In re 2000 Sugar Beet Crop Ins. Litigation

• Decision Date: 26 September 2002
• Docket Number: No. 01-CV-1629(JMRFLN).,No. 01-CV-1637(PAMJGL).,No. 01-CV-1634(DWFAJB).,No. 01-CV-1633(ADMAJB).,No. 01-CV-1636(DWFSRN).,No. 01-CV-1635(DSDJGL).,No. 01-CV-1632(DSDSRN).,No. 01-CV-2242(MJDJGL).,No. 01-CV-1630(PAMSRN).,01-CV-1629(JMRFLN).,01-CV-1630(PAMSRN).,01-CV-1632(DSDSRN).,01-CV-1633(ADMAJB).,01-CV-1634(DWFAJB).,01-CV-1635(DSDJGL).,01-CV-1636(DWFSRN).,01-CV-1637(PAMJGL).,01-CV-2242(MJDJGL).
• Citation: 228 F.Supp.2d 999
• Parties: In re 2000 SUGAR BEET CROP INSURANCE LITIGATION
• Court: U.S. District Court — District of Minnesota

228 F.Supp.2d 999

In re 2000 SUGAR BEET CROP INSURANCE LITIGATION

No. 01-CV-1629(JMRFLN).

No. 01-CV-1630(PAMSRN).

No. 01-CV-1632(DSDSRN).

No. 01-CV-1633(ADMAJB).

No. 01-CV-1634(DWFAJB).

No. 01-CV-1635(DSDJGL).

No. 01-CV-1636(DWFSRN).

No. 01-CV-1637(PAMJGL).

No. 01-CV-2242(MJDJGL).

United States District Court, D. Minnesota.

September 26, 2002.

George Gregory Eck, Daniel James Brown, Dorsey & Whitney, Minneapolis, MN, for Jeffrey Agre, Don B. Anderson, Asbury Farms, Inc., Brad Berger, Buschette Farms, Inc., Gerry Busiahn, Roger Busiahn, Dean M. Dambroten, James Dambroten, Laurence N. Gass, Jr., David Gass, Longene W. Gass, Jason W. Handt, Hanson Bros., Robert Hanson, Richard hanson, Hector Farms, II, Jay Johnson, Christopher Long, Casey Long, James D. Long, McNamara Farms, Inc., Larry McNamara, Patrick J. McNamara, Roger Heller, Dennis Pansch, William Pansch, Prairie View Farms, Inc., Dennis A. Preuss, Dennis D. Preuss, Rodeberg Farms, Inc., Mike V. Schmoll, Richard Schmoll, Blake Schroeder, Davie Schwerin, Tim Swanson, Christopher J. Toren, Dawn Toren-Schmoll, Pabroma, Inc. Willey Farms, Inc.

Thomas H. Boyd, Winthrop & Weinstine, St. Paul, MN, Steven J. Boyd, Jennifer J. Coleman, Matthew J. Salzman, Stinson Morrison Hecker, Kansas City, MO, Robert J. Vancrum, Kristin J. Farnen, Frank W. Pechacek, Jr., Wilson & Pechacek, Council Bluffs, IA, P. John Owen, Nat. Crop Ins. Services, Inc., Gen. Counsel, Overland Park, KS, Michael J. Davenport, Rain & Hail LLC, Johnston, IA, for Rain & Hail, LLC, Ace Property & Cas. Ins. Co.

ORDER

ROSENBAUM, Chief Judge.

This is one of many motions arising out of a dispute over crop insurance contracts. The present motion is brought by Federal Crop Insurance Corporation's ("FCIC") to dismiss the third-party complaint. For the reasons set forth herein, the Court finds the motion is premature, based on third-party plaintiffs' failure to exhaust their administrative remedies.

I. Background

The facts of this case are outlined in this Court's Orders dated April 15, 2002 and September 26, 2002. For purposes of this motion, suffice it to say that sugar beet-growing plaintiffs claim their 2000 crop was extensively damaged by frost. The plaintiffs are seeking payment on multiperil crop insurance contracts ("MPCI") issued by defendant insurance companies. The crop insurance was reinsured by the FCIC under the Standard Reinsurance Agreement ("SRA"). This reinsurance program is established by the Federal Crop Insurance Act ("FCIA").

The FCIC is an agency of the United States Department of Agriculture ("USDA"), and within the Risk Management Agency ("RMA"). See 7 U.S.C. § 1501 et seq. The SRA establishes the obligations of the insurer and reinsurer, setting the boundaries of their relationship. Disputes arising out of FCIC decisions are governed by 7 C.F.R. § 400.169.

In September, 2001, the insurance companies removed these sugar beet cases to federal court,¹ and shortly thereafter, filed a third-party complaint against the FCIC. In the third-party complaint, the insurers denied any obligation to the farmers, stating liability should be borne instead by the FCIC. See Third-Party Comp. ¶ 3.² According to the insurers, a Manager's Bulletin, MGR-01-010 ("Bulletin") issued by the RMA on March 2, 2001, altered the terms of the insurance and reinsurance agreements, thereby relieving the companies of any liability for the farmers' losses.

