Zych v. Haugen

James J. Zych, Appellant, v. Timothy Haugen, et al., Respondents.

A16-2082

STATE OF MINNESOTA IN COURT OF APPEALS

July 31, 2017

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2016).

Affirmed

Larkin, Judge

Big Stone County District Court

File No. 06-CV-15-237

David C. McLaughlin, Fluegel, Anderson, McLaughlin & Brutlag, Chartered, Ortonville, Minnesota (for appellant)

Joel T. Wiegert, Jacalyn N. Chinander, Meagher & Geer, P.L.L.P., Minneapolis, Minnesota (for respondents)

Considered and decided by Larkin, Presiding Judge; Jesson, Judge; and Toussaint, Judge.^*

UNPUBLISHED OPINION

LARKIN, Judge

Appellant challenges the district court's dismissal of his negligence claim against respondents insurance agency and agent, arguing that the district court did not comply with Minn. R. Civ. P. 12.03 and erred in concluding that appellant's claim is preempted under the Federal Crop Insurance Act (FCIA). We affirm.

FACTS

In November 2015, appellant James J. Zych sued respondents Timothy Haugen and Haugen Insurance Agency Inc., asserting negligence, slander, and defamation claims.¹ Appellant alleged that respondents acted as an agent for Rural Community Insurance Services (RCIS) in the sale of a 2009 "Multi-Peril Crop Insurance Policy" to appellant, which covered appellant's corn and soybean crops. Appellant alleged that as RCIS's agent, respondents were responsible for providing RCIS a "Notice of Loss" when a crop loss occurred.

According to appellant's complaint, he informed respondents that a hail event occurred in July 2009 and a frost event occurred in October 2009. Respondents told appellant that "a farmer cannot turn in a Notice of Loss if the farmer intended to harvest the field," that respondents "would not turn in a Notice of Loss unless there is evidence of damage," and that "the harvest is the ultimate determining factor of damage." Respondents filed a Notice of Loss with RCIS on behalf of appellant in December 2009. Becauseappellant's corn crop was too wet to harvest at the time, appellant elected to wait and let the corn crop dry in the field. In March 2010, RCIS examined appellant's corn field and denied his claim on the grounds that appellant "did not utilize good farming practices by selecting a variety that may not mature in time" and "did not provide [RCIS a] Notice of Loss when he in fact provided notice to [respondents] and others."

Appellant submitted a claim to RCIS for more than $700,000, and the matter went to arbitration. Appellant and RCIS settled the claim for $250,000, and the settlement excluded appellant's claims against respondents.

In the underlying action against respondents, appellant alleged that respondents' "negligent handling of the claims by failing to file a Notice of Loss with RCIS and provid[ing] misleading and inaccurate information to [appellant] was the direct and proximate cause of the [appellant's] loss or his claim" and that appellant suffered damages in excess of $50,000. Respondents answered with an affirmative defense: appellant's lawsuit was "barred by the Federal Crop Insurance Act."

In June 2016, respondents moved for judgment on the pleadings under Minn. R. Civ. P. 12.03, arguing that appellant failed to (1) "submit the [negligence] claim to mandatory arbitration within one year of the date his 2009 crop-loss claim was denied as required by the terms of his crop insurance policy" and (2) "obtain a determination from the [Federal Crop Insurance Corporation (FCIC)] that [respondents] failed to comply with the terms of his policy or procedures required under [the] federal crop insurance program" and "that such failure resulted in his receiving a payment in an amount that is less than the amount he was entitled."

The district court granted respondents' motion for judgment on the pleadings and dismissed appellant's complaint. The district court found that the insurance contract in question was governed by 7 C.F.R. § 400.352 (2017), which generally prevents state and local governmental entities from levying judgments for damages and costs against "companies, [and] employees of companies including agents and loss adjusters . . . arising out of actions or inactions on the part of such individuals and entities authorized or required under the Federal Crop Insurance Act." The district court reasoned that appellant's negligence claim involved the alleged negligence of an agent and agency who were proceeding under the FCIA and that the claim was therefore federally preempted. This appeal follows.

