COLORADO SPRINGS PROD. CREDIT v. Farm Credit Admin.

• Decision Date: 25 February 1991
• Docket Number: 88-0583 and 88-0584.,Civ. A. No. 88-0574
• Citation: 758 F. Supp. 6
• Parties: COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION, et al., Plaintiffs, v. FARM CREDIT ADMINISTRATION, et al., Defendants. SIKESTON PRODUCTION CREDIT ASSOCIATION, et al., Plaintiffs, v. FARM CREDIT ADMINISTRATION, et al., Defendants. CHATTANOOGA PRODUCTION CREDIT ASSOCIATION, et al., Plaintiffs, v. FARM CREDIT ADMINISTRATION, et al., Defendants.
• Court: U.S. District Court — District of Columbia

758 F. Supp. 6

COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION, et al., Plaintiffs, v. FARM CREDIT ADMINISTRATION, et al., Defendants.

SIKESTON PRODUCTION CREDIT ASSOCIATION, et al., Plaintiffs, v. FARM CREDIT ADMINISTRATION, et al., Defendants.

CHATTANOOGA PRODUCTION CREDIT ASSOCIATION, et al., Plaintiffs, v. FARM CREDIT ADMINISTRATION, et al., Defendants.

Civ. A. Nos. 88-0574, 88-0583 and 88-0584.

United States District Court, District of Columbia.

February 25, 1991.

Barton L. Enoch, Colorado Springs, Colo., Thomas C. Seawall, Denver, Colo., Patricia D. Douglas, Washington, D.C., for Colorado Springs.

Ward & Reeves, Caruthersville, Mo., Blanton, Rice, Sidwell & Ottinger, Sikeston, Mo., Peter C. Myers, Jr., David E. Blanton, James E. Reeves, Jeffrey H. Howard, Linda E. Benfield, Miller & Chevalier, Washington, D.C., for Sikeston Production.

Carlos C. Smith, William C. Carriger, Edward D. Meyer, Chattanooga, Tenn., Jeffrey H. Howard, Linda E. Benfield, Miller & Chevalier, Washington, D.C., for Chattanooga Production.

Theodore C. Hirt, David M. Souders, Tracy L. Merritt, U.S. Dept of Justice, Civil Div., Washington, D.C. (Victor A. Cohen, FCA, McLean, Va., of counsel), for Farm Credit Admin.

D. Robert Cumming, Carey P. DeDeyn, Sutherland, Asbill & Brennan, Atlanta, Ga., Warren N. Davis, Mac Asbill, Jr., Sutherland, Asbill & Brennan, Washington, D.C., for Farm Credit System Financial Assistance Corp.

MEMORANDUM OPINION

JOYCE HENS GREEN, District Judge.

Plaintiffs bring these actions challenging the constitutionality of section 6.29 of the Agricultural Credit Act of 1987, Pub.L. No. 100-233 (Jan. 6, 1988),¹ which requires plaintiffs to make a one-time purchase of "stock" from defendant Farm Credit System Financial Assistance Corporation ("FAC"). Specifically, plaintiffs challenge the stock purchase scheme as: (1) a deprivation of property without due process in violation of the fifth amendment; (2) a taking for public use without just compensation in violation of the fifth amendment; (3) a bill of attainder; and (4) a denial of plaintiffs' rights of access to the courts. Plaintiffs' request for preliminary injunctive relief was denied on March 4, 1988. Defendants Farm Credit Administration ("FCA") and FAC thereafter moved to dismiss the complaint. Subsequently, this Court dismissed plaintiffs' bill of attainder and rights of access claims only and invited plaintiffs to prove their allegations that the assessment formula denied them substantive due process and constituted a taking of private property for public use without just compensation. See Colorado Springs PCA v. Farm Credit Admin., 695 F.Supp. 15 (D.D.C.1988) ("Colorado Springs"). The parties have since completed discovery, and defendants have now moved for summary judgment on the two surviving claims. For the following reasons, defendants' motions are granted.

I. BACKGROUND

The factual background of these consolidated cases is described in detail in Colorado Springs. 695 F.Supp. at 17-19. Nevertheless, a brief recitation of the history of these cases is appropriate here.

The Farm Credit System ("the System"), established by Congress in 1916, is the nation's single largest agricultural lender and is comprised of 407 institutional members in twelve farm credit districts nationwide. The twelve districts have one of each of the three types of Farm Credit System Banks: (1) a Federal Land Bank ("FLB"), which makes long-term agricultural loans through the Federal Land Bank Associations ("FLBAs"); (2) a Federal Intermediate Credit Bank ("FICB") which finances short and intermediate-term agricultural loans through the individual Production Credit Associations ("PCAs"); and (3) a Bank for Cooperatives ("BC"), which makes loans to agricultural cooperatives.² Although the PCAs were originally capitalized with funds from the federal government, by 1968 the PCAs had repaid the funds in full.

