Midland Farms, LLC v. United States Department of Agriculture et al
Filing
54
OPINION AND ORDER granting in part 39 Plaintiff's Motion for Summary Judgment. Signed by U.S. District Judge Roberto A. Lange on 07/29/2015. (LH)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
CENTRAL DIVISION
MIDLAND FARMS, LLC,
3: l 3-CV-03029-RAL
Plaintiff,
OPINION AND ORDER GRANTING IN
PART PLAINTIFF'S MOTION FOR
SUMMARY JUDGMENT
vs.
UNITED
STATES
DEPARTMENT
OF
AGRICULTURE,
RISK
MANAGEMENT
AGENCY,
AND
FEDERAL
CROP
INSURANCE CORPORATION,
Defendants.
Plaintiff Midland Farms, LLC, (Midland Farms) brought this action under the
Administrative Procedure Act (APA), 5 U.S.C. §§ 551-59, to challenge a final agency
determination involving interpretation of the Defendants' common crop insurance policy. The
Defendants-United States Department of Agriculture (USDA), Risk Management Agency 1
(RMA), and Federal Crop Insurance Corporation (FCIC) (collectively Defendants)acknowledge shortcomings in the final agency decjsion, but defend the core of the decision.
Because a material part of the decision is "arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law" under 5 U.S.C. § 706(b), this Court grants in part
Plaintiffs Motion for Summary Judgment and remands the matter for further proceedings not
inconsistent with this Opinion and Order.
1
The administrative record under review was compiled by the RMA, and thus citations to the
Agency' s record will be denoted by "RMA" followed by the record page number.
1
I.
STANDARD OF REVIEW
A. Summary Judgment Standard
Midland Farms submits this case on a Motion for Summary Judgment. Under the Federal
Rules of Civil Procedure, summary judgment is proper when "the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law." Fed. R. Civ. P. 56(a). Summary judgment is not "a disfavored procedural shortcut, but
rather ... an integral part of the Federal Rules as a whole, which are designed ' to secure the just,
speedy and inexpensive determination of every action. "' Celotex Corp. v. Catrett, 477 U.S. 317,
327 (1986) (quoting Fed. R. Civ. P. 1). On summary judgment, courts view "the evidence and
the inferences that may be reasonably drawn from the evidence in the light most favorable to the
nonmoving party." Equal Emp' t Opportunity Comm'n v. CRST Van Expedited, Inc., 679 F.3d
657, 686 (8th Cir. 2012) (quoting Mayer v. Countrywide Home Loans, 647 F.3d 789, 791 (8th
Cir. 2011)). A party opposing a properly made and supported motion for summary judgment
must cite to particular materials in the record supporting the assertion that a fact is genuinely
disputed. Fed. R. Civ. P. 56(c)(l); Gacek v. Owens & Minor Distrib., Inc., 666 F.3d 1142, 1145
(8th Cir. 2012).
Consistent with Local Rules, Midland Farms filed Plaintiffs Statement of Undisputed
Material Facts. Doc. 41; see D.S.D. Civ. L.R. 56.1. The Defendants responded, asserting that
one of the paragraphs was argumentative and that the Statement of Undisputed Material Facts
was largely extraneous to the issue before the Court.
Doc. 46.
Defendants however
acknowledged that, in this administrative record review case, there are no disputed facts for this
Court to resolve and that resolution of the case on summary judgment is appropriate. Doc. 45 at
7. Indeed, in a prior case involving interpretation of the Defendants' common crop insurance
2
policy, the United States Court of Appeals for the Eighth Circuit concluded that the proper
construction of such an insurance contract "is an issue of law, and thus well suited for summary
judgment." Kroeplin Farms Gen. P'ship v. Heartland Crop Ins., Inc., 430 F.3d 906, 909 (8th Cir.
2005).
B. AP A Standard of Review
This case ultimately is a review of an agency action under the AP A. This Court must
make a "searching and careful" review, but may only set aside decisions that are "arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law." Thomas v. Jackson,
581 F.3d 658, 664 (8th Cir. 2009) (internal quotation omitted); South Dakota v. U.S. Dep' t of
Interior, 775 F .. Supp. 2d 1129, 1141 (D.S.D. 2011); see 5 U.S .C. § 706(b). Agency action is
arbitrary and capricious if:
the agency has relied on factors which Congress has not intended it to consider,
entirely failed to consider an important aspect of the problem, offered an
explanation for its decision that runs counter to the evidence before the agency, or
is so implausible that it could not be ascribed to a difference in view or the
product of agency expertise.
