Sunrise Cooperative Inc. v. United States Department of Agriculture et al

Filing 25

Order: Defendants' motion for summary judgment (Doc. 16 ) be, and the same hereby is, granted. Plaintiff's motion for summary judgment (Doc. 13 ) be, and the same hereby is, denied. Defendants' objection under Fed. R. Civ. P. 56(c)(2) (Doc. 20 ) be, and the same hereby is, sustained. Plaintiff's motion for an oral hearing (Doc. 18 ) be, and the same hereby is, denied. Judge James G. Carr on 6/6/17.(C,D)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
WESTERN DIVISION

Sunrise Cooperative, Inc.,

Case No. 3:16CV1297

Plaintiff
v.

ORDER

United States Department of Agriculture, et al.,
Defendants

This declaratory judgment action under 28 U.S.C. § 2201 concerns a farming cooperative’s
right to issue “patronage rebates” to those of its members who buy crop insurance from an insurer
that the cooperative partly owns.
The plaintiff, Sunrise Cooperative, Inc. (Sunrise), is an Ohio agricultural cooperative whose
members are Ohio and Michigan farmers. Sunrise owns a one-third stake in Lund and Smith
Insurance Services, LLC (L&S). Sunrise declares and pays “patronage” to its members based on how
much crop insurance each member buys from L&S. This “patronage” is essentially a rebate on a
policy premium that creates an incentive for the cooperative’s members to buy insurance from L&S.
Since 2008, federal law has prohibited this kind of premium rebating. 7 U.S.C.
§ 1508(a)(9)(A). But Sunrise has continued to declare patronage under the statute’s “grandfather
clause,” which allows an “entity” that, before enactment of the 2008 legislation, “was approved by
the [Federal Crop Insurance] Corporation to make such payments for the 2005, 2006, or 2007

reinsurance year.” 7 U.S.C. § 1508(a)(9)(B)(iii)(I). Having been so approved for those years, Sunrise
could continue making such payments after the 2008 law took effect.
In 2016, Sunrise merged with another farming cooperative, Trupointe Cooperative, Inc.
(Trupointe) and more than doubled its membership.1 After the merger, Sunrise was the surviving
corporation.
When Sunrise inquired of the United States Department of Agriculture’s Risk Management
Agency (RMA) whether it could, post-merger, continue making premium rebates, the RMA advised
Sunrise that it could not. The agency explained that, as a result of its merger with a nongrandfathered entity like Trupointe, Sunrise was no longer an “entity that was approved” to declare
patronage.
Having unsuccessfully contested the RMA’s position administratively, Sunrise brought this
challenge to the agency’s decision under the Administrative Procedures Act, 5 U.S.C. § 701, et seq.
Jurisdiction is proper under 28 U.S.C. § 1331.
Pending are the parties’ counter-motions for summary judgment. (Docs. 13, 16). For the
following reasons, I grant the defendants’ motion and deny Sunrise’s motion.
Background
The RMA is the principal federal regulator of the crop-insurance market. It oversees a publicprivate partnership with “approved insurance providers” (AIPs) who sell and service crop-insurance
policies in accordance with RMA guidelines. See 7 U.S.C. §§ 1502, 1503, 1508(k).

1

Under the terms of the merger, the 4,100 members of Trupointe became members of
Sunrise. After the merger, Sunrise had about 7,300 members. (Doc. 12–2 at 2).
2

The agency also determines the cost of crop-insurance policy premiums. 7 U.S.C. § 1508(d).
It does so, in part, because federal funds subsidize the operational and administrative costs that the
AIPs incur. 7 U.S.C. § 1516. Given this financial stake in the crop-insurance market, the RMA
professes “an interest in ensuring that . . . the crop insurance market is operating efficiently and
effectively to protect and strengthen the economic stability of America’s agricultural producers, i.e.,
its farmers.” (Doc. 16 at 9) (citing Doc. 12–3 at 37–38).
A. Premium Rebating
Before 2000, the RMA prohibited AIPs from paying premium rebates, dividends, and
patronage refunds; it did so because, in its view, such payments “may have an adverse effect on [the
agency’s] ability to devise and establish an effective and efficient crop insurance marketplace.”
(Doc. 12–2 at 25).
Congress altered the no-rebate rule in the Agricultural Risk Protection Act of 2000,
114 Stat. 358, which permitted a limited form of rebating:
(B)

