State of Kan. ex rel. Todd v. U.S.

• Citation: 995 F.2d 1505
• Decision Date: 22 June 1993
• Docket Number: No. 92-3203,92-3203
• Parties: STATE OF KANSAS, ex rel. Ron TODD, Commissioner of Insurance of the State of Kansas, Plaintiff-Appellant, v. UNITED STATES of America, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1505

995 F.2d 1505

STATE OF KANSAS, ex rel. Ron TODD, Commissioner of Insurance

of the State of Kansas, Plaintiff-Appellant, v. UNITED STATES of America, et al., Defendants-Appellees.

No. 92-3203.

United States Court of Appeals, Tenth Circuit.

June 22, 1993.

John J. Knoll, Atty., Office of the Atty. Gen., State of Kan. (John W. Campbell, Deputy Atty. Gen., State of Kan., Robert T. Stephan, Atty. Gen., State of Kan., on brief), for plaintiff-appellant.

Thomas M. Bondy, Atty., Appellate Staff Civil Div., Dept. of Justice (Stuart M. Gerson, Asst. Atty., Gen., Lee Thompson, U.S. Atty., Robert S. Greenspan, Atty., Appellate Staff Civil Div., Dept. of Justice, with him on brief), for defendants-appellees.

MOORE, Circuit Judge, MCWILLIAMS, Senior Circuit Judge, and WOOD, JR., Senior Circuit Judge. ^*

HARLINGTON WOOD, Jr., Senior Circuit Judge.

The state of Kansas objects to recent regulations, 7 C.F.R. §§ 400.351-52, promulgated by the Federal Crop Insurance Corporation ("FCIC") under the Federal Crop Insurance Act, 7 U.S.C. §§ 1501-20, that preempt state laws and regulations which are inconsistent with the FCIC's terms and conditions in its insurance policies, including contracts insured or reinsured by the FCIC. The district court found the FCIC did not exceed its statutory authority in promulgating the regulations. The court found the administrative record showed the FCIC's adoption of the regulations was not arbitrary or capricious. Because we agree with the district court, we affirm.

I. BACKGROUND

The Federal Crop Insurance Act was enacted in 1938 as part of President Franklin Delano Roosevelt's New Deal legislation to rescue and preserve agriculture in order to restore it to its previous position of strength in the national economy. See generally James T. Graves, Comment, Federal Crop Insurance: An Investment in Disappointment??, 7 Univ. of Kan.L.Rev. 361 (1959); Wayne Rasmussen, The New Deal & Its Legacy: Agricultural Policies after Fifty Years, 68 Minn.L.Rev. 353 (1983). Congress significantly expanded the federal crop insurance program in 1980, and the program remains today "one of a panoply of government programs designed to encourage, by subsidy if necessary, the nation's agricultural business." R & R Farm Enters., Inc. v. Federal Crop Ins. Corp., 788 F.2d 1148, 1154 (5th Cir.1986). Its express purpose is "to promote the national welfare by improving the economic stability of agriculture through a system of crop insurance and providing the means for the research and experience helpful in devising and establishing such insurance." 7 U.S.C. § 1502.

The FCIC, a wholly government-owned corporate body, is an agency within the Department of Agriculture designated by Congress to implement the crop insurance program. Id. § 1503. The FCIC has "such powers as may be necessary or appropriate for the exercise of the powers herein specifically conferred upon the [FCIC] and all such incidental powers as are customary in corporations generally." Id. § 1506(j). The Secretary of Agriculture and the FCIC are authorized to issue regulations necessary to carry out the provisions of the Act. Id. § 1516(b).

The FCIC provides multiple risk crop insurance by several means. The Act authorizes the FCIC to enter directly into insurance contracts with producers of agricultural commodities. Id. § 1508(a). The FCIC may also reinsure crop insurance contracts between producers and private insurance companies. Id. § 1508(h). The FCIC will pay the private insurance companies' operating and administrative costs with respect to those policies which the FCIC reinsures. Id.

In 1980, the changes to the Act were designed in large part to increase participation in the crop insurance program by producers because increased participation was deemed essential for the program's success. H.R. No. 430, 96th Cong., 2d Sess. 11-13 (1980), reprinted in 1980 U.S.C.C.A.N. 3068, 3073-75. In order to foster participation, additional premium subsidies were authorized by Congress, and the program was expanded in its geographical area and number of commodities covered by insurance. 7 U.S.C. § 1508. Congress further recognized that in order to achieve its goal of increased participation, the FCIC should make better use of the experience and resources of private insurance companies. Congress wanted to avoid building another huge federal agency when the private sector could help, with the encouragement of federal reinsurance contracts. H.R. No. 430, 96th Cong., 2d Sess. 11-13 (1980), reprinted in 1980 U.S.C.C.A.N. 3068, 3073-75. Congress directed the FCIC "to provide reinsurance, to the maximum extent practicable." 7 U.S.C. § 1508(h). See id. § 1507(c). Today, more than 85% of the federal insurance for producers of agricultural commodities is through these reinsurance contracts.

The FCIC's authority to set "the terms and conditions" of its government insurance contracts in order to carry out the purposes of the Act is plenary, as delegated by Congress. Id. § 1516(b); Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384, 68 S.Ct. 1, 3, 92 L.Ed. 10 (1947). Congress specifically provided that "State and local laws or rules shall not apply to contracts or agreements of the [FCIC] or the parties thereto to the extent that such contracts or agreements provide that such laws or rules shall not apply, or to the extent that such laws or rules are inconsistent with such contracts or agreements." 7 U.S.C. § 1506(k).

The FCIC relied upon its plenary authority and section 1506(k) of the Act when it promulgated the regulations which preempt state law for both its direct insurance contracts and its reinsurance contracts with private insurance companies. Kansas objects most strongly to the preemption of its law with respect to the reinsured contracts, conceding the FCIC's authority to preempt its law for FCIC directly insured contracts.

The FCIC adopted the regulations because it wanted to clarify its "long standing position on the preemption of inconsistent state laws and regulation" and equalize federal assistance between FCIC directly insured policies and FCIC reinsured policies. 55 Fed.Reg. 4382 (1990). The FCIC found that despite the clear preemption in the Act at section 1506(k) and by the Supreme Court in Merrill, 332 U.S. 380, 68 S.Ct. 1, it encountered "frequent occurrences of State agencies requiring changes in federally approved insurance policies to the extent that neighboring policyholders receive differing levels of federal assistance depending on whether they obtain their policy from FCIC or from a reinsured company or depending on whether they live in differing states." 55 Fed.Reg. 4382 (1990). The FCIC found it was paying state taxes on premiums for reinsured contracts which the FCIC is exempt from under 7 U.S.C. § 1511, by virtue of its reimbursement of expenses for private insurance companies on reinsured contracts. Additionally, the indemnities were being subject to garnishment, liens, and attachments under various state laws despite the "Exemption of indemnities from levy" under 7 U.S.C. § 1509.

Kansas filed its complaint approximately eight months after the rules took effect. Kansas seeks a declaratory judgment that the rules are void and a permanent injunction to prevent their being enforced. After both parties indicated there were no material facts in dispute and filed cross-motions for summary judgment, with the United States also filing a motion in the alternative for judgment on the pleadings, the district court entered judgment for the United States and denied Kansas's motion for summary judgment. For the reasons given below, we affirm.

II. STANDARD OF REVIEW

We review the district court's grant of summary judgment for the United States de novo. Arkansas-Platte & Gulf v. Van Waters, 959 F.2d 158, 159 (10th Cir.), vacated on other grounds, --- U.S. ----, 113 S.Ct. 314, 121 L.Ed.2d 235 (1992). We must determine if any genuine issue of material fact exists, and if the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

III. ANALYSIS

The issue before us is whether the FCIC can promulgate regulations preempting state laws "not consistent with the purpose, intent, or authority of the Act," 7 C.F.R. § 400.351, and applicable to insurance policies which are either insured or reinsured by the FCIC. Id. We must consider if the FCIC's decision to preempt state law was congressionally authorized, and if the FCIC's decision was a reasonable exercise of its authority. State Corp. Comm'n v. FCC, 787 F.2d 1421, 1425 (10th Cir.1986). If a statute gives an agency broad powers to effect the statute's purposes, we cannot limit the agency's power to preempt state law when there is no contrary indication in the statute if the agency reasonably exercised its authority given to it by Congress. Fidelity Fed. Sav. & Loan Ass'n v. De La Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). We look at the agency's decision to see if it exceeded statutory authority or was arbitrarily rendered. 5 U.S.C. § 706; Fidelity Fed. Sav. & Loan Ass'n, 458 U.S. at 153-54, 102 S.Ct. at 3022. It is well settled that an agency's decision is entitled to deference and a presumption of regularity in its interpretation of a statute, although this does not shield the decision from a thorough review. Chevron, Inc. v. Natural Resources Defense Council, 467 U.S. 837, 844, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984); Blum v. Bacon, 457 U.S. 132, 141, 102 S.Ct. 2355, 2361, 72 L.Ed.2d 728 (1982); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971). On review, however, we are not to substitute our view for the agency's. Motor Vehicles Mfrs. Ass'n v. State Farm, 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983).

The first step in this preemption issue is to consider if Congress intended to supersede state law with the Federal Crop Insurance Act and its regulations. Louisiana Pub....