Elbert et al v. United States Department of Agriculture et al
Filing
170
MEMORANDUM OPINION AND ORDER denying 131 Plaintiffs' Motion for Summary Judgment; denying 141 Defendants' Motion to Dismiss and granting 141 Defendants' Motion for Summary Judgment. (Written Opinion) Signed by Chief Judge John R. Tunheim on 8/21/2020. (HAZ)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
RICH ELBERT; JEFF A. KOSEK; REICHMANN
LAND & CATTLE LLP; LUDOWESE A.E.
INC.; and MICHAEL STAMER; individually
and on behalf of a class of similarly
situated persons
Plaintiffs,
Civil No. 18-1574 (JRT/TNL)
MEMORANDUM OPINION AND ORDER
GRANTING SUMMARY JUDGMENT FOR
DEFENDANTS
v.
UNITED STATES DEPARTMENT OF
AGRICULTURE, RISK MANAGEMENT
AGENCY, and FEDERAL CROP INSURANCE
CORPORATION,
Defendants.
John D. Tallman, JOHN D. TALLMAN, PLLC, 4020 East Beltline Ave. NE, Suite
101, Grand Rapids, MI, for plaintiffs.
David W. Fuller, Assistant United States Attorney, UNITED STATES
ATTORNEY’S OFFICE, 300 South Fourth St., Suite 600, Minneapolis, MN
55415, for defendants.
In the fall of 2015, dark-red kidney-bean farmers in Minnesota found that harvest
prices had fallen significantly from what they had expected that spring. Although the
farmers had purchased revenue insurance designed to protect against a fall in bean
prices, they were unable to collect because there were not enough published pricing data
to establish a harvest price, per the insurance policy. Instead, the famers were left with
only yield protection, which offered no relief for the drop in market price. The farmers
brought claims under the Administrative Procedure Act (“APA”) against Defendants—the
United States Department of Agriculture (“USDA”); the Risk Management Agency
(“RMA”); and the Federal Crop Insurance Corporation (“FCIC”) (collectively, the
“Agencies”)—arguing that (1) it was arbitrary and capricious for Defendants to approve
the insurance policy; and that (2) it was arbitrary and capricious of the Risk Management
Agency not to step in and reform the policy when the pricing mechanism failed.
Because Plaintiffs were not parties or privies to a similar case in the United States
District Court for the Eastern District of Michigan when that court granted summary
judgment for Defendants, they are not precluded from litigating their case here, and the
Court will deny Defendants’ Motion to Dismiss. However, although the insurance policy
was seriously flawed and resulted in significant losses to the farmers, Plaintiffs have not
demonstrated that Defendants’ actions were arbitrary and capricious.
Because
Defendants reasonably interpreted the language of the Dry Bean Revenue Endorsement
(the “Endorsement”), because the Risk Management Agency was not obligated to use any
equitable powers it might have, and because Defendants reasonably approved the
insurance program having considered the potential pricing risks, the Court will grant
Defendants’ Motion for Summary Judgment and will deny Plaintiffs’ Motion for Summary
Judgment.
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BACKGROUND
I.
MINNESOTA DARK-RED KIDNEY-BEAN FARMERS
Plaintiffs Rich Elbert, Jeff Kosek, Reichmann Land & Cattle LLP, Ludowese A.E. Inc.,
and Michael Stamer farm dark-red kidney beans in Minnesota. 1 In 2015, these farmers
purchased crop insurance, including a Dry Bean Revenue Endorsement (the
“Endorsement.”) (FCIC987-991, Docket No. 116, # 34.) 2 The Endorsement was an addon that allowed farmers to pay additional premiums to insure against crop-price declines,
as measured between the spring “projected price” and the fall “harvest price.” Revenue
insurance like this, which protects against price declines, had not previously been
available prior to 2012. Instead, only yield protection, which protects against crop
failures, had been available to dry-bean farmers. (Id. at FCIC848.)
In 2015, the prices for dark-red kidney beans dropped sharply at harvest time.
However, the farmers did not receive revenue protection for the price drop. Instead, due
to a lack of reported price data, the harvest price was set at the same level as the
projected price, and not the actual market price. As a result, because the harvest price
Neither party provides any citations for the basic facts of the case, despite the 15,000-page
administrative record. However, because the parties appear to agree on these facts, the Court
may consider them undisputed for the purposes of these Motions. See Fed. R. Civ. P 56 (e)(2).
1
Citations to the Administrative Record are paginated with the original FCIC numbering for ease
of review, and include reference to the Exhibit Number within each Docket Number 116-122.)
The Administrative Record was certified as containing “those documents considered by the
decision-maker.” (Decl. of Zachary White, Aug. 14, 2019, Docket No. 115.)
2
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was now the same as the projected price, there was no differential, and the farmers did
not recover any insurance money.
II.
FEDERAL CROP INSURANCE POLICY
Crop insurance comes in many varieties, including yield protection and revenue
protection Yield protection provides “protection against a production loss.” 7 C.F.R. §
457.8 (Common Crop Insurance Policy). Revenue protection provides “protection against
loss of revenue due to a production loss, price decline or increase, or a combination of
both.” Id.
The Federal Crop Insurance Corporation provides reinsurance for approved private
crop-insurance providers. (FCIC39, Docket No. 116, # 1.) To submit a policy, a privateparty applicant prepares the policy documents, premium rates, prices, and submits the
documents to Defendants. A policy “shall be approved” if Defendants find that the plan
adequately protects the interest of producers and any premiums charged are actuarily
appropriate. 7 U.S.C. § 1508(h)(3). (FCIC239, Docket No. 116, # 3.)
These private crop-insurance policies operate in accordance with, and may modify,
the Common Crop Insurance Policy Basic Provisions (the “Basic Provisions”) and the Dry
Bean Crop Provisions, which are set out in federal regulations. 7 C.F.R. §§ 457.8, 457.150.
(FCIC308-359, Docket No. 116, #5-6.)
The Basic Provisions state in the preamble that “We will use the procedures
(handbooks, manuals, memoranda and bulletins), as issued by the FCIC and published on
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the RMA’s Web site at http://rma.usda.gov or a successor Web site, in the administration
of this policy, including the adjustment of any loss or claim submitted hereunder.”
Common Crop Insurance Policy, 7 C.F.R. § 457.8. (FCIC310, Docket No 116, #5.)
The Office of Risk Management has jurisdiction to supervise the Federal Crop
Insurance Corporation, and additionally has jurisdiction over “[a]ny pilot or other
programs involving revenue insurance . . . that may be established under the Federal Crop
Insurance Act or other law.” 7 U.S.C. § 6933.
III.
WATTS’ POLICY
A. Initial Proposal
The policy at issue in this case was developed and submitted by Watts and
Associates, Inc., an economic consulting firm; the Northarvest Bean Growers Association;
and the USA Dry Pea and Lentil Council (collectively, “Watts”), in October and November
2011. (FCIC827, Docket No. 116, # 34.) The policy was titled the Pulse Crop 3 Revenue
Coverage Pilot Program (“the Proposal”). (Id.) The Proposal explained that pulse-crop
farmers wanted, but did not have access to, revenue coverage for their crops. (Id.) The
Proposal explained that because such revenue coverage had previously been unavailable,
pulse crops were at a competitive disadvantage over crops for which revenue coverage
was available. (Id.)