In re: Operation of Mo. Ri ver Sys. Litig., 421F.3d618, .628 (8th Cir. 2005) (quoting Cent. S.D.
Coop. Grazing Dist. v. Sec' y of the U.S. Dep't of Agric. , 266 F.3d 889, 894 (8th Cir. 2001)).
Courts give substantial deference to an administrative agency' s interpretation of its own
regulations when such regulations are ambiguous. Auer v. Robbins, 519 U.S. 452, 461 (1997);
Chalenor v. Univ. ofN.D., 291 F.3d 1042, 1046 (8th Cir. 2002). This Court should defer to any
reasonable agency construction of its ambiguous regulation, even those which might "not be the
best or most natural one by grammatical or other standards." Pauley v. BethEnergy Mines, Inc.,
501 U.S. 680, 702 (1991); Chalenor, 291 F.3d at 1046.
3
Yet federal administrative agencies nevertheless remain "required to engage in 'reasoned
decision making. "' Michigan v. EPA, 576 U.S. _
, _, No. 14-46, slip op. at 5 (June 29,
2015) (quoting Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359, 374 (1998)). The
process by which an agency reaches a result must be "logical and rational." Allentown Mack,
522 U.S. at 374. And an agency action must rest "on a consideration of the relevant factors."
Michigan, 576 U.S. a t _, slip op. at 5 (quoting Motor Vehicle Mfrs. Assn. of the U.S., Inc. v.
State Farm Mut. Auto Ins. Co., 463 U.S . 29, 43 (1983)).
II.
FACTS NOT SUBJECT TO GENUINE DISPUTE
The Defendants take a narrow view of what the Court should consider as the facts in this
case, not because they dispute Plaintiffs Statement of Undisputed Material Facts, but because
neither the Defendants nor this Court are to act as fact finders in a case of this nature. The
Defendants are right that the fact finder typically is an arbitrator, but the Defendants' position in
the final agency decision would prevent any arbitrator or other finder of fact from considering
the facts of this case or any similar case. The underlying facts 2 provide context for how the
issues in this case arose and illustrate how, in practice, some aspects of the Defendants' final
agency decision are arbitrary and capricious, an abuse of discretion or not in accord with law.
Midland Farms at the relevant time owned approximately 35,055 acres of farmland in
Haakon and Stanley Counties in South Dakota. In 2008 and into early 2009, Hardes Farms,
LLC, farmed some of this land as a tenant of Midland Farms.
Members of Hardes Farms,
LLC-Wade Hardes, Mike Hardes, Seresa Hardes, and Mark Bardes-obtained policies of
federally-reinsured crop insurance to insure crops planted on the land leased from Midland
2
The underlying facts appear to be undisputed between Midland Farms and these Defendants.
This Court makes no findings of fact here at all. It may ultimately be for an arbitrator to consider
whether these facts indeed are uncontroverted between Midland Farms and its insurer, NAU
Country Insurance Company.
4
Farms. The policies of crop insurance at issue were issued by NAU Country Insurance Company
(NAU) and insured winter wheat crops planted late 2008 to be harvested in 2009.
NAU is an Approved Insurance Provider (AIP) of federally-reinsured crop insurance.
The Federal Crop Insurance Act (FCIA) established the current system of crop insurance. The
FCIA designated FCIC, an agency of and within USDA, to "carry out the purposes" of the FCIA.
7 U.S.C. § 1503. The 1996 Farm Bill established the RMA, which serves as the administrator
and manager of FCIC. Federal Agriculture Improvement and Reform Act of 1996, Pub. L. No.
104-127, § 194, 110 Stat. 888, 945-46 (codified at 7 U.S.C. § 6933). RMA is an agency of the
USDA and is charged with regulation and oversight of the FCIA. 7 U.S.C. §§ 1501-24. RMA
has issued a "standard reinsurance agreement," which establishes the terms and conditions under
which the FCIC will provide subsidies and reinsurance on eligible crop insurance contracts sold
by AIPs like NAU. See 7 C.F.R. §§ 400.163- 64.