DECISION

In reviewing a motion for judgment on the pleadings under Minn. R. Civ. P. 12.03, an appellate court accepts the factual allegations in the complaint as true and construes those allegations in the light most favorable to the nonmoving party. Hoffman v. N. States Power Co., 764 N.W.2d 34, 45 (Minn. 2009). "[J]udgment on the pleadings is proper where the defendant relies on an affirmative defense or counterclaim which does not raise material issues of fact." Zutz v. Nelson, 788 N.W.2d 58, 61 (Minn. 2010) (quotation omitted).

If, on a motion for judgment on the pleadings

matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

Minn. R. Civ. P. 12.03.

In determining whether a district court properly granted judgment on the pleadings, this court reviews de novo whether the complaint sets forth a legally sufficient claim for relief. Zutz, 788 N.W.2d at 61.

I.

Appellant contends that the district court erred in entering judgment on the pleadings because it "considered information submitted by Respondents outside of the Complaint."² Appellant argues that respondents' attachment of documents to their memorandum of law in support of their rule 12 motion converted the motion to one for summary judgment and that he "should have been permitted to develop [the] record in order to bring this matter to a conclusion."

Appellant and respondents both submitted documents outside of the pleadings in the district court. However, the district court expressly stated that its analysis was "made under Rule 12 on the face of the pleadings" and did not rely on any documents outside of the complaint in granting respondents' motion for judgment on the pleadings. Moreover, in addressing appellant's argument that "he specifically reserved his claim against [respondents] in settling his claim against RCIS," the district court noted that consideration of that argument would require review of a document appellant submitted that "would takethe Court's inquiry out of the realm of Rule 12 and into the realm of Rule 56 Summary Judgment."

In sum, the record refutes appellant's contention that the district court erroneously considered matters outside of the pleadings.

II.

Appellant contends that the district court erred by ruling that appellant's negligence claim against respondents is preempted under 7 C.F.R. § 400.352. Appellant argues that his "cause of action against Respondents for negligence is not inconsistent with the purpose of the FCIA, and therefore, it is not preempted by the FCIA or the FCIC's regulations."

Article VI of the U.S. Constitution provides that "the Laws of the United States . . . shall be the supreme Law of the Land; and the judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." Under the Supremacy Clause, federal law, including federal regulations promulgated pursuant to an agency's statutory authority, preempts state law if Congress intends that it do so. Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 152-54, 102 S. Ct. 3014, 3022-23 (1982); Hous. & Redev. Auth. of Duluth v. Lee, 852 N.W.2d 683, 687 (Minn. 2014). Federal law can displace state law in three ways: (1) pursuant to express preemption language (express preemption), (2) implicitly through comprehensive federal regulation in a certain area (field preemption), or (3) through an actual conflict with state law (conflict preemption). Cal. Fed. Sav. & Loan Ass'n v. Guerra, 479 U.S. 272, 280-81, 107 S. Ct. 683, 689 (1987); Lee, 852 N.W.2d at 687.

Congress created the FCIA to "improve[] the economic stability of agriculture through a sound system of crop insurance and provid[e] the means for the research and experience helpful in devising and establishing such insurance." 7 U.S.C. § 1502(a) (2012). To carry out the purposes of that act, Congress established the FCIC within the U.S. Department of Agriculture. 7 U.S.C. § 1503 (2012). The FCIC "may insure, or provide reinsurance for insurers of, producers of agricultural commodities grown in the United States under 1 or more plans of insurance determined by the [FCIC] to be adapted to the agricultural commodity concerned." 7 U.S.C. § 1508(a)(1) (2012). The FCIC is empowered to "issue regulations, necessary in the conduct of its business, as determined by the Board." 7 U.S.C. § 1506(l) (2012). The FCIC issues final agency determinations (FADs) through the U.S. Department of Agriculture's Risk Management Agency (RMA) that interpret the FCIA and FCIC regulations, which are "binding on all participants in the Federal crop insurance program." 7 C.F.R. §§ 400.765, .768(f) (2016).

The FCIA expressly preempts inconsistent state law:

State and local laws or rules shall not apply to contracts, agreements, or regulations of the [FCIC] or the parties thereto to the extent that such contracts, agreements, or regulations provide that such laws or rules shall not apply, or to the extent that such laws or rules are inconsistent with such contracts, agreements, or regulations.

7 U.S.C. § 1506(l).

Moreover, 7 C.F.R. § 400.352(a) provides that "[n]o State or local governmental body . . . shall have the authority to . . . issue policies or...