A pulse crop is a legume which is harvested for its dry seed, and the category includes dried
beans, lentils, and peas.
3
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Other revenue-insurance products use futures markets to help determine prices
but, because there is no futures market for pulse crops, Watts had to develop a new
pricing methodology. (Id. at 873-75.) Watts proposed to set the projected price for the
crops by obtaining the contract prices from processors in January and February. (Id. at
875.) Watts explained that “the approximate contracting volume of the processors is
known and processors are willing to share their contract price” and attached several
letters from processors committing their support. (Id.) Watts explained that the
projected price would be the average of these contract prices for each particular pea and
bean type. (Id.)
As for the harvest price, Watts explained that determining “the best mechanism
for establishing harvest price has constituted a major component of the development
process.” (Id.) For dry beans, Watts explained that the AMS Bean Market News publishes
weekly sales-price data for each bean type in the region. (Id. at 903.) The AMS collected
these prices via a telephone survey of regional processors based on weekly cash sales.
(Id. at 1150, 875-76.) Watts noted that an “analysis of historical actual producer prices
[attached to the Proposal] clearly demonstrates that AMS data provide a strong measure
of harvest price.” (Id. at 876.) The draft insurance provisions that accompanied the
submission explained that:
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In lieu of section 3(c)(5) of the Basic Provisions: 4 . . . (2) If the
harvest price as defined cannot be calculated for the crop year
for a type for which a projected price was determined in
accordance with the definition: (i) A harvest price will be
determined and announced by FCIC in lieu of the terms
contained in the definition of harvest price.
(Id. at 988.) However, in the “Rating Methods” section of the Proposal, Watts notes that:
there have been occasions in recent years where AMS has failed to
report prices for some types during the September through
November marketing period. Missing observations are generally due
to thin market volume, but there may be other causes as well. For
example, the 2008 MN/ND black bean price was reported for
September but not October or November; the 2008 MN/WI dark red
kidney price was not reported for any of the months September
through November. If AMS prices are to be used as part of the
insurance policy, contingency procedures will need to be developed
to handle situations where AMS prices are not available. The
developer recommends that the projected price be substituted for
any missing AMS monthly harvest price observations.
(Id. at 887, 894.)
B. Agency Questions
After reviewing Watts’s submission, the RMA wrote to Watts with questions and
comments. (FCIC1175, Docket No. 116, #36.) Among other things, the RMA repeated
Section 3(c)(5) of 11-BR (the Basic Provisions of the crop insurance policy) states that “If the
projected price or harvest price cannot be calculated for the current crop year under the
provisions contained in the Commodity Exchange Price Provisions [f]or the harvest price” that
“[r]evenue protection will continue to be available; and [t]he harvest price will be determined
and announced by FCIC.” (3(c)(5)(ii)(A-B) of 11-BR.)
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Watt’s phrasing noting that, “[t]here have been occasions in the past when AMS prices
have not been available.” (Id. at 1182.) The RMA was concerned that given the program’s
structure, should prices be again unavailable, “the projected price will be substituted for
the harvest price which essentially converts the revenue offer to yield protection with the
insured paying the premium for revenue coverage but only getting yield coverage.” (Id.)
In February 2012 Watts replied to this comment, asserting that: “[t]he comment
mixes apples and oranges. First, it raises an issue of lack of AMS prices (the harvest price
determination). Then it describes the action to be taken when the projected price cannot
be determined.” (Id. at 1175, 1182.) The reply goes on to say that “[t]he language in the
submission regarding inability to determine the harvest price when the projected price
has been determined is substantially the same as that of section 3(c)(5) of 11-BR.” (Id. at
1182.)
In a separate January 2012 document with questions and comments for Watts, the
RMA asked whether the intent of the language in the Proposal was to transfer the
responsibility for the development of the prices from the Watts to RMA if there were
issues with Watts’s estimates. (FCIC825-26, Docket No. 116, #33.) The RMA noted that
“[t]his could be a significant ‘ownership’ issue if this product were implemented.” (Id.)
C. Expert Reviews
During this time, experts were reviewing the Watts submission, and submitted
comments and reports in January 2012. Among other questions and concerns, one expert
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group—Acacia Economic Consulting, LLC (“Acacia”)—raised concerns about the Watts
harvest-price methodology because “[h]istorically, there have been occasions when AMS
failed to report harvest price data during these months for some types of dry beans.
Typically this is due to thin market volume.” (FCIC1239, Docket No. 116 #38.) The expert
report
specifically
noted
as
examples
that
“2008
AMS
failed
to
report
Minnesota/Wisconsin dark red kidney bean prices in September, October, or November”
and that “[i]n 2009, AMS failed to report Minnesota/Wisconsin dark red kidney bean
prices in September and October.” (Id.) Because, if there is no price reported, the policy
“substitute[s] the projected price for the missing month when calculating harvest price,”
the potential lack of data is an issue. (Id. at 1240.)
Acacia noted that, “[i]n the extreme case where AMS fails to report a price for
September, October, and November the harvest price would be equal to the projected
price and the revenue insurance product (with or without the harvest price exclusion)
would revert to a yield insurance product,” even though they had paid for the additional
revenue protection. (Id.) Acacia felt that while it was reasonable “have a contingency
plan for situations when AMS fails to report a price,” it was “unfair to growers who pay
for revenue insurance for that contingency plan to effectively shift the policy away from
revenue coverage and toward yield coverage.” (Id.)
Another expert report, from a professor at North Carolina State University, which
raised a variety of concerns about the actuarial soundness of the policy, noted that it was
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possible that “there could easily come a time when it becomes cost-prohibitive for the
industry to cooperate [in price data sharing] purely from the standpoint of the resources
that would be consumed in updating the data needed each year for deriving the projected
price.” (FCIC1319, Docket No. 116 #40.) On the whole, this expert was more concerned
about the projected price data, and potential methodological disparities between the two
prices.
The remainder of the experts supported the pricing methodology.
Deloitte
Consulting, LLP noted that when there is “thin trading volume, prices are not given” in the
Bean Market News, but that the “AMS is administered by the USDA, and thus we believe
that the bean market data will continue to be available.” (FCIC1290, Docket 116, #39.)
Rimrock Reviewing wrote that “the data is probably adequate, credible, and
reliable for establishing the projected and harvest prices,” but that in its view, the
historical data seemed to indicate lower-than-expected prices, perhaps indicating issues
with the quality of the product. (Id. at FCIC1361-62.) However, the report found no issue
with the availability of data, stating that, “[t]he number of contracts the data would
typically be derived from might be considered somewhat thin, but probably is adequate.
Considering the letters of support contained in the submission, I believe the data will be
continuously available in the future.” (Id. at FCIC1362.) Furthermore, Rimrock wrote that
“I believe the data proposed to be used for determining the projected price and harvest
price (if adjusted for quality) are appropriate, reliable and the best available for such
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purposes.” (Id. at FCIC1364.) Overall, the report found that, “these are probably minor
concerns compared to the benefit that would be derived by producers from the
availability [of the Endorsement]” and that “[o]verall, I believe this is a viable submission.”
