Clanton et al v. Risk Management Agency et al

Filing 17

MEMORANDUM OPINION. Signed by Honorable Susan O. Hickey on February 4, 2015. (cnn)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
EL DORADO DIVISION
RANDY CLANTON, JR., SAMUEL
CLANTON, HERITAGE FARMS, GUY
MARTIN WARDLAW, CRAIG WARDLAW,
MARTY LEE WARDLAW, J&B CARE, INC.,
and PATTSVILLE FARMS, INC.
v.

PLAINTIFFS

Case No. 1:13-cv-01063

UNITED STATES OF AMERICA Acting
Through the United States Department of
Agriculture, Risk Management Agency

DEFENDANT

MEMORANDUM OPINION
Before the Court is Plaintiff’s Motion for Summary Judgment. (ECF No. 10). Defendant
did not file a response. Instead, Defendant filed its own Motion for Summary Judgment and For
Leave to File Exhibit not part of the Administrative Record. (ECF No. 14). Plaintiffs did not
respond to Defendant’s Motion.
Plaintiffs assert that they are entitled to summary judgment because the actions of the
Defendant were arbitrary and capricious, an abuse of discretion, not in accordance with law and
unsupported by substantial evidence. Defendant asserts that the Court lacks jurisdiction over two
of the three contested final agency determinations, the Administrative Procedure Act is inapplicable
to Plaintiffs’ challenges, and the federal agencies acted within the applicable regulations when
interpreting the regulations. The Court finds these matters ripe for its consideration.
I. Background
The Federal Crop Insurance Act (“FCIA”), 7 U.S.C. § 1501-24, is designed to “promote the
national welfare by improving the economic stability of agriculture through a sound system of crop
insurance and providing the means for the research and experience helpful in devising and

establishing such insurance.” 7 U.S.C. § 1502(a). Congress created the Federal Crop Insurance
Corporation (“FCIC”), under the supervision of the Risk Management Agency (“RMA”) of the
United States Department of Agriculture (“USDA”), to administer the FCIA. 7 U.S.C. § 1503,
§ 6933(a), (b)(1)-(3); 7 C.F.R. § 400.701. The FCIA empowers the FCIC to provide crop insurance
directly to farmers or to provide reinsurance to private approved insurance providers who sell federal
crop insurance policies. 7 U.S.C. § 1508(a)(1) & (k). In order to qualify for reinsurance through the
FCIC, the policies written by approved private insurers must comply with the FCIA and its
accompanying regulations.

Consequently, “[t]he FCIA generally establishes the terms and

conditions of insurance, . . . even though the crop insurance policy is between the farmer and an
approved insurance provider.” Davis v. Producers Agr. Ins. Co, 762 F.3d 1276, 1284 (11th Cir.
2014).
Plaintiffs in this action were all tomato producers in Bradley County, Arkansas in 2009, and
each Plaintiff purchased a “Guarantee Production Plan of Fresh Market Tomato Federal Crop
Insurance” policy, through a private insurance provider approved by the FCIC, for the 2009 crop
year. There was an unexpected freeze in Bradley County in April 2009 and then heavy unexpected
rainfall in May 2009. These weather events caused damage to the Plaintiffs’ crops, and they
subsequently filed claims under their crop insurance policies. These types of “Guarantee Production
Plan of Fresh Market Tomato Federal Crop Insurance” policies are governed by 7 C.F.R. § 457.128,
and certain requirements for insurability are set forth in that regulation. Specifically, 7 C.F.R.
§ 457.128(9)(a)(2), in relevant part, provides:

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We do not insure any acreage of tomatoes:
...
(iii) On which tomatoes, peppers, eggplants, or tobacco have been grown within the
previous two years unless the soil was fumigated or nematicide was applied before
planting the tomatoes, except that this limitation does not apply . . . if otherwise
specified in the Special Provisions[.]
7 C.F.R. § 457.128(9)(a)(2)(iii).
The Special Provision for Bradley County, Arkansas, provided:
In regards to the policy provisions, fumigation is not required if a valid Nematode
Analysis Test is on file with the Insurance Provider and confirms that the planted
acreage is not infested to a concentration exceeding 75 root knot nematodes per pint
of soil. Test samples must be taken while the plants are actively growing between
fruit set and end of production in accordance with Cooperative Extension Service
guidelines during the immediately preceding crop year and tested by the Nematode
Diagnostic Clinic, University of Arkansas, SW Research and Extension Center.
Special Provisions of Insurance for Bradley County, Arkansas, Fresh Market Tomatoes, 2009.1
Plaintiffs’ 2009 crop insurance claims were denied by their private insurance providers, who
determined that Plaintiffs’ tomato crops were uninsurable, under 7 C.F.R. § 457.128 Section
9(a)(2)(iii), because Plaintiffs had planted tomatoes within the previous two years, had not fumigated
or applied nematicide prior to planting, and did not have a valid nematode analysis test on file with
the insurer. Plaintiffs contended that their crop insurance claims should not be denied for their
failure to take the required protective measures against nematodes because their crops had been
damaged by weather, not nematodes. Plaintiffs argued that their failure to fumigate, apply

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In their Motion for Summary Judgment, Plaintiffs attempt to argue to the Court that the federal regulations themselves,
specifically the issuance of 7 C.F.R. § 457.128 Section 9(a)(2)(iii) and the Special Provision for Bradley County,
Arkansas are unlawful, beyond merely the final agency interpretations of those regulations. Plaintiffs’ Complaint did
not challenge any of the regulations, but instead argued their interpretations through the FADs. These unpled issues are
not properly before the Court. Thus, Plaintiffs’ arguments in that regard are hereby dismissed without consideration.
See Fed. R. Civ. P. 8(a); 12(b)(6).

