the operational
requirements as not requiring a physical presence in North Dakota. See Docket Nos. 67-10, 67-11,
and 67-12. The Plaintiffs contend that making management decisions from afar is a passive activity
which does not satisfy the family farm exception’s requirement of being actively engaged in the
operation of the farm or ranch. See Bornhorst v. Budzik, No. C8-90-393, 1990 WL 119348 (Minn.
Ct. App. Aug. 21, 1990) (unpublished) (concluding the plaintiffs were not actively engaged in
farming under Minnesota law because they were simply investors who did not participate in the
planting, cultivating, or harvesting of crops); Rengstorf v. Richards, 417 N.W.2d 138 (Minn. Ct.
App. 1987) (finding the defendant was actively engaged in farming under Minnesota law because
he harvested some hay himself); 7 C.F.R. § 1400.201 (discussing the meaning of actively engaged
in farming under Department of Agriculture regulations as including “active personal labor” or
“active personal management”). The Plaintiffs also point to the legislative history to support their
In 1982, just a year after the family farm exception was enacted, the North Dakota Attorney
General issued an opinion regarding the family farm exception that “a natural person who does not
reside upon a farm or ranch, but manages the farming or ranching operation through employees, may
incorporate that farm or ranch.” See Docket No. 67-12. The Attorney General explained that the
operational requirements encompass those physically doing daily work “as well those persons who
make management decisions or who hire others to perform the physical labor needed in the
operation of the farm or ranch.” See Docket No. 67-12. In North Dakota, an Attorney General’s
opinion, while not binding on North Dakota courts, has “important bearing on the construction and
interpretation of a statue.” Hughes v. State Farm Mut. Auto. Ins. Co., 236 N.W.2d 870, 876 (N.D.
1975). An Attorney General’s opinion which gives contemporaneous construction to a statute is
entitled to “special consideration.” See Johnson v. Wells Cty. Water Res. Bd., 410 N.W.2d 525, 529
(N.D. 1987); Hilton v. N.D. Educ. Ass’n, 655 N.W.2d 60, 65 (N.D. 2002).
The North Dakota Legislative Assembly has not expressed disagreement with NDAG 82-25
since the opinion was issued over three decades ago. Such legislative acquiescence over time
affords an Attorney General’s opinion greater weight. N.D. Fair Hous. Council, Inc. v. Peterson,
625 N.W.2d 551, 563 (N.D. 2001); see also Hilton, 655 N.W.2d at 65 (noting additional weight is
due “an attorney general’s opinion implicitly approved by the Legislature”). Since the Attorney
General’s opinion was issued in 1982, state agencies have relied upon NDAG 82-25 in
implementing and enforcing the Corporate Farming Law. Because NDAG 82-25 was issued
contemporaneously with the enactment of the family farm exception and has been impliedly
approved by the North Dakota Legislature’s inaction, the Court will afford it considerable weight
in assessing the meaning of the operational requirements in Section 10-06.1-12(6).
The family farm exception’s operational requirements have twice been reviewed in state
district court in NAS I and Crosslands I. On both occasions, the state district court analyzed the
family farm exception and found the operational requirements did not require a physical presence
in North Dakota. See Docket Nos. 67-10 and 67-11. In 2009, the state district court in Crosslands
I reviewed the family farm exception within Chapter 10-06.1, considered its text, applied principles
of statutory construction, analyzed the applicable evidence, and concluded that the family farm
exception “does not require persons to reside on the farm as long as there is an actively engaged
person operating the farm or ranch.” See Docket No. 67-11, p. 29. The state district court
consequently concluded that the operational requirements in the family farm exception did not
violate the dormant Commerce Clause. See Docket No. 67-11, p. 32. In 2011, the state district
court in NAS I reviewed the family farm exception within Chapter 10-06.1, considered its text,
applied principles of statutory construction, analyzed the applicable evidence, and concluded that
the family farm exception “does not require a daily physical presence or daily labor to satisfy the
‘actively engaged’ or ‘operating’ requirements.” See Docket No. 67-10, p. 28. The state district
court further concluded that the family farm exception “does not favor North Dakota residents in
close enough proximity that a daily commute is economically and physically possible.” See Docket
No. 67-10, p. 29. Both NAS I and Crosslands I offer reasoned analysis of the operational
requirements and lend support to the interpretation offered by the Defendants.