Payment on Behalf of Producers.
(i) Payment Authorized — If state law permits a licensing fee or other
payment to be paid by an insurance provider to a cooperative
association or trade association and rebated to a producer with
catastrophic risk protection or additional coverage, a cooperative
association or trade association located in that State may pay, on
behalf of a member of the association in that State or a contiguous
State who consents to be insured under such an arrangement, all or a
portion of the administrative fee required by this paragraph for
catastrophic risk protection.

7 U.S.C. § 1508(b)(5)(B).
Under the RMA’s interpretation of this provision, an AIP could pay a licensing fee to a
cooperative, and the cooperative could use that fee to pay patronage. (Doc. 12–2 at 26–27).
3

After this change in the law, some cooperatives – including Sunrise – purchased interests in
crop-insurance agencies. In 2005, 2006, and 2007, the RMA approved Sunrise’s arrangement with
L&S’s parent company and permitted Sunrise to pay premium rebates to its members. (Doc. 12–3 at
27–28).
Responding to reports of premium-rebating abuses, Congress in 2008 changed course,
enacting legislation that sought to, and did, end rebate payments by nearly all cooperatives. Its only
deviation from this change in direction – at issue in this case – was the grandfather clause. That
provision permitted Sunrise and other entities whom the RMA had previously approved to pay
patronage to continue doing so:
(9)

Premium adjustments
(A)

Prohibition
Except as provided in subparagraph (B), no person
shall pay, allow, or give, or offer to pay, allow, or
give, directly or indirectly, either as an inducement to
procure insurance or after insurance has been
procured, any rebate, discount, abatement, credit, or
reduction of the premium named in an insurance
policy or any other valuable consideration or
inducement not specified in the policy.

(B)

Exceptions
Subparagraph (A) does not apply with respect to —
*
(iii)

*

*

a patronage dividend, or similar payment, that
is paid
(I)

by an entity that was approved
by the Corporation to make
such payments for the 2005,
4

2006, or 2007 reinsurance
year, in accordance with
subsection (b)(5)(B) as in
effect on the day before the
date of enactment of this
paragraph; and
(II)

in a manner consistent with the
payment plan approved in
accordance with that
subsection for the entity by the
Corporation for the applicable
reinsurance year.

7 U.S.C. § 1508(a)(9).
The purpose of § 1508(a)(9)(B)(iii) was, according to the bill’s managers, to “‘grandfather
in’ entities that have previously been approved by the Federal Crop Insurance Corporation to make
payments in accordance with subsection (b)(5)(B) as in effect on the day before the date of
enactment.” Conference Report on H.R. 2419, Food, Conservation, and Energy Act of 2008, 2008
WL 2038610, *H3659. The managers also emphasized that the exception was a limited one:
The Managers expect the Corporation to exercise strict oversight to ensure that these
entities are operating consistent with federal and state law and the payment plan
submitted and approved. The Managers understand through discussions with RMA
that the parties covered by the grandfather clause represent the universe of parties
engaged in this activity. The Managers also understand from RMA that, while two
of the submissions are still under review, no further requests are pending or expected
from additional parties seeking to engage in the activities of those parties covered by
the grandfather clause.
Id.

