Elbert v. United States Department of Agriculture

Background

Rich Elbert, Jeff A. Kosek, Reichmann Land & Cattle LLP, Ludowese A.E. Inc., and Michael Stamer farmed dark-red kidney beans in Minnesota. For the 2015 crop year, they purchased crop insurance that included a Dry Bean Revenue Endorsement. The endorsement was intended to provide revenue protection against a decline between a spring projected price and a fall harvest price.

Prices for dark-red kidney beans fell sharply at harvest. But the insurance policy required sufficient published price observations before a harvest price could be calculated. In 2015, only two dark-red kidney-bean price observations were available for the Minnesota and North Dakota areas, so a harvest price could not be established. Under the endorsement’s express terms, the harvest price was therefore set equal to the projected price. Because there was no difference between the two prices, the farmers received no revenue-based insurance payment for the price decline.

Claims and Motions

The farmers brought claims under the Administrative Procedure Act, which permits courts to set aside agency action that is arbitrary, capricious, an abuse of discretion, or otherwise unlawful. They argued that the agencies acted arbitrarily and capriciously in two ways: by approving an endorsement whose pricing method could eliminate revenue protection, and by failing to set or reform a harvest price after the pricing mechanism failed in 2015.

The agencies moved to dismiss or, alternatively, for summary judgment. They argued that an earlier Michigan case involving related claims precluded the Minnesota farmers from litigating their claims. The farmers moved for summary judgment, arguing that the policy and the agencies’ actions were unlawful as a matter of law.

Preclusion Rulings

The court treated the agencies’ post-answer motion to dismiss as a motion for judgment on the pleadings because a formal motion to dismiss under Rule 12(b)(6) could not be filed after the answer. The court concluded that neither claim preclusion nor issue preclusion barred the farmers’ claims.

The farmers were not parties to the Michigan court’s judgment when it was entered. Although some had initially been involved in that case, their claims had been severed and transferred to Minnesota before the Michigan court entered judgment. The remaining plaintiffs had never been parties to the Michigan case. The court also found that no class had been certified and that the agencies had not shown that the Michigan plaintiffs adequately represented the Minnesota plaintiffs. The court therefore denied the agencies’ motion to dismiss.

Judicial Notice

The farmers asked the court to consider older issues of the Bean Market News and prior Risk Management Agency managers’ bulletins that were not part of the administrative record. The court declined to take judicial notice of those documents because they were not relevant to its merits analysis. The court stated that even if the documents showed the facts alleged by the farmers, they would not change the court’s conclusions.

2015 Harvest-Price Decision

The court held that the endorsement clearly stated what would happen when a harvest price could not be calculated: the harvest price would equal the projected price. The court concluded that the agencies reasonably followed that language when they set the 2015 harvest price at the projected price.

The court recognized that the Dry Beans Revenue Insurance Standards Handbook assigned the agencies responsibility for establishing a harvest price in circumstances where the endorsement did not provide one. But the court held that the endorsement and handbook conflicted, that the handbook was a separate document providing administrative guidance, and that the endorsement controlled because it directly addressed the missing-data situation.

The farmers also argued that the Risk Management Agency should have used equitable powers—discretionary authority to provide a fair remedy—to reform the endorsement and set a reasonable harvest price. The court assumed, without deciding, that the agency had the jurisdiction and equitable powers the farmers described. Even so, it held that the farmers had identified no law requiring the agency to use those powers in these circumstances. The agency’s decision not to reform the policy therefore was not arbitrary and capricious.

Approval of the Endorsement

The farmers argued that the agencies’ original approval of the endorsement was arbitrary and capricious because the administrative record did not show that the agencies adequately reviewed historical Bean Market News data, investigated how that publication collected price information, or considered expert concerns about insufficient pricing data.

The court rejected those arguments. The administrative record contained expert reviews, and the farmers did not provide evidence that the agencies considered only a short summary of those reviews. Although one expert had identified the possibility that the policy could revert from revenue protection to yield protection when price data were missing, most of the other expert opinions supported approval. The court held that the agencies had a rational basis for relying on the majority of the expert opinions and discounting the contrary concern.

The court also concluded that the agencies had information about historical reporting problems through the proposal, agency materials, and expert reviews. Even if the agencies did not independently examine all past issues of the Bean Market News, they had received the information the farmers said they should have investigated. The court similarly found that the endorsement itself identified terms such as “limited,” “very limited,” and “not established,” showing that the agencies understood that insufficient trading activity could prevent a harvest price from being calculated.

The court separately rejected the farmers’ argument that later changes to the endorsement required a new formal submission for approval. It characterized the changes as non-significant technical changes and found that the FCIC Board had delegated authority to make technical policy changes needed to make the policy legally sufficient.

Disposition

Judge Tunheim granted the defendants’ motion for summary judgment on both counts and denied the plaintiffs’ motion for summary judgment. The court denied the defendants’ motion to dismiss. The court acknowledged that the insurance policy and its pricing system were seriously flawed and caused losses, but held that the Administrative Procedure Act did not permit the court to provide a remedy because the agencies’ actions were not shown to be arbitrary and capricious.