RJMC Farms, LLC v. Vilsack

661 F.Supp.3d 826

RJMC FARMS, LLC et al., Plaintiffs, v. Thomas James VILSACK, Secretary United States Department of Agriculture et al., Defendants.

No. 1:21-cv-02702-RLY-KMB

United States District Court, S.D. Indiana, Indianapolis Division

Signed March 15, 2023

Colby J. Byrd, Jeremiah L. Buettner, McAfee & Taft a Professional Corporation, Oklahoma City, OK, for Plaintiffs.

J. Taylor Kirklin, United States Attorney's Office, Indianapolis, IN, for Defendants.

ENTRY ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

RICHARD L. YOUNG, JUDGE

Defendant, the Secretary of the United States Department of Agriculture ("USDA"), excluded the four Plaintiff farms from the federal crop insurance program, and the farms appealed their exclusion to the Director of the USDA's National Appeals Division ("NAD"). Following adverse decisions that upheld their ineligibility, the farms sued for judicial review of the agency's decision. As the court finds the agency acted in accordance with the law, the court GRANTS Defendants' cross-motion for summary judgment and DENIES Plaintiffs' motion for summary judgment.

I. Background

A. Regulatory Framework

Following the havoc created by the Dust Bowl in the 1930s, Congress created the Federal Crop Insurance Corporation ("FCIC") to backstop farmers when they lost crops due to uncontrollable weather conditions. See 7 U.S.C. § 1501 et seq. (Federal Crop Insurance Act). While crop insurance participants initially contracted directly with the USDA through the FCIC, Congress eventually allowed private insurance companies to directly issue crop insurance policies that would be reinsured by the FCIC. See Pub. L. No. 96-365, 94 Stat. 1312 (1980). The crop insurance policies in this case are of this type: initially contracted between the Plaintiff farms and a third-party insurer and reinsured by the USDA. (AR at RJMC000005; see also 7 CFR § 457.8 (standard private crop insurance contract)).

But even though the USDA is not a party to the insurance contracts, it has promulgated rules to determine when participant farms are ineligible for further insurance under the Federal Crop Insurance Act. See 7 CFR §§ 400.675 et seq. (1994).¹ While there are a few avenues for a participant to be ineligible, the most relevant is when a participant has "a delinquent debt on a crop insurance policy, issued or reinsured by FCIC." 7 CFR § 400.679(a). A delinquent debt is "any debt owed to FCIC or the insurance provider . . . that has not been paid by the termination date specified in the applicable contract of insurance, or other due date for payment contained in any other agreement or notification of indebtedness." 7 CFR § 400.677. Naturally, a delinquent debt also requires a debt, which is somewhat confusingly defined as any money "which has been determined by an appropriate agency official to be owed." Id.

The regulations are not, however, overly rigid in text or application; participants can and will often make deals with insurers to alter their payment schedules. These agreements come in two flavors: "scheduled installment payment agreements" and "any other agreement" to repay money. 7 CFR § 400.677. A scheduled installment payment agreement is an agreement that "modif[ies] the terms of the original debt." Id. That means once the agency has determined a participant owes money, the insurer and participant can agree to repay that money on an agreed upon schedule. Id. These agreements are useful because they help participants avoid being declared ineligible despite missing a payment or regain ineligibility following a missed payment. See 7 CFR § 400.681 (explaining a missed payment will cause a participant to be ineligible unless or until "the person has executed a scheduled installment payment agreement"). "[A]ny other agreement[s]" are broader as they are not aimed at making a participant eligible despite missing payments but are instead private contracts between insurer and participant to repay money before the agency gets involved. See, e.g., 7 CFR § 400.677.

B. Factual Background

Plaintiffs—RJMC Farms, LLC, Michelle Farms, LLC, Renee Farms, LLC, and Jennifer Farms, LLC—are four farms that participated in the federal crop insurance program to protect the soy and corn they grew from 2009 to 2014. (See AR at RJMC000756, 760-61).² As is typical most years, the farms purchased insurance policies from a private insurer for their crops during the 2011 crop year. (Id. at 756-57). That year, the farms received indemnification from the insurer that collectively amounted to $372,194 for losses to their soy and corn. (Id.).

The USDA Office of the Inspector General, charged with overseeing the efficient and legal execution of the insurance program, began investigating the farms in 2015. (Id. at 756). Specifically, the Inspector General inquired into whether the four farms, separately owned by Michael Carnahan and his three daughters, had been established to circumvent the agency's payment limitations and increase the number of multi-peril crop insurance payments. (Id. at 759-65). After two years of investigation, the office found nothing actionable and turned the case over to the USDA's regional compliance office for administrative, rather than criminal, proceedings. (Id. at 759).