The Plaintiffs argue the legislative history supports their contention that the family farm
exception’s operational requirements demand an actual physical presence on the farm or ranch.
Specifically, the Plaintiffs rely upon exchanges between Allen Hoberg, Staff Council for the
Legislative Council, and Senators Dotzenrod, Barth, Wright, and Sorum during a hearing on a 1979
bill (SB 2280). The 1979 bill, which was passed by the Legislature but vetoed by Governor Link,
was similar to the 1981 bill (SB 2233) which forms the core of the current version of the Corporate
Farming Law. See Ross H. Espeseth, North Dakota’s Corporate Farming Statute: An Analysis of
the Recent Change in the Law, 58 N.D. L. Rev. 283, 287 n. 38 (1982). During this exchange,
Senator Dotzenrod stated that “there is nothing in this bill that states that an outside corporation with
the qualifications of this bill couldn’t come into North Dakota and buy land.” See Docket No. 67-7,
p. 4. Hoberg responded that “the provision in the bill states they must be ‘natural’ persons and must
be related and actively engaged in farming in North Dakota.” See Docket No. 67-7, p. 4. Senator
Barth wanted it clarified that “in order to be an officer or director of the corporation, they must be
actively engaged in farming or ranching” and Hoberg concurred. See Docket No. 67-7, p. 4.
Senator Wright expressed concern about “outside corporations coming in to buy farm land.” See
Docket No. 67-7, p. 16. Senator Sorum “stated the term ‘actively engaged’ concerns him as it has
no restrictions on it and felt it should be defined.” See Docket No. 67-7, p. 16.
The Court finds these brief exchanges less than helpful in defining the operational
requirements and shedding light on the question of whether an actual physical presence on the farm
is required. No mention of defining the operational requirements is made. Indeed, Senator Sorum
expressed a desire to define “actively engaged” but no definition was ever added to the bill and no
discussion was held as to what a definition should entail. Further, while the 1979 bill may have been
similar to the 1981 bill, the 1979 bill never became law and is not the focus of this lawsuit.
To support their interpretation, the Plaintiffs also rely on a discussion between several
members of the Senate Agricultural Committee on the 1981 bill. The discussion is as follows:
Senator Dotzenrod proposed an amendment for page 3, new subsection 10, which
would say, “Each shareholder or member of the corporation must be actively
engaged in operating the farm or ranch”. (sic) Senator Sorum suggested instead that
it read “the major shareholder be actively engaged in farming”; (sic) Senator Albers
indicated that this might eliminate the small farmer and encourage large farms to
incorporate only. In the case of off farm heirs: If one decided to sell their stock or
share of the land, they could only sell to those who are actively engaged in farming
the land, giving these people control of the destiny of the corporation.
See Docket No. 67-9, p. 5. While this discussion referenced the operational requirements several
times, there was no mention of a physical presence on the farm being necessary. It would seem the
discussion centered on whether some or all of the shareholders must be actively engaged in
operating the farm and not on whether being actively engaged in operating the farm required a
physical presence on the farm. The Court finds the discussion of little assistance.