I
In order to qualify for reinsurance through the FCIC, the policies written
by approved private insurers must comply with the FCIA and its accompanying
regulations. Consequently, the FCIA generally establishes the terms and
conditions of insurance, even though the crop insurance policy is between the
farmer and the approved insurance provider.
Davis v. Producers Agric. Ins. Co., 762 F.3d 1276, 1284 (11th Cir. 2014) (internal quotation
marks and alterations omitted).
The federal crop insurance policy provisions are set forth in Part 457 of Title 7 of the
Code of Federal Regulations and are the policy terms that AIPs like NAU must offer its insured
farmers . The insurance policy provisions specifically at issue in this case, and the policy issued
by NAU to the Hardeses, are in 7 C.F.R. § 457.8 and are entitled the "common crop insurance
policy" and commonly are called "basic provisions."
5
Members of the Hardes famil y obtained common crop insurance policies from NAU for
their winter wheat crop planted on Midland Farms ' land in the Fall of 2008 to be harvested in
2009. RMA 87. By January of 2009, however, Hardes Farms, LLC, was in breach of its lease
agreement with Midland Farms. RMA 87. Midland Farms started an eviction proceeding in
January of 2009 in Haakon County, Sixth Judicial Circuit, South Dakota.
RMA 87. The
Hardeses, on February 5, 2009, on their own and apart from the state court action, executed an
assignment of indemnity form concerning crop insurance proceeds in favor of First National
Bank, Farmer and Merchants Branch. 3 RMA 87. On February 23 , 2009, Judge John L. Brown
entered a default judgment in favor of Midland Farms and against the Hardeses, which, among
other things, ordered the Hardeses to vacate Midland Farms' land, ordered that "any and all
crops growing on the premises described in the Complaint . . . are hereby the property of
[Midland Farms] ," and ordered "that any and all crop insurance policies regarding crops
currently growing on the premises .. . are hereby transferred and assigned to [Midland Farms]."
RMA 201 - 03.
Shortly after the default judgment, the Hardeses decided to execute an
assignment of indemnity concerning crop insurance proceeds in favor of Doug Kroeplin Ag
Services, an agronomist. 4 RMA 87. Judge Brown later entered an amended default judgment in
March of 2009 with similar language and made that order nune pro tune 5 to February 23 , 2009.
RMA 269- 72.
3
This is an assignment in favor of a secured creditor under Section 29 of the common crop
insurance policy and is not to be confused with a transfer of the policy under Section 28. See
RMA38.
4
This is a second assignment to a creditor under Section 29 and again is not to be confused with a
transfer of the policy under Section 28. See RMA 38.
5
"Nune pro tune" is the Latin phrase meaning "now for then." Black' s Law Dictionary 1174 (9th
ed. 2009). A nune pro tune entry is "made of something previously done, to have effect as of the
former date." 21 C.J.S. Courts § 250 (2015).
6
Midland Farms' managing partner contacted NAU's agent regarding transfer of the crop
insurance policies, who in turn referred the question to RMA.
RMA, on March 15, 2009,
advised Midland Farms:
According to our attorney - because the default judgment gave you
ownership of the crop does not mean that insurance automatically transfers to
Midland. The regular Federal Crop Insurance Corporation procedures must be
followed regarding when there is a transfer of ownership of acreage. This means
that the process in Section 28 of the Basic Provisions (7 CFR 457.8) and any
procedures in the Crop Insurance Handbook ... must be followed.
RMA 49. With regard to the crop insurance policies on winter wheat, RMA further advised
Midland Farms:
The simplest way to effect the change would be for the ex-tenant (Hardes)
to transfer his insurance coverage to Midland. This can be done by both Hardes
and Midland signing a Transfer of Coverage and Right to Indemnity form, for
each policy.
Because the court document gave you ownership of the crop, you are
responsible for the 2009 premium payment. It is encouraged that you verify that
the premium has been paid. Non-payment of the premium could make you
delinquent and owe a debt to the company (NAU). An outstanding debt to the
company would make you ineligible for crop insurance until that outstanding debt
is paid.
I am attaching a copy of the NAU form used to transfer the insurance
coverage.
RMA 55.
NAU's general counsel reported to the attorney for Midland Farms in July of 2009:
As long as the signed Transfer of Rights to Indemnity is received in our
office before the claim paperwork is received in our office, we will accept the
Transfer of Rights.
.
There is no actual deadline date or anything outlining what is the final date
we can accept a Transfer of Rights to Indemnity.
RMA 82-83.
The Hardeses, despite the state court order, stalled and initially refused to execute the
transfer of coverage and right to indemnity forms in Midland ' s favor. Ultimately, the Hardeses
7
did so on July 27, 2009, with all of the forms dated "nune pro tune" 6 to the February 23, 2009
eviction judgment. RMA 57-81 . Rabo Ag Insurance on behalf of Midland Farms submitted the
signed transfer of coverage forms to NAU on August 21 , 2009. See RMA 56, 82.
On September 24, 2009, NAU acknowledged receipt of the transfer forms, but denied
each transfer. RMA 82- 83. NAU stated the reason for the denial being that Hardes Farms,
LLC, lost its insurable interest in the crops when evicted on February 23 , 2009, so the Hardeses
had no interest in the crops to transfer on July 27, 2009. NAU further refused to accept the nune
pro tune date of the transfers to be February 23 , 2009. RMA 82-83.
Both NAU and Midland Farms made requests for interpretation to the Defendants. RMA
and FCIC initially responded with a July 19, 2011 letter, RMA 102- 05, there was an appeal,
RMA 301 , 436--41 , confusion over whether the letter was a final agency determination, RMA
146, and ultimately abandonment of the appeal, RMA 315-16. The agency letter of July 19,
2011 is not at issue here.
Meanwhile, Midland Farms started an arbitration action against NAU under Section 20 of
the common crop insurance policy provisions. Section 20 provides for mandatory arbitration of
6
There is no dispute that the Hardeses signed the Transfer of Coverage and Right to Indemnity
forms in July with a purported effective date of February 23 , 2009. Doc. 41 at 5; Doc. 46.
Curiously, the Transfer of Coverage and Right to Indemnity forms in the administrative record
contain no dates in the signature blocks, have no "nune pro tune" language, and state "8/4" as the
effective date of the transfer. RMA 57- 81 . This Court will assume that the forms with the
purported "nune pro tune" language exist and were sent to NAU, though there is some
disagreement among courts whether a party may actually convey a property interest nune pro
tune, compare Mas-Hamilton Group v. LaGard, Inc., 156 F.3d 1206, 1210- 11 (Fed. Cir. 1998)
(finding a nune pro tune transfer of patent rights made prior to litigation sufficient to establish
standing to assert patent rights in the transferee) with Argentum Med., LLC v. Noble
Biomaterials, No. 3:08- CV- 1305, 2010 WL 2650493 , at *5 (July 1, 2010) (finding an attempt to
convey intellectual property rights nune pro tune invalid and insufficient to establish standing to
assert patent rights in the purported transferee). Ultimately, whether the "nune pro tune"
language could make the transfer of coverage effective on February .23 , 2009, does not affect the
outcome of this case, which is limited to the Defendants' interpretation of the basic policy
prov1s10ns.
8
crop insurance coverage disputes not resolved by mediation, but reserves to FCIC interpretations
of the policy language and procedures. In relevant part Section 20 states:
(a) . . . If resolution cannot be reached through mediation, or you and we do not
agree to mediation, the disagreement must be resolved through arbitration in
accordance with the rules of the American Arbitration Association .. . .
(1) All disputes involving determinations made by us ... are subject to
mediation or arbitration. However, if the dispute in any way involves
a policy or procedure interpretation, regarding whether a specific
policy provision or procedure is applicable to the situation, how it is
applicable, or the meaning of any policy provision or procedure, either
you or we must obtain an interpretation from FCIC in accordance with
7 CFR part 400, subpart X or such other procedures as established by
FCIC.
(i) Any interpretation by FCIC will be binding in any mediation or
arbitration.
RMA 34-35. Both NAU and Midland Farms submitted requests for interpretations to FCIC of
Section 28 of the basic provisions, which is the policy provision governing transfer and
assignment of rights which Midland Farms was seeking to have and which NAU had refused to
allow.
RMA and FCIC issued a final agency decision on January 5, 2012, on the questions
submitted by NAU and Midland Farms. RMA 134-42. That is the final agency decision at issue
here. For reasons the Defendants cannot explain, the Defendants did not make the final agency
decision of January 5, 2012 available at least to Midland Farms until late August of 2012. RMA
315-16. Midland Farms received a copy of the January final agency decision at a prehearing
conference on August 23 , 2012, and formal receipt of the agency decision came to Midland
Farms on August 27, 2012. RMA 315- 16, 317- 20.
