Buckeye Production Credit Ass'n v. Farm Credit Admin., 92-2137

• Decision Date: 22 June 1993
• Docket Number: No. 92-2137,92-2137
• Citation: 997 F.2d 11
• Parties: BUCKEYE PRODUCTION CREDIT ASSOCIATION; Federal Land Bank Association of Fostoria, FLCA, Plaintiffs-Appellees, v. The FARM CREDIT ADMINISTRATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 11

997 F.2d 11

BUCKEYE PRODUCTION CREDIT ASSOCIATION; Federal Land Bank Association of Fostoria, FLCA, Plaintiffs-Appellees, v. The FARM CREDIT ADMINISTRATION, Defendant-Appellant.

No. 92-2137.

United States Court of Appeals Fourth Circuit.

Argued March 30, 1993.

Decided June 22, 1993.

Matthew Miles Collette, Civ. Div., U.S. Dept. of Justice, Washington, DC (Stuart M. Gerson, Asst. Atty. Gen., Richard Cullen, U.S. Atty., Mark B. Stern, on brief), for appellant.

Nels J. Ackerson, Ackerson & Bishop, Chartered, Washington, DC (Stewart A. Block, Nilda M. Mesa, Washington, DC, Harvey B. Cohen, Stewart T. Leeth, Cohen, Gettings, Alper & Dunham, Arlington, VA, on brief), for appellees.

Before HALL, MURNAGHAN, and WILLIAMS, Circuit Judges.

OPINION

MURNAGHAN, Circuit Judge:

The case presents us with the question of whether Congress, in amending the Farm Credit Act, 12 U.S.C. §§ 2001-2279bb-6, intended to allow competition between any two Farm Credit System lending associations offering the same types of loans within a given territory. If Congress did not explicitly intend to allow such competition, the question becomes whether the Farm Credit Administration exceeded its authority in interpreting and applying the amendments to the Act to permit competition within the formerly exclusive territories of the plaintiffs-appellees.

Buckeye Production Credit Association ("Buckeye") and Fostoria Land Bank Association ("Fostoria"), two jointly managed lending associations within the Fourth Farm Credit District ("Fourth District") claimed in the United States District Court for the Eastern District of Virginia that the Farm Credit Administration ("FCA") had violated their right under the Farm Credit Act (the "Act") to be free from direct competition within their lending territories. The FCA, Buckeye and Fostoria argued, had misconstrued the Agricultural Credit Act of 1987 when it issued a charter to Farm Credit Services of Mid-America ("Mid-America") to operate as an Agricultural Credit Association and to offer short, intermediate, and long-term loans in an area that included Buckeye's and Fostoria's theretofore exclusive territories. The district court found in favor of Buckeye and Fostoria and remanded the matter to the FCA for amendment of Mid-America's charter, but stayed its decision pending appeal.

I.

Some background about the Farm Credit System, the Farm Credit Act, the 1985 and 1987 amendments to the Act, and the parties' lending rights history is necessary to a full understanding of the issue before us. See generally Jeffrey R. Kayl, Farm Credit Amendments Act of 1985: Congressional Intent, FCA Implementation, and Courts' Interpretation (And the Effect of Subsequent Legislation on the 1985 Act ), 37 Drake L.Rev. 271, 317 (1987-88). The Farm Credit System ("the System") is a nationwide network of federally chartered, cooperative, borrower-owned banks and lending associations that provide agricultural credit to American farmers. The System was first established by the Farm Loan Act of 1916, Pub.L. No. 64-158, 39 Stat. 360, and extensively revised by the Farm Credit Act of 1971, Pub.L. No. 92-181, 85 Stat. 583, current version at 12 U.S.C. §§ 2001-2279bb-6. The System was devised to meet the peculiar credit needs of farmers and ranchers, while encouraging borrower management, control, and ownership of the System. As envisioned by the 1971 Act, the System was a largely decentralized administrative structure administered by regional boards and overseen by the FCA, an independent federal agency established by Executive Order in 1933. Twelve farm credit districts comprise the System; the institutions within each district have been chartered and regulated by the FCA since 1933.

The System, as revised by subsequent amendments to the Act, includes a variety of FCA-chartered institutions. A Farm Credit Bank (FCB) is located in each district and exercises supervisory authority over the associations that operate within the district. See 12 U.S.C. §§ 2011-23. Federal Land Bank Associations ("FLBAs") are authorized to make long-term agricultural real estate loans. See 12 U.S.C. §§ 2091-98. Production credit associations ("PCAs") are authorized to make short and intermediate-term loans. See 12 U.S.C. §§ 2071-77. Agricultural Credit Associations ("ACAs"), first authorized by mergers mandated by amendments to the Act in 1987, make long-term agricultural real estate loans as well as short and intermediate-term loans. See 1987 Act, § 411, Pub.L. No. 100-233, 101 Stat. 1568, 1638, as amended, Pub.L. No. 100-399, 102 Stat. 999 (codified at 12 U.S.C. § 2071 note). Each of those institutions serves and carries out its operations in a specific territory within a district described in the institution's charter.

From 1916 until the early 1980s, the Farm Credit System was financially healthy. In the 1980s, however, economic conditions threatened the System's financial stability. Congress responded to the agricultural financial crisis by passing a series of laws aimed at restructuring and strengthening the System. The first such law was the Farm Credit Amendments Act of 1985 ("1985 Amendments"), Pub.L. 99-205, 99 Stat. 1678 (codified as amended in scattered sections of 12 U.S.C. § 2001-2279bb-6).

The 1985 Amendments gave greater control of the System to the FCA and authorized the merger of certain "like" institutions within the System. The FCA was empowered, for example, to issue cease and desist orders to System institutions for violations of FCA regulations, set minimum capital levels through agency regulations, approve the issuance of System securities, and set criteria for determining interest rates. However, to offset the centralized regulatory powers, and in response to testimony from borrowers complaining of heavy-handed treatment by System member institutions, Congress added some protective provisions to the 1985 Act. Section 5.17(a)(2) provided that

[i]n issuing charters and certificates of territory for district-wide mergers of associations where stockholders of one or more associations did not approve the merger, the charter of the new or merged association shall not include the territory of the disagreeing association or associations.

12 U.S.C. § 2252. Thus, associations that did not wish to participate in district-wide mergers were permitted to continue operating as exclusive System lenders within their territories.

The 1985 Amendments did not resolve all of the Farm Credit System problems it sought to address, and unfortunately created new ones. Congress continued to revise the Act, attempting to strike a balance between borrower rights and maintenance of a viable Farm Credit System. In 1986 it passed the 1986 Farm Credit Amendment, Pub.L. 99-509, 100 Stat. 1874 (codified as amended in scattered sections of 12 U.S.C. § 2001-2279bb-6), which retreated somewhat from the strong regulatory position taken by the 1985 Act and removed some of the FCA's regulatory power over member institutions. Then just over a year later, lawmakers enacted a comprehensive overhaul of the Farm Credit Act--the Agricultural Credit Act of 1987 ("1987 Act"), Pub.L. 100-233, 101 Stat. 1568 (codified as amended in scattered sections of 12 U.S.C. § 2001-2279bb-6). The 1987 Act permitted still broader member institution discretion in setting policy and making long-term plans. Thus, although the goals of the Farm Credit System remained the same, Congress significantly revised its policy approach to the System's problems several times in less than three years by vacillating between placing more power with the agency on the one hand and with local member institutions on the other.

The 1987 Act encouraged the merger of some System institutions, and authorized the mergers of others. Section 411 mandated that any FLBA and PCA sharing "substantially the same geographic territory" must submit a plan for voluntary merger to their stockholders. 1987 Act, Pub.L. 100-233, § 411, 101 Stat. 1568, 1638, as amended Pub.L. No. 100-399, 102 Stat. 999 (codified at 12 U.S.C. § 2071 note). The idea was to streamline the System, reduce costs and increase efficiency, and ultimately to assist member institutions to provide competitive interest rates. See 133 Cong.Rec.E 4988 (statement of Rep. Stallings); 133 Cong.Rec.S. 18458 (statement of Sen. Leahy). Thus a PCA and an FLBA could merge creating an ACA, and offer short, intermediate and long-term loans within its chartered territory. Such mergers became known as "Section 411 mergers." Section 7.8 of the 1987 Act granted the FCA the authority to approve Section 411 mergers, and required that the new ACA possess all of the powers granted to its predecessor associations under the Act, and be subject to all of the obligations imposed upon its predecessor associations under the Act. Pub.L. 100-233, § 416, 101 Stat. 1647-48 (codified at 12 U.S.C. § 2279c-1(a)).

The language in the 1987 Act directing FLBAs and PCAs sharing "substantially" the same territory to submit merger proposals to shareholders indicated that Congress was cognizant of the possibility that section 411 mergers would involve the territory of an association that did not wish to participate in the merger. Congress did not, however, specify in any detail how section 411 mergers would be carried out, nor resolve the issue of what to do when a section 411 merger involved territory that overlapped the territory of a non-merging association. It merely provided in Section 7.8 that "[t]he Farm Credit Administration shall issue regulations that establish the manner in which the powers and obligations of the associations that form the merged association are consolidated and, to the extent necessary, reconciled in the merged association." 12 U.S.C. 2279c-1(b)(2).

In implementing the 1987 Act, the FCA issued a Policy Statement, adopted on November 21, 1988, noting that:

The Farm Credit Administration Board (Board) recognizes that section 411 of the 1987 Act...