(Id. at FCIC1360.)
Watts presented a powerpoint in response to the expert opinions asserting that
“[d]ata can be collected and maintained to operate the product” and that “[t]he processes
for establishing projected price and harvest price are reasonably reliable.” (FCIC1402,
Docket No. 116, #43.) Watts attached a variety of letters that it characterized as
confirming that Watts had sufficient data for determining the projected price. (Id. at
FCIC1373.)
D. Board Approval and Final Changes
The FCIC Board approved the Watts Proposal in March 2012. (FCIC822, Docket No.
116, # 32; FCIC1499 Docket No 116, #49. ) Specifically, the Board resolved to approve the
submission, “beginning with the first crop year that the Manager determines is
practicable with reinsurance and administrative and operating subsidy in amounts and
under such terms and conditions as determined appropriate by the Manager as
authorized under section 508(h) of the Federal Crop Insurance Act.” (Id. at FCIC822,
FCIC1499.) The Board also delegated to the Manager “the authority to make such
technical policy changes as are necessary to make the policy legally sufficient.” (Id. 822,
1499.)
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A few weeks later, Watts and the RMA continued to discuss the policy language.
Ron Lundine at the RMA sent a marked-up copy of the policy language, which still reads
“[i]f the harvest price as defined cannot be calculated for the crop year for a type for
which a projected price was determined in accordance with the definition: (i) A harvest
price will be determined and announced by FCIC.” (FCIC1559, Docket No. 116, #52.)
There are two comments in the paragraph from “RL,” but the document does not
preserve what his comments are. (Id.) In late March, Watts provided a response to many
of these questions, addressing errors and making other language changes to the policy.
(FCIC1570, Docket No. 116, #53.) However, as to this question, Watts provided a
seemingly incomplete response: “With regard to the question about how RMA is to
determine a harvest price, the language contained in these crop provisions is identical to
the language contained in the Basic Provisions. With regard to the statements in the
submission regarding missing AMS data, [Alex??].” (Id. at 1572-72.) (brackets in the
original.)
In mid-April 2012, Watts and the RMA had a call to continue discussing product
roll-out and structure. (FCIC1586, Docket No. 116, #54.) On the call, Watts and the RMA
agreed to structure the policy as an endorsement, and discussed the mechanism for that
structure. (Id.) They also discussed pricing issues, including that “[w]e need to consider
eliminating language that puts pricing at RMA discretion, [w]e need to devise a
prescriptive pricing method and discovery window[, and we] need to figure out the policy
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stuff and then get this straightened out.” (Id.) RMA and Watts were still working on edits
and changes to the various policies and provisions in November and December 2012.
(FCIC1592-96, Docket No. 116, #57.) By December 2012, the parties had mostly finalized
the provisions, including this paragraph, resulting in policy language essentially identical
to the Endorsement later purchased by Plaintiffs in this case. (Id. at FCIC1598-99.) 5
IV.
THE ENDORSEMENT
Each of the Plaintiffs purchased the Endorsement, and while the levels of coverage
vary, the contractual language is identical. As relevant to this action, the Endorsement
contains the following provisions:
2. Definitions
…
Harvest price – In lieu of the definition contained in the Basic
Provisions, a price determined for each type in accordance with
section 7 of this endorsement and used to value production to
count.
Market price – Either a value or the mid-point of a range of values
identified as “Dry Bean Grower Information” or similar descriptor
as published in the Bean Market News, a publication of the
Agricultural Marketing Service, USDA, for a specific type of dry
bean in a specific region.
Offer price – A contractual offer made by a buyer to producers to
grow and deliver a specified type of dry beans to the buyer at the
specified price.
Projected price – In lieu of the definition contained in the Basic
Provisions, a price determined for each type in accordance with
section 7 of this endorsement.
The version of the Dry Beans Revenue Insurance Standards Handbook in this submission is also
materially identical to the final version of the Handbook, discussed below. (Id. at FCIC1615.)
5
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3. Insurance Guarantees, Coverage Levels, and Prices.
...
(c) In lieu of section 3(c)(5) of the Basic Provisions:
...
(2)
If the harvest price cannot be calculated for
the crop year for a type for which a projected
price was determined in accordance with
section 7 of this endorsement, the harvest
price will be equal to the projected price.
4. Causes of Loss.
In addition to the causes of loss specified in section 10 of the Dry
Bean Crop Provisions, insurance is provided against a change in
the harvest price from the projected price[.]
...
7. Price Discovery.
(a) In accordance with section 2, this section specifies how
and when the projected price and harvest price will be
determined.
...
(d) Section 7(e)(3) applies in the case that either a projected
price or a harvest price cannot be determined in the
manner described in the following provisions.
(e) The projected and harvest prices for a type within a region
will be established as follows:
...
(2)
The harvest price for … dark red kidney
beans… will be determined by the following
procedure:
(A) The market price of each type for
each day of publication during the
period beginning on the first
business day in September and
ending on the last business day of
November will be collected;
(B) A market price will not be recorded
for a date if market activity on that
date is described with the terms
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...
including “limited” (Ltd), “very
limited” (V Ltd), or “Not Established”
or similar terms that indicate a small
volume of sales or no sales occurred
on that date;
(C) A harvest price will not be
established if there is a market price
for fewer than 50 percent of the
dates of publication included in the
period defined in 2(A) …
(2)
If a projected price for any of these types
cannot be determined as described herein:
(A) The projected price will be
determined by RMA and announced
not later than the third business day
in March; and
(B) The harvest price will equal the
projected price.
(f) Because there is not a sufficient volume of contracting for
types other than black beans, dark red kidney beans, navy
beans, pinto beans, and small red beans… the procedure
described for those types cannot be utilized for other
types. However, revenue protection is still considered to
be available and the projected and harvest process will be
determined by RMA. This action allows you to insure all
types of dry beans under revenue protection. However,
the types subject to this section will not have the benefit
of a change in the harvest price relative to the projected
price. You must elect 100 percent of the projected price.
(1)
In lieu of the definition of projected price
contained in the Basic Provisions, the
projected price shall be determined by RMA
and shall be the higher of the projected price
announced not later than the contract change
date or the additional projected price
announced not later than 15 days prior to the
sales closing date; and;
(2)
The harvest price shall be equal to the
projected price for the applicable type.
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…
(TAC, Ex. A, “the Endorsement.”)
V.
THE HANDBOOK
Accompanying the Endorsement is the Dry Beans Revenue Insurance Standards
Handbook (the “Handbook”), which “provides the official FCIC-approved 2013 and
succeeding crop years underwriting and administration standards” for the Endorsement,
and notes that “[a]ll approved insurance providers electing to offer the Dry Bean Revenue
Endorsement must utilize these standards.” (FCIC1532, Docket No. 116, # 50.) The
Handbook was issued by the USDA, the FCIC, and the RMA. (Id.)
