First South Production Credit Ass'n v. Farm Credit Admin., 90-2658

Decision Date19 February 1991
Docket NumberNo. 90-2658,90-2658
Citation926 F.2d 339
PartiesFIRST SOUTH PRODUCTION CREDIT ASSOCIATION; Federal Intermediate Credit Bank of Jackson; Farm Credit Bank of Wichita, Plaintiffs-Appellants, v. The FARM CREDIT ADMINISTRATION; Marvin R. Duncan, Acting Chairman; Farm Credit Bank of Texas, Defendants-Appellees, Buckeye Production Credit Association; Federal Land Bank Association of Fostoria; David Boren, United States Senator; Federal Land Bank Association of North Alabama; Federal Land Bank Association of South Mississippi; Federal Land Bank Association of South Louisiana; Federal Land Bank Association of South Alabama; Federal Land Bank Association of North Louisiana; Federal Land Bank of North Mississippi; Farm Credit Bank of Springfield; Springfield Bank for Cooperatives; Western Farm Credit Bank; Charles W. Stenholm, Amici Curiae.
CourtU.S. Court of Appeals — Fourth Circuit

Nels J. Ackerson, Sidley & Austin, argued, Washington, D.C., for appellants.

Stewart A. Block, George W. Jones, Jr., Michael D. Warden, Sidley & Austin, Washington, D.C., C. York Craig, Jr., and L. Keith Parsons, Watkins, Ludlam & Stennis, Jackson, Miss., on brief, for appellant First South Production Credit Ass'n.

Sam E. Scott and Michael S. McKay, Heidelberg, Woodliff & Franks, Jackson, Miss., on brief, for appellant Federal Intermediate Credit Bank.

Peter Rolf Maier, Civ.Div. U.S. Dept. of Justice and Christopher Thomas Corson, Vinson & Elkins, argued, Washington, D.C., Stuart M. Gerson, Asst. Atty. Gen., Robert S. Greenspan, Civ.Div., U.S. Dept. of Justice, Washington, D.C., Henry E. Hudson, U.S. Atty., Alexandria, Va., Victor Cohen, Anthony Torres, Farm Credit Admin., McLean, Va., Ky P. Ewing, Jr., Vinson & Elkins, Washington, D.C., Thomas F. Farrell, II, McGuire, Woods, Battle & Booth, Alexandria, Va., and Bill Zimmerman, Farm Credit Bank of Texas, Austin, Tex. (on brief), for appellees.

John C. Deal, O. Judson Scheaf, III, Emens, Hurd, Kegler & Ritter, P.A., Columbus, Ohio and Bernard K. Bauer, Bernard K. Bauer Co., L.P.A., Findlay, Ohio, for amici curiae Buckeye Production Credit Ass'n and Federal Land Bank Ass'n of Fostoria.

David L. Boren, U.S. Senator, Washington, D.C., amicus curiae.

Allan S. Kantrowitz, Vice-President/Gen. Counsel, Farm Credit Bank of Springfield, Springfield Bank for Cooperatives, Agawam, Mass. and Larry M. Hulquist, Sr. Vice-President/Gen. Counsel, Western Farm Credit Bank, Sacramento, Cal., for amici curiae Farm Credit Bank of Springfield, Springfield Bank for Cooperatives and Western Farm Credit Bank.

Charles W. Stenholm, U.S. Representative, Washington, D.C., amicus curiae.

John B. Clark, Daniel, Coker, Horton & Bell, P.A., Jackson, Miss., for amici curiae Federal Land Bank Associations of North Alabama, South Alabama, North Louisiana, South Louisiana, North Mississippi, and South Mississippi.

Before ERVIN, Chief Judge, and WILKINSON, Circuit Judge, and HOUCK, United States District Judge for the District of South Carolina, sitting by designation.

WILKINSON, Circuit Judge:

The First South Production Credit Association ("First South PCA"), the Federal Intermediate Credit Bank of Jackson ("Jackson FICB"), and the Farm Credit Bank of Wichita ("Wichita FCB") contest the determination of the Farm Credit Administration ("FCA") that section 410(a) of the Agricultural Credit Act of 1987 requires the merger of the Jackson FICB and the Farm Credit Bank of Texas ("Texas FCB"). Finding the FCA's interpretation of section 410(a) to be contrary to the plain language of the statute and inconsistent with congressional intent, we hold the FCA's merger order to be unlawful and reverse the judgment of the district court.

I.

Some brief background on the Farm Credit System is in order. Congress created the system to "improv[e] the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit" to them. 12 U.S.C.A. Sec. 2001(a) (1989). The First South PCA, the Jackson FICB, the Wichita FCB, and the Texas FCB are all federally chartered institutions of the system.

The system, a nationwide network of agricultural lenders, is divided into twelve exclusive geographic territories known as Farm Credit Districts. Appellants Jackson FICB and First South PCA are located in the Fifth Farm Credit District ("Jackson District"), which is comprised of Alabama, Louisiana, and Mississippi. Appellant Wichita FCB is located in the Ninth Farm Credit District--which includes Kansas, Oklahoma, Colorado, and New Mexico--and appellee Texas FCB is located in the Tenth Farm Credit District--which includes only the state of Texas. The system is regulated by the Farm Credit Administration, an independent executive branch agency of the federal government.

