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Midland Farms, LLC v. United States Department of Agriculture

United States District Court, D. South Dakota, Central Division

July 29, 2015



ROBERTO A. LANGE, District Judge.

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 Plaintiff's Motion for Summary Judgment and remands the matter for further proceedings not inconsistent with this Opinion and Order.


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 Plaintiff's 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 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 APA. 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. River Sys. Litig., 421 F.3d 618, 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. of N.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.

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. at ___, 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)).


The Defendants take a narrow view of what the Court should consider as the facts in this case, not because they dispute Plaintiff's 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 Hardes-obtained policies of federally-reinsured crop insurance to insure crops planted on the land leased from Midland 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 NA U.See 7 C.F.R. §§ 400.163-64.

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."

Members of the Hardes family 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.

Midland Farms' managing partner contacted NAU's agent regarding transfer of the crop insurance policies, who in turn referred the question to RMA. RMA, ...

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