Sunrise Cooperative, Inc. v. United States Department of Agriculture

Citation: 261 F. Supp. 3d 850Docket: Case No. 3:16CV1297

Court: District Court, N.D. Ohio; June 6, 2017; Federal District Court

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The declaratory judgment action involves Sunxise Cooperative, Inc. (Sunrise), an Ohio agricultural cooperative, asserting its right to issue "patronage rebates" to members purchasing crop insurance from Lund and Smith Insurance Services, LLC (L&S), which Sunrise partly owns. Since 2008, federal law (7 U.S.C. 1508(a)(9)(A)) has prohibited premium rebating, but Sunrise has relied on a "grandfather clause" allowing such payments for those approved by the Federal Crop Insurance Corporation prior to the law's enactment. Following a merger with Trupointe Cooperative, Inc. in 2016, Sunrise sought clarification from the USDA's Risk Management Agency (RMA) about continuing these rebates. The RMA concluded that the merger with a non-grandfathered entity disqualified Sunrise from issuing patronage. After unsuccessful administrative challenges, Sunrise pursued legal action under the Administrative Procedures Act, claiming jurisdiction under 28 U.S.C. 1381. The court has pending motions for summary judgment from both parties, with the judge granting the defendants' motion and denying Sunrise's. The RMA regulates the crop insurance market and historically prohibited premium rebates until Congress modified this stance in 2000. Additionally, the RMA allows certain payments to cooperatives under specific conditions, which could enable patronage payments if state law permits.

After legislative changes in 2008 aimed at curtailing premium rebate payments by cooperatives, Sunrise and other entities were allowed to continue these payments under a grandfather clause, provided they had prior approval from the RMA during the 2005-2007 reinsurance years. This exception specifically permitted patronage dividends from entities approved before the enactment of the new laws, but with strict oversight to ensure compliance with federal and state laws. In November 2015, the RMA requested that Sunrise clarify its eligibility to issue patronage following its merger with Trupointe. Sunrise argued that it remained the same entity as before the merger, based on Ohio corporate law and federal tax law. However, in February 2016, the RMA determined that the merger rendered Sunrise ineligible for patronage payments, interpreting the grandfather clause to mean that any substantive changes, including mergers or acquisitions, disqualified an entity from its previously approved status. The RMA emphasized that the grandfather clause was a limited exception to a broader prohibition on premium-rebating practices.

Congress intended to prohibit payment of patronage dividends through unapproved cooperative associations, as evidenced by the revision of section 508(b)(5)(B) of the FCIA, which eliminated the authority for such payments. The RMA interprets the exception in section 508(a)(9)(B) restrictively to include only those cooperatives that were approved during specified years and maintained the same entity structure. A broader interpretation could undermine the prohibition by allowing mergers that disrupt the marketplace, contrary to Congress's intent. Sunrise challenged this interpretation in a March 2016 letter, arguing that the statute did not explicitly bar a grandfathered cooperative from paying patronage dividends after merging with a non-grandfathered cooperative. In May 2016, the RMA denied Sunrise's grandfathering exemption, characterizing the term "entity" as ambiguous and interpreting it narrowly to mean the same cooperative as it existed during the relevant reinsurance years, unaffected by any mergers or changes in structure. Despite this, Sunrise merged with Trupointe in September 2016 and subsequently filed an action against the USDA, the Federal Crop Insurance Corporation, and the RMA, seeking a declaration that the merger did not impact its ability to pay patronage under the grandfather clause. The legal standard for summary judgment requires the moving party to demonstrate the absence of a genuine issue of material fact, shifting the burden to the nonmoving party to provide specific factual evidence supporting its position. The court accepts the nonmoving party's evidence as true and interprets all evidence in its favor.

The legal issue at hand is whether Sunrise, post-merger with a non-grandfathered cooperative, qualifies as an "entity that was approved by the Corporation to make [premium-rebate] payments for the 2005, 2006, or 2007 reinsurance years" under 7 U.S.C. 1508(a)(9)(B)(iii)(I). Sunrise argues that "entity" should be interpreted in its plain meaning as an organization with a separate legal identity, asserting its identity remains unchanged after the merger under Ohio corporate and federal tax law. Conversely, the government defendants contend that the Risk Management Agency's (RMA) determination that Sunrise is no longer a grandfathered "entity" aligns with statutory language and legislative intent, primarily aimed at restricting premium-rebating. 

The Chevron analysis is invoked to assess the agency's statutory interpretation. The first question examines whether Congress has clearly addressed the issue. Sunrise believes the statute pertains solely to a cooperative's legal identity, while the defendants assert that the statutory framework creates a narrow exception to a broader prohibition against premium rebating. They argue that the RMA's interpretation reflects the legislative intent to limit premium-rebating practices, highlighting the practical implications of the merger, which combines members of both grandfathered and non-grandfathered entities, thus potentially increasing premium-rebating. Both interpretations of what constitutes an "approved entity" are deemed plausible within the statutory context.

In 1508(a)(9)(B), Congress has not clearly addressed the specific issue at hand, rendering the statutory provision ambiguous, as defined in Chickasaw Nation v. U.S. A statute is deemed ambiguous if it can be understood in multiple ways. The RMA's interpretation of the statute is deemed reasonable, especially as it fills gaps or defines terms aligned with the Legislature’s intent. The RMA concluded that Sunrise was no longer an "Entity That Was Approved" to pay patronage dividends. The RMA’s narrow construction of the grandfather clause is justified, as Congress implemented a broad prohibition against premium-rebating in response to past abuses. At the time the grandfather clause was authorized, only a few small cooperatives were approved for reinsurance. The RMA argued that Sunrise's interpretation would undermine the prohibition on premium-rebating by allowing non-grandfathered cooperatives to merge with grandfathered ones, thus circumventing the intent of the law. The RMA’s interpretation aligns with Congress’s intent by limiting the potential for significant premium-rebating increases due to mergers of grandfathered and non-grandfathered entities.

Sunrise raised two counter-arguments against the RMA's interpretation: (1) it restricts natural membership changes within grandfathered cooperatives, and (2) it is inconsistent with the RMA's decisions in similar cases. Both arguments were dismissed as unfounded. Specifically, the RMA clarified that its interpretation does not prevent ordinary changes in membership, acknowledging that businesses naturally gain and lose customers over time.

Mergers, sales, and acquisitions are interpreted by the RMA to create new entities, distinct from those approved for patronage dividends in the 2005-2007 reinsurance years. As a result, cooperatives like Sunrise cannot gain new members through these means while retaining their grandfathered status. Although Sunrise argues that the RMA has acted arbitrarily by allowing other grandfathered cooperatives to pay patronage after merging with non-grandfathered ones, this claim lacks supporting evidence. Sunrise failed to present requisite documentation to the RMA regarding these mergers, and even if such evidence were admitted, it would not substantiate Sunrise's claims. The certified administrative record indicates that the Florida cooperatives assured the RMA of compliance with the grandfather clause post-merger, without disclosing any mergers with non-grandfathered entities. Consequently, no genuine dispute of material fact exists regarding RMA's treatment of cooperatives like Sunrise. The court concluded that the RMA's approach was reasonable in aligning with congressional intent. Summary judgment was granted to defendants, and Sunrise's motions were denied, including a request for an oral hearing, as the existing record was deemed sufficient for a decision. The merger of Trupointe with Sunrise resulted in an increase of membership from 4,100 to approximately 7,300 members. The government's objection to Sunrise's evidence was upheld.