McBride Cotton and Cattle Corporation, an Arizona Corporation, on Behalf of Themselves and Others Similarly Situated Running Water Land & Cattle, Inc., a Texas Corporation, on Behalf of Themselves and All Others Similarly Situated Thompson Farm, a Texas General Partnership, on Behalf of Themselves and All Others Similarly Situated C.J. Land & Cattle, L.P., a Nebraska Limited Partnership, on Behalf of Themselves and All Other Similarly Situated Brandstatt Family Trust, a Texas Trust, on Behalf of Themselves and All Others Similarly Situated v. Ann M. Veneman, Secretary of the United States Department of Agriculture
Docket: 00-17378
Court: Court of Appeals for the Ninth Circuit; April 19, 2002; Federal Appellate Court
Five plaintiffs, representing family farm businesses, challenged the Secretary of Agriculture's policy of administratively offsetting payments owed to non-debtor entities to satisfy the debts of individual shareholders or members who are delinquent on USDA agricultural loans. The plaintiffs, who are not delinquent debtors, argue that the Secretary's policy of not providing notice to them about the offsets violates their due process rights. The district court dismissed their complaint for lack of subject matter jurisdiction, citing failure to exhaust administrative remedies under 7 U.S.C. § 6912(e).
On appeal, the Ninth Circuit held that the exhaustion requirement is not jurisdictional and excused exhaustion due to the colorable constitutional claims presented. The court reversed the district court's decision, allowing the case to proceed on its merits. Additionally, the opinion outlines that McBride Cotton, one of the plaintiffs, entered into Production Flexibility Contracts with the CCC, under which offsets were made against payments owed to them based on the individual debt of a shareholder, Thomas McBride.
McBride Cotton did not file administrative appeals in 1997 or 1998 but submitted one in 1999, which the USDA National Appeals Division accepted but suspended pending litigation. Running Water Land & Cattle Inc., led by John Mitchell, previously received loans from the Farmers Home Administration, two of which remain unpaid. After Mitchell became delinquent in 1998, the Commodity Credit Corporation offset $1,329 from Running Water's Production Flexibility Contract payments to collect his debt, despite Mitchell's untimely appeal request being denied.
Thompson Farm, a Texas partnership formed in 1975 with Roger Thompson as a partner, had outstanding loans from the Farmers Home Administration. In 1996, it entered into Production Flexibility Contracts, and in 1997, the Farm Service Agency offset $5,413 from payments owed to the Farm without any record of an appeal.
Brandstatt Family Trust, established in 1995 by J.M. and Hattie Brandstatt, has a beneficiary, Glynn Brandstatt, who is in default on a Farm Service Agency loan. In 1997, the Agency notified Glynn of an offset against Trust payments due to her debt, which was offset by $2,536.93 without any appeal being recorded. Additionally, the Trust's request for reconsideration of a $439 offset in 1998 was denied.
C.J. Land & Cattle, L.P., formed in 1994 and co-owned by James Gabel, has a history of Farmers Home Administration loans that were accelerated due to nonpayment in 1996. James Gabel signed Production Flexibility Contracts on behalf of the partnership.
The Farm Service Agency notified James Gabel of its intent to offset his debts by collecting amounts owed to C.J. Land. Cattle. From 1996 to 1998, $47,082.84 of Gabel's debts were offset against $171,072 owed to C.J. Land. Cattle, which later filed an administrative appeal. The USDA Office of General Counsel concluded that the Farm Service Agency did not have the authority to offset payments owed to non-debtors for the debts of entity members, leading to a full refund of the amounts offset. The district court dismissed the case due to a lack of subject matter jurisdiction, citing the plaintiffs' failure to exhaust administrative remedies as required by 7 U.S.C. § 6912(e). This statute mandates that individuals must exhaust all administrative procedures before bringing legal action against the Secretary of Agriculture or related entities. The discussion includes judicial interpretations of exhaustion requirements, noting that such requirements may limit jurisdiction if they contain explicit language restricting access to the courts. However, generally, courts have found that failure to exhaust does not deprive them of jurisdiction unless explicitly stated in the statute, as seen in prior case law. The excerpt also contrasts this with situations where explicit statutory language does limit jurisdiction, such as in Henderson v. Bank of New England.