The Plaintiffs’ citation to comments made by James Marsden, then director of public affairs
for the Farm Bureau, regarding the 1979 bill also unavailing. While statements from lawmakers are
helpful in determining legislative intent, the Court gives scant weight to comments from witnesses
such as Marsden, as statements from non-lawmakers are of little help in determining legislative
intent. See Jones, 470 F.3d at 1269 (noting statement by lawmakers may evidence a discriminatory
The Plaintiffs’ reliance on Minnesota case law is equally unpersuasive as it bears virtually
no relation to North Dakota’s Corporate Farming Law, NDAG 82-25, NAS I, and Crosslands I. In
addition, the provision of Minnesota law in question in Rengstorf and Bornhorst has been subject
to varying interpretations. See Fed. Land Bank of St. Paul v. Wessels, No. C7-88-2233, 1989 WL
38400 (Minn. Ct. App. Apr. 25, 1989) (unpublished) (noting a farmer residing in nursing home is
actively engaged in operating the family farm if he is still part of the family operation of the farm,
and the farmer’s daughter is actively engaged in operating that same family farm if she is actively
involved in financial or other aspects of the farming operation that do not require her physical
presence in the state).
Further, the Plaintiffs’ reliance on federal regulations is also unpersuasive. The cited federal
regulation defines eligibility for farm program payments. See 7 C.F.R. § 1400.201(b). The
regulation acknowledges active personal management alone can meet the requirement of being
“actively engaged” in farming. Id. “Actively engaged in farming” means, in part, “active personal
labor or active personal management, or a combination of active personal labor and active personal
Active personal management is defined as personally providing and
(1) The general supervision and direction of activities and labor involved in the
farming operation; or
(2) Services (whether performed on-site or off-site) reasonably related and necessary
to the farming operation, including:
(i) Supervision of activities necessary in the farming operation, including activities
involved in land preparation, planting, cultivating, harvesting, and marketing of
agricultural commodities, as well as activities required to establish and maintain
conserving cover crops on CRP acreage and activities required in livestock
(ii) Business-related actions, which include discretionary decision making;
(iii) Evaluation of the financial condition and needs of the farming operation;
(iv) Assistance in the structuring or preparation of financial reports or analyses for
the farming operation;
(v) Consultations in or structuring of business-related financing arrangements for the
(vi) Marketing and promotion of agricultural commodities produced by the farming
(vii) Acquiring technical information used in the farming operation; and
(viii) Any other management function reasonably necessary to conduct the farming
operation and for which service the farming operation would ordinarily be charged
7 C.F.R. § 1400.3 (emphasis added). These activities do not have a physical presence requirement
and would tend to support the position of the Defendants more so than the position of the Plaintiffs.
Specifically, this definition acknowledges that management may be performed off-site and still meet
the definition of “actively engaged in farming.” Mud on the boots is not required.
Unlike North Dakota’s family farm exception, both the Nebraska and South Dakota laws at
issue in Jones and Hazeltine included explicit language requiring a physical presence on the farm.
Jones, 470 F.3d at 1265 and 1268 (citing Neb. Const. art. XII, § 8); Hazeltine, 340 F.3d at 587-88
(citing S.D. Const. art. XVII, § 22, cl. 1). The Nebraska provision defined a family farm or ranch
corporation as engaged in farming and made up of family members “at least one of whom is a
person residing on or actively engaged in the day to day labor and management of the farm or
ranch.” Jones, 470 F.3d at 1265 (emphasis added). The South Dakota law required that
“[d]ay-to-day labor and management shall require both daily or routine substantial physical exertion
and administration.” Hazeltine, 340 F.3d at 587-88 (emphasis added). All North Dakota law
requires is that the officers and shareholders be “actively engaged in operating the farm or ranch”
and one member be a person “residing on or operating the farm or ranch.” N.D.C.C. § 10-06.1-12(6)
(emphasis added). As the Court has explained, these operational requirements do not include dayto-day labor or an actual physical presence on the farm. The North Dakota Attorney General has
reached the very same conclusion which has withstood the test of time since 1982.
Based on a careful review of the record, the Court finds NDAG 82-25, combined with the
state district court opinions in NAS I and Crosslands I, to be persuasive. North Dakota’s operational
requirements do not require a physical presence on the farm or in North Dakota. In this way, the
requirements differ substantially from the laws at issue in Jones and Hazeltine.
acknowledgment that to be actively engaged in the operation of a farm does not necessarily require
a physical presence on the farm is especially relevant in the modern internet age we now live in.