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B. Administrative Proceedings
In November, 2015, before the merger of Sunrise and Trupointe, the RMA asked Sunrise to
submit a formal inquiry as to whether, post-merger, it would be eligible to issue patronage under
§ 1508(a)(9)(B)(iii). (Doc. 12–2 at 21).
In its responsive submission, Sunrise asserted that it would still qualify for the exception
because in its post-merger form, it would be the same “entity” that the RMA had approved to pay
patronage during the 2005-07 period. This was so, Sunrise maintained, because both Ohio corporate
law and federal tax law would deem the post-merger Sunrise to be the same legal entity as the premerger Sunrise. (Id. at 2–4).
After considering that submission, the RMA in February, 2016, notified Sunrise that its
merger with Trupointe would render it ineligible to pay patronage.
The agency explained that it interpreted § 1508(a)(9)(B) to mean that “any substantive
change in the cooperative association, including any mergers or acquisitions, means that the
cooperative association is no longer considered to have been approved by RMA to make [premiumrebate] payments for the 2005–2007 reinsurance years.” (Id. at 12).
According to the RMA, it was incumbent on it to interpret the grandfather clause in light of
the congressional desire to stop the growth in premium-rebating:
Section 508(a)(9)(B) creates a very narrow exception to a very broad prohibition. It
is very clear that Congress did not want to allow the payment of patronage dividends
through any cooperative association that was not previously approved or it would not
have revised section 508(b)(5)(B) of the FCIA to eliminate the authority for
cooperatives to pay patronage dividends. Therefore, RMA narrowly construes the
exception provided in section 508(a)(9)(B) of the FCIA to include only those
cooperative associations approved for the stated years with the same entity structure.
To interpret the provision in any other manner could render the prohibition
meaningless because approved cooperatives could merge with any number of other
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cooperatives, while keeping the original name of the approved marketplace, and
effectively disrupting the marketplace, the very outcome Congress sought to
eliminate.
(Id.).
Sunrise disputed that construction of § 1508(a)(9)(B)(iii) in a March, 2016, letter to the
RMA. According to Sunrise, nothing in the statute’s plain language prohibited a grandfathered
cooperative that merged with a non-grandfathered cooperative from paying patronage under the
grandfather clause. (Id. at 12–17).
In May, 2016, the RMA issued its final decision denying Sunrise the benefit of the
grandfathering exemption. Taking the position that the statutory term “entity” was ambiguous
because it was undefined, the RMA interpreted the term narrowly as referring to an entity “with the
same structure and relative size”:
[Sunrise] acknowledge[s] that the term “entity” is not defined in the FCIA and,
therefore, is ambiguous. The Supreme Court has consistently held that when a
statutory term is ambiguous or undefined, the court construing the statute should
defer to the reasonable interpretation of the term proffered by the agency
administering the statute.
*

*

*

As stated previously in the February 1, 2016, letter on this subject, given the context
of enactment of section 508(b)(9)(B), which Congress intended as a prohibition
against paying patronage dividends except for those cooperatives previously
approved by RMA, RMA construed the term “entity” narrowly to limit it to the
cooperative as it existed when section 508(a)(9)(B) was enacted . . . RMA’s
interpretation is reasonable given that Congress limited the exception to the
cooperatives that were approved for these specific years. At the time, there were only
a few small cooperatives that had been approved by the RMA during the applicable
reinsurance years.
*

*

7

*

Therefore, for the purposes of section 508(a)(9)(B), RMA interprets “entity” to mean
the same entity that it approved for any of the 2005–07 reinsurance years, with the
same structure and relative size and any mergers, sales, acquisitions, etc. will be
considered a different entity, regardless of what it is named or how it is taxed.
(Id. at 18–20).
Notwithstanding the RMA’s determination, Sunrise merged with Trupointe in September,
2016. (Doc. 1 at ¶17). Thereafter, Sunrise filed this action against the United States Department of
Agriculture, the Federal Crop Insurance Corporation, and the RMA. Sunrise seeks a declaration that
its merger with Trupointe has no effect on its ability under the grandfather clause to pay patronage.
Standard of Review
Summary judgment is appropriate under Fed. R. Civ. P. 56 where the opposing party fails
to show the existence of an essential element for which that party bears the burden of proof. Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). The movant must initially show the absence of a genuine
issue of material fact. Id. at 323.
Once the movant meets that burden, the “burden shifts to the nonmoving party [to] set forth
specific facts showing there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986). Rule 56 “requires the nonmoving party to go beyond the [unverified] pleadings”
and submit admissible evidence supporting its position. Celotex, supra, 477 U.S. at 324.
I accept the non-movant’s evidence as true and construe all evidence in its favor. Eastman
Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 456 (1992).