12 U.S.C. § 1821(d)(13)(D) is deemed a jurisdictional statute as it limits court jurisdiction over claims not pursued through the prescribed administrative procedures. In Gallo Cattle Co. v. United States Department of Agriculture, the court confirmed that the exhaustion requirement in 7 U.S.C. § 4509 is jurisdictional, granting district courts authority only over claims previously presented to the Secretary. In contrast, 7 U.S.C. § 6912(e) does not impose similar jurisdictional constraints, as it lacks explicit language limiting federal jurisdiction. The court noted that while plaintiffs did not exhaust their administrative remedies under § 6912(e), this failure does not strip the district court of subject matter jurisdiction. However, compliance with the exhaustion statute is still required, and the court evaluated whether the plaintiffs' failure to exhaust could be excused. The court referenced Anderson's framework, which allows for exceptions when a claim is constitutional, collateral to a substantive claim, colorable, and does not undermine the purposes of exhaustion. The plaintiffs' claims met these criteria.
A claim is deemed collateral if it does not interfere with agency processes, as established in Johnson v. Shalala. Plaintiffs argue the Secretary must provide prior notice to non-debtor entities before administratively offsetting an individual debtor’s delinquent debts, asserting both due process and regulatory requirements. They assert these challenges are facial challenges based on constitutional and statutory grounds and do not interfere with agency processes since no resolution mechanism exists within the agency for such claims.
The Secretary contends that plaintiffs must utilize the administrative appeals process for adverse decisions, as outlined in 7 U.S.C. §§ 6991-6998. However, the Secretary fails to identify any procedures for addressing facial challenges to regulations or her authority, confirming that the only appealable issue involves ownership percentages, which is not contested in this case.
The court concludes that evaluating the plaintiffs' claims does not interfere with agency processes. Furthermore, a colorable claim must not be insubstantial or frivolous; it requires sufficient factual allegations to substantiate a due process violation. The Due Process Clause mandates that individuals receive notice and an opportunity to be heard prior to governmental deprivation of property. Thus, the plaintiffs' claims are considered collateral and colorable, allowing for judicial review.
Plaintiffs allege that the Secretary improperly withheld funds owed to them without prior notice of the administrative offset or information on appeal rights. When attempting to appeal, the Secretary denied their rights, asserting that the offset was not an 'adverse decision' for non-debtor entities and that these entities were not 'debtors' eligible for appeal. The court finds the plaintiffs' due process claims to be valid and concludes that exhausting administrative remedies would be futile, as the National Appeals Division lacks jurisdiction over these claims. Therefore, the plaintiffs' failure to exhaust their claims is excused, and their case is remanded to the district court for a substantive review.
The Secretary's argument that the claims of C.J. Land. Cattle are moot due to voluntary refunds is rejected, as the company still receives payments from the USDA and remains subject to offsets. Despite the Secretary's claim of a revised policy to provide notice to non-debtors, evidence suggests that local offices may not be adhering to this change, indicating the claims are not moot. The court emphasizes that the Secretary must provide written notice of adverse decisions and appeal rights under 7 U.S.C. § 6994. On remand, the district court will need to ascertain what notice was actually received or should have been imputed to the plaintiffs, while recognizing that the plaintiffs' constitutional claims are separate from the factual inquiry regarding notice. The decision is reversed and remanded.
The Secretary filed a motion to dismiss due to lack of jurisdiction or, alternatively, sought summary judgment. The plaintiffs did not oppose this motion as the court decided to delay addressing the merits of their claims until the jurisdictional issue was resolved. Therefore, the substantive allegations in the plaintiffs' complaint are accepted as true for evaluating the colorability of those claims.
In May 1999, the National Appeals Division issued a suspension order, determining that the administrative offset against McBride Cotton was an 'adverse decision' under 7 C.F.R. § 11.1, making the appeal appropriate, which is currently suspended pending the litigation's outcome.
