Leonard L. Tate Orchards v. Rain and Hail LLC et al
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
LEONARD L. TATE ORCHARDS
RAIN AND HAIL, LLC, and
ACE PROPERTY AND CASUALTY
Hon. John E. Jones III
May 1, 2013
THE BACKGROUND OF THIS ORDER IS AS FOLLOWS:
Pending before the Court is Plaintiff’s Motion to Vacate Award of Arbitrator
(Doc. 1). For the reasons set forth below, Plaintiff’s motion shall be denied.
On March 15, 2013, Plaintiff Leonard L. Tate Orchards (“Tate”) initiated
this case with the filing of the instant motion (Doc. 1). Tate filed a brief in support
of the motion (Doc. 3) on March 20, 2013. Defendants Rain and Hail, LLC
(“R&H”) and ACE Property and Casualty Insurance Company (“ACE”) filed a
brief in opposition to the motion (Doc. 10) on April 12, 2013. On April 19, 2013,
Plaintiff filed a reply (Doc. 11) and on April 23, 2013, Defendants filed a sur-reply
(Doc. 12). Therefore, the pending motion has been fully briefed and is ripe for
STANDARD OF REVIEW
The Federal Arbitration Act identifies the limited circumstances under which
a district court may vacate an arbitration award. An award may only be vacated
where (1) the award was procured by corruption, fraud, or undue means; (2) there
was evident partiality or corruption by the arbitrators; (3) the arbitrators were
guilty of misconduct which prejudiced the rights of a party to the arbitration; or (4)
the arbitrators exceeded their powers or so imperfectly executed them that a
mutual, final, and definite award upon the subject matter submitted was not made.
See 9 U.S.C. § 10(a). These four statutory grounds are the only bases upon which
a court may vacate an arbitration award. See Hall Street Associates, LLC v. Mattel,
Inc., 552 U.S. 576, 584 (2008).
In reviewing arbitration awards, “courts ... have no business weighing the
merits of the grievance [or] considering whether there is equity in a particular
claim.” United Paperworkers International Union, AFL-CIO v. Misco, Inc., 484
U.S. 29, 37 (1987). It is not enough to show that the arbitrator committed an error
– or even a serious error. See Stolt-Nielsen S.A. v. AnimalFeeds International
Corp., 130 S. Ct. 1758, 1767 (2010). In the absence of an allegation of dishonesty,
“improvident, even silly, factfinding” does not provide a basis to vacate an award.
Misco, 484 U.S., at 39. “It is irrelevant whether the courts agree with the
arbitrator’s application and interpretation of the agreement.” Arco-Polymers, Inc.
v. Local 8-74, 671 F.2d 752, 755 (3d Cir. 1982). So long as an arbitrator’s
decision can in any rational way be derived from the language and context of the
agreement, that determination shall not be disturbed. See Roberts & Schaefer Co.
v. Local 1846, United Mine Workers, 812 F.2d 883, 885 (3d Cir. 1987). “It is only
when [an] arbitrator strays from interpretation and application of the agreement
and effectively ‘dispense[s] his own brand of industrial justice’ that his decision
may be unenforceable.” Major League Baseball Players Assn. v. Garvey, 532 U.S.
504, 509 (2001) (quoting United Steelworkers of America v. Enterprise Wheel &
Car Corp., 363 U.S. 593, 597 (1960)).
Tate is a farm located in Adams County, Pennsylvania that produces apples
and other crops. (Doc. 10 at 2). Tate renewed its contract for crop insurance with
R&H and ACE for crop year 2011, which was accepted by the issuance of Policy
MP-0031521, comprised of a Common Crop Insurance Policy and Apple Crop
The facts below are taken from Plaintiff’s motion (Doc. 1) and brief in support thereof
(Doc. 3 at 3-8), the “Counter-Statement of Facts” portion of Defendants’ brief in opposition
(Doc. 10 at 2-7), and the findings of fact reflected in the arbitrator’s award (Doc. 1, Ex. 2). The
facts summarized here are undisputed unless otherwise noted.
Insurance Provisions. (Doc. 1 ¶ 1). The Common Crop Insurance Policy and
Apple Crop Insurance Provisions are federal regulations published by the Federal
Crop Insurance Corporation (“FCIC”) at 7 C.F.R. § 457.8 and 7 C.F.R. § 457.158,
respectively. The FCIC is a wholly-owned government corporation within the
United States Department of Agriculture and administers the federal crop insurance
program under the Federal Crop Insurance Act. See 7 U.S.C. §§ 1501-1524. The
Risk Management Agency (“RMA”), another agency within the U.S. Department
of Agriculture, supervises the FCIC and has authority over the delivery of
insurance programs authorized by the Federal Crop Insurance Act. See 7 U.S.C. §
6933(b). The Common Crop Insurance Policy states that “[p]rocedures
(handbooks, manuals, memoranda, and bulletins) issued by [the FCIC] and
published on the RMA’s Web site” will be “used in the administration of this
policy, including the adjustment of any loss or claim submitted hereunder.” 7
C.F.R. § 457.8.
On August 25, 2010, the FCIC/RMA published a Final Rule, 75 Fed. Reg.
52218, amending the Apple Crop Insurance Provisions for crop year 2011 and
successive crop years. (Doc. 1 ¶ 10). The amendments require the insured to meet
the definition of “fresh apple production,” which requires the grower to provide
verifiable records showing that at least fifty percent (50%) of the production from
acreage reported as fresh apple acreage from each unit was sold as fresh apples in
one or more of the four most recent crop years, in order to establish eligibility for
insurance coverage. (Doc. 1 ¶ 11). On December 22, 2010, the FCIC/RMA issued
a Memorandum, PM-10-071, adding a requirement that “verifiable records” must
reflect that the value received by the grower was consistent with the value of fresh
apple production. (Doc. 1 ¶ 15).