8

Discussion
The issue in this case is whether, after its merger with a non-grandfathered cooperative,
Sunrise is still “an entity that was approved by the Corporation to make [premium-rebate] payments
for the 2005, 2006, or 2007 reinsurance years,” 7 U.S.C. § 1508(a)(9)(B)(iii)(I).
According to Sunrise, the term “entity” in § 1508 has its “plain and ordinary meaning”: an
organization, like a business or governmental unit, that has a legal identity apart from its members.
(Doc. 13 at 7) (citing Black’s Law Dictionary (2004)).
The government defendants respond that the RMA’s decision that Sunrise was no longer a
grandfathered “entity” was “consistent with the plain language of the statute[.]” (Doc. 16 at 19).
They also argues that, despite any statutory ambiguity, the RMA reasonably decided that
Sunrise was no longer a qualified entity because: 1) the purpose of the 2008 statute was to eliminate
premium-rebating among all but a specific handful of agricultural cooperatives; and 2) permitting
a grandfathered cooperative that merges with a non-grandfathered cooperative to continue paying
patronage would be inconsistent with the desire of Congress to stop the spread of premium-rebating.
A. The Chevron Analysis
“When a court reviews an agency’s construction of the statute which it administers, it is
confronted with two questions.” Chevron, U.S.A., Inc. v. Nat. Res. Defense Council, Inc., 467 U.S.
837, 842 (1984).
“First, always, is the question whether Congress has directly spoken to the precise question
at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the
agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842–43.

9

“If, however, the court determines Congress has not directly addressed the precise question
at issue, the court does not simply impose its own construction on the statute, as would be necessary
in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with
respect to the specific issue, the question for the court is whether the agency’s answer is based on
a permissible construction of the statute.” Id. at 843.
B. Section 1508(a)(9)(B) Does Not
Speak Directly to the Question Presented
Under the Chevron analysis, the first question is whether § 1508(a)(9)(B) speaks directly to
whether a grandfathered cooperative is, after its merger with a non-grandfathered cooperative, “an
entity that was approved by the Corporation to make [premium-rebate] payments for the 2005, 2006,
or 2007 reinsurance year[.]”
Sunrise says the answer is “yes” because the statute is concerned only with a cooperative’s
formal, legal identity. (Doc. 13 at 6–8)).
Its merger with Trupointe, it contends, did not, under Ohio corporate and federal tax law,
alter that identity. (Id. at 7). The term “entity” in § 1508(a)(9)(B) must, in its view, necessarily draw
its meaning from state corporate and federal tax law, both of which treat Sunrise, as the entity that
survived the merger, as having the same legal identity it had before the merger. The RMA therefore
erred, Sunrise contends, in failing to give the term “entity” its conventional legal meaning.
The defendants argue that Sunrise ignores the context in which the grandfather clause exists
– namely, that § 1508(a)(9)(B) creates a limited exception to an otherwise all-encompassing
prohibition of premium rebating. Thus, the defendants argue, the RMA properly interpreted the

10

interaction between the broad prohibition and narrow exception. The agency’s interpretation of the
term “entity” best conforms, the defendants maintain, to the overall intent of Congress in 2008.
Both of these interpretations are plausible ways of understanding what Congress meant by
an “entity that was approved” to pay patronage. Sunrise relies on form: namely, the technical, limited
definition of Ohio corporate and federal tax law. The government defendants, in contrast, point to
the substance, the reality of post-merger Sunrise: it now comprises, in a practical sense, the members
of one grandfathered entity and the members of one non-grandfathered entity – and the attendant
increase in premium-rebating that comes with the expanded membership.
I conclude, therefore, that in § 1508(a)(9)(B) Congress simply has not “directly spoken to the
precise question at issue” in this case, and the statutory provision at issue is ambiguous. Chickasaw
Nation v. U.S., 534 U.S. 84, 90 (2001) (a statute is ambiguous if it is “capable of being understood
in two or more possible senses or ways”). Accordingly, I turn to whether the RMA’s construction
of the statute is reasonable.
C. The RMA Reasonably Determined That Sunrise
Was No Longer “An Entity That Was Approved” to Pay Patronage
“If the agency’s reading fills a gap or defines a term in a reasonable way in light of the
Legislature’s design, we give that reading controlling weight, even if it is not the answer the court
would have reached if the question initially had arisen in a judicial proceeding.” Regions Hosp. v.
Shalala, 522 U.S. 448, 457 (1998) (internal quotation marks omitted).
In construing the grandfather clause narrowly, the RMA emphasized that Congress,
responding to abuses during the brief period in which rebates were permissible, enacted a broad
prohibition on the practice. (Doc. 12–2 at 19).