Running Water Land. Cattle Inc., led by John Mitchell, has family members as its officers, directors, and shareholders. John Mitchell had previously taken out loans from the Farmers Home Administration, two of which are still outstanding, and he became delinquent in 1998. Running Water entered into a Production Flexibility Contract, but the Farm Service Agency initiated an administrative offset against it for John Mitchell's debt, deducting $1,329 from the contract payments after his appeal was denied for being untimely.
Thompson Farm, a Texas general partnership formed in 1975, includes Roger Thompson and family members as partners. The Thompson family has several outstanding loans from the Farmers Home Administration. In 1996, Thompson Farm entered into multiple Production Flexibility Contracts, and in 1997, the Farm Service Agency offset $5,413 from payments owed to the farm for Roger Thompson's individual debt, with no record of an appeal.
The Brandstatt Family Trust, established in 1995 by J.M. and Hattie Brandstatt, has Marie Sawyer as trustee, with beneficiaries including Glynn Brandstatt, who is in default on a soil and water loan. In 1997, the Farm Service Agency informed Glynn Brandstatt that her debt would be offset against amounts owed to the Trust, resulting in $2,536.93 being deducted from the Trust's payments. Requests for reconsideration regarding offsets were denied, with no administrative appeals recorded.
C.J. Land. Cattle, L.P., formed in 1994, has James Gabel as a general partner. James received individual farm ownership loans from the Farmers Home Administration in the early 1980s, which were accelerated due to nonpayment in 1996.
James Gabel signed Production Flexibility Contracts for C.J. Land. Cattle. The Farm Service Agency notified him of intent to administratively offset his individual debts with amounts owed to C.J. Land. Cattle, resulting in offsets totaling $47,082.84 from 1996 to 1998 against the $171,072 owed by C.J. Land. Cattle. In October 1998, C.J. Land. Cattle initiated an administrative appeal, leading the USDA Office of General Counsel to conclude that the Farm Service Agency lacked the authority to offset payments due to non-debtor entities for collecting debts of entity members. Consequently, the Farm Service Agency refunded the amounts offset.
The district court dismissed the case due to the plaintiffs' failure to exhaust administrative remedies as mandated by 7 U.S.C. § 6912(e). This statute requires exhaustion of all administrative appeal procedures before bringing a lawsuit against the Secretary of Agriculture, the Department, or its officials. The primary legal question is whether this exhaustion requirement limits federal court jurisdiction. Historical case law indicates that exhaustion statutes can limit jurisdiction if they contain explicit language restricting judicial review. However, if an exhaustion requirement is merely a codification of the exhaustion principle, it does not deprive federal courts of jurisdiction. In precedent cases, such as Anderson and Rumbles, the courts determined that similar exhaustion requirements did not constitute jurisdictional bars. Conversely, in Henderson, the court found that an explicit limitation within an exhaustion statute did restrict federal jurisdiction.
No court has jurisdiction over claims for payment or rights determination regarding the assets of a depository institution for which the Corporation is a receiver, including those assets acquired by the Corporation itself. This jurisdictional limitation, established under 12 U.S.C. 1821(d)(13)(D), mandates that all claims must adhere to the administrative procedures outlined in that statute. Jurisdictional requirements have been examined in cases like Henderson, which confirmed that claims outside these procedures lack court jurisdiction.
In Gallo Cattle Co. v. United States Department of Agriculture, the court analyzed the exhaustion requirement of 7 U.S.C. 4509, which allows parties to petition the Secretary for modification of orders and stipulates judicial review of the Secretary’s final ruling if a complaint is filed within twenty days. The court determined that this exhaustion requirement is jurisdictional because it limits district court jurisdiction to claims presented to the Secretary via administrative petition.