Prior to 1988, each district was served by three system banks which operated under a single district board of directors: first, a Federal Land Bank ("FLB") which made long-term real estate loans through Federal Land Bank Associations ("FLBAs"), see 12 U.S.C.A. Secs. 2014, 2020 (repealed 1988), and, second, a Federal Intermediate Credit Bank ("FICB") which financed the short- and intermediate-term lending of Production Credit Associations ("PCAs"), see 12 U.S.C.A. Secs. 2074, 2075 (repealed 1988). In the Jackson District, the Jackson FICB financed and continues to finance the lending activities of First South PCA, which owns approximately 92% of the stock of Jackson FICB, and Northwest Louisiana PCA, which owns the remaining 8% of the stock. Finally, a Bank for Cooperatives ("BC") made loans to agricultural, aquatic, and rural utility cooperatives.

The borrowers in the Farm Credit System are also its owners. To obtain a loan, borrowers must purchase stock in their PCAs or FLBAs. As stockholders, the borrowers elect the board of directors that governs each association. In turn, the associations capitalize and own stock in the banks in each district and elect the board of directors for the banks.

The Agricultural Credit Act of 1987, Pub.L. No. 100-233, 101 Stat. 1568, as amended ("1987 Act"), brought significant change to the Farm Credit System. To strengthen the system, the 1987 Act "both require[d] and encourage[d] institutions of the Farm Credit System to reorganize in order to better serve their farmer and cooperative members and cut costs." 133 Cong.Rec. S18459 (daily ed. Dec. 19, 1987) (remarks of Sen. Leahy, presenting the Conference Report).

At issue in this case is section 410(a) of the 1987 Act which mandated the merger of the FLB and the FICB in each district to form a Farm Credit Bank ("FCB") by July 6, 1988, six months after the Act's effective date. 1987 Act, Sec. 410(a), as amended by Agricultural Credit Technical Corrections Act of 1988, tit. IV, Sec. 402, Pub.L. No. 100-399, 102 Stat. 989, 999 (1988) reprinted at 12 U.S.C.A. Sec. 2011 note (1989). Succeeding provisions governed the structure and operation of the new Farm Credit Banks. Section 410(d), for example, provided that, initially, each new Farm Credit Bank would be governed by a board elected by the PCAs, FLBAs and the stockholders at large and composed of members of the old District Board which was dissolved upon the creation of the FCB.

In addition to the mandated mergers of FLBs and FICBs under section 410(a), subtitle B of Title IV of the 1987 Act--entitled "Merger of System Institutions"--authorized various forms of voluntary consolidations among the BCs, Sec. 413, the associations, Sec. 411, other system institutions, Sec. 416, and system districts, Sec. 412. Though these consolidations were to be voluntary and could not be accomplished without a stockholder vote, the 1987 Act encouraged them by requiring that consolidation plans be drafted and submitted to the stockholders. For example, the 1987 Act required the newly formed FCBs to form a special committee to develop a proposal to consolidate the FCBs into not less than six banks. 1987 Act, Sec. 412, 12 U.S.C. Sec. 2002 note (1989).

The section 410(a) mergers occurred as required in every district except the Jackson District. (Appellant Wichita FCB is the resulting Farm Credit Bank in the Ninth Farm Credit District and appellee Texas FCB is the resulting FCB in the Tenth Farm Credit District.) No merger between the FICB and the FLB was accomplished in the Jackson District because, effective May 20, 1988, the Jackson FLB was placed in receivership by the FCA. The Jackson FLB--the first and only system bank to be placed in receivership--remains in that status.

Ever since the Jackson FLB has been in receivership, the various Jackson lending institutions have worked to ensure continued services to the Jackson District and to resolve the anomalous situation that exists there. The long-term lending duties of the Jackson FLB were assumed by the Texas FCB and the Farm Credit Bank of Columbia under temporary service agreements which remained in effect until February 10, 1989 when a more permanent solution was affected. The Jackson FICB--the only federal intermediate credit bank remaining in the system--has continued to finance the short- and intermediate-term lending activities of First South PCA and Northwest Louisiana PCA.

During the summer of 1988, the Jackson FICB began to explore merger possibilities with various FCBs. In the fall, the Jackson FICB, the two PCAs and the Texas FCB entered into a "Memorandum of Understanding." The parties negotiated on the proposed merger between the Jackson FICB and the Texas FCB through the winter and, in December 1988, the Farm Credit Administration approved an exchange of confidential information between the Texas FCB and the Jackson FICB. See 12 C.F.R. Secs. 602.205, 602.289 (1990). The merger negotiations broke down, however, when the parties failed to agree on a mutually acceptable merger plan and the Memorandum of Understanding was terminated by letter dated March 9, 1989.

Meanwhile, the liquidation of the Jackson FLB...

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