11

The RMA also observed that, at the time Congress authorized the grandfather clause, “there
were only a few small cooperatives that had been approved by RMA during the applicable
reinsurance years.” (Id.).
Finally, the RMA explained that Sunrise’s proposed interpretation would thwart the purpose
of the ban on premium-rebating by allowing non-grandfathered cooperatives – via the expedient of
merging with grandfathered cooperatives – to engage in premium-rebating. (Id. at 19–20) (“Your
interpretation would effectively render this small limited exception meaningless because it would
allow any prior approved cooperative to merge with other cooperatives that were not approved to
pay the patronage dividends to allow producers who were not previously eligible to receive a
patronage dividend now to receive one, circumventing the prohibition.”).
I conclude that this was a most reasonable construction of the statute.
As the defendants emphasize, the grandfather clause in § 1508 is a modest exception to broad
and generally applicable prohibition. It is entirely appropriate for the agency to construe such a
provision narrowly and against parties seeking to benefit from them in derogation of a statute’s
manifest purpose. See SoundExchange, Inc. v. Muzak LLC, 854 F.3d 713, 719 (D.C. Cir. 2017)
(“grandfather clauses that operate in derogation of a statute’s dominant purpose should be narrowly
construed”); N.L.R.B. v. Dole Fresh Vegetables, Inc., 334 F.3d 478, 485 (6th Cir. 2003) (same).
By enacting the 2008 statute, moreover, Congress all but abolished the practice of premiumrebating. It left the practice intact in the grandfather clause, but as the RMA noted, only a handful
of cooperatives were eligible to continue premium-rebating after the 2008 law took effect. The
RMA’s construction – unlike Sunrise’s construction – is consistent with Congress’s intent, as it

12

prohibits large, abrupt increases in the amount of premium-rebating that can occur when, as in this
case, a non-grandfathered entity merges with a grandfathered entity.
D. Sunrise’s Counter-Arguments Lack Merit
Sunrise offers two counter-arguments: 1) the RMA’s interpretation precludes otherwise
natural changes in a grandfathered cooperative’s membership; and 2) the RMA’s decision in this
case is inconsistent with its decision in another, similar case. Neither has merit.
1. The RMA’s Interpretation Permits
Natural Changes in a Cooperative’s Membership
First, Sunrise argues that the RMA’s interpretation is unreasonable because, given the
agency’s focus on changes in membership size, “it would be conceivable . . . that once a
grandfathered entity lost or gained a single member, it would not be the same entity that was
[originally] grandfathered[.]” (Doc. 17 at 10).
But the RMA specifically rejected that interpretation in its correspondence with Sunrise:
RMA acknowledges that any business may gain and lose customers every year.
However, mergers, sales, and acquisitions go far beyond this customary change in
customer base and effectively allows an unlimited number of producers to receive
patronage dividends for the first time in the 2016 reinsurance year when the
exception is limited to those producers who were approved to receive patronage
dividends in the 2005–2007 reinsurance years. Therefore, for the purposes of section
508(a)(5)(9), RMA interprets “entity” to mean the same entity that it approved for
any of the 2005–07 reinsurance years, with the same structure and relative size and
any mergers, sales, acquisitions, etc. will be considered a different entity, regardless
of what it is named or how it is taxed.
(Doc. 12–2 at 22).
Accordingly, the RMA has set forth a reasoned interpretation under which it accepts that a
grandfathered cooperative may experience natural growth in its membership and retain its qualified

