Coleman v. Block

Decision Date17 February 1984
Docket NumberCiv. No. A1-83-47.
Citation580 F. Supp. 194
PartiesDwight COLEMAN, Lester Crowsheart, Sharon Crowsheart, Russel Folmer, Anna Mae Folmer, George Hatfield, June Hatfield, Donald McCabe, Diane McCabe, Gary Barrett, Rosemary K. Barrett, Richard L. Harmon, Betty J. Harmon, Larry L. Robertson, Nancy K. Robertson, Ross Wade and Maureen Wade, on behalf of themselves and others similarly situated, Plaintiffs, v. John R. BLOCK, Secretary of Agriculture; Charles W. Shuman, Administrator of the Farmers Home Administration; Ralph W. Leet, State Director of the Farmers Home Administration; Harold T. Aasmundstad, Glen W. Binegar, Allen G. Drege, Dennis W. Larson, Odell O. Ottmar, and Joseph J. Schneider, as District Directors of the Farmers Home Administration for North Dakota; and Samuel Delvo, Lorace Hakanson, Larry Leier, Charles Schaefer and James Well, as County Supervisors of the Farmers Home Administration in North Dakota, Defendants.
CourtU.S. District Court — District of North Dakota

COPYRIGHT MATERIAL OMITTED

Sarah M. Vogel, Grand Forks, N.D., for plaintiffs.

Arthur R. Goldberg, Atty., Dept. of Justice, Civil Div., Washington, D.C., Gary Annear, Asst. U.S. Atty., Fargo, N.D., for defendants.

MEMORANDUM AND ORDER

VAN SICKLE, District Judge.

A history of the Farmers Home Administration is a history of government programs addressed to financial assistance for small farm operators. The scope and development of the programs reflect a recognition by the government, and in particular Congress, that a strong and stable farm economy is vital to the welfare of the nation.

The Farmers Home Administration traces its origin to the Resettlement Administration, a New Deal rural rehabilitation agency created by executive order in 19351 to help farm families retain their land despite drought and depression. By passage of the Bankhead-Jones Farm Tenant Act, Congress created a comprehensive program of financial aid to farmers who lacked other sources of credit.2 The Water Facilities Act of 1937 supplemented this Congressional farm program.3 These depression loan programs were the beginning of what is now a far-flung undertaking by the United States government to bolster the credit position of practically all farm operations, farm related businesses, and rural towns and communities.

In 1938 the developing farm programs were first brought together in a new agency, the Farm Security Administration (FSA), a division within the Department of Agriculture.4 As the financial assistance programs continued to expand, they were revised and reorganized by the Farmers Home Administration Act of 1946.5

The program was once again revised into its present form as part of the Agricultural Act of 1961, and specifically Title III, the Consolidated Farmers Home Administration Act of 1961.6 The Consolidated Farmers Home Administration Act and its amendments have generated a substantial body of federal regulations, which are found generally at 7 C.F.R. §§ 1804.61 to 2045.1756 (1983).7

This case has arisen out of a series of administrative decisions made primarily by the responsible national-level officers of FmHA as they attempted to apply the statutes and regulations now in existence to an increasing number of farm borrowers in various degrees of financial crises. Situated between the policy-makers in Washington and the farmers that have been subject to their decisions and regulations are hundreds of state FmHA officers charged with implementing the FmHA program. These state employees have had the unenviable task of balancing the FmHA's function as a form of social welfare8 with the realities of operating a loan program. Their task has not been made any easier by confusing legislative enactments and a plethora of complicated and interconnected regulations.

The heart of this suit concerns the interpretation and application of 7 U.S.C. § 1981a and the legality of the FmHA appeal procedures. This suit was initiated on March 11, 1983, by nine North Dakota farmers who alleged, among other things, that FmHA had refused to allow the farmers' applications for deferment of loans under 1981a, terminated funds to farmers for necessary living and operating expenses, and subjected farmers to a biased and unconstitutional appeals process. These plaintiffs also sought to represent a statewide class of persons similarly situated.

On May 5, 1983, this Court certified the North Dakota class under Rule 23(b)(3) and granted a preliminary injunction. 562 F.Supp. 1353 (D.N.D.1983). A three-day trial on the merits was begun on September 20, 1983. Plaintiffs submitted a request on the same date to expand the class to one of national scope. Following a hearing on the motion, plaintiffs were given permission to amend the complaint to include persons similarly situated throughout the United States. 100 F.R.D. 705 (D.N.D. 1983). This order excluded persons or classes presently before another court on the same matters. On November 14, 1983, the Court entered a preliminary injunction applying to the national class. 580 F.Supp. 192 (D.N.D.1983).

