Coleman v. Block, Civ. No. A1-83-47.

• Court: United States District Courts. 8th Circuit. United States District Courts. 8th Circuit. District of South Dakota
• Citation: 632 F. Supp. 1005
• Docket Number: Civ. No. A1-83-47.
• Parties: Dwight 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.
• Decision Date: 03 March 1986

632 F. Supp. 1005

Dwight 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.

Civ. No. A1-83-47.

United States District Court, D. North Dakota, Southwestern Division.

March 3, 1986.

632 F. Supp. 1006

Robert Vogel, Grand Forks, N.D., William R. King, Atlanta, Ga., Burt Newborne, American Civil Liberties Union, New York City, Alan Kanner, Philadelphia, Pa., William, Reesman & Tate, Booneville, Mo., Martha A. Miller, Atlanta, Ga., James T. Massey, Lynn A. Hayes, Minneapolis, Minn., for plaintiffs.

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

MEMORANDUM AND ORDER

VAN SICKLE, Senior District Judge.

On January 24, 1986, this court granted Plaintiffs' motion for leave to file a supplemental complaint challenging regulations adopted by Farmers Home Administration (FmHA) on November 1, 1985 and on February 18, 1986 granted their motion for leave to file an amended supplemental complaint. Plaintiffs seek a preliminary injunction: 1). enjoining the government from issuing any form of the "Notice of Intent to Take Adverse Action" and from proceeding to take any adverse action against any borrower who has already been served with such notice until further order of this court; 2). enjoining the government from requiring Plaintiffs or class members to fill out or comply with the requirements of Form 1962-1, the "Agreement for the Release of Proceeds" and the provisions of 7 C.F.R. § 1962.17 relating to the planning of farm sales and use of proceeds; 3). enjoining the government from refusing to release, denying or otherwise disallowing release of sufficient secured farm income to allow Plaintiffs and plaintiff class members to pay necessary living and operating expenses, and 4). enjoining the government from proceeding to take any liquidation or foreclosure action against any class member whose loan has been accelerated pursuant to the "pretermination package" served between December 20, 1983 and October 19, 1984. (Plaintiffs' January 31, 1986 Letter Brief at 15 and February 4, 1986 Letter of James T. Massey). Defendants oppose the motion for a preliminary injunction.

FmHA's NOVEMBER 1, 1985 REGULATIONS

The November 1, 1985 regulations were enacted pursuant to 7 U.S.C.A. § 1981a (Supp.1985), which provides:

In addition to any other authority that the Secretary may have to defer principal and interest and forego foreclosure, the Secretary may permit, at the request of the borrower, the deferral of principal and interest on any outstanding loan made, insured, or held by the Secretary under this chapter, or under the provisions of any other law administered by the Farmers Home Administration, and forego foreclosure of any such loan, for such period as the Secretary deems necessary upon a showing by the borrower

632 F. Supp. 1007

that due to circumstances beyond the borrower's control, the borrower is temporarily unable to continue making payments of such principal and interest when due without unduly impairing the standard of living of the borrower. The Secretary may permit interest that accrues during the deferral period of any loan deferred under this section to bear no interest during or after such period: Provided, That if the security instrument securing such loan is foreclosed such interest as is included in the purchase price at the foreclosure shall become part of the principal and draw interest from the date of foreclosure at the rate prescribed.

By order dated February 17, 1984, this court enjoined Defendants from proceeding to liquidate or to terminate a borrower's living and operating allowance, from accelerating a borrower's indebtedness, from foreclosing on a borrower's real property or chattels, from demanding voluntary conveyance by a borrower, or from repossessing a borrower's chattels, unless Defendants give a borrower against whom they propose to proceed at least thirty days notice which: 1). informs the borrower of the right to a hearing to contest the proposed action and to establish eligibility for loan deferral pursuant to 7 U.S.C. § 1981a, 2). provides a statement of reasons for the proposed action, 3). informs a borrower of the factors that determine eligibility for loan deferral, and 4). informs a borrower of the official (who must be a person who was not actively involved in the initial decision to take the proposed action) who would preside at a hearing.