The Handbook explains that it “provides instructions for establishing coverage in
accordance” with the Endorsement” and that it “provides the FCIC-approved procedures
for administering the Dry Bean Revenue Endorsement.” (Id. at FCIC1543.) The Handbook
repeats the pricing scheme established in the Watts Proposal wherein “[t]he harvest price
for black beans, dark red kidney beans, navy beans, and pinto beans will be a value
approved by RMA determined from analysis of prices received by growers for each week
of publication beginning September 1 and ending on the last business day nearest
November 30 of the crop year as reported by the Bean Market News, a publication of the
Agricultural Marketing Service, USDA.” (Id. at FCIC1547.)
The Handbook goes to explain the procedure for cases where a projected price is
established, but a harvest price cannot be determined.
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The language of section 3(c)(5) of the Basic Provisions has
been modified for the Dry Bean Revenue Endorsement. If a
harvest price cannot be determined for black beans, dark red
kidney beans, navy beans, and pinto beans as described by its
definition but a projected price was established according to
its definition, RMA will establish the harvest price.
Id. at FCIC1538.
VI.
THE 2015 CROP YEAR
In 2015, Watts obtained projected prices for dark-red kidney beans in Minnesota.
However, in December 2015 it became clear that there were issues with the harvest price.
“For the 12 eligible weeks (with the exclusion of Thanksgiving), there were eleven black
bean observations, two dark red kidney bean observations, eleven navy bean
observations, and twelve pinto bean observations for the Minnesota and North Dakota
areas.” (Docket No. 117, FCIC2350 #27.) As a result, there was not sufficient data with
which “to establish a harvest price for dark red kidney bean type.” (Id.) In Michigan, the
price collection issues were even more dire—Watts could not establish a harvest price for
any of the dry-bean types available there. (Id.)
Watts explained that it learned from AMS that the Bean Market News “labels price
observations limited when there are two observations collected and very limited when
only one is collected. If three or more observations are collected no label is attached.”
(Id. at FCIC2351.) Watts notes that it had twice reached out to industry to “encourage
participation in the AMS surveys among market participants, but with little apparent
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result” and suggested that the issue might be market illiquidity given a large crop and a
weak export demand. (Id. at FCIC0002353.)
The RMA expressed concerns about “the reoccurring data insufficiency for some
of the dry bean types.” (FCIC4206 Docket No. 117, #85.) RMA reviewed Watts’ report
and requested dry-bean data, which Watts sent. (Id. at FCIC4233, 4564.) Among other
things, the RMA corrected Watts’ assertion that there was a liquidity issue when there
was, in fact, a pricing issue. (Id. at FCIC4565.)
In an updated report, Watts explained that the reason for the lack of pricing was
that “strong production both domestically and internationally, paired with a strong dollar
(which makes American exports expensive relative to other country’s production),
weakening economies in the developing world, and generally tepid exports have all
collectively pushed prices lower this harvest season.” (FCIC4548, Docket No. 118, #22.)
As a result, pricing has been difficult and “most warehouses chose not to post any price
at all. (Id.) Watts noted that “the lack of reports will be painful for growers; without the
ability to publish a harvest price, many growers will endure a revenue loss, but will not
receive a revenue-based indemnity.” (Id.) Only two dark-red kidney bean prices were
available and were both for $0.33 to $0.35 per pound, as opposed to the projected price,
which had been set at $0.53 per pound. (Id. at FCIC4550.)
On December 15, 2015, the RMA posted the harvest prices set by Watts on its
website, along with the note indicating that per the Endorsement, “the harvest price will
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be equal to the projected price when a harvest price cannot be determined.” (FCIC2326,
Docket No. 117, #25.) The price for dark-red kidney beans in Minnesota and North Dakota
was set at the projected price. (Id.)
In response to calls from members of Congress regarding their constituent farmers
who were unhappy with the lack of revenue coverage, the RMA said in an email that “[t]t
is very unlikely anything can be done for the 2015 crop year. The endorsement specifies
the data requirements necessary to establish a harvest price and unfortunately for 2015,
they were not met.” (FCIC10795, Docket No. 120, #20.) The RMA went on to note that
“[t]he endorsement also specifies that if data are not sufficient to establish a harvest
price, the harvest price will equal the projected price. The endorsement doesn’t provide
any language to refund the portion of additional premium for revenue coverage.” (Id.)
On December 31, 2015, Watts submitted a modification proposing changes to the
harvest-price requirements. Specifically, the requirements for determining prices were
somewhat relaxed, allowing consideration of “Limited” reporting (though still disallowing
“Very Limited” reporting), and giving more time for the RMS to publish the harvest price.
(FCIC13105–06, Docket No. 121, #2.) Watts also included commitments from processors
committing to providing harvest pricing data going forward. (FCIC14351–74, Docket No.
121, #4.) The Board adopted these changes. (FCIC14494, Docket No. 121, #14.)
VII.
MICHIGAN LITIGATION AND PROCEDURAL HISTORY
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This case was brought initially as a putative class action in the Eastern District of
Michigan, and included several, but not all, of the Plaintiffs in this case. (Compl., June 5,
2017, Docket No. 1.) The court in Michigan dismissed the Michigan plaintiffs’ claims
against a variety of insurers because they were bound by an arbitration agreement.
(Order Granting Mot. to Dismiss at 28, April 18, 2018, Docket No. 70.) That court also
dismissed the Minnesota Plaintiffs for improper venue, because under 7 U.S.C. § 1506(d),
they were required to bring suit in either the District of Columbia or the district where
they resided or farmed. (Id.) After a motion for reconsideration, the Minnesota residents
in the Michigan case were transferred to this District.
(Order Granting Mot. for
Reconsideration, June 1, 2018, Docket No. 80; Transfer to D. Minn., June 8, 2018, Docket
No. 81.) In February 2019, plaintiffs filed their Third Amended Complaint (“TAC”) which
is the operative pleading. (TAC, Feb. 26, 2019, Docket No. 89.)
Litigation continued in the Eastern District of Michigan. Counsel for Plaintiffs
continued to represent the Michigan plaintiffs. The claims of the parties are tightly
related—the core of both complaints is that Defendants acted arbitrarily and capriciously
regarding the Endorsement and the 2015 harvest-price determination. (Compare TAC
with SAC, April 30, 2018, Docket No. 72.)
In July 2019, Judge Thomas Ludington of the Eastern District of Michigan granted
summary judgment in favor of Defendants and denied the Michigan Plaintiffs’ competing
motion for summary judgment. Ackerman Bros. Farms, LLC v. U.S. Dep’t of Agric., No. 17-
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CV-11779, 2019 WL 3067927, at *13 (E.D. Mich. July 12, 2019), reconsideration denied
sub nom. Ackerman v. U.S. Dep’t of Agric., No. 17-CV-11779, 2019 WL 6837785 (E.D. Mich.
Dec. 16, 2019). That court found that Defendants’ interpretation of the Endorsement was
not arbitrary and capricious, because: (1) the language of the Federal Crop insurance Act
does not require Defendants to set the harvest price at the market price, instead of the
projected price; (2) Watts, not the RMA, set harvest prices, and Defendants had no
discretion; (3) the Endorsement’s language regarding harvest-price contingency
procedures, rather than the Handbook’s, controls; and (4) Defendants’ reliance on expert
reports was rational and the approval of the Endorsement was not arbitrary and
capricious. Id. at *12–25.
