Israel v. U.S. Dept. of Agriculture

• Decision Date: 02 March 2001
• Docket Number: No. 00-C-223-C.,00-C-223-C.
• Citation: 135 F.Supp.2d 945
• Parties: Donald and Patsy ISRAEL, husband and wife, Richard and Shirley Quinton, husband and wife, all d/b/a Israel & Quinton Farms, Plaintiffs, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant.
• Court: U.S. District Court — Western District of Wisconsin

Page 945

135 F.Supp.2d 945

Donald and Patsy ISRAEL, husband and wife, Richard and Shirley Quinton, husband and wife, all d/b/a Israel & Quinton Farms, Plaintiffs, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant.

No. 00-C-223-C.

United States District Court, W.D. Wisconsin.

March 2, 2001.

William L. Norine, Anderson & Norine, Grantsburg, WI, for plaintiffs.

Steven O'Connor, Assist. U.S. Atty., Madison, WI, for defendant.

OPINION AND ORDER

CRABB, District Judge.

This is a civil action in which plaintiffs Donald and Patsy Israel and Richard and Shirley Quinton seek judicial review of the Farm Service Agency's determination that plaintiffs are responsible for $96,500 in shared appreciation pursuant to a shared appreciation agreement dated September 15, 1989, a decision that was affirmed by the National Appeals Division and the Director of the National Appeals Division. (The Farm Service Agency is an administrative agency of the United States Department of Agriculture.)

Originally, plaintