Summary: Plaintiffs purchased or attempted to purchase a crop revenue coverage insurance policy for their durum wheat during the 2001 crop year. In February 2001, defendant Risk Management Agency determined that it could not establish a viable base under the terms of the policy, and it ordered that no further policies could be sold. Plaintiffs challenged the action of the government, contending that it was arbitrary and capricious and violated their due process rights. The Court granted defendants’ motion for summary judgment, holding that the government’s action conformed to the language of the policy.

Case Number: A2-01-46

Docket Number: 51

Date Filed: 8/1/02

Nature of Suit: 110

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NORTH DAKOTA

NORTHEASTERN DIVISION

MEMORANDUM AND ORDER

I. Introduction

    The Court has previously denied plaintiffs’ motion for a preliminary injunction (doc. # 4), and it will now address the parties’ dispositive motions. The government moves to dismiss or, alternatively, it seeks summary judgment (doc. # 20). Plaintiffs have moved for partial summary judgment (doc. # 23).

    Plaintiffs are a group of farmers who purchased or attempted to purchase a crop revenue coverage (“CRC”) insurance policy for their durum wheat during the 2001 crop year. This type of coverage insures against revenue losses due to low yield and/or low price. Defendants are the Secretary of the United States Department of Agriculture (“USDA”) and the Secretary of the Risk Management Agency (“RMA”), the agency of the USDA that supervises the Federal Crop Insurance Corporation (“FCIC”).

    Briefly stated, plaintiffs challenge the government’s conclusion that a base price for durum wheat could not be established without an illegal amendment to the policy. This conclusion ultimately led to the cancellation of the policy; plaintiffs also challenge this decision. Finally, plaintiffs contend that these actions constitute a violation of due process.

II. Jurisdiction 

    The government provides three bases for its motion. The first two implicate the Court’s jurisdiction, and the Court will address them first.

    A. Exhaustion

    The government contends that plaintiffs have failed to exhaust administrative remedies with the National Appeals Division (“NAD”) pursuant to 7 U.S.C. § 6912(e). This section provides:

Notwithstanding any other provision of law, a person shall exhaust all administrative appeal procedures established by the Secretary or required by law before the person may bring an action in a court of competent jurisdiction against--

(1) the Secretary;
(2) the Department; or
(3) an agency, office, officer, or employee of the Department.

Plaintiffs contend, and the government does not dispute, that this case involves a legal challenge to generally applicable agency action. For this reason, plaintiffs argue that exhaustion requirements do not apply. It is true that matters of general applicability are not subject to NAD appeal. 7 U.S.C. § 6992(d). The decision, however, as to whether a matter is generally applicable is itself a matter that the Director of NAD must decide:

If an officer, employee, or committee of an agency determines that a decision is not appealable and a participant appeals the decision to the Director, the Director shall determine whether the decision is adverse to the individual participant and thus appealable or is a matter of general applicability and thus not subject to appeal. The determination of the Director as to whether a decision is appealable shall be administratively final.

7 U.S.C. § 6992(d); see also Bastek v. Federal Crop Ins. Corp., 145 F.3d 90, 95 (2d Cir. 1998). Notwithstanding this requirement, to require exhaustion in this case would be fruitless. The Court rejected the government’s identical exhaustion argument in Wiley, which also involved a legal challenge to a generally applicable agency action:

Since this claim features purely legal questions which require no agency fact-finding, none of the purposes of the exhaustion requirement would be served by requiring plaintiffs to submit the claim to NAD.

Wiley v. Glickman, 1999 WL 33283314 at *2 (D.N.D. Apr. 7, 1999). Thus, since the precedent set in Wiley dictates that exhaustion is not required and the government has not offered any viable reason to overturn this precedent, the government’s motion to dismiss on this basis is DENIED.

    Relatedly, plaintiffs seek to amend their complaint to add a claim under 7 U.S.C. § 6994 (doc. # 35). This section requires that participants who receive an adverse decision be provided notice of their rights with the National Appeals Division (“NAD”). Since plaintiffs are not required to exhaust remedies with NAD, plaintiffs’ motion to amend by adding a claim under 7 U.S.C. § 6994 is DENIED (doc. # 35).

     B.  Anti-injunction

    The government claims that it is immune from suit since plaintiffs essentially seek an injunction, and 7 U.S.C. § 1506(d) prohibits injunctions against the FCIC. The particular provision upon which the government relies provides:

The [Federal Crop Insurance] Corporation, subject to the provisions of section 1508(j) of this title, may sue and be sued in its corporate name, but no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against the Corporation or its property.

7 U.S.C. § 1506(d).

     Again, the Court denied the government’s identical argument in Wiley. There, the Court held that the FCIC anti-injunction provision does not prohibit the Court from enjoining any action which might exceed its authority. Wiley, 1999 WL 33283314 at *2. Here, plaintiffs clearly allege that the government exceeded its authority by cancelling the CRC durum contracts. So, for the reasons articulated in Wiley, this attack on the Court’s subject matter jurisdiction is DENIED.

III. Agency action

    Having denied the government’s jurisdictional challenges, the Court reaches the determinative issue in this litigation: whether the government’s interpretation of the formula used to determine the base price was either arbitrary or capricious.

    A. Background

         1. Key policy and endorsement provisions

    Before addressing the specifics of the formula, the Court will briefly highlight key provisions contained in the policy at issue and in the endorsement attached to and made part of the policy. The endorsement set forth a formula for determining the base price, and it stated that a base price would be determined by March 10, 2001. The policy provided that any change to it would be made by December 31, 2000. Finally, the policy stated that either the insured or the insurer could cancel the policy at any time before the cancellation date, which was March 15, 2001.

         2.  Base price formula

    That there is a dispute regarding the base price provision is understandable, given the complex formula from which the base price is derived. Trades of durum wheat futures contracts at the Minneapolis Grain Exchange (“MGE”) provide the input for the pricing formula. The base price for durum wheat is defined in the policy endorsement as: “The February harvest year’s average daily settlement price for the harvest year’s MGE September durum wheat futures contract rounded to the nearest whole cent.” (Hoffman Aff., Exh. 1 at 292.) The average daily settlement price is the average of “all the daily settlement prices for the [September durum wheat futures contract],” which must include at least fifteen days, each of which must be a “full active trading day.” (Id. at 290.)

    In other words, the policy endorsement mandated that there had to be a minimum number of February trades on the September durum wheat futures contract in order to establish a base price. In 2001, trading in February on the September durum wheat futures contract was thin and, consequently, there was an insufficient number of full active trading days to calculate a price based upon the definition of base price in the endorsement. The policy endorsement, however, provided an alternative calculation:

If there are less than fifteen (15) full active trading days for [the September durum wheat futures contract], during [February] , then additional daily settlement prices, established on full active trading days, for the contract immediately prior to [the September durum wheat futures contract], during [February], will be used until there are fifteen (15) prices from fifteen (15) full active trading days included in this average.

(Id.)

     The contract immediately prior to the September durum wheat futures contract, according to all parties, is the July contract. In 2001, however, even with the additional daily settlement prices from July, there were still less than 15 full active trading days with which to calculate the base price. The government thus contends that since the September and July futures contracts for durum wheat were trading in such a low volume, no viable base price could be calculated under the terms of the policy. Based on this conclusion, on March 5, 2001, the RMA issued a bulletin which stated that: (1) it was unable to calculate a base price; and (2) no further polices could be sold after March 6, 2001.

    Plaintiffs do not dispute the government’s contention that data from the July and September futures contracts alone is insufficient to establish a base price. Plaintiffs argue, however, that the language of the policy endorsement does not restrict the contract from which the trading days are taken to just the July futures contract. Thus, the dispute in this case boils down to the agency’s interpretation of the above-quoted alternative calculation for determining a base price.

    B.  Standard of review

    The level of deference, or standard of review, of the agency’s action must be established in order to analyze the government’s actions in this case. The level of deference given the disputed agency action turns on what type of action a court is reviewing. Here, plaintiffs assert that the government’s interpretation of the policy endorsement and subsequent order to cancel the policy was arbitrary and capricious.

    By framing their complaint in this way, plaintiffs acknowledge that the policy endorsement at issue is a regulation promulgated by an administrative agency. That the policy endorsement is a regulation, a rule issued by an administrative agency, is supported by the process leading up to approval of the policy. The Federal Crop Insurance Act provides that any person “may prepare for submission or propose to the Board [of the Federal Crop Insurance Corporation]: (A) other crop insurance policies and provisions of policies; and (B) rates of premiums for multiple peril crop insurance pertaining to wheat, soybeans, filed corn, and any other crops determined by the Secretary.” 7 U.S.C. § 1580(h)(1).

    Under the Act, American Agrisurance, Inc. submitted a formula to determine the base price to the Board. The Board approved this formula, which it then published in the Federal Digest as the “Commodity Exchange Endorsement - Wheat.” See 65 Fed. Reg. 41,937. The policy incorporated this new formula for calculation of the base price. Plaintiffs do not dispute the validity of the underlying regulation - the policy and its endorsement. Instead, they dispute the government’s interpretation of the regulation.

    The Supreme Court has held that courts must give controlling weight to the agency’s interpretation of its own regulation, unless the regulation violates the Constitution or a federal statute or is “plainly erroneous or inconsistent with the regulation.” Stinson v. United States, 508 U.S. 36, 45 (1993) (quoting Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945)).  This is an exceptionally deferential standard. City of St. Louis v. Dep’t of Transp., 936 F.2d 1528, 1535 n.1 (8th Cir. 1991) (“Interpretation of the agency’s regulation is, in most cases, best left to the agency itself, and the deference we give an agency’s interpretation of its own rules is even greater than the deference due its interpretation of its governing statute.”). Accordingly, the Court will accord all due deference to the government’s interpretation of the policy and its endorsements. Id.

    C.  Interpretation of base price formula 

    In order to analyze properly plaintiffs’ claim, the disputed policy endorsement provision bears repeating:

If there are less than fifteen (15) full active trading days for [the September durum wheat futures contract], during [February], then additional daily settlement prices, established on full active trading days, for the contract immediately prior to [the September durum wheat futures contract], during [February], will be used until there are fifteen (15) prices from fifteen (15) full active trading days included in this average.

As explained above, plaintiffs and defendants have differing interpretations of this provision. Plaintiffs focus on the terms “will” and “until” in the policy, contending that the provision requires that trading days from prior contracts will be used “until there are fifteen (15) prices from fifteen (15) full active trading days.”

    The government argues, however, that such a reading takes the policy completely out of context; the full language of the provision provides that “additional daily settlement prices, established on full active trading days, for the contract immediately prior to [the September durum wheat futures contract], . . . will be used until there are fifteen (15) prices from fifteen (15) full active trading days.” (emphasis added). The government asserts that plaintiffs’ reading would require the term “contract” to be plural and the term “immediately” to be stricken. The government additionally argues that the March contract, the contract from which the plaintiffs urge the government to use trading days, is not “the contract immediately prior to the contract specified in the applicable Base Price or Harvest Price definition;” only the July contract meets this definition.

    It is clear from the papers submitted by the government that it devoted a considerable amount of time to proposing alternative ways to interpret the language of the policy. In the final analysis, though, the government determined that no other interpretation, other than the one reached, was cognizable.

    After a careful reading of the disputed language, the government’s interpretation of the disputed language seems entirely reasonable and, for that matter, correct. The “will be used until” language upon which plaintiffs rely only provides the answer to the question of when and how daily settlement prices are to be used; it simply cannot be read to provide an independent directive to use other prior contracts until fifteen full active trading days are established. The Court additionally finds that the term “immediately prior” restricts the number of prior contracts to one; to read this provision otherwise would render the term “immediately” superfluous. Finally, as correctly pointed out by the government, only one contract, the July contract, could be classified as “the contract immediately prior to [the September durum wheat futures contract].” However, the March contract, which plaintiffs urge the government to consider is the contract immediately prior to the contract immediately prior to the contract “immediately prior to [the September durum wheat futures contract].”

    Not only does the plain language of the endorsement support the government’s interpretation, other considerations do as well. Optimally, a base price is used to reflect current market conditions. Here, the drafters of the base price formula attempted to mirror current market conditions by requiring that the base price be calculated using data gained from futures trades on the Minneapolis Grain Exchange. Plaintiffs’ interpretation of the base price formula would not accurately reflect current market conditions, since it requires that the calculation of the base price should include trades on March contracts, which are based on the previous year’s crop.

    Upon consideration of the above, it was not plainly erroneous, and in fact it seems entirely proper, to limit the calculation of the base price to the two preceding contracts. Thus, the agency’s interpretation of its own regulation must be upheld. University v. Shalala, 512 U.S. 504, 512 (1994) (quoting Bowles, 325 U.S. at 414) (“[The Court's] task is not to decide which among several competing interpretations best serves the regulatory purpose. Rather, the agency's interpretation must be given 'controlling weight unless it is plainly erroneous or inconsistent with the regulation.’”).

    D. Cancellation of contracts

    Before delving into the merits of plaintiffs’ claim that the government’s action to cancel the contracts was improper, it is important to revisit the decision in Wiley, since both parties rely on it to support their positions. In Wiley, farmers applied or intended to apply for a CRC policy, and the last day to change provisions in the policy was December 31. In

Wiley, after the contract change date, the RMA lowered the minimum price guarantee. The Court held that such action constituted an illegal amendment to the policy, and thus the government’s action was arbitrary and capricious. The lesson to be learned from Wiley, then, is that the RMA may not make any changes to the policy provisions after the contract change date.