The court also declined to consider any Managers Bulletins which purported to
show that the RMA had authority to disregard the language of the Endorsement, because
the Bulletins were not in the administrative record and because the Michigan plaintiffs
had not moved to supplement the record. Id. at *8. Plaintiffs filed a motion for
reconsideration, which was denied, and the case is now on appeal to the Sixth Circuit.
The Minnesota Plaintiffs brought a Motion for Summary Judgment in September
2019, arguing that as a matter of law, Defendants acted arbitrarily and capriciously in not
setting a harvest price when Watts failed to determine the harvest price for dark-red
kidney beans. (Mot. for Summ. J., Sept. 6, 2019, Docket No. 131.) Specifically, Plaintiffs
argue that (1) Defendants should have understood the Endorsement and the Handbook
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to require the RMA to set a harvest price; (2) that the RMA should have used its equitable
powers to prevent the Endorsement’s revenue coverage from converting to yield
coverage; and (3) that Defendants’ approval of the Endorsement was itself arbitrary and
capricious.
Defendants bring a Cross Motion to Dismiss and, in the alternative, for Summary
Judgment. (Mot. to Dismiss or for Summ. J., Oct. 25, 2019, Docket No. 141.) Defendants
argue first that Plaintiffs’ claims are precluded by the Ackerman decision. Defendants
further argue that any errors in the Endorsement were the fault of Watts, and that it did
not act arbitrarily or capriciously in authorizing or administering the Endorsement. (Id.)
The parties submitted supplemental briefing on May 22, 2020, which the Court will
consider to the extent appropriate. (Pls.’ Supp. Brief, Docket No. 168, Defs.’ Supp. Brief,
Docket No. 169.)
DISCUSSION
I.
MOTION TO DISMISS/JUDGMENT ON THE PLEADINGS
Defendants purport to bring a Motion to Dismiss under Rule 12(b)(6), although
they answered the TAC months prior to this filing. (Answer to TAC, Mar. 12, 2019, Docket
No. 90.) “Technically . . . a Rule 12(b)(6) motion cannot be filed after an answer has been
submitted.” Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). However,
the Court will instead consider the Motion to be a Rule 12(c) Motion for Judgment on the
Pleadings, given that the same standards govern and the distinction is purely formal. Id.
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USDA argues that Plaintiffs’ Motion for Summary Judgment is partially or entirely
precluded as a result of the Ackerman decision. “The preclusive effect of a judgment is
defined by claim preclusion and issue preclusion, which are collectively referred to as ‘res
judicata.’” Taylor v. Sturgell, 553 U.S. 880, 892 (2008). Claim preclusion prohibits
relitigation of the same claims, regardless of whether the claim raises the same factual or
legal issues, whereas issue preclusion prohibits relitigation of an “issue of fact or law
actually litigated and resolved in a valid court determination essential to the prior
judgment, even if the issue recurs in the context of a different claim.” Id. (cleaned up).
Preclusion is an affirmative defense properly raised by a motion to dismiss or
judgment on the pleadings, as long as the defense is “apparent on the face of the
complaint[.]” C.H. Robinson Worldwide, Inc. v. Lobrano, 695 F.3d 758, 763-64 (8th Cir.
2012) (quoting Noble Sys. Corp. v. Alorica Cent., LLC, 543 F.3d 978, 983 (8th Cir. 2008)). In
considering such a motion based on preclusion, the court accepts the plaintiff’s factual
allegations as true. See, e.g., Laase v. Cty. of Isanti, 638 F.3d 853, 856 (8th Cir. 2011).
A. Claim Preclusion/Res Judicata
Claim preclusion exists when “(1) the first suit [resulted] in a final judgment on the
merits; (2) the first suit [was] based on proper jurisdiction; (3) both suits [involved] the
same nucleus of operative fact; and (4) both suits [involved] the same parties or their
privies.” Kolb v. Scherer Bros. Fin. Servs. Co., 6 F.3d 542, 544 (8th Cir. 1993). Only the
fourth element is in dispute here. With few exceptions, “[a] person who was not a party
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to a suit generally has not had a ‘full and fair opportunity to litigate’ the claims and issues
settled in that suit.” Taylor, 553 U.S. at 892–93 (quoting Richards v. Jefferson Cty, 517
U.S. 793, 798 (1996)). The application of claim and issue preclusion to nonparties thus
runs up against the “deep-rooted historic tradition that everyone should have [their] own
day in court.” Id. (quoting Richards, 517 U.S. at 798).
One exception, however, is the adequate-representation exception, which applies
“in certain limited circumstances” to bind a nonparty because they were “adequately
represented by someone with the same interests who was a party to the suit.
Representative suits with preclusive effect on nonparties include properly conducted
class actions and suits brought by trustees, guardians, and other fiduciaries.” Id. at 894
(cleaned up). Beyond those specific examples, nonparty representation is adequate “only
if, at a minimum: (1) The interests of the nonparty and her representative are aligned;
and (2) either the party understood herself to be acting in a representative capacity or
the original court took care to protect the interests of the nonparty.” Id. at 900 (cleaned
up).
Plaintiffs in this case were not parties to the Ackerman decision. Although some
of the Plaintiffs in this case were initially parties to the Ackerman case, they ceased to be
once their claims were transferred to this District. These claims were transferred because
of the requirement in 7 U.S.C. § 1506(d) that “any suit against the Corporation (Federal
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Crop Insurance Corporation) shall be brought in the District of Columbia, or in the district
wherein the plaintiff resides or is engaged in business.”
Defendants argue that the adequate-representation exception applies. First,
Defendants assert that Plaintiffs are privies with the Ackerman plaintiffs because their
interests clearly align. The interests of the two groups of plaintiffs are unquestionably
linked. However, Defendants have not made any showing that the Ackerman plaintiffs
understood themselves to “be acting in a representative capacity” for the Plaintiffs, or
that the District Court in Michigan “took care to protect the interests” of the Plaintiffs
here. See Taylor, 553 U.S. at 900. To the contrary, Plaintiffs were involuntarily severed
and their claims dismissed, and only later transferred to this District.
Additionally, Defendants argue that, because both Ackerman and the present case
were filed as putative class actions, Plaintiffs’ interests were adequately represented by
the Ackerman plaintiffs.
First, the Supreme Court has clarified the adequate-
representation exception does not apply based on a putative class action, but rather only
when classes have been certified. Smith v. Bayer Corp., 564 U.S. 299, 314–15 (2011)
(concluding that “[n]either a proposed class action nor a rejected class action may bind
nonparties”). No class has been certified in either jurisdiction. Furthermore, two of the
Plaintiffs, Ludowese and Stamer, were never plaintiffs in the Ackerman case.
Finally, policy considerations also suggest that claim preclusion should not apply in
this case. The Supreme Court has reiterated that the exceptions to the doctrine against
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nonparty preclusion are limited because due process requires an opportunity to be heard.
See e.g., Smith, 564 U.S. at 313; Taylor, 553 U.S. at 898. Moreover, the fact that the
Federal Crop Insurance Act requires that plaintiffs sue in the district where they reside or
carry out their business suggests that Congress decided local litigation is more important
for these cases than conservation of judicial resources—the policy purpose driving
preclusion. See, e.g., Taylor, 553 U.S. at 892 (“[Preclusion] doctrines protect against the
expense and vexation attending multiple lawsuits, conserve judicial resources, and foster
reliance on judicial action by minimizing the possibility of inconsistent decisions.”