13

status, but rejects immediate, wholesale acquisition of new members through mergers, acquisitions,
and the like.
Simply put, Sunrise could have gained strength naturally and continued its patronage
program, but it could not “bulk up” by swallowing otherwise freestanding cooperatives and continue
to enjoy the protection of the grandfather clause.
2. No Evidence Supports Sunrise’s
Arbitrary-and-Capricious Argument
Sunrise also argues that the RMA has permitted other grandfathered cooperatives to pay
patronage after merging with non-grandfathered cooperatives. (Doc. 17 at 4–7).
According to Sunrise, two grandfathered Florida cooperatives – South Florida Federal Land
Bank Association and Farm Credit of Southwest Florida ACA – merged with a non-grandfathered
cooperative – Farm Credit of North Florida – in 2011. (Id. at 4–5). This shows, in Sunrise’s view,
that the RMA exercises its authority under the grandfather clause in an arbitrary and capricious
manner.
As the defendants respond, however, there are several defects in Sunrise’s argument.
First, it is undisputed that Sunrise never presented the evidence on which this argument rests
– printouts from various websites and a newspaper article recounting the merger of the three Florida
cooperatives – to the RMA. Although it is possible to supplement the administrative record in certain
circumstances, e.g., Univ. of Colorado Health at Mem. Hosp. v. Burwell, 151 F. Supp. 3d 1 (D.D.C.
2015), Sunrise has not demonstrated that it is appropriate to do so here.
Second, even if I were to supplement the record with these materials, they would not be
admissible under the Federal Rules of Evidence.

14

Sunrise contends that I can take judicial notice of the materials under Rule 201 because the
information they contain comes from sources “whose accuracy cannot reasonably be questioned.”
But while it may be appropriate to take judicial notice of the fact that a website or newspaper
published something, it is inappropriate to take judicial notice of the truth of the matters asserted
within the publication. Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 576 (6th Cir. 2008);
Jergens v. Ohio Dep’t of Rehab. & Corrections Adult Parole Auth., 492 F. App’x 567, 569 (6th Cir.
2012); Platt v. Bd. of Commr’s, 2016 WL 5372298, *1 (S.D. Ohio).2
Finally, even setting aside questions of admissibility, the documents do not establish what
Sunrise contends they establish.
According to the certified administrative record in this case, the two grandfathered Florida
entities represented to the RMA that, after their merger, they would continue to pay patronage “under
the same terms and conditions under which our organization[s] received original approval from
FCIC.” (Doc. 12–4 at 64, 67, 72, 89, 122, 142, 162) (emphasis added).
That is to say, they represented to the RMA that they were in full compliance with the
grandfather clause. Nowhere in the certified record does it appear that the Florida cooperatives
represented that they had merged with a non-grandfathered entity. Accordingly, Sunrise has not
shown the existence of a genuine dispute of material fact as to whether the RMA knowingly allows
some grandfathered cooperatives that merge with non-grandfathered cooperatives to continue
engaging in premium-rebating while denying that same privilege to cooperatives like Sunrise.

2

Accordingly, I will sustain the government’s objection (Doc. 20) under Fed. R. Civ. P.
56(c)(2) to this evidence.
15

Conclusion
The statute provides no manifestly clear answer to the question that this case raises. In
looking to substance instead of form in reaching its decision, the RMA acted reasonably to effectuate
and implement what Congress sought to accomplish.
It is, therefore,
ORDERED THAT:
1.

Defendants’ motion for summary judgment (Doc. 16) be, and the same hereby is,
granted;

2.

Plaintiff’s motion for summary judgment (Doc. 13) be, and the same hereby is,
denied;

3.

Defendants’ objection under Fed. R. Civ. P. 56(c)(2) (Doc. 20) be, and the same
hereby is, sustained; and

4.

Plaintiff’s motion for an oral hearing (Doc. 18) be, and the same hereby is, denied,
as the briefs and certified record provided the court with a full understanding of the
factual and legal issues involved and allowed the court to render a fair and proper
decision.

So ordered.
/s/ James G. Carr
Sr. U.S. District Judge

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