Court: Court of Appeals for the Tenth Circuit; June 30, 1994; Federal Appellate Court
Appellants VAL Farms, a Colorado partnership, and its eleven general partners are appealing a district court's summary judgment favoring the Secretary of Agriculture. The Secretary oversees various agricultural programs authorized by Congress, including the 1986 Feed Grains Price Support and Production Adjustment Program, which offered voluntary deficiency payments up to $50,000 for producers who limited grain production. Regulations define “person” for payment limitation purposes, requiring a distinct interest in land or crops, separate responsibility, and independent financial accountability.
Changes in farming operations can affect the number of eligible persons for these payments, necessitating that such changes be bona fide and substantive. Examples of substantive changes include significant alterations in farm size or ownership structures. Applications for the 1986 program were evaluated by county ASC committees, which determined whether entities qualified as separate persons for payment limitations. Under the program, partners in a general partnership are treated as separate persons.
Initially, VAL Farms consisted of five partners, including a limited partnership, and was considered three persons for payment purposes. After a reorganization in which the limited partnership was dissolved, the partnership expanded to eleven general partners. Before this reorganization, partners consulted with ASCS's Linda Whatley, who allegedly indicated that the dissolution would qualify the new partners as separate persons for payment limitations and suggested capital contributions to the partnership.
A capital call of $30,000 was issued by the partnership, with each partner contributing their proportional share. VAL Farms operated under the same management, equipment, and land in 1986 as it did in 1985. On September 11, 1986, the Yuma County ASC Committee classified VAL Farms as ten separate persons for payment limitation in the 1986 crop year. However, an audit by the USDA Office of Inspector General (OIG) on July 14, 1988, determined that VAL Farms should have been classified as three separate persons instead. Despite disagreement from the local ASC committees, DASCO instructed the Colorado State ASC Committee to inform VAL Farms of this reversal. VAL Farms appealed the ruling, but DASCO denied the appeal, stating that the dissolution of VFF, Ltd. was not a substantive change affecting the farm operations, and that the new general partners did not become active until after the key status date. Additionally, VAL Farms failed to prove that partners made the necessary capital contributions. The denial of the appeal was upheld in a subsequent Request for Reconsideration. VAL Farms filed a complaint in district court seeking a declaratory judgment against the Secretary's determination, claiming it was arbitrary and unlawful. The Secretary countered that his factual determinations were final and reserved rights to recover amounts owed. The court, after reviewing the case, concluded that the Secretary's classification of VAL Farms as three persons was not arbitrary or capricious, nor an abuse of discretion.
The court denied the appellants’ motion for summary judgment, granted the Secretary’s motion, and dismissed the appellants’ administrative appeal. The appellants argued that DASCO incorrectly determined they were only three persons for the 1986 crop year, claiming misinterpretation of regulations and disregard for evidence, in violation of 5 U.S.C. 706(2)(A). The review standard under this section is narrow, requiring the agency to demonstrate it considered relevant factors and made a reasonable choice. An agency's action may be deemed unlawful if it relied on unintended factors, neglected a critical aspect, provided explanations contrary to the evidence, or was implausible. The same review standard applies at both the district court and appellate levels, with no special deference given to the district court's decisions.
According to regulation 795.14, changes in farming operations must be bona fide and substantive to affect payment limitations. It was established that VAL Farms' only change from 1985 to 1986 was an increase in general partners from five to eleven, with no alteration in farming operations or land use. Testimony from Jack M. Stern, a general partner, confirmed that operations remained unchanged, asserting there was no value necessitating a transaction or change in operations. Consequently, the court found DASCO's conclusion that the dissolution of VFF, Ltd. did not constitute a substantive change was reasonable, and thus upheld the determination that the appellants were only three persons for the 1986 crop year, stating that this conclusion was neither arbitrary nor capricious.
Appellants claimed that the seven new general partners of VAL Farms were active for the 1986 crop year and had met capital contribution requirements, and argued that the land lease did not equate to financing. However, this did not affect DASCO's decision that the dissolution of VFF, Ltd. was not a substantive change under regulation 795.14, which stipulates that only significant changes in farming operations can increase the number of persons for payment limitation purposes. Evidence, including Jack Stern's testimony, indicated that VAL Farms' operations remained unchanged from 1985 to 1986 following the dissolution.
The appellants' request for equitable relief under 7 C.F.R. 795.24 and 790.22, based on good faith reliance on the Yuma County ASC Committee's determination of their status as ten persons and advice from Ms. Whatley, was also rejected. Their assertion that they relied on this advice to dissolve VFF conflicted with their earlier claim that VAL Farms was reorganized prior to the 1986 crop year. The dissolution was part of a long-term strategy to transition individual and trust members to general partners in VAL Farms. In conclusion, the court determined that appellants did not qualify for equitable relief under the cited regulations. The decision was affirmed, emphasizing that agency actions may be set aside only if deemed arbitrary or not in accordance with the law, as outlined in 5 U.S.C. 706(2)(A).