After reviewing the evidence, the compliance office issued a set of initial findings in 2018 concluding the insurer improperly made indemnity payments to Plaintiffs for the 2011 crop year. (Id. at 756). That was because the farms did not have "a bona-fide insurable interest for the 2011 crop year." (Id.). Significant evidence in the form of documents submitted by the farms, bank statements, and certifications made by Carnahan supported these preliminary findings. (Id. at 759-82, 788, 799, 1180 et seq.). Therefore, the agency informed the insurer that "[a]s a result of our findings, we are voiding the [farms'] policies for the applicable crop years." (Id. at 757).

The insurer interpreted this command as a "request to void" the farms' policies. (Id. at 1537). At a later proceeding, the insurer testified that it did not believe it was obligated to void the policies. (AR at Audio Recording of Combined Hearing (Dec. 8, 2020), at 2:14:40-15:04). Even so, the insurer voided the policies, notified the agency of that action, and enclosed a summary of the amounts due from the farms. (AR at RJMC0001537). Then the insurer told the farms that, based on its "independent review," the farms' policies were void because the farms misrepresented their eligibility for crop insurance. (Id. at 1562-63). This required the farms to enter into agreements structuring when and how the farms would repay the improperly received indemnity payments. (Id.). The first payments were due on July 1, 2019. (Id. at 1568).

Shortly after those agreements were entered, the agency issued final findings that upheld its initial findings. (Id. at 481 et seq.). Less than two months later, the agency withdrew both of its previous findings because it believed it overstepped its authority and did not have the power to void or direct insurance providers to void policies. (AR at Audio Recording, at 1:38:45-1:40:02). Notably, this decision was not "based on any errors with respect to the underlying factual findings." (Id. at 1:40:03-1:40:40). Despite this withdrawal, the insurer maintained the policies were void and the farms were bound by their repayment agreements. (AR at RJMC001888).

Then, on July 1, 2019—the same day the farms' first payments were due—the agency reissued a corrected set of initial findings that reached the same factual and legal conclusions as the previous findings. (Id. at 1660). The only difference is the corrected findings did not purport to void the 2011 policies, even though it recognized there had been indemnity overpayments that would need to be repaid. (Id. at 1666). The agency made these corrected findings final in February of 2020. (Id. at 1671-72).

Despite these repeated findings, the farms did not begin repaying the indemnity overpayments on July 1 as agreed. (Id. at 193). Instead, the farms indicated to the insurer that they did not believe the repayment agreements were enforceable. (Id. at 1888). The insurer thought differently. (Id.). As the insurer believed the farms were delinquent on their debt, it reported this information to the USDA in September of 2020—14 months after the farms missed their payments. (Id. at 280). After reviewing the insurer's report, the USDA excluded the farms from the federal crop insurance program on the grounds that the farms had delinquent debt. (Id. at 211-15; see 7 CFR § 400.679(a) (requiring agency to exclude participants in the crop insurance program where they have unpaid delinquent debt)).

The farms appealed this exclusion to the NAD. (Id. at 107). They specifically contended the agency did not determine the farms owed a debt before the farms entered into the repayment agreements with the insurer, which made those agreements invalid. (Id.). Consequently, the farms could not have had delinquent debt. (Id.). After receiving evidence and holding a hearing, the NAD upheld the exclusion. (Id. at 116). It did so because, in the administrative judge's view, the regulations allowed the insurer to demand repayment from a farm without input from the agency. (Id. at 113). After an unsuccessful appeal to the Director of the NAD, the agency action became final. (Id. at 191). This case followed to review the Director's decision.

II. Legal Standard

Because this suit seeks review under 5 U.S.C. §§ 701-06, the summary judgment standard in Federal Rule of Civil Procedure 56 does not apply. Fisher v. Pension Ben. Guar. Corp., 468 F. Supp. 3d 7, 18 (D.D.C. 2020); see also Hunger v. Leininger, 15 F.3d 664, 669 (7th Cir. 1994). Here, summary judgment "is simply the procedural vehicle for asking the judge to decide the case on the basis of the administrative record." Heather S. by Kathy S. v. Wisconsin, 125 F.3d 1045, 1052 (7th Cir. 1997). Put differently, the facts...