The availability of the internet and everything that goes along with it, including video-conferencing
and drone technology, makes the world a much smaller place. The Plaintiffs’ contention in this
regard is somewhat antiquated. For these reasons the Court finds the operational requirements in
Section 10-06.1-12(6) do not violate the dormant Commerce Clause.1
DISCRIMINATORY PURPOSE OR INTENT
The Plaintiffs contend the Corporate Farming Law was adopted with a discriminatory
purpose, that being a preference for North Dakota family farm corporations to the detriment of outof-state family farm corporations. In support of their contention, the Plaintiffs cite to the legislative
history of the 1979 bill, which never became law, and the 1981 bill which did become law and now
forms the core of North Dakota’s Corporate Farming Law. The Defendants cite the historical record
and the legislative history as not evidencing a discriminatory intent. The Defendants maintain the
purpose of the law is to preserve family farms, both in-state and out-of-state alike.
To determine whether there was a discriminatory purpose behind a law, courts look to both
direct and indirect evidence. Jones, 470 F.3d at 1269. Direct evidence includes statements by
lawmakers and statements and conduct by drafters. Id. Indirect evidence includes “irregularities
in the drafting process” that “hint at such a purpose.” Hazeltine, 340 F.3d at 594.
The legislative history consists of approximately 160 pages. See Docket Nos. 67-7, 67-9,
and 78-2). From this legislative history, Plaintiffs cite to nine statements which they contend offer
direct evidence of a discriminatory intent. See Docket No. 72, p. 34. Only four of these statements
Despite the Court’s finding that the operational requirements do not require a physical presence on the farm, it
would be helpful if the Legislature adopted a clarifying definition or otherwise revised the statutory language to
make it clear no actual physical presence on the farm is required.
are from legislators, the balance are from witnesses. Witness testimony carries little weight in
assessing legislative intent as witnesses are not lawmakers. See Jones, 470 F.3d at 1269 (noting
statements by lawmakers may evidence a discriminatory purpose); see also Premachandra v. Mitts,
753 F.2d 635, 639-40 (8th Cir. 1985) (discussing witness testimony and legislative history). Most
of these statements have been discussed in relation to the operational requirements, and rejected.
The Plaintiffs cite to Representative Olafson’s statement that “the family farm is vital to ND’s
standard of living, and the right to incorporate will help in its preservation.” See Docket No. 67-9,
p. 1. This statement expresses a desire to protect family farms but it makes no mention of out-ofstate or outside interests, and the Court does not see how it can be read as supporting discrimination
against out-of-state interests or treating them differently than North Dakotans.
Only two of the legislative comments, from Senators Dotzenrod and Wright, referenced
“outside corporations” coming into North Dakota to buy farm land. See Docket No. 67-7, pp. 4 and
16. Senator Dotzenrod stated that “there is nothing in this bill that states that an outside corporation
with the qualifications of this bill couldn’t come into North Dakota and buy land.” See Docket No.