In contrast, the exhaustion requirement in 7 U.S.C. 6912(e) does not similarly restrict district court jurisdiction. Unlike other statutory requirements that explicitly strip federal courts of jurisdiction, section 6912(e) merely mandates that administrative appeal procedures be exhausted before bringing a claim. The Secretary's reliance on Bastek v. Federal Crop Insurance Corporation, which upheld a statutory exhaustion requirement, does not apply here as 6912(e) lacks the definitive language needed to limit federal jurisdiction. Consequently, the plaintiffs' failure to exhaust administrative remedies under 7 U.S.C. 6912(e) does not impede the district court's subject matter jurisdiction.
Exhaustion of administrative remedies, as required by 7 U.S.C. 6912(e), was not met by the plaintiffs, prompting the court to consider whether their failure to exhaust could be excused. The court emphasized the necessity of administrative review before judicial intervention and established that compliance with an exhaustion statute is typically required unless the plaintiffs assert a constitutional claim that is collateral to a substantive entitlement claim, is colorable, and would not fulfill the purposes of exhaustion.
The plaintiffs' claims, asserting that the Secretary must provide prior notice to non-debtor entities before administratively offsetting individual debts, were determined to meet these criteria. These claims were characterized as facial challenges to the Secretary's policy, grounded in constitutional and statutory law, which do not interfere with the agency process since there are no existing administrative processes for resolving such claims.
The court noted that participants in a farm loan program cannot use the administrative appeals process to challenge USDA regulations or statutes under federal law. The Secretary argued that the plaintiffs should still engage in the administrative appeals process for adverse decisions; however, the court found no relevant procedures for addressing the plaintiffs' facial challenges to the Secretary's authority. Furthermore, the Secretary acknowledged that the sole issue permissible for administrative appeal by non-debtor entities pertains to ownership percentages, which the plaintiffs were not contesting. Consequently, the court concluded that reviewing the plaintiffs' claims would not interfere with the agency process, aligning with precedents that allow for collateral challenges to unconstitutional practices.
Plaintiffs' claims are deemed collateral and colorable, meaning they are not insubstantial, immaterial, or frivolous. A constitutional claim is not colorable if it appears immaterial or is made solely to obtain jurisdiction. Plaintiffs must provide sufficient facts to establish a violation of due process, which requires notice and a meaningful opportunity to be heard before property deprivation. The plaintiffs allege that the Secretary took money owed to them without prior notice or information about appeal rights and that attempts to appeal were denied based on misinterpretation of regulations. These allegations present colorable claims of due process violations.
Exhaustion of claims is deemed futile, as the National Appeals Division cannot resolve the issues raised by the plaintiffs, making further exhaustion unnecessary. The court remands the claims for merit consideration, including those of C.J. Land & Cattle, despite the Secretary's argument that these claims are moot due to voluntary refunds. A case is considered moot when issues are no longer live, but the cessation of challenged conduct does not automatically make a case moot. C.J. Land & Cattle still receives payments from the USDA, and its partner remains delinquent on loans, indicating ongoing subject to administrative offset.
The Secretary of Agriculture has changed her policy to provide notice to non-debtor entities regarding the intent to administratively offset debts, but evidence indicates local offices may not be adhering to this policy. C.J. Land & Cattle's claims remain valid and have not been rendered moot. Ann M. Veneman is now the Secretary, substituting her predecessor as required by procedural rules. The Secretary must notify farm program participants of adverse decisions and their review rights per 7 U.S.C. 6994. The plaintiffs do not dispute the amounts offset or the ownership interests of individual debtors in their non-debtor entities. On remand, the district court will determine the necessity and extent of notice required for non-debtor entities regarding offsets and available remedies, as well as what notice the plaintiffs received. The Secretary failed to establish an administrative process for the plaintiffs to present their constitutional claims, which maintains the collateral nature of the plaintiffs' claims. The Secretary's motion to dismiss for lack of jurisdiction or for summary judgment was not opposed by the plaintiffs, as the court postponed its decision on the merits until jurisdictional issues were resolved, thereby accepting the plaintiffs' allegations as true for evaluating their claims. Additionally, a suspension order from the National Appeals Division in May 1999 deemed the administrative offset against McBride Cotton an adverse decision, and its appeal remains suspended pending this litigation's outcome.
