Nixon et al v. AgriBank FCB

Filing 24

ORDER granting 14 deft's Motion to Dismiss. Signed by Judge James M. Moody on 9/30/11. (kpr)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
LARRY W. NIXON AND AMY B. NIXON,
HUSBAND AND WIFE, AND MICHAEL D.
LATHEM, INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY
SITUATED
V.

PLAINTIFF

NO. 4:11CV00125

AGRIBANK, FCB

DEFENDANT
ORDER

Pending is Defendant’s motion to dismiss. (Docket # 14). Plaintiff has filed a response
and Defendant has filed a reply. For the reasons set forth herein, Defendant’s motion is
GRANTED.
Facts
On January 12, 2011, this action was commenced in the Circuit Court of Van Buren
County, Arkansas. On February 11, 2011, Defendant removed the action to this Court based on
federal question and diversity jurisdiction. Plaintiffs’ action seeks a declaratory judgment to
quiet title to the oil and gas rights identified in the Complaint. Plaintiffs allege that the
Defendant’s retention of these mineral rights beyond five years violates 12 U.S.C. §781 Fourth
(b) of the former Federal Farm Loan Act of 1916.
Plaintiffs claim that they are successors in title to land located in Van Buren County
Arkansas. The Nixons’ interest was derived from a transfer of ownership from the Federal Land
Bank of St. Louis to Plaintiffs’ predecessors in title. The Federal Land Bank of St. Louis
transferred title to all interest in the subject real property on October 10, 1938 except for a
reservation of “an undivided one-half (1/2) of all oil, gas, coal and other minerals in, upon and

under the above described land.” Defendant obtained all ownership interests of the Federal
Land Bank of St. Louis in the Nixon property on May 1, 1992.
Mr. Lathem’s ownership interest was derived from a transfer of ownership from the
Federal Land Bank of Saint Louis to his predecessors in title on January 10, 1939. The Bank
transferred title to all interest in the subject property except for a reservation of “undivided onehalf (1/2) of all oil, gas, coal and other minerals in, upon and under the above described land.”
Plaintiffs claim that the Defendant has leased the subject oil and gas rights to others and
has received bonus money and royalties that properly belong to them. Defendant asks the Court
to dismiss Plaintiffs’ complaint for failure to state claims upon which relief may be granted
pursuant to Fed. R. Civ. P. 12(b)(6).
The United States Supreme Court recently clarified the standard to be applied when
deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). See Bell Atlantic
Corp. v. Twombly, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “While a complaint attacked by a
Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation
to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do. Id. at 1964-65 (citing
Swierkiewicz v. Sorema N. A., 534 U.S. 506, 508, n. 1, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002);
Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989) (“Rule 12(b)(6)
does not countenance ... dismissals based on a judge's disbelief of a complaint's factual
allegations”); Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) (a
well-pleaded complaint may proceed even if it appears “that a recovery is very remote and
unlikely”)). Although “[g]reat precision is not required of the pleadings,” the complaint should
state how, when, and where the cause of action occurred. Gregory v. Dillard’s Inc., 494 F.3d
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694, 710 (8th Cir. 2007). “So, when the allegations in a complaint, however true, could not raise
a claim of entitlement to relief, this basic deficiency should . . . be exposed at the point of
minimum expenditure of time and money by the parties and the court.” Bell Atlantic, 127 S.Ct. at
1966 (internal citations omitted).
The Court finds that Plaintiffs’ action must fail as the Defendant’s retention of
the mineral rights herein was not subject to the former statutory five-year holding period set forth
in 12 U.S.C. §781 Fourth (b)(repealed 1971). The United States Supreme Court explained the
purpose of the Federal Farm Loan Act as follows:
The purpose of the Federal Farm Loan Act and its subsequent amendments was to
provide loans for agricultural purposes at the lowest possible interest rates. One
method of keeping the interest rate low was to authorize the federal land bank to
make a profit to be distributed to the shareholders in the form of dividends.
Because the associations of farmer-borrowers were required by law to be
shareholders, the distribution of dividends effectively reduced the interest rates.
This profit could be earned in two ways: interest from the loans on mortgaged
lands and gains on the sale of lands acquired under the provisions of §781 Fourth.
Federal Land Bank of Wichita v. Board of County Comm’rs, 368 U.S. 146, 151-52(1961).

The

statute authorized federal land banks to acquire mortgaged lands but limited the period of
ownership to five years unless special permission was obtained from the Farm Credit
Administration. Id. at 148. Specifically, 12 U.S.C. §781 Fourth, provided as follows:
Acquiring and disposing of property.-To acquire and dispose of-'(a) Such
property, real or personal, as may be necessary or convenient for the transaction of
its business, which, however, may be in part leased to others for revenue
purposes.'(b) Parcels of land acquired in satisfaction of debts or purchased at sales
under judgments, decrees, or mortgages held by it. But no such bank shall hold
title and possession of any real estate purchased or acquired to secure any debt
due to it, for a longer period than five years, except with the special approval of
the Farm Credit Administration in writing.
The Farm Credit Administration interpreted Section 781 Fourth (b) to exclude mineral

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estates in 6 C.F.R. 10.641. See, Federal Land Bank of Wichita v. Board of County Comm’rs,
368 U.S. at 155. Accordingly, the Defendant’s retention of mineral rights in this case beyond
five years is not subject to the limitation set forth in Section 781 Fourth (b). Plaintiff’s reliance
on this statute is misplaced. Further, “[i]t is well established that when a statute is repealed or
otherwise becomes inoperative no further enforcement proceedings can take place unless
‘competent authority’ has kept the statute alive for that purpose.” Firstcom, Inc. v. Qwest Corp.
555 F.3d 669, 676 (8th Cir. 2009) citations omitted. The 1916 Federal Farm Loan Act was
repealed in its entirety by the Farm Credit Act of 1971, Pub. L. No. 92-181, 85 Stat. 624.
Plaintiffs have not offered “competent authority” reflecting that this statute has been kept alive
for enforcement proceedings.
Accordingly, Defendant’s motion to dismiss is GRANTED.
IT IS SO ORDERED this 30th day of September, 2011.

_________________________________
James M. Moody
United States District Judge

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'Holding mineral rights for more than 5 years. In cases where, in connection with a sale
of bank-owned real estate, the bank has retained royalty or other rights in or to minerals, and
desires to hold such rights for a period in excess of 5 years, it is not considered that the bank has
both ‘title and possession’ of real estate within the meaning of section 13 Fourth (b) of the
Federal Farm Loan Act (12 U.S.C. 781 Fourth (b) (12 U.S.C.A. s 781 Fourth (b))). However,
retention of such minerals and mineral rights for periods in excess of 5 years, when in the bank's
opinion it is in the bank's interest to do so, has the approval of the Administration.'
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