67-7, p. 4. Senator Wright expressed concern about “outside corporations coming in to buy farm
land.” See Docket No. 67-7, p. 16. However, when carefully examined, these comments do not
support the Plaintiffs contention but rather seem to support the position of the Defendants. As these
senators apparently read the bill, outside corporations were allowed to come into North Dakota and
farm, as long as they met the other requirements of the family farm exception which are not
challenged in this case. Such murky comments do not reveal a preference for North Dakota family
farms over the interests of out-of-state family farms. See Exxon Mobil Corp. v. Allapattah Servs.,
Inc., 545 U.S. 546, 568 (2005) (noting legislative history is often murky, ambiguous, and
contradictory). The Court is also mindful of the wise admonition that one friend in a crowd is
insufficient to prove legislative intent. See Baptist Health v. Thompson, 458 F.3d 768, 775 n. 5 (8th
The Plaintiffs contend there is indirect evidence of a discriminatory intent against out-ofstate interests because no studies appear in the legislative history to support the contention that the
family farm exception would benefit family farms. See Hazeltine, 340 F.3d at 594-95 (noting a lack
of evidence that a law will accomplish its stated purpose can be seen as indirect evidence of a
discriminatory purpose). However, the legislative history in this case reveals otherwise. The
information gathered by the legislature included a statement of support from the Young Farmers and
Ranchers, a presentation and report from the North Dakota State Tax Department on the tax
consequences of the bill, a written analysis from Iowa State University professor Neil E. Harl
regarding the advantages of allowing corporate farming, an analysis from attorney William Guy III
of the income tax, estate planning, and other non-tax advantages and disadvantages of allowing farm
incorporation, and testimony from a representative of Communicating for Agriculture regarding how
enacting the family farm exception would help preserve family farms. See Docket No. 67-9, pp. 2528, 29-38, 39-40, 51-57, 58-61, and 69-71. The consensus from these sources is that considerable
tax and estate planning advantages would be available to family farmers if the family farm exception
was enacted, and this would help preserve family farming. See MSM Farms, Inc. v. Spire, 927 F.2d
330, 335 (8th Cir. 1991) (finding, in the context of an equal protection challenge, that “[t]he people
of Nebraska have made a reasonable judgment that prohibiting non-family corporate farming serves
the public interest in preserving an agriculture where families own and farm the land”).
North Dakota’s principle industry is agriculture. See Coal Harbor Stock Farm, Inc.v. Meier,
191 N.W.2d 583, 591 (N.D. 1971). North Dakota has had a Corporate Farming Law since 1932
when it was adopted via initiated measure. The 1932 law prohibited domestic and foreign
corporations from “engaging in the business of farming or agriculture.” Asbury Hosp. v. Cass
County, 7 N.W.2d 438, 443 (N.D. 1943). The law also prohibited all corporations from acquiring
and holding real estate regardless of its use. The law drew no distinctions between in-state and outof-state corporations. “The public policy underlying the restrictions on corporate ownership of
farmland or ranchland is rooted in the desire to preserve availability of rural agricultural land for use
by family farmers.” Stenehjem ex rel. State v. Crosslands, Inc., 782 N.W.2d 632, 637 (N.D. 2010);
Stenehjem ex rel. State v. Nat’l Audubon Soc’y, Inc., 844 N.W.2d 892, 898 (N.D. 2014). The
determination to “prohibit corporate farming as a business . . . was necessary to the economy of the
State and the welfare of its citizens.” Meier, 191 N.W.2d at 591. “It was the intent of the legislative
assembly in enacting the corporate farming statute to prevent a tendency towards a monopoly by
corporations in owning land and conducting farming operations.” North Dakota Attorney General
Opinion 46-54 (July 15, 1946) (“NDAG 46-54”).
In 1981, the Legislative Assembly amended the Corporate Farming Law. The 1981
amendment continued the general prohibition against corporations owning land within the state, but
included, for the first time, an exception allowing small family farms to incorporate, engage in
farming, and own land. N.D.C.C. ch. 10-06 (1981). The Corporate Farming Law incorporated by
reference the requirements and definitions of the Business Corporation Act in 1983, and the
Limited Liability Company Act in 1993. 1983 N.D. S.L. ch. 131, § 4; 1993 N.D. S.L. ch. 54 § 2;
1993 N.D. S.L. ch. 92, § 8. A review of the legislative history shows the family farm exception was
intended to help preserve family farms by allowing the use of favorable tax structures, assisting with
estate planning, protecting assets, limiting personal liability, making it easier to raise capital, and
making it easier to provide employee benefits. See Docket No. 67-9, pp. 25-31, 51-61.
A careful review of the legislative history does not reveal an intent to discriminate against
out-of-state interests. Rather, the purpose was to promote and preserve family farms by giving them
the ability to use the corporate form, with some limitations, in an increasing complex and connected
world. For instance, it was thought the corporate form would offer tax advantages and make it
easier to pass the family farm from generation to generation. From the Court’s review of the
available legislative history, the purpose of enacting the family farm exception was to help keep
family farming viable.
