Hartman v. Farmers Production Credit Ass'n

• Decision Date: 18 March 1983
• Docket Number: No. NA 81-163-C.,NA 81-163-C.
• Citation: 628 F. Supp. 218
• Parties: Glen E. HARTMAN and Priscilla M. Hartman, Plaintiffs, v. FARMERS PRODUCTION CREDIT ASSOCIATION OF SCOTTSBURG, Robert Fawver, David Morris, the Board of Directors of Farmers Production Credit Association, Roy Schenck, John E. Gillaspy, Donald Green, Lester Burbrink, Roger Clark and Kendall Bonsett, Defendants.
• Court: U.S. District Court — Southern District of Indiana

628 F. Supp. 218

Glen E. HARTMAN and Priscilla M. Hartman, Plaintiffs, v. FARMERS PRODUCTION CREDIT ASSOCIATION OF SCOTTSBURG, Robert Fawver, David Morris, the Board of Directors of Farmers Production Credit Association, Roy Schenck, John E. Gillaspy, Donald Green, Lester Burbrink, Roger Clark and Kendall Bonsett, Defendants.

No. NA 81-163-C.

United States District Court, S.D. Indiana, New Albany Division.

March 18, 1983.

Mark A. Center, Bamberger & Feibleman, Indianapolis, Ind., for plaintiffs.

Daniel E. Johnson, James H. Hamm, III, Baker & Daniels, Indianapolis, Ind., for defendants.

ENTRY

NOLAND, Chief Judge.

This matter is before the Court on the defendants' motion to dismiss pursuant to Rules 12(b)(1) and (6), Fed.R.Civ.P. with attached brief in support thereof, the plaintiffs' brief in opposition and the defendants' reply brief. The issues have been carefully and fully briefed and are ready for disposition.

The Court, being duly advised on the premises, now finds that Count IV of the complaint fails to state a claim upon which relief can be granted as no private right exists for alleged violations of Title 12 U.S.C. § 2001 et seq. and the regulations promulgated thereunder being the Farm Credit Act. Further that there is no diversity of citizenship between the parties and the Court has no subject matter jurisdiction over the pendant claims in Counts I, II and III of the complaint.

Accordingly, the Court now DISMISSES the complaint without prejudice as to all counts and defendants.

MEMORANDUM

The action before the Court is against Scottsburg Production Credit Association and certain of its representatives, officers and board of directors (hereinafter called "PCA") on four counts: 1) breach of agreement and implied warrant of habitability, 2) fraud in inception of a contract, 3) reliance to plaintiff's detriment on the PCA's misrepresentation, made knowingly of their falsity, and 4) violation of the Farm Credit Act and the regulations promulgated under it. They seek actual and punitive damages, recision of the contract, and repayment of loan payments already made.

The plaintiffs, Glen Hartman and his wife, are farmers who borrowed money from the Scottsburg Production Credit Association, a federally chartered instrumentality under the Farm Credit Act, in order to buy a farm then owned by the PCA. An initial agreement provided for a Seven Hundred Thousand Dollar ($700,000.00) loan payable in twenty (20) years, and a five-year guaranteed line of credit for operation expenses. At the time of closing, however, the contract called for repayment in only ten (10) years. The line of credit was subsequently denied. Not only does the plaintiff claim breach of contract, but that the defendants violated the terms of 12 C.F.R. § 614.4110, providing that a production credit association shall not make loans for longer than seven (7) years.

Second, the Hartmans allege that the defendants knowingly and maliciously misrepresented facts about the farm in order to induce them to buy it, and in fact, they did rely, to their detriment, on those misrepresentations. The plaintiff further asserts in support of Count I, that contrary to the defendants' representations, water on the farm was unsuitable for livestock or human consumption; a breach of implied warranty of habitability.

Plaintiffs further assert that 12 C.F.R. § 601.100 provides that all of a PCA's officers and employees shall observe the highest standards of conduct in the discharge of their duties and shall conduct themselves at all times in the highest manner. By knowingly misrepresenting facts about the farm, the Hartmans claim that the defendants violated this regulation.

Ultimately, the Hartmans defaulted on the note. They contend that according to 12 U.S.C. § 2096(b) and 12 C.F.R. § 614.4140, the PCA, in granting a loan, is supposed to consider the borrower's ability to repay the loan. It is alleged that not only did the PCA fail to consider this, but they altered the plaintiff's cash flow projections in order to secure the loan for him. Thus, again violating the duties imposed on officers and employees of a PCA by 12 C.F.R. § 601.100 and § 601.110(g) which prohibits engaging in any infamous, dishonest, immoral, or notoriously disgraceful conduct.