(cleaned up)). Severing and transferring Plaintiffs only to preclude their claims would run
counter to the due-process concerns that motivate the limited and narrow exceptions to
nonparty preclusion.
Accordingly, the Court finds that Plaintiffs’ claims are not barred by claim
preclusion.
B. Issue Preclusion/Collateral Estoppel
Issue preclusion exists when five elements are present: (1) the current party was a
party (or was in privity with a party) to the original action; (2) the issue is the same as one
involved in the prior action; (3) the issue was actually litigated in the prior action; (4) the
issue was determined by a valid and final judgment; and (5) that determination must have
been essential to the prior judgment. Robinette v. Jones, 476 F.3d 585, 589 (8th Cir. 2007).
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As with claim preclusion, issue preclusion is disfavored for nonparties to the prior
litigation. See Taylor, 553 U.S. at 892–93.
Defendants argues that, to the extent the issues in this case were already litigated
in Ackerman, those issues are precluded here. However, as discussed above, although
some of the Plaintiffs in this case were initially parties to the Ackerman case, they had
been severed and transferred to this District prior to the Ackerman order. The remainder
of Plaintiffs were never parties to the Ackerman case. Defendants have not demonstrated
that Plaintiffs were in privity with the Ackerman plaintiffs. Finding that the first element
of issue preclusion is not met, the Court need not reach the remainder.
Accordingly, the Court finds that Plaintiffs’ claims are not barred by issue
preclusion.
II.
JUDICIAL NOTICE
Plaintiffs ask the Court to take judicial notice of past issues of the Bean Market
News and prior Managers’ Bulletins from the RMA that are not in the Administrative
Record. 6
Plaintiffs previously asked the Court to supplement the Administrative Record with these
documents (a motion that the Magistrate Judge denied without prejudice, Minute Entry, Aug. 28,
2019, Docket No. 129), but now frames the request as one for judicial notice, not
supplementation.
6
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Typically, judicial notice of adjudicative facts—that is, those facts that are relevant
to the case—is governed by Federal Rule of Evidence 201. Specifically, the court can take
judicial notice of “a fact that is not subject to reasonable dispute because it . . . can be
accurately and readily determined from sources whose accuracy cannot reasonably be
questioned.” Fed. R. Evid. 201(b)(2). However, some courts have adopted a heightened
standard for judicial notice in an APA case. For example, the District Court for the District
of Columbia has rejected judicial notice in the APA judicial review context on several
occasions, explaining that: “[j]udicial notice is typically an inadequate mechanism for a
court to consider extra-record evidence in reviewing an agency action. Instead, a court
may only consider an adjudicative fact subject to judicial notice that is not part of the
administrative record if it qualifies for supplementation as extra-record evidence.” Silver
State Land, LLC v. Beaudreau, 59 F. Supp. 3d 158, 172 (D.D.C. 2014) (internal quotations
omitted). The District of New Mexico rejected judicial notice for a different reason: the
court’s function as an appellate body for the purposes of APA judicial review. Jarita Mesa
Livestock Grazing Ass’n v. U.S. Forest Serv., 305 F.R.D. 256, 297 (D.N.M. 2015) (“Given this
case’s posture as an appeal, the Court will not take judicial notice of adjudicative facts,
except to the extent that the underlying factual developments arose after the last agency
action.”) The Eighth Circuit has not spoken on this issue.
However, the Court need not reach the appropriate standard here, because these
documents are not relevant to the Court’s analysis of the merits. See, e.g., Dist. Hosp.
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Partners, L.P. v. Sebelius, 971 F. Supp. 2d 15, 32 (D.D.C. 2013). Even if the documents
illustrate the facts as Plaintiffs have alleged (that the Managers’ Bulletins demonstrate
the RMA has equitable powers, and that the Bean Market News back issues demonstrate
that it did not always contain sufficient pricing information) such facts would not alter the
Court’s view of the issues, as discussed in more detail below.
Accordingly, the Court will decline to take judicial notice of these additional
documents.
III.
SUMMARY JUDGMENT
Summary judgment is appropriate where there are no genuine issues of material
fact and the moving party can demonstrate that it is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(a). A fact is material if it might affect the outcome of the suit, and
a dispute is genuine if the evidence is such that it could lead a reasonable jury to return a
verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A court
considering a motion for summary judgment must view the facts in the light most
favorable to the non-moving party and give that party the benefit of all reasonable
inferences to be drawn from those facts. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). The nonmoving party may not rest on mere allegations
or denials but must show through the presentation of admissible evidence that specific
facts exist creating a genuine issue for trial. Anderson, 477 U.S. at 256.
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A. Administrative Procedure Act
Under the Administrative Procedure Act, the Court “shall decide all relevant
questions of law, interpret constitutional and statutory provisions, and determine the
meaning or applicability of the terms of an agency action.” 5 U.S.C. § 706. The 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[.]”
Id. § 706(2)(A). Courts may not “rubber-stamp” administrative decisions but must also
accord an agency “great deference” in its interpretation of its own regulations. Moore v.
Custis, 736 F.2d 1260, 1262 (8th Cir. 1984) (internal quotation omitted).
“The court is not empowered to substitute its judgment for that of the agency”
and the agency must only “articulate a rational connection between the facts found and
the choice made.” Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281,
285–86 (1974) (internal quotation omitted). The Court will “uphold a decision of less than
ideal clarity if the agency’s path may reasonably be discerned.” Id.
To find an agency action arbitrary and capricious, courts must find that “there is
no rational basis for the action.” Moore, 736 F.2d at 1262. Plaintiffs must demonstrate
that the agency action was a “willful and unreasoning action, without consideration and
in disregard of the facts or circumstances of the case[.]” Id. (quoting First Nat’l Bank of
Fayetteville v. Smith, 508 F.2d 1371, 1376 (8th Cir. 1974)). Furthermore, courts will “defer
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to the agency’s choice of methodology as long as it is not arbitrary or without foundation.”
Friends of Boundary Waters Wilderness v. Dombeck, 164 F.3d 1115, 1130 (8th Cir. 1999)
Plaintiffs advance two general theories: (1) that Defendants acted arbitrarily and
capriciously in approving the Endorsement, given the potential issue with harvest pricing;
and that (2) that Defendants acted arbitrarily and capriciously by not setting the harvest
prices at the market prices in 2015.
B. 2015 Harvest Pricing
Plaintiffs argue that Defendants acted arbitrarily and capriciously in not setting a
harvest price in 2015 after Watts was unable to determine the harvest price. Specifically,
Plaintiffs argue that (1) Defendants should have understood the Endorsement and the
Handbook to require the RMA to set a harvest price; and (2) that the RMA should have
used its equitable powers to prevent the Endorsement’s revenue coverage from
converting to yield coverage.
1. Endorsement and Handbook
Plaintiffs argue that when Watts failed to determine the harvest price for dark-red
kidney beans, Defendants acted arbitrarily and capriciously in not setting a harvest price.