In some sense, every state law is enacted to further state interests. But this does not mean
every state law violates the Commerce Clause. There must be a showing of discriminatory purpose.
There has long been an anti-corporate sentiment in North Dakota as evidenced by the 1932 ban on
corporate farming which applied to all corporations, big and small, in-state and out-of-state alike.
The Commerce Clause does not guarantee access to the corporate form. State v. J.P. Lamb Co., 401
N.W.2d 713, 717 (N.D. 1987) (noting a corporation is a creature of statute which cannot exist
without the consent of the state and which is subject to whatever conditions a state may impose).
The 1981 family farm exception was intended to help preserve family farms through the limited use
of corporations. Economic protectionism was not its intent. Things went somewhat awry in 1983
and 1993 when the Business Corporation Act and the Limited Liability Company Act definitions
were incorporated by reference, but this does not change the purpose of the 1981 family farm
exception which the Plaintiffs challenge. The Court finds as a matter of law that the family farm
exception does not have a discriminatory purpose.
On its face, the family farm exception prevents foreign corporations and foreign limited
liability companies from engaging in the business of farming or owning farm land in North Dakota
while permitting North Dakota corporations and limited liability companies to do so. This is, by
definition, a discriminatory effect. See SDDS, Inc. v. State of S.D., 47 F.3d 263, 267 (8th Cir. 1995)
(collecting cases discussing and finding discriminatory effects); Pete’s Brewing Co. v. Whitehead,
19 F. Supp. 2d 1004, 1014 (W.D. Mo. 1998) (“when a statute gives in-state companies an advantage
over out-of-state companies, it has a discriminatory effect.”). Accordingly, the Court finds the
family farm exception has a discriminatory effect.
If a law fails any one of the three first-tier tests for facial discrimination, discriminatory
purpose, or discriminatory effect, then the law survives only if the state “can demonstrate, under
rigorous scrutiny, that it has no other means to advance a legitimate local interest.” C & A Carbone,
Inc. v. Town of Clarkstown, N.Y., 511 U.S. 383, 392 (1994). The State concedes the family farm
exception cannot survive rigorous scrutiny and it has made no attempt to explain why other means
are not available to promote the State’s interest in protecting family farms. See Docket No. 65, p.
31. In addition, since the Court has determined the family farm exception discriminates both in its
effect and on its face, the Court need not address the less rigorous second tier analysis. See Pike v.
Bruce Church Inc., 397 U.S. 137 (1970).
Having determined the family farm exception violates the dormant Commerce Clause, the
Court must address whether the entire law must be enjoined or whether severance of some portion
of the law will suffice as a remedy. The Plaintiffs contend Chapter 10-06.1 should be struck down
in its entirety. The Defendants contend the offending language in the family farm exception can
simply be severed and the remainder of the law allowed to stand. The Court agrees with the
Defendants that severing the offending language is the most appropriate remedy.
Severance is the preferred remedy under both North Dakota and federal law. See Ayotte v.
Planned Parenthood of N. New England, 546 U.S. 320, 328-29 (2006) (noting the United States
Supreme Court’s preference for enjoining only the unconstitutional language while leaving the
remainder intact); Tooz v. State, 38 N.W.2d 285, 291 (N.D. 1949) (stating severance is preferred
and “[i]t would be inconsistent with all just principles of constitutional law to adjudge these
enactments void because they are associated in the same act, but not connected with or dependent
on others which are unconstitutional”); First Bank of Buffalo v. Conrad, 350 N.W.2d 580, 584 (N.D.