The Bulletin addressed "[w]hether 2000 crop year sugar beets affected by drought, freeze, or other insurable causes during the insurance period that later manifested damage after being delivered to the processor are insurable." Bulletin at 1. It also outlined the history of the frost damage, the probable causes of loss, and possible questions arising under the standard policy. The Bulletin raised, but did not answer, questions regarding whether the nature of the crop damage altered the notice of loss provisions, whether the beets were in fact damaged, and whether the damages were covered by the insurance policy. Id. at 3. Finally, the RMA stated:

RMA believes that the type of losses experienced by the Minnesota producers in the above listed counties were contemplated under the Sugar Beet Crop Insurance Provisions when RMA elected to cover freeze as a cause of loss. Sugar beet experts assert that freeze damage did not manifest itself until after the end of the insurance period and following delivery of the affected sugar beets to the processor. In this case, RMA will reinsure any such 2000 crop year sugar beet losses that the reinsured companies elect to pay in those affected counties. RMA notes that it is solely the reinsured company's decision with respect to payment of these claims. RMA does not in any manner direct or obligate reinsured companies to pay these claims.

For any sugar beet claim that a reinsured company elects to pay, the produced must meet the requirements contained in section 14(e) of the Basic Provisions for establishing that the loss of production was directly attributed to an insurable cause of loss, the cause of loss occurred during the insurance period, and the total production or value received for the production.

To determine whether the sugar beets suffered an insurable loss, producers must provide:

1. All harvest and delivery records; and

2. Affidavits or other evidence establishing that the producer's sugar beets were frozen; and

3. Processing records for each load of sugar beets delivered by the producer to the processor.

If any reinsured company experiences difficulty in calculating or separating the amount of sugar beet production for individual insures as a result of commingling sugar beet production after it was delivered to the processor, the reinsured company may contact RMA for assistance in locating experts to provide assistance in making these determinations.

Id. at 4. The Bulletin's effect has not yet been considered by the USDA Board of Contracts.

II. Discussion

The FCIC asks the Court to dismiss the third-party complaint, pursuant to Rule 12(b)(1) and (6), for lack of jurisdiction and failure to state a claim. See Fed.R.Civ.P. 12(b)(1) ("lack of jurisdiction over subject matter"); Fed.R.Civ.P. 12(b)(6) ("failure to state a claim upon which relief can be granted"). On such a motion, of course, the Court accepts all factual allegations by the non-moving parties as true. See McSherry v. Trans World Airlines, 81 F.3d 739, 740 (8th Cir.1996). A motion to dismiss may be granted "only if no set of facts would entitle the plaintiff to relief." See id. The FCIC claims the insurance companies failed to exhaust their administrative remedies, thereby barring federal jurisdiction, or alternatively limiting judicial consideration of the third-party claims.

It is axiomatic that federal courts are courts of limited jurisdiction. As such, the requirement that jurisdiction be established as a threshold matter is inflexible and without exception. Godfrey v. Pulitzer Publ'g Co., 161 F.3d 1137, 1141 (8th Cir.1998). While defects in personal jurisdiction may be waived by the parties, subject matter jurisdiction is primary, and acts as an absolute stricture. See In re: Prairie Island Dakota Sioux, 21 F.3d 302, 304-05 (8th Cir.1994). When required by Congress, failure to exhaust administrative remedies bars federal jurisdiction. See In Home Health, Inc. v. Shalala, 272 F.3d 554, 559 (8th Cir.2001).³ The exhaustion requirement assures that Courts receive the fullest benefit of administrative review, avoiding "premature interruption of the administrative process," promoting deference to agency discretion, and allowing the agency to "develop the necessary factual background." See McKart v. United States, 395 U.S. 185, 194-95, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969).

Congressional intent is paramount when considering whether exhaustion is jurisdictional. See McCarthy, 503 U.S. at 144, 112 S.Ct. 1081. "Where Congress specifically mandates, exhaustion is required. But where Congress has not clearly required exhaustion, sound judicial discretion governs." Id. When Congress has adopted a statutory provision, the Court cannot waive exhaustion. See McNeil v. United States, 508 U.S. 106, 111, 113 S.Ct. 1980, 124 L.Ed.2d 21 (1993); U.S. v. Dico, Inc., 136 F.3d 572, 575-76 (8th Cir.1998). Conversely, where Congress has not enacted an explicit requirement, a court may not create one. See Darby v. Cisneros, 509 U.S. 137, 153-54, 113 S.Ct. 2539, 125 L.Ed.2d 113 (1993); Coteau Props. v. Dep't of Interior, 53 F.3d 1466, 1471 (8th Cir.1995).

In 7 U.S.C. § 6912(e), Congress expressly requires exhaustion of administrative appeals before a lawsuit may be brought against an agency of the Department of Agriculture.⁴ The Section provides:

"[n]otwithstanding any other provision of law, a person shall exhaust all administrative appeal procedures established by the Secretary or required by law before the person may bring an action in a court of competent jurisdiction against ... an agency ... of the Department."

See 7 U.S.C. § 6912(e). While the Eighth Circuit Court of Appeals has not considered whether the provision is jurisdictional, a number of trial courts and two federal appellate courts of appeal have done so.⁵

The Second Circuit Court of Appeals in Bastek v. Federal Crop Insurance Corp., found 7 U.S.C. § 6912(e)'s exhaustion requirement unambiguous, and therefore jurisdictional. See 145 F.3d 90, 95 (2d Cir.1998); see also Kleissler v. United States Forest Serv., 183 F.3d 196 (3d Cir. 1999) (requiring 7 U.S.C. § 6912(e) exhaustion in suit against the Forest Service); Am. Growers Ins. Co. v. Fed. Crop Ins. Corp., 210 F.Supp.2d 1088 (S.D.Iowa 2002) (finding 7 U.S.C. § 6912(e) and 7 C.F.R. 400.169 compelled exhaustion before suit); Gilmer-Glenville, LP v. Farmers Home Admin., 102 F.Supp.2d 791 (N.D.Ohio 2000) (requiring 7 U.S.C. § 6912(e) exhaustion in suit against the FmHA); Calhoun v. United States Dep't of Agric. Farm Serv. Agency, 920...