Elbert v. United States Department of Agriculture

Background

The plaintiffs—Rich Elbert, Jeff A. Kosek, Reichmann Land & Cattle LLP, Ludowese A.E. Inc., and Michael Stamer, individually and on behalf of a proposed class—were dark red kidney bean farmers from Minnesota. They purchased the Dry Bean Revenue Endorsement, which was intended to protect against a decline between the spring projected price and the fall harvest price.

The policy ordinarily used published Bean Market News data to calculate the harvest price. If that method failed because there was not enough published data, the version of the policy sold to the plaintiffs provided that the harvest price would equal the projected price. In 2015, there was not enough data to calculate a harvest price for Minnesota dark red kidney beans. The Risk Management Agency therefore used the projected price, leaving the plaintiffs without compensation for the decline in bean prices.

The plaintiffs sued the United States Department of Agriculture, the Risk Management Agency, and the Federal Crop Insurance Corporation under the Administrative Procedure Act. They argued that the agencies acted arbitrarily and capriciously by allowing revenue coverage to become yield protection when the default pricing method failed.

Prior ruling and remedy dispute

The parties filed cross-motions for summary judgment. The court initially granted summary judgment to the defendants. After allowing the plaintiffs to seek reconsideration, the court reversed that decision, denied the defendants’ motion for summary judgment, and granted summary judgment to the plaintiffs. The court held that the agency had violated the Administrative Procedure Act by acting without following required procedures.

The parties then disputed the remedy. The plaintiffs asked the court to reform the insurance policies to require the Federal Crop Insurance Corporation to establish a harvest price when the published-data method failed and to order the agency to establish a price for 2015. The defendants asked for a remand to the agency without vacating the existing approval.

Court’s analysis

The court explained that the usual remedy for unlawful agency action under the Administrative Procedure Act is to vacate—that is, set aside—the action and remand the matter to the agency for additional consideration. The court rejected the plaintiffs’ proposed contract-reformation remedy. It found no identified case in which a court had reformed a crop-insurance contract as a remedy for an Administrative Procedure Act violation. It also identified concerns about whether the plaintiffs could satisfy the requirements for contract reformation, whether the requested relief could affect insurers that were not parties, and whether ordering a specific agency solution would exceed the court’s remedial authority.

The court considered whether to remand with or without vacatur. It found serious procedural problems: the contingency-pricing language had been completely rewritten without being resubmitted to the Federal Crop Insurance Corporation’s Board; the change may have exceeded the Risk Management Agency’s delegated authority; and the administrative record did not explain the change or show that the agencies had reviewed or knowingly approved it. The court also found considerable doubt that the agency had chosen correctly because the provision could deny revenue protection when farmers most needed it.

Although vacating the approval could disrupt policies and affect insurers, farmers, and brokers who were not parties, the court found that concern outweighed by the seriousness of the procedural failures and the limited scope of the vacatur. The court limited the vacatur to the approval of changing the contingency-pricing mechanism for dark red kidney beans in Minnesota for the 2015 crop year. Other policy language and other policies were unaffected.

Disposition

The court ordered the approval of the Section 3(c)(2) amendment to the Dry Bean Revenue Endorsement, as applied to dark red kidney beans in Minnesota for crop year 2015, VACATED and REMANDED to the Federal Crop Insurance Corporation for reconsideration. On remand, the agency must consider whether to change the originally approved method or leave it in place, and must justify any decision to amend the policy.

The court also ordered that the plaintiffs’ motion to certify a class was DENIED as moot. The opinion’s discussion describes the motion as denied “without prejudice as moot,” but the numbered order states only that it was “DENIED as moot.” Judge John R. Tunheim issued the order.