    In the present case, the government discovered that the formula built into the policy could not produce a viable base price in February 2001. However, by this time, the contract change date of December 31, 2000, had already passed. The government was in a difficult position; if it decided to “borrow” trading days in contravention of the language of the policy, then it could be subject to suit for unlawful amendment of the policy. Thus, the government had no other option but to order cancellation of the contracts, and its decision to do so was entirely reasonable and will not be disturbed.

IV. Due process claim

    Plaintiffs finally argue that by cancelling the CRC contracts, the defendants deprived them of their due process rights. The Due Process Clause is triggered if a person is deprived of life, liberty, or property without due process of law. U.S. Const. amend V. The threshold inquiry with any due process challenge is to determine whether the challenger was deprived of a protectable interest. In order to have an interest protectable under the Constitution, a person must have a "legitimate claim of entitlement to it." Bd. of Regents of State Coll. v. Roth, 408 U.S. 564, 577 (1972). An abstract need, desire or unilateral expectation is not enough. See id.

    Here, plaintiffs assert that they were deprived of a property interest, namely the right to receive benefits under the policy. Defendants argue that plaintiffs had no legitimate property interest in the contracts since the contracts provided for an “at will” termination clause - either party had the option of terminating the contract before March 15, 2001. The heavy weight of the law is in favor of defendants. As a rule, courts uniformly hold that any “at will” relationship, whether it be employment or contractual, does not give rise to a protectable interest. See, e.g., Bishop v. Wood, 426 U.S. 341, 348 (1976); Rainbow Valley Citrus Corp. v. Federal Crop Ins. Corp., 506 F.2d 467, 470 (9th Cir. 1974); Bukhtia v. Bureau of State Lottery, 475 N.W.2d 475, 478 (Mich. Ct. App. 1991). The reason for this general consensus is obvious: to allow a procedural due process claim for an “at will” termination clause would render such a provision useless and completely eviscerate the meaning and purpose of an “at will” clause; every “at will” termination clause, would, in effect, be transformed into a “for cause” provision. Since an “at will” termination clause does not give rise to a protectable property interest, plaintiffs’ due process claim must be denied.

    Even if, however, plaintiffs had been deprived of a protectable property interest, they fail to meet the other requirements of a due process claim. It is unclear whether plaintiffs are asserting a procedural or a substantive due process violation. In either case, plaintiffs’ claims fall short. Procedural due process protections inure to individuals; “[p]ersons are entitled to procedural due process, in the form of an individual opportunity to be heard, only when the government makes an individualized determination, not when the government commits a legislative act equally affecting all those similarly situated.” Foster v. Hughes, 979 F.2d 130, 132 (8th Cir. 1992) (emphasis added). In other words, procedural due process protections do not extend to general government actions. In the present case, defendants’ action to cancel the CRC contracts applied generally to everyone holding such a contract. Such action was not “depend[ant] upon facts and circumstances surrounding each [contract holder].” Id. Plaintiffs, in fact, recognize the general nature of their claim: “This is not an individualized challenge to a particularized adverse decision as applied to a particular farmer . . . .” (Plaintiffs’ Brief in Response to Defendants’ Motion to Dismiss, doc. # 39 at 7.) Plaintiffs recognize that defendants’ actions “apply across the board.” (Id.) Since, by all accounts, defendants have acted generally, plaintiffs’ procedural due process claim is DENIED.

    To the extent that plaintiffs assert a substantive due process claim, it also must fail. The bar for alleging a substantive due process claim is set very high; plaintiffs must allege that the action of the government was “truly irrational” or “more than arbitrary and capricious.” Young v. City of St. Charles, Mo., 244 F.3d 623, 626 (8th Cir. 2001). Here, as explained above, the government has set forth rational, plausible, reasonable explanations for its decisions to cancel the policy, and the actions of the government do not rise to the very high level necessary to establish a substantive due process violation. Plaintiffs’ due process claim is DENIED.

V.  Conclusion

    For the reasons stated above, defendant’s motion for summary judgment is GRANTED (doc. # 20). Accordingly, plaintiff’s complaint and cause of action is ORDERED DISMISSED.

    IT IS SO ORDERED.

    Dated this ____ day of August, 2002.

                             RODNEY S. WEBB, CHIEF JUDGE

                             UNITED STATES DISTRICT COURT