1984) (“The declaration of part of a law as being unconstitutional does not require a court to also
declare the remainder void, unless all provisions are so connected and dependent upon each other
that it cannot be presumed that the legislature would have enacted the valid sections without the
unconstitutional sections.”); Kessler v. Thompson, 75 N.W.2d 172, 189 (N.D. 1956) (“It is a
fundamental principle that a statute may be constitutional in one part and unconstitutional in another
part and that if the valid part is severable from the rest, the portion which is constitutional may stand
while that which is unconstitutional is stricken out and rejected.”). North Dakota law also contains
a general savings clause which reinforces the principle of preferring severance to voiding an entire
enactment. N.D. C.C. § 1-02-20 (providing that “[i]n the event that any clause, sentence, paragraph,
chapter, or other part of any title, is adjudged by any court of competent or final jurisdiction to be
invalid, such judgment does not affect, impair, nor invalidate any other clause, sentence, paragraph,
chapter, section, or part of such title, but is confined in its operation to the clause, sentence,
paragraph, section, or part thereof directly involved in the controversy in which such judgment has
been rendered.”); Montana-Dakota Utilities Co. v. Johanneson, 153 N.W.2d 414, 425 (N.D. 1967)
(noting the applicability of Section 1-02-20 to the entire North Dakota Century Code).
In determining whether severance is permissible, the primary question involves the
ascertainment of legislative intent. Johanneson, 153 N.W.2d at 424. Phrased another way, would
the Legislative Assembly have enacted the law absent the offending provisions? In this case, the
answer is clearly yes. North Dakota’s Corporate Farming Law and the general prohibition on all
corporate land ownership became law in 1932. See 1933 N.D. S. L. ch. 89. The family farm
exception was not enacted until 1981. See 1981 N.D. S. L. ch. 134, § 4. The Corporate Farming
Law was on the books for nearly fifty years before the family farm exception was added in 1981.
The Corporate Farming Law incorporated by reference the requirements and definitions of the
Business Corporation Act in 1983 and Limited Liability Company Act in 1993. Since the Corporate
Farming Law was originally enacted without the family farm exception there is no reason to believe
the Legislature would have preferred to repeal the entire law in 1981 when the family farm
exception was added. When Governor Link vetoed a version of the family farm exception in 1979,
the Legislature did not push for full scale repeal but again introduced the legislation in 1981, and
was successful. Further, the Corporate Farming Law includes other exceptions, which are not
challenged in this lawsuit, such as the exception for surface coal mining (N.D.C.C. § 10-06.1-06);
certain industrial and business purposes (N.D.C.C. § 10-06.1-07); cooperatives (N.D.C.C. §
10-06.1-08); and certain non-profit organizations (N.D.C.C. §§ 10-06.1-09 and 10-06.1-10). These
exceptions would be unnecessarily voided if the Court enjoined operation of the entire chapter as
suggested by the Plaintiffs. The Court sees no reason to enjoin the Corporate Farming Law in its
entirety, a law which operated on its own for nearly fifty years without the family farm exception,
and which can clearly stand on its own. Indeed, all that is necessary is to enjoin the enforcement
of the offending “domestic corporation” and “domestic limited liability company” language while
leaving the remainder of the family farm exception intact. Accordingly, the Court finds severance
is the appropriate remedy.
For the reasons set forth above, the Defendant Farmers Union’s motion to dismiss (Docket
No. 104) and its alternative motion for judgment on the pleadings (Docket No. 113) are DENIED.
The Defendant Dakota Resource Council’s motion to strike (Docket No. 93) is DENIED. The
State’s motion for partial summary judgment (Docket No. 64) and the Plaintiffs’ motion for
summary judgment (Docket No. 71) are granted in part and denied in part as explained herein.
Count Two of the amended complaint is dismissed.
The Court further ORDERS and declares that the State is permanently enjoined from
enforcing or seeking to enforce Section 10-06.1-12 of the North Dakota Century Code in a manner
which limits its application to only North Dakota corporations and limited liability companies, and
must permit corporations and limited liability companies organized under the laws of other states
to utilize the family farm exception, so long as they meet the other requirements of the current law
which are not the subject of this litigation.
IT IS SO ORDERED.
Dated this 21st day of September, 2018.
/s/ Daniel L. Hovland
Daniel L. Hovland, Chief Judge
United States District Court
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