A final agency decision such as the January 5, 2012 letter is binding on all participants in
federal crop insurance programs under 7 C.F.R. § 400.765(c). Section 400.768 requires the
FCIC to publish " [a]ll agency final determinations .. . as specially numbered documents on the
9
RMA Internet website." 7 C.F.R. § 400.768(±). For reasons the Defendants cannot explain other
than initial confusion, this final agency decision never has been published on the RMA website.
Indeed, even as of today' s date when any initial confusion has long passed, this final
administrative decision is still not on the RMA website. 7
Final
Agency
Determinations
Archive:
2012,
See Risk Mgmt. Agency,
U.S.
Dep' t
http://www.rma.usda.gov/regs/533/2012.html (last visited July 17, 2015).
of
Agric.,
The content and
analysis of the final agency decision is contained in the next section.
Consistent with § 400.768(g), Midland Farms filed this action under the APA after
exhausting its administrative remedies. Midland Farms initially joined NAU Country Insurance,
Inc., as one of the Defendants in this case. Doc. 1. NAU filed a motion to dismiss, which this
Court granted because the text of the AP A does not permit suit against private defendants and
thus is not an independent source of federal jurisdiction over NAU and over the claim against
NAU. Doc. 30. Alternatively, even if an independent source of federal jurisdiction, such as
diversity jurisdiction existed, the mandatory arbitration provision in the policy under which
Midland Farms made its claim against NAU would require arbitration under the Federal
Arbitration Act. Doc. 30; see 9 U.S.C. § 2.
After filing a first amended complaint dropping NAU as a defendant, Midland Farms
filed the pending Plaintiffs Motion for Summary Judgment. Doc. 39. That motion frames the
legal issue whether the Defendants' final agency decision dated January 5, 2012, was arbitrary,
capricious, an abusive of discretion or otherwise not in accordance with the law. See 5 U.S.C. §
706(b); Thomas v. Jackson, 581 F.3d 658, 664 (8th Cir. 2009).
7
The lack of publication of course does not render the decision arbitrary and capricious or an
abuse of discretion. However, the absence of publication in the three-plus years since its
issuance is, well, curious and noteworthy.
10
III.
ANALYSIS OF THE FINAL AGENCY DECISION
The final agency decision dated January 5, 2012, is entitled to deferential review for the
reasons explained above. Applying that deferential review, this Court finds portions of the final
administrative decision to be well within the realm of reasonable construction of regulations and
not plainly erroneous. However, some aspects of the final agency decision, even under the
deferential review of agency interpretation of its regulation, are "arbitrary, capricious, an abusive
of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A).
Some understanding of the Federal Crop Insurance Act and its purposes is necessary to
put into context the final agency decision at issue. Congress set the purpose of the FCIA to be
"to promote the national welfare by improving the economic stability of agriculture through a
sound system of crop insurance and providing the means for the research and experience helpful
in devising and establishing such insurance." 7 U.S.C. § 1502(a). The regulations at issue are
designed to carry out that purpose.
Under § 400.168(b), an AIP, like NAU, "shall make
available to all eligible producers in the areas designated in its plan of operations . . . crop
insurance plans for the crops designated in its plan of operation."
7 C.F.R. § 400.168(b).
Indeed, under the standard reinsurance agreement, an AIP "must offer and market all plans of
insurance for all crops in any State where actuarial documents are available in which it writes an
eligible crop insurance contract and must accept and approve applications from all eligible
producers."
Fed. Crop Ins. Corp., 2005-2009 Standard Reinsurance Agreement § II.A.2
(emphasis added), available at http://www.rma.usda.gov/pubs/ra/05SRA_final.pdf. Risk that a
claim will be filed is not a permissible factor in weighing coverage and transfer applications,
although it may affect premium. See 7 C.F.R. § 400.168(b).
11
Consistent with provisions of the FCIA, NAU issued crop insurance policies to the
Hardeses for the winter wheat crops at issue, as they were eligible persons with a bona fide
interest in the crop at the time coverage began and had made an application.