System financing relies almost exclusively on private investment in Farm Credit System securities sold through the Federal Farm Credit Banks Funding Corporation ("Funding Corporation") on behalf of the System banks in the nation's money markets. The funds generated are loaned by the banks to the associations, who, in turn, loan the funds to borrowers.³

From 1985 to 1987, the Farm Credit System suffered significant losses due to the general economic condition of the agricultural community.⁴ In an effort to ameliorate the System's poor financial condition, Congress enacted several amendments to the Farm Credit Act of 1971.

First, the Farm Credit Amendments Act of 1985, Pub.L. No. 99-205, 99 Stat. 1680-87 ("the 1985 Act"), implemented a system of compulsory transfers of funds from financially sound institutions in the System to weaker institutions in the System. These regulations were challenged by several PCAs in federal court, and the legislation was ultimately struck down.

Second, the Farm Credit Amendments Act of 1986, Pub.L. No. 99-509, 100 Stat. 1877 ("the 1986 Act"), allowed for the amortization of current losses under "regulatory" accounting principles, thereby permitting a deferral of recognition of certain losses. The 1986 Act was conceived as a temporary measure until Congress could enact more comprehensive legislation.

Finally, in 1987, Congress enacted the Agricultural Credit Act of 1987, Pub.L. No. 100-233 ("the 1987 Act"). The 1987 Act effectively dismantled the 1985 regulatory scheme and established a plan whereby a combination of funds from the System's healthy financial institutions, primarily the PCAs, and federal funds from the United States Treasury, were channeled to troubled financial institutions. The 1987 Act established two new entities: (1) the Farm Credit System Assistance Board ("Assistance Board"), to provide financial assistance to threatened System institutions, and (2) FAC, to raise capital necessary for the Assistance Board. 12 U.S.C. §§ 2278a, 2278b.

FAC generates funds from two sources: an "assistance" fund and a "trust" fund. First, FAC issues up to $4 billion of debt obligations guaranteed by the United States Treasury. Id. § 2278b-6. This money is used to purchase stock in ailing institutions, thereby providing a "direct capital infusion" into the System. The trust fund, in contrast, is funded solely from the proceeds of a one-time purchase of FAC "stock" by the PCAs and FLBAs. Congress required each PCA to purchase stock in the amount by which its "unallocated retained earnings" exceed 13% of its assets, measured as of December 31, 1986. Id. § 2278b-9(a)(1)(B).⁵

The trust fund monies must be invested in United States Government securities and are used as a "capital cushion" by FAC in administering the Assistance Fund. Id. § 2278b-5(a)(1). Beginning five years after FAC issues the bonds to assist troubled institutions, the trust fund is available to cover any default by institutions on the payment of interest due on the bonds. The trust fund is then reimbursed by the defaulting institution, or if the institution is unable to make the payment within one year of the default, an insurance fund, also established under the 1987 Act, will reimburse the trust fund to the fullest extent possible. Id. § 2278b-6(d)(3)(A)(i). After fifteen years, FAC may also use the trust fund to cover defaults on the loan principal. Id. § 2278b-6(d)(3)(B). Upon termination of FAC, any remaining money in the trust fund must be transferred to the insurance fund. Id. § 2278b-11(b).

Plaintiffs, several PCAs, challenge the mandatory one-time stock purchase scheme as a violation of the takings and due process clauses of the fifth amendment.⁶

II. DISCUSSION

Summary judgment is appropriate when there is "no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R. Civ.P. 56(c). "The inquiry performed is the threshold inquiry of determining whether there is a need for trial — whether, in other words, there are any genuine issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). In considering a motion for summary judgment, the "evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255, 106 S.Ct. at 2513. At the same time, however, Rule 56 places a burden on the nonmoving party to "go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

A. Fifth Amendment Substantive Due Process

The stock purchase requirement of section 6.29 of the 1987 Act is a classic example of economic legislation, that is legislation that adjusts "the burdens and benefits of economic life." Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15, 96 S.Ct. 2882, 2892, 49 L.Ed.2d 752 (1976). As with all economic legislation, section 6.29 "comes to the Court with a presumption of constitutionality, and ... the burden is on the one complaining of a due process violation to establish that the legislature has acted in an arbitrary and irrational way." Id.; see also Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729, 104 S.Ct. 2709, 2717, 81 L.Ed.2d 601 (1984); Hodel v. Indiana, 452 U.S. 314, 323, 101 S.Ct. 2376, 2382, 69 L.Ed.2d 40 (1981). In other words, such legislation comports with due process if it bears a rational relation to a legitimate governmental purpose. Regan v. Taxation with Representation of Washington, D.C., 461 U.S. 540, 547, 103 S.Ct. 1997, 2001, 76 L.Ed.2d 129 (1983); Duke Power Co. v. Carolina Envtl. Study Group, Inc., 438 U.S. 59, 83-84, 98 S.Ct. 2620, 2635-36, 57 L.Ed.2d 595 (1978). Clearly, the party "challenging the legislative judgment...