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nematicide, or have a valid Nematode Analysis Test on file should only prevent farmers from being
insured against damage caused by nematodes. The insurance provider disagreed, reading the
requirements of Section 9(a)(2)(iii) to preclude insurance coverage for all types of losses, if the
provisions’ fumigation or nematicide requirements are not met.
When parties in this type of insurance relationship dispute the interpretation of the policy,
they must make a joint request for an interpretation by the FCIC. The FCIC’s interpretations, issued
in the form of Final Agency Determinations (“FADs”), are “binding on all participants in the Federal
crop insurance program.” 7 C.F.R. § 400.765(c). The FCIC “will not interpret any specific factual
situation or case.” 7 C.F.R. § 400.768(a). Interpreting the plain language of 7 C.F.R. § 457.128
Section 9(a)(2)(iii) and the Special Provision, the FCIC concluded that Section 9(a)(2) specifies
when acreage is not insurable, and nothing in that section or the Special Provision ties insurability
to a specific cause of loss. The FCIC then issued FAD-143, which stated that “[o]nce the acreage
is not insurable because the requirements have not been met, no cause of loss is covered.”
Separate Plaintiffs, Guy Martin Wardlaw, Craig Wardlaw, Marty Lee Wardlaw, J & B Care,
Inc., and Pattsville Farms, Inc., filed an appeal of FAD-143 with the National Appeals Division of
USDA. After a hearing, the hearing officer upheld the interpretation. These separate Plaintiffs then
requested Director Review of the Hearing Officer’s determination. On May 20, 2012, the National
Appeals Division of USDA issued the Director Review Determination upholding the determination.2
Subsequently, a private insurance provider requested another FAD interpreting the terms
“fumigation” and “nematicide.” Specifically, the provider asked whether the terms would include
the planting of an intervening brassicus crop, because some Plaintiffs argued that they had fumigated

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The Director Review Determination was the agency’s “administratively final determination.” 7 C.F.R. § 400.768(g).

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their soil prior to planting their tomatoes by planting a brassicus crop which acted as a biofumigant
of nematodes. The Plaintiffs submitted a study performed by the University of Arkansas for the
USDA, Agricultural Research to support their argument. The FCIC then issued FAD-164,
determining that the terms were given their common meanings, which did not include the planting
of an intervening brassicus crop.
Plaintiffs brought this action for judicial review of a final agency action under the
Admininstrative Procedure Act. The Plaintiffs request that the Court enter an injunction to set aside
the directives because they are arbitrary, capricious, an abuse of discretion, in excess of the USDA’s
statutory authority, not supported by substantial evidence, puts tomato farms under undue hardship,
and is not supported by law.3
II. Discussion
A. Jurisdiction
Plaintiffs assert that the action is properly before the Court under the provisions of the
Administrative Procedure Act. Defendants argue that the Court is without jurisdiction to consider
Plaintiffs’ arguments regarding FAD-164 because Plaintiffs did not obtain an administratively final
determination from the Director or the National Appeals Division for that FAD prior to filing the
instant lawsuit.
In 7 C.F.R. 400.768(g), the regulations governing FADs provide that “[b]efore obtaining
judicial review of any final agency determination, a person must obtain an administratively final
determination from the Director of the National Appeals Division on the issue of whether the final

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Plaintiffs also include FAD-123 in their Complaint, but do not address that Final Agency Determination in their Motion
for Summary Judgment.

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agency determination is a matter of general applicability.” Because Plaintiffs did not obtain an
administratively final determination from the Director of National Appeals Division with regard to
FAD-164 prior to filing the instant suit, the Court is without jurisdiction to consider it. Accordingly,
Plaintiffs challenges to FAD-164 must be dismissed for want of jurisdiction.4
Defendants also argue that the Administrative Procedures Act (“APA”) does not provide the
Court with jurisdiction over FAD-143. They argue that the APA only provides for judicial review
when that person suffers a legal wrong “because of agency action, or [is] adversely affected or
aggrieved by agency action within the meaning of the relevant statute.” 5 U.S.C. § 702. Defendants
argue that Plaintiffs were not harmed by the FAD because it simply interpreted a regulation already
in place. Instead, they were harmed by their failure to follow the requirements in the contract.
However, the Court finds that the APA grants the federal district court jurisdiction over this kind of
dispute. The interpretation of the regulation is an agency action. The agency could have interpreted
the regulation differently, in a way that did not harm the Plaintiffs. However, as the interpretation
stands, the Plaintiffs were not able to recover certain insurance monies to which they believe they
are entitled. Thus, they are harmed and afforded the review of a federal district court.
B. Merits
Plaintiffs request the Court to hold unlawful FAD-143 and set aside the same under the APA,
5 U.S.C. § 706(2), because it is arbitrary, capricious, an abuse of discretion, and in excess of the
USDA’s statutory authority and is inconsistent with and frustrates the purposes of the Act.
Defendants argue that in issuing the FAD, the FCIC followed proper procedures and interpreted its