There is no
question that NAU accepted the Hardeses as eligible persons, collected premiums for the 2008
winter wheat crops planted on Midland Farms' property by the Hardeses, and extended coverage
on the winter wheat crops planted by the Hardeses in 2008 to
b~
harvested in 2009. The question
that gave rise to this dispute surrounds the effect of the transfer of coverage and right to
indemnity signed by the Hardeses in favor of Midland Farms in July of 2009 nunc pro tune to the
date of the Hardeses' eviction from Midland Farms' land.
Section 28 of the common crop insurance policy governs that question. Section 28 reads:
28. Transfer of Coverage and Right to Indemnity
If you transfer any part of your share during the crop year, you
may transfer your coverage rights, if the transferee is eligible for crop
insurance. We will not be liable for any more than the liability determined
in accordance with your policy that existed before the transfer occurred.
The transfer of coverage rights must be on our form and will not be
effective until approved by us in writing. Both you and the transferee are
jointly and severally liable for the payment of the premium and
administrative fees. The transferee has all rights and responsibilities under
this policy consistent with the transferee's interests.
RMA 3 8.
As concerns this case, the Hardeses had their interest in the winter wheat crops
involuntarily transferred under the state court eviction order to Midland Farms and ultimately
signed transfer of coverage rights forms. There is no issue here about any claim for liability in
excess of the policy amount, about use of the proper forms , about payment or nonpayment of
premium, or about Midland Farms' eligibility for crop insurance. The critical language of
Section 28 on which this dispute turns is that "transfer of coverage rights ... will not be effective
until approved by us [meaning NAU as the AIP] in writing."
12
There is some guidance from the United States Court of Appeals for the Eighth Circuit
concerning this particular language of Section 28. Although not central to its holding, the Eighth
Circuit in Kroeplin Farms General Partnership v. Heartland Crop Insurance, Inc., 430 F.3d 906
(8th Cir. 2005) observed:
[T]he standard policy at issue here provides that a transfer of coverage is not
effective "until approved by us [the insurance company providing insurance] in
writing." See 7 C.F.R. 457.8 (Section 28 of the Common Crop Insurance Policy).
This right of approval permits insurance companies to determine the reality of the
transfer requested and to prevent fraudulent schemes.
Id. at 912 (second bracketed text in original). Although a copy of the Kroeplin Farms decision is
in the administrative record, RMA 484- 91 , Defendants 8 in the final agency decision did not refer
to Kroeplin Farms, nor to any other case or other final agency decision or other authority. RMA
139-42. Instead, the Defendants' only legal citation in analyzing this language of Section 28
was a reference to Section 508(c)(10) 9 of the FCIA. See RMA 140. Defendants now concede
that this was a mistake and that Section 508(c)(10) has nothing to do with any issue covered by
the final agency decision. Thus, the Defendants' interpretation of the key language of Section 28
draws from no prior authority and ignores the one federal court of appeals decision commenting
on the very language at question.
The Defendants properly concluded that a transfer of coverage and right to indemnity is
not automatic under Section 28, because textually Section 28 requires that the transfer "be on
[the AIP ' s] form and will not be effective until approved by [the AIP] in writing." See RMA 38,
140. This is altogether consistent with Kroeplin Farms which recognized that "this right of
8
Technically, RMA issued the final decision as the administrator and on behalf of FCIC. See 7
U.S.C. §§ 1506(r), 6933. This Court will refer to the final agency decision as being from the
Defendants for ease of reference.
9
Section 508(c)(10), which is codified at 7 U.S.C. § 1508(c)(10), refers to an administrative fee
and is altogether inapposite to any issue in this case.
13
approval permits insurance companies to determine the reality of the transfer requested and to
prevent fraud schemes." Kroeplin Farms, 430 F.3d at 912. Defendants appropriately noted that
circumstances in a transfer of coverage differ from the initial issuance of coverage because a
transferee may not be known to an AIP, has not filled out an application, and may constitute an
excessive risk. RMA 140.
However, the Defendants then made a leap from logic to declare:
An AIP has the discretion to elect not to accept or approve a properly executed
transfer or assignment for legitimate business reasons (e.g., because the crop
insurance interest has previously been transferred or assigned, there is not a
remaining interest to transfer or assign, etc.). The AIP is in no position to judge
the validity or preference of such transfers or assignments, and, therefore, has the
authority to reject them if the situation warrants it.