Specifically, Plaintiffs argue that Defendants should have understood the Endorsement
and the Handbook to require the RMA to set a harvest price when the Bean Market News
mechanism failed in 2015.
-31-
Plaintiffs are correct that when courts interpret insurance policies, “reasonable
doubt as to its meaning must be resolved in favor of the insured[.]” Bobich v. Oja, 104
N.W.2d 19, 24 (Minn. 1960); see also Staffing Specifix, Inc. v. TempWorks Mgmt. Servs.,
Inc., 913 N.W.2d 687, 693 (Minn. 2018) (The rule that ambiguous contract terms are to
be construed against the drafter has been called the canon of ‘contra proferentem.’ The
rule is commonly (but not exclusively) applied in the insurance context.”). However, “the
court has no right to read an ambiguity into plain language of an insurance policy[.]”
Bobich, 104 N.W.2d at 24.
“Where there is no ambiguity there is no room for
construction” and the court must give the language “its usual and accepted meaning.” Id.
The Endorsement, on its face, clearly states at section IV(3)(c)(2) that “[i]f the
harvest price cannot be calculated for the crop year for a type for which a projected price
was determined in accordance with section 7 of this endorsement, the harvest price will
be equal to the projected price.” The clear language of the Endorsement requires
Defendants to set the harvest price at the proposed price if the harvest price cannot be
determined. Because the contract is clear, the Court’s analysis must stop there.
It is unquestionably true that the Handbook directly conflicts with the
Endorsement on this point and sets the responsibility to set a harvest price in these
circumstances with Defendants. In at least one email from Watts, Watts (wrongly)
reassures Defendants that the Endorsement language is similar to the Basic Provisions
language which, like the Handbook, would put the harvest price in the hands of
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Defendants. It appears that throughout the development of the policy, Watts and the
Defendants went back and forth as to how this issue would be handled.
However, by the time the Endorsement was finalized, it included the language
setting the harvest price at the proposed price. And because the Endorsement itself is
clear, the Handbook has no part in the interpretation. Plaintiffs urge the Court to find
that the Endorsement and the Handbook are essentially one contract and that as a result
their contradictory terms should be read in favor of the insured. However, the Handbook
is not an addendum or an amendment to the Endorsement, but instead is a separate
document intended to provide guidance for the Endorsement. It does not modify or
control the Endorsement; on the contrary, the Endorsement is the governing document.
See Common Crop Insurance Policy, 7 C.F.R. § 457.8 (“We will use the procedures
[including] handbooks . . . in the administration of this policy, including the adjustment of
any loss or claim submitted hereunder.”
While Defendants must use the Handbook in
the administration of the Endorsement, the Endorsement must control.
Plaintiffs cite to Conrad v. Ace Property & Casualty Insurance Co., a Ninth Circuit
case holding that a similar crop-revenue insurance policy must be interpreted in
accordance with the procedures and methods set out in the accompanying handbook.
Conrad v. Ace Prop. & Cas. Ins. Co., 532 F.3d 1000, 1007 (9th Cir. 2008). However, as the
court in Ackerman found, the facts and policy language here are distinguishable from
Conrad. Ackerman, 2019 WL 3067927, at *9. In Conrad, the policy language did not
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contain a certain calculation method; instead, it required that the parties “recognize and
apply the claim adjustment and other procedures established or approved by FCIC[.]”
532 F.3d at 1006. Conrad then found that the handbook, which specifically explained that
it contained “THE OFFICIAL FCIC–APPROVED UNDER–WRITING, ADMINISTRATION, AND
LOSS ADJUSTMENT STANDARDS,” was incorporated into the policy insofar as it set out
the approved and established procedures. Id. at 1007.
Here, on the other hand, the Endorsement, on its own, is complete as to the
methodology for calculating the harvest price in the absence of sufficient data. Conrad
does not stand for the proposition that the Handbook is necessarily and equally a part of
the Endorsement. Instead, Conrad explains that when a contract references a specific
outside policy, that policy itself is incorporated into the contract. Accordingly, Conrad has
no bearing on the analysis here.
Defendants followed the language of the Endorsement and set the harvest price
at the proposed price. Because the Endorsement was complete on its face, and because
the Endorsement, as the actual policy, supersedes the Handbook as the implementation
document, Defendants’ actions were not arbitrary and capricious.
2. RMA’s Equitable Powers
Plaintiffs next argue that the RMA has jurisdiction over Pilot Programs, such as the
Endorsement and has, in other cases, intervened equitably when such programs went
awry. As a result, Plaintiffs argue that RMA’s failure to use equitable powers here—to
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reform the Endorsement and set a reasonable harvest price—was arbitrary and
capricious.
Even assuming that the RMA has the jurisdiction and equitable powers that
Plaintiffs claim and could have reformed the Endorsement, Plaintiffs have not shown any
reason why the failure to do so should be considered arbitrary and capricious. Plaintiffs
cite no law indicating that an agency must use equitable powers under particular
circumstances. On the contrary, the very nature of equitable power implies that there is
significant room for judgment and discretion.
As discussed above, Defendants reasonably understood the language of the
Endorsement to set the harvest price at the projected price. While declining to reform
the contract may not have been the best or wisest decision, it does not appear to be an
arbitrary and capricious one.
3. Conclusion
While the Endorsement’s policy was flawed, and the 2015 crop year resulted in
losses for farmers, Plaintiffs have not demonstrated that Defendants’ action was a “willful
and unreasoning action, without consideration and in disregard of the facts or
circumstances of the case.” Moore, 736 F.2d at 1262 (quoting Smith, 508 F.2d at 1376).
Because Defendants reasonably interpreted the language of the Endorsement, and
because Plaintiffs have not demonstrated that it was arbitrary and capricious to decline
to use any equitable powers to reform the contract, the Court will grant Defendants’
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Motion for Summary Judgment and deny Plaintiffs’ Motion for Summary Judgment as to
Count 1 of the TAC.
C. Approval of the Endorsement
Plaintiffs argue that Defendants’ initial approval of the Endorsement was arbitrary
and capricious because the harvest-price contingency procedure is flawed and (1) the
administrative record does not contain evidence that Defendants reviewed historical
records of the Bean Market News; (2) the administrative record does not contain
evidence that Defendants reviewed the Bean Market News’ reporting methodology; and
(3) Defendants did not give sufficient consideration to expert reviews. Essentially,
Plaintiffs argue that because the Endorsement was flawed, Defendants must have failed
to consider all relevant factors.
1. Expert Concerns
Plaintiffs argue that Defendants failed to sufficiently consider expert reviews when
it approved the Endorsement.
Plaintiffs argue that Defendants did not review the full body of expert reports.
First, federal law requires Defendants to “include reviews conducted . . . as part of the
consideration of any policy or plan or insurance . . . proposed to be offered.” 7 U.S.C. §
1505(e)(4) The Administrative Record contains approximately 200 pages of expert
reviews.
The Administrative Record was certified as containing the documents
considered by the decision-maker. “When there is a contemporaneous administrative
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record and no need for additional explanation of the agency decision, there must be a
strong showing of bad faith or improper behavior before the reviewing court may permit
discovery and evidentiary supplementation of the administrative record.” Voyageurs
Nat’l Park Ass’n v. Norton, 381 F.3d 759, 766 (8th Cir. 2004) (internal quotations omitted).