On the basis of these facts, the Hartmans allege violation of the Farm Credit Act and its regulations in that the PCA was without power to lend money for maturities exceeding seven years, the property was not capable of servicing the debt, and the conduct breached the defendants' fiduciary duties.

The plaintiff concedes that the first three counts of his complaint are all matters of state law over which this Court does not have subject matter jurisdiction unless they are pendant to the fourth count, violation of the Farm Credit Act and its regulations. (Plaintiffs' Brief in Opposition to Defendants' Motion to Dismiss, p. 7) Therefore, the issue confronting the Court is whether violation of the Farm Credit Act, 12 U.S.C. § 2001, et seq., and the regulations promulgated under it gives the Hartmans a private cause of action. As long as the question is not frivolous, the Court has jurisdiction under 28 U.S.C. § 1331 to decide this issue. Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 776, 90 L.Ed. 939 (1946).

The mere violation of a federal statute does not automatically give rise to a private cause of action. Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S.Ct. 2479, 2485, 61 L.Ed.2d 82 (1979), on remand, 612 F.2d 68 (2nd Cir.1979); Cannon v. Univ. of Chicago, 441 U.S. 677, 688, 99 S.Ct. 1946, 1953, 60 L.Ed.2d 560 (1979). A private remedy must be found in the language of the statute, either expressly or implicitly.

There are no words in the Farm Credit Act that directly confer a private remedy for violation of the Act. Therefore, the Court must determine if there is an implied remedy in the statute. The Hartmans assert that regulations that impose fiduciary duties and govern loan policies read together with the statute, imply a private cause of action. The language of the statute, however, must control. Regulations cannot provide the source of an implied remedy for damages. Touche Ross & Co. v. Redington, supra, 442 U.S. at n. 18, 577, 99 S.Ct. at n. 18, 2489.

In Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), the United States Supreme Court laid out four factors to consider in determining whether a statute impliedly confers a private right of action. These factors are:

1. Is the plaintiff one of the class for whose especial benefit the statute was enacted?

2. Is there any legislative intent—explicit or implicit—to create a remedy?

3. Is a remedy consistent with the underlying purposes of the legislative scheme?

4. Is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?

Cort v. Ash, 422 U.S. at 78, 95 S.Ct. at 2088.

I.

First, do the Hartmans fall within the class the statute was enacted to benefit? That is, does the statute create a federal right in favor of the plaintiff? A federal right has usually been found where an Act regulates the relationship between a plaintiff class and a defendant class, by imposing certain duties on the defendant class or proscribing certain conduct that Congress has found abusive. See, California v. Sierra Club, 451 U.S. 287, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979); Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981). The Farm Credit Act does not establish such a pervasive legislative scheme to control such a relationship. It neither imposes duties on production credit association nor does it proscribe any conduct. It merely creates the instrumentalities by which the American farmer may obtain needed credit. The purpose of the Act is to improve "the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit." 12 U.S.C. § 2001(a). It is to satisfy their credit needs while encouraging farmers and ranchers to participate on the management and ownership of the system. Daley v. Farm Credit Administration, 454 F.Supp. 953, 954 (D.Minn.1978). Thus, the statute does not create any private federal remedy.

Interpreting the word "benefit", however, in a light most favorable to the plaintiff, it is arguable that the Farm Credit Act was established to "help" farmers, and, therefore, the Hartmans do fall with the class the Act was enacted to benefit. The fact that an enactment is designed to benefit a particular class does not, alone, establish an intent that the statute be enforced through private litigation. Universities Research Assn., Inc. v. Coutu, 450 U.S. 754, 771, 101 S.Ct. 1451, 1462, 67 L.Ed.2d 662 (1981).

II.

The key factor is whether Congress intended to create a remedy. See, Universities Research Assn., Inc. v. Coutu, supra; Transamerica Mortgage Advisors v. Lewis, supra; Touche Ross & Co. v. Redington, supra. There is nothing expressly stated in the Act's legislative history to indicate whether Congress wished to create a remedy, or that it even considered the issue. If anything, the implication of certain sections is that Congress foresaw state corporation laws governing the actions of production credit associations.

First, the plaintiff relies strongly on the fact that a PCA is a federal instrumentality granted power to sue and be sued. 12 U.S.C. § 2093(4). The Hartmans contend that if PCA's can be sued, Congress must have contemplated occasions when an aggrieved farmer would be able to sue, so a federal cause of action must be implied. We decline to accept this contention. Sue and be sued clauses are included in all statutes that establish a federally chartered corporation. They merely waive...