RMA 140. There are several reasons why such a declaration is arbitrary and capricious, an abuse
of discretion or not in accordance with law.
First, there is no source in any statute or regulation or elsewhere for an AIP having such
"discretion" to refuse a properly executed transfer or assignment "for legitimate business
reasons." The text of Section 28 and indeed no text within the FCIA or common crop insurance
policy supports such "discretion" to refuse a transfer for "legitimate business reasons." The
phrase "legitimate business reasons" appears to have been conjured without any reference to the
FCIA regulations, authority or other valid reasoning. The insertion by Defendants of an AIP ' s
"discretion" to refuse to transfer for "legitimate business reasons" is inconsistent with the
Kroeplin Farms construction of Section 28 and with the general aim of the FCIA. 10 See Kroeplin
Farms, 430 F.3d at 912; cf. St. Luke's Methodist Hosp. v. Thompson, 315 F.3d 984, 988 (8th
Cir. 2003) (finding an agency interpretation of hospital-based skilled nursing facility
10
This position is even inconsistent with the position that RMA (and NAU) had taken m
correspondence on the topic with Midland Farms. RMA 49-50, 82- 83.
14
reimbursement regulations controlling payment for "atypical services" was based on irrelevant
provisions and clearly wrong because it imported considerations from another part of the
regulations that deal with other policy goals).
Second, the two illustrations given by the Defendants of "legitimate business reasons""because the crop insurance interest has previously been transferred or assigned [or] there is not
a remaining interest to transfer or assign," RMA 140-apparently stem from the Defendants'
misunderstanding some of the facts concerning the relationship between Midland Farms, the
Hardeses, and NAU.
The crop insurance interest of the Hardeses had not been previously
transferred; rather, the Hardeses had executed assignments of indemnity under Section 29 to
creditors. These are not transfers of coverage under Section 28, where the policy rights are being
transferred, but rather are akin to security arrangements with creditors. These two assignments
of indemnity under Section 29 predating the transfer of coverage may affect Midland Farms'
payment rights, but do not constitute a previous transfer of coverage in conflict with the transfer
of coverage to Midland Farms. The Defendants' second illustration-"there is not a remaining
interest to transfer or assign"-embraces NAU' s argument that the Hardeses had no ability to
transfer policy rights after being evicted on February 23 , 2009, even though the order of eviction
required the Hardeses to transfer crop insurance policy rights to Midland Farms. Under NAU ' s
argument, the Hardeses immediately lost all interest in the crops and entitlement to transfer crop
insurance rights upon eviction. NAU then asserted that, despite the Hardeses and Midland Farms
intending the transfer to be effective at the time of eviction by dating the transfer forms nunc pro
tune to February 23 , 2009, Midland Farms could not receive any transfer of coverage rights
because there was nothing to transfer. This despite the fact that Midland Farms owned the land
on which the winter wheat was growing and had a state court judgment requiring the Hardeses to
15
transfer the policy rights as part of the eviction. NAU under this assertion could retain premiums
on the Hardeses' winter wheat crops it was insuring, without bearing any coverage responsibility
after the February 23, 2009 eviction order. The Defendants elsewhere in the January 5, 2012
final agency decision endorsed NAU's argument by stating that when "the insured no longer has
a share at the time the transfer is executed, for example, the insured has been evicted from the
property, there is nothing for the insured to transfer and the transfer would not be valid." RMA
142. The Defendants now have abandoned that position. 11 In short, the two illustrations of
"legitimate business reasons" derive from the Defendants' apparent acceptance of an NAU
argument that Defendants now disavow and a misunderstanding about previous assignments of
indemnity.
Third, it is arbitrary and capricious, an abuse of discretion and not in accordance with law
to leave the determination of "legitimate business reasons" to the unfettered and unreviewable
"discretion" of the AIP. The Defendants' two illustrations of "legitimate business reasons" is
followed by "etc." indicating that the AIP may invoke other unmentioned "legitimate business
purposes." Any AIP like NAU naturally has an array of legitimate business reasons and goals,
including maximizing profits, holding down claims payment, not having to invest employee time
in processing or evaluating transfer forms, among other things. The Defendants' decision leaves
11
The Defendants' decision to abandon this position makes sense because the basic provisions of
FCIC-backed crop insurance policy do not support NAU's argument. While it is true that, to be
eiigible for federally-backed crop insurance, a producer must own a "bona-fide insurable
interest" in a crop, 7 U.S.C. § 1520, an insured's "share" is determined "at the time insurance
attaches." RMA 17. Moreover, Section 3 of the basic provisions provides that a crop insurance
policy will "remain in effect for each crop year following the acceptance of the original
application until canceled ... in accordance with the terms of the policy or terminated by
operation of the terms of the policy, or by [the AIP]." RMA 19 (Section 3(a) of the basic policy
provisions). No policy terms provide for automatic termination of the policy when an insured
conveys his or her interest in the insured crop. See RMA 19-21.