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Additionally, Plantiffs lack standing to bring a claim under FAD-123 because it interpreted Section 9(b)(3) of the “Fresh
Market Tomato (Dollar Plan) Crop Provisions,” a federal crop insurance policy that is inapplicable to Plaintiffs and not
available to Arkansas tomato farmers.

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own regulation according to the plain language.
The APA sets forth the applicable standards of review to be applied by this Court in
reviewing agency determinations such as that of the Defendant. 5 U.S.C.A. §706. Under the APA,
this Court, “shall . . . hold unlawful and set aside agency action, findings, and conclusions found to
be . . . arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” or found
to be “in excess of statutory jurisdiction, authority or limitations, or short of statutory right.” 5
U.S.C.A. §706 (2)(A) and §706(2)(C). Under the “arbitrary and capricious” standard, “the reviewing
court [must] engage in a substantial inquiry . . . to decide whether the [Defendant] acted within the
scope of [its] authority . . . [and] whether the decision was based on a consideration of the relevant
factors and whether there has been a clear error of judgment.” Citizens to Preserve Overton Park
v. Volpe, 401 U.S. 402, 415-16 (1971) overruled on other grounds by Califano v. Sanders, 430 U.S.
99 (1977). The standard of review is a narrow one. A decision is arbitrary and capricious if the
agency “has relied on factors which Congress has not intended it to consider, entirely failed to
consider an important aspect of the problem, offered an explanation for its decision that runs counter
to the evidence before the agency, or is so implausible that it could not be ascribed to a difference
in view or product of agency expertise.” Downer v. United States, 97 F.3d 999, 1002 (8th Cir. 1996)
(quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). The
Court “must give substantial deference to agency determinations,” Downer, 97 F.3d at 1002, and
should only reject an agency’s determination of its own regulations when the interpretation is
“unreasonable, plainly erroneous, or inconsistent with the regulation’s plain meaning.” Utah
Environmental Congress v. Richmond, 483 F.3d 1127, 1134 (10th Cir. 2007) (citation omitted). The
Supreme Court has made clear that a court is not to substitute its judgment for that of the agency,
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and should “uphold a decision of less than ideal clarity if the agency’s path may reasonably be
discerned.” Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 286 (1974).
Plaintiffs assert that the agency ignored relevant factors and did not consider the facts that
were known to it. Specifically, Plaintiff argues, the agency ignored the fact that Bradley County,
Arkansas did not have problems with nematodes, and thus, it was unnecessary to have farmers
conduct a prerequisite test of which there was no clear risk. The Plaintiffs argue that, by paying
claims and never asking for any proof of fumigation or the nematode tests, the agency lulled the
tomato farmers into a false sense of security. Plaintiffs argue that the agency is not following their
precedent and prior practice, and therefore a denial of their claims is arbitrary and capricious and the
RMA and FCIC should be estopped from denying Plaintiffs’ claims.
It is undisputed that none of the Plaintiffs had fumigated or applied nematacide prior to
planting their 2009 tomato crops, nor did any of the Plaintiffs have a valid Nematode Analysis Test
on file with their insurance provider in accordance with the stated requirements of the insurance
contract. However, 7 C.F.R. § 400.768(a) specifically prohibits the FCIC from considering specific
factual situations.

FADs are generally applicable interpretations by the agency of its own

regulations, which are binding on all federal crop insurance participants—specific facts, such as the
prevalence of nematodes on a certain producer’s land, cannot be taken into account. If they were,
the FCIC would not be following its own regulations. The agency followed the proper procedures,
acted according to the applicable regulations, and interpreted Section 9(a)(2)(iii) according to its
plain and unambiguous language.
Moreover, this interpretation of the regulation through FAD-143 is afforded great deference.
The interpretation is reasonable, not plainly erroneous, and consistent with the regulation’s plain
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meaning. The Court finds that the agency considered the relevant factors that the regulations
ascribed for consideration, namely the plain language of the regulation. The Court can easily
ascertain the rationale of the agency through its interpretation and finds that the agency committed
no clear error of judgment.
III. Conclusion
Accordingly, Plaintiffs’ Motion for Summary Judgment (ECF No. 10) is hereby DENIED.
Defendant’s Motion for Summary Judgment (ECF No. 14) is hereby GRANTED. Defendant’s
request for leave to file an exhibit not part of the administrative record is DENIED AS MOOT.
IT IS SO ORDERED, this 4th day of February, 2015.

/s/ Susan O. Hickey
Susan O. Hickey
United States District Judge

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