In response to this court's order and to orders of other courts, FmHA adopted new regulations designed to implement section 1981a. Plaintiffs' supplemental complaint alleges the new regulations are defective, both procedurally and substantively, in several respects. Their instant motion centers on the new regulations' procedures for giving notice of FmHA's intent to take adverse action against a borrower and on the new regulations' procedures for planning for the use of farm production income.

The regulations provide that every borrower who has granted FmHA a security interest in chattels must complete a Form 1962-1 (Agreement for the Use of Proceeds/Release of Chattel Security) once each year. 50 Fed.Reg. 45758 (1985) (to be codified at 7 C.F.R. § 1924.57(b)(1)). The form is to be completed "to show how, when, and to whom the borrower will sell, exchange, or consume security and use sale proceeds and insurance proceeds derived from the loss of security." 50 Fed.Reg. 45787 (1985) (to be codified at 7 C.F.R. § 1962.7). The form is ordinarily to be completed by the FmHA county supervisor with the assistance of the borrower, but if the county supervisor and the borrower cannot agree on how to complete the form and the form is not being completed in conjunction with a new loan application, the county supervisor must schedule a meeting of the borrower, the county supervisor, and the district director. If an agreement is not reached at that meeting, the district director is to make a decision on the planned use of the proceeds and to complete the form. FmHA's administrative appeal process does not apply to the district director's decision. If the disagreement occurs when the form is being completed in connection with an application for a new loan, FmHA's administrative appeals process is available to the borrower. 50 Fed. Reg. 45759 (1985) (to be codified at 7 C.F.R. § 1924.57(b)(3)).

A county supervisor is authorized to approve dispositions of FmHA chattel security, including proceeds, in accordance with a borrower's completed Form 1962-1 if the following conditions are met: 1). the proceeds are used for the purposes and in the amount set out on the form, 2). the borrower has completed and signed a current farm and home plan or a similar plan of operation, 3). the borrower's projected income and expenses are based on the borrower's proven record of production and financial management, 4). the borrower is utilizing the key production and financial management practices required by FmHA, and 5). the property is sold or exchanged for its

632 F. Supp. 1008

present market value. 50 Fed.Reg. 45787 (1985) (to be codified at 7 C.F.R. § 1962.17(b))

After FmHA makes an initial decision to take some adverse action against a borrower, three separate forms are to be sent to the borrower simultaneously. Form 1924-25 (Notice of Intent to Take Adverse Action) is intended to advise the borrower of the type of adverse action FmHA intends to take and to provide the reasons for that action. Form 1924-26 (Borrower Acknowledgement of Notice of Intent to Take Adverse Action) is to be completed by the borrower in response to Form 1924-25. Form 1924-14 (Farmer Program Borrower Servicing Options Including Deferrals and Borrowers' Responsibilities) describes loan servicing options available to farmer program borrowers. 50 Fed.Reg. 45751, 45760 (to be codified at 7 C.F.R. §§ 1872.17(b) and 1924.59(d)).

The "pretermination package" was a set of procedures utilized by FmHA between December 20, 1983 and October 19, 1984 in an attempt to comply with this court's order of November 14, 1983, 580 F.Supp. 192 (D.N.D.1983). FmHA discontinued use of the "pretermination package" when it decided to adopt regulations implementing section 1981a. The "pretermination package" gave borrowers who received it a form of notice of eligibility for loan deferral and set out eligibility criteria for loan deferral. The new regulations do not adopt the same eligibility criteria as did the "pretermination package," and borrowers who received the "pretermination package" are excluded from consideration for deferrals under the new regulations. 50 Fed. Reg. 45740 (1985).

FACTS

In support of their motion, Plaintiffs presented the testimony of two FmHA borrowers. Gary Barrett, who farms in Adair County, Iowa, testified that he is delinquent on loan payments to FmHA. He applied for a 1986 operating loan and met with his FmHA county supervisor in early January, 1986; Barrett testified that the county supervisor at that time gave him a partially completed FmHA Form 1962-1, and asked him to review and sign it. The form as completed covered only the period from January 1, 1986...