Tate sustained damage to its apple crop during crop year 2011 and filed a
claim with R&H/ACE. (Doc. 1 ¶ 20). In response, R&H/ACE requested
verification that at least 50% of Tate’s production from fresh apple acreage from
each unit was sold as fresh apples in one or more of the previous four crop years.
(Doc. 1 ¶ 23). Tate designated 2010 as the crop year for making this determination
(Doc. 1 ¶ 23).
The parties differ in their interpretations of what percentage of Tate’s
insured fresh apple acreage production was sold as fresh apples. Tate argues in its
motion that the correct figure is 58 percent. (Doc. 1 ¶ 25). Defendants argue that
the correct figure is the percentage determined by the arbitrator – 35 percent.
(Doc. 10 at 7; Doc. 1 Ex. 1 at 7). Due to the parties’ competing interpretations of
the contractual provisions at issue, counsel for R&H submitted a request for a Final
Agency Determination to the RMA in September of 2012. (Doc. 1 Ex. 2 at 7). On
November 13, 2012, the RMA issued a Final Agency Determination, FAD-172,
clarifying the meaning of the phrase “sold, or could be sold” as it appears in the
definition of “fresh apple production” in the Apple Crop Insurance Provisions.
(Doc. 1 Ex. 7). The final paragraph of FAD-172 states that “[i]n accordance with 7
C.F.R. 400.765(c), this constitutes the Final Agency Determination and is binding
on all participants in the Federal crop insurance program for crop years the above
stated provisions are in effect.” (Doc. 1 Ex. 7).
On December 19, 2012, the arbitrator issued an opinion (Doc. 1 Ex. 2)
stating that, in light of the meaning of “fresh apple production” as defined in FAD172, Plaintiff had failed to prove that it sold more than fifty percent of its apples as
fresh apples in 2010.
As noted above, the vacation of an arbitration award is an extraordinary
remedy. In the absence of misconduct, an arbitration award may only be vacated in
an extreme situation where the award is so irrational that there is “absolutely no
support at all in the record justifying the arbitrator’s determinations.” Ario v.
Underwriting Members of Syndicate 53 at Lloyds for 1998 Year of Account, 618
F.3d 277, 295 (3d Cir. 2010) (internal citations omitted). We need not and will not
address whether the Court agrees with the arbitrator’s conclusions, but we can say
with confidence that Plaintiff has failed to rebut the heavy presumption in favor of
preserving arbitration awards.
Plaintiff’s brief in support of its motion contains four arguments: (1) that the
provision of the Common Crop Insurance Policy purporting to make
determinations by the FCIC/RMA binding in arbitration and subsequent judicial
review are beyond the scope of the authority granted to the FCIC/RMA under the
Federal Crop Insurance Act; (2) that the FCIC/RMA’s retroactive interpretation of
“fresh apple production” is inconsistent with the regulations and therefore beyond
the scope of authority granted to the FCIC/RMA under the Federal Crop Insurance
Act; (3) that the award, in which the arbitrator stated he was compelled to follow
FAD-172, was beyond the scope of the arbitrator’s authority; and (4) that the
award was beyond the scope of the arbitrator’s authority because it conflicts with
the express terms of the agreement and that following FAD-172 constitutes a
change in the contract after the contract change date. (Doc. 3 at 8-9).
Plaintiff’s arguments do not directly address the “irrationality” standard but
are rather an attempt to relitigate the merits of the Arbitration Award. We will not
follow Plaintiff down that path. The question before us is not whether the policy
interpretation contained in FAD-172 should be binding or is correct as a matter of
law. The question properly before us, boiled down to its essence, is whether the
arbitrator acted rationally in adopting that policy interpretation and, as a direct
result, determining that Plaintiff was not entitled to the fresh apple indemnity
payment it had requested. If the arbitrator’s decision to adopt FAD-172 and apply
it to the other evidence before him was irrational, Plaintiff will prevail. If not,
Plaintiff’s motion must be denied.
After reviewing the documents submitted to the Court, we do not find that
the arbitrator acted irrationally. When presented with competing interpretations of
the terms of the insurance agreement, the arbitrator relied on a Final Agency
Determination issued by the RMA interpreting the language of a federal regulation
published by the FCIC. We cannot say that it is irrational as a matter of law to
adopt the Department of Agriculture’s interpretation of its own regulations. In
order for Plaintiff to prevail, the issuance of FAD-172 and/or the interpretation
advanced by it would need to be so detestable that it would be irrational for an
arbitrator to apply it. The record does not support that conclusion. The arbitrator
found that “[g]reat deference must be given to an agency’s interpretation of its own
regulations” and that applying the RMA’s interpretation leads to a conclusion that
fresh apples were “only 35% of the 10,119 bushels of apples produced.” (Doc. 1,
Ex. 2 at 8-10). The arbitrator examined the evidence and the law to reach a
conclusion rationally based on his findings.
It is ultimately irrelevant whether this Court agrees or disagrees with the
content of FAD-172 or might reach an different conclusion if it were reviewing the
evidence de novo. The arbitrator reasonably relied on the evidence before him,
including but not limited to FAD-172, in making his determination. Therefore,
Plaintiff’s motion must be denied.
For the foregoing reasons, we shall deny Plaintiff’s Motion to Vacate Award
of Arbitrator (Doc. 1). Thus, because Plaintiff’s motion initiated the action, the
case shall be dismissed with prejudice. An appropriate Order shall issue.
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