Following a status conference that was held on November 21, 1983, the Court issued a pretrial order requiring the consolidation and clarification of pending issues, creating a uniform system for the filing of amicus briefs, and developing a tentative schedule regarding discovery, submission of supplemental briefs, and an additional trial on the merits. The additional trial on the merits became unnecessary on January 3, 1984, because the parties entered, and the Court accepted, a stipulation that the Court's final judgment could be based on the initial trial on the merits.8A The case was taken under advisement following final oral arguments given on January 9, 1983.

STATUTORY AND REGULATORY BACKGROUND
A. FmHA's Loan Authority and Borrower Eligibility

FmHA is authorized to make two basic categories of loans to borrowers. First, FmHA may make loans under Title V of the Housing Act of 1949,9 principally to help people in rural communities purchase or improve homes. Second, FmHA is permitted to make loans under the Consolidated Farm and Rural Development Act (CFRDA loans or farm loans)10 to assist farm operations. This case centers on CFRDA loans.

The CFRDA consists of four subtitles. Subtitle A11 permits FmHA loans for farmrelated real estate (e.g., loans for obtaining, enlarging or improving farm property) and loans for other rural enterprises. Subtitle B12 authorizes FmHA operating loans for family farms. Subtitle C13 permits FmHA emergency loans in cases of natural disaster.14 Subtitle D15 addresses general administrative matters.

With one exception applicable to emergency loans,16 borrowers are eligible for FmHA farm loans only if they are unable to obtain credit elsewhere and have a continuing inability to obtain reasonable financing from other sources.17 It is the ultimate goal of the CFRDA to "graduate" individual borrowers to a status where further governmental lending is not required.18 The terms and conditions of specific FmHA farm loans will vary depending on the particular circumstances of the borrower. Likewise, interest rates vary depending on the nature of the loan and on the borrower's situation.19 For all CFRDA loans, including subtitle C loans, the Secretary is generally instructed to make such loans conditioned upon the full personal liability of the borrower and such security as the Secretary deems appropriate.20

B. Loan Deferrals and Other Servicing Alternatives

In the context of the CFRDA, "deferral" means to postpone the payment of part of a loan installment.21 Following the enactment of 7 U.S.C. § 1981a in 1978, the Secretary issued payment deferral regulations for farm loans.22 The regulations specifically instruct FmHA county supervisors, the officials in charge of overseeing individual FmHA loans, to defer farm loan payments in cases of temporary inability to pay due to circumstances beyond the borrowers control.23 In all cases in which a loan payment deferral is allowed, FmHA's forbearance is based on the premise that there is some reasonable expectation that the account will ultimately be paid.24 In this connection, the FmHA county supervisors are instructed not only to take into consideration the actual repayment ability of the borrower, but also whether the borrower has been cooperating in the servicing of the account and the maintenance of the security.25 The regulations pertaining to FmHA farm loans and rural housing loans are, in certain respects, comparable since an allowance of a formal deferral of loan payments is dependent on a temporary inability of the borrower to pay his FmHA obligation for reasons beyond his control.26

Other loan servicing alternatives, in addition to deferral, are available to FmHA borrowers under the current regulations. Borrowers may "reschedule" or "consolidate" operating and emergency loans (i.e., non-real estate loans) made for subtitle B purposes.27 "Rescheduling" means rewriting the rates or terms of a loan.28 "Consolidating" means combining and rescheduling the rates and terms of two or more loans.29

With regard to real estate loans, similar servicing options are available. The basic servicing device is "reamortization," which means rearranging the installments of a loan, an action that may include changing its interest rate and terms.30

In addition, the statute provides a number of other methods to aid farmers with special payment problems or special needs. For example, the Secretary's emergency loan authority under subtitle C of the CFRDA authorizes aid to farmers who experience financial difficulties because of natural disasters or other reasons beyond their control. One other servicing method, the tool most frequently used to avoid foreclosure, involves a postponement of loan payments, a device by which FmHA carries a borrower in default for a set or indefinite period of time until payments can be made.

C. Release of Chattel...

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