16
no means to question the AIP ' s "legitimate business reasons" for refusing a transfer. Other parts
of the Defendants' final agency decision make this clear, like where the Defendants reason:
Where the Transfer of Coverage form is not approved in writing by the AIP, but is
rejected by the AIP, the attempted transfer is ineffective and the proposed
transferee obtains no rights under the policy .
. . . Since the policy has not transferred, the potential transferee does not have any
rights under the policy, such as the right to appeal. ... As such, FCIC agrees with
[NAU's] interpretation that the proposed transferee [Midland Farms] would not
be extended policy rights under section 20 to pursue any claims in arbitration for
enforcement of any term of the policy.
RMA 139- 40. As applies to this fact situation, the Defendants' final agency decision would
mean that tenants like the Hardeses would have no policy rights once evicted and rejection of the
transfer would leave a transferee/landlord like Midland Farms no policy rights; thus, no party
would have any policy rights or could maintain an arbitration action which is the exclusive
remedy in a dispute over entitlement to crop insurance payments. Under this interpretation, there
would be no remedy or avenue to challenge NAU' s decision to not allow transfer of coverage
and presumably retain premiums without responsibility for any potential claim. In short, the
Defendants' final agency decision means that there is no check, no arbitration, no appeal, and no
limit on the AIP ' s "discretion" to deny a Section 28 transfer for anything an AIP deems a
"legitimate business reason." This result is altogether contrary with the Congressional purpose
of the FCIA, with the Section 20 procedures for allowing mediation and ultimately arbitration to
resolve factual dispute concerning crop insurance claims, and basic provisions controlling
termination of crop insurance policies.
Other aspects of the final agency decision are not arbitrary and capricious. The final
agency decision appropriately concluded, based on Section 4F(4)(b) of the CIH that "a Transfer
of Coverage and Right to an Indemnity is subject to any outstanding Assignment of Indemnity
made prior to the date of the requested transfer."
17
RMA 140.
Also, it is not arbitrary or
capricious to conclude that "any attempt by a proposed transferee to back date a Transfer of
Coverage and Right to Indemnity form would be ineffective to supersede outstanding
Assignments of Indemnities made prior to the date of the receipt and approval of the Transfer of
Coverage ... form." RMA 140.
Further, the final agency decision is not arbitrary and capricious in determining that the
effective date of a transfer may be different than the execution date, such that " [t]here are
circumstances where the parties can execute a document on one date and the terms of the
document can specify that they are effective on an earlier date if agreed to by both parties to the
agreement." RMA 141. Further, it was not arbitrary or capricious for Defendants to decide that
transfers of coverage may cover all or part of an insured' s share of crop and need not occur at the
same time that the share of crop is transferred. RMA 142. Further, the transfer of coverage and
right to indemnity in fact can occur at any time of the year. RMA 142.
The Eighth Circuit in Kroeplin Farms provided guidance on when an AIP may refuse to
transfer coverage. This decision provides further guidance to the Defendants. It of course is not
for this Court to rewrite the final agency decision. With guidance from Kroeplin Farms and this
decision, Defendants on remand may choose to issue a decision, one to be timely provided to the
interested parties and posted on the RMA website, concerning the proper interpretation of
Section 28 of the common crop insurance policy.
IV.
CONCLUSION
For the reasons contained above, it is hereby
ORDERED that Plaintiff s Motion for Summary Judgment is granted in part, as outlined
in this Opinion and Order. It is further
18
ORDERED that the matter is remanded for Defendants' consideration and issuance of a
final agency decision, if Defendants so choose, that is not inconsistent with this Opiniori and
Order.
.
atl.
DATED this___ day of July, 2015 .
~ -,
BY THE COURT:
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