Plaintiffs argue that Defendants considered only a short summary of the expert
reports. However, Plaintiffs have provided no evidence for this assertion, much less “a
strong showing of bad faith or improper behavior.” Without more, Plaintiffs cannot
demonstrate that Defendants did not review the expert reports in the Administrative
Record.
Plaintiffs next argue, essentially, that Defendants failed to give sufficient weight to
those expert reviews which warned of potential issues with the Endorsement. Plaintiffs
are correct in noting that at least one expert pointed out the precise issue which caused
the 2015 mess. That report noted that the Bean Market News failed entirely to report
Minnesota dark-red kidney bean prices in September, October, and November of 2008,
and again in September and October of 2009. The report reasoned that in the “extreme
case” where there were no reported prices for September, October, and November, the
harvest price would equal the projected price, and the product would revert to yield
insurance, even though the farmers had paid for the additional revenue protection. The
report continued, noting that while it was reasonable to have some kind of contingency
-37-
plan if there were insufficient reported prices, this solution was unfair to farmers who
paid for revenue insurance and would instead only receive yield coverage.
However, although this expert was prescient in predicting precisely the issue that
arose in 2015, the majority of the other expert opinions recommended approval of the
Endorsement. Furthermore, Defendants could reasonably understand “an extreme case”
to mean a rare, as opposed to a particularly damaging, case. As such, it appears that
Defendants had a rational basis to rely on the majority of the expert reports and discount
the contrary expert’s possibility of an “extreme case.”
Accordingly, Defendants’ consideration of expert reporting was not arbitrary and
capricious.
2. Bean Market News Historical Data
Plaintiffs argue that the Administrative Record does not contain evidence that
Defendants reviewed historical issues of the Bean Market News. Plaintiffs argue that
because the Bean Market News was essential to the Proposal’s pricing scheme,
Defendants’ failure to investigate the Bean Market News historical record violates the
APA.
It is not clear that Defendants were required to investigate back issues of the Bean
Market News or that a failure to do so would be arbitrary and capricious. First, the
administrative record indicates that Defendants reviewed summaries of the Bean Market
News historical data prepared by Watts. Second, as discussed, at least one expert raised
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precisely the concern that Plaintiffs argue that a Bean Market News review would have
uncovered—that in previous years, the Bean Market News had limited data, and that
basing the pricing mechanism on the Bean Market News could be risky. Finally, and most
importantly, Watts discussed this very issue in the initial proposal, which noted that
sometimes there were issues with pricing, and that, in 2008 black-bean prices were not
reported for October or November, and that dark-red kidney bean prices were not
reported at all from September through November.
Defendants had the information that Plaintiffs argue they failed to seek. As a
result, even if Defendants failed to independently investigate the Bean Market News,
such a failure would not be arbitrary and capricious, because Defendants obtained this
information by other means.
3. Bean Market News Methodology
Finally, Plaintiffs assert that the Administrative Record does not contain evidence
that Defendants investigated the method by which the Bean Market News collected and
published price data. Plaintiffs suggest that Defendants did not understand that limited
pricing data might lead to no price being published in the Bean Market News.
However, the Endorsement explains that there is the possibility that prices could
be considered “limited,” “very limited,” or “not established” and that these prices would
not be considered. Additionally, as discussed above, Defendants were aware from Watts,
as well as from at least one expert report, that the Bean Market News did not always
-39-
contain sufficiently voluminous pricing to establish a harvest price. Again, Defendants
had the information that Plaintiffs assert they were required to seek. It was not arbitrary
and capricious not to reinvestigate information that Defendants already had.
4. Conclusion 7
Although the Endorsement and Bean Market News reporting system was flawed,
and the 2015 crop year resulted in losses for farmers, Plaintiffs have not demonstrated
that Defendants’ action in approving the Endorsement was arbitrary and capricious, given
that the Court must “defer to the agency's choice of methodology as long as it is not
arbitrary or without foundation.” Friends of Boundary Waters, 164 F.3d at 1130. Because
Defendants were aware of the risks of Watt’s pricing methodology, reasonably relied on
Plaintiffs also argued in supplemental briefing submitted several months after oral argument
that Defendants failed to approve the Endorsement, because Watts continued to make changes
to the policy language (in coordination with the RMA) for months after the Board approved the
initial proposal, but did not formally resubmit the finalized Endorsement language for reapproval.
See 7 C.F.R. § 400.709(a)(2)(i) (“Any changes to approved 508(h) submissions, both nonsignificant and significant, must be submitted to FCIC in the form of a 508(h) submission for
review[.]”) Plaintiffs argue that because the Administrative Record contains no such
resubmission, Defendants’ actions were arbitrary and capricious.
7
First, the changes here were non-significant changes, because they “involve[d] concepts that
[had] been previously sent for expert review.” Id. § 400.701 (defining non-significant change).
As such, the Endorsement would not require an entirely new submission. Cf. id.
§ 400.709(a)(2)(ii) (noting that only significant changes “will be considered a new 508(h)
submission”). Furthermore, the Board’s approval of Watts’s proposal clearly delegates the
authority to make such technical policy changes as are necessary to make the policy legally
sufficient. Plaintiffs have not demonstrated that this delegation was improper, nor that the RMA
staff who worked with Watts in finalizing the language were not contained within the delegation.
-40-
the majority of experts, reasonably could have discounted the expert to the contrary, and
had sufficient information with which to make its decisions, the Court will Grant
Defendants’ Motion for Summary Judgment as to Count 2 of the TAC.
FINAL NOTE
Minnesota dark red kidney bean farmers purchased revenue insurance for the
2015 crop year which was supposed to be designed to protect them against a drop in
bean prices. But a deeply flawed process overseen by USDA resulted in the farmers
instead receiving yield insurance in a year when revenue insurance, not yield insurance,
was necessary to compensate for the significant drop in the harvest price of beans. Why
this significant flaw — the potential lack of published pricing data sufficient to establish a
harvest price which resulted in a reversion to the projected price — was not noted by
most of the “experts” who reviewed the plan is inexplicable. And often, an increase in
yield can cause a drop in prices, making yield insurance a poor substitute for revenue
insurance. The farmer pays for both, which gives insurance protection regardless of the
summer conditions. Usually, insurance consumers get what they pay for, but not this
time. But, as noted, the Court’s ability to review agency actions in this case is significantly
limited, thus the Court cannot provide a remedy for poor administration of a program
needed by Minnesota farmers. That is truly unfortunate.
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ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1. Plaintiffs’ Motion for Summary Judgment [Docket No. 131] is DENIED;
2. Defendants’ Motion to Dismiss and Motion for Summary Judgment
[Docket No. 141] is DENIED as to the Motion to Dismiss, and GRANTED
as to the Motion for Summary Judgment.
LET JUDGMENT BE ENTERED ACCORDINGLY.
DATED: August 21, 2020
at Minneapolis, Minnesota.
______
______
JOHN R. TUNHEIM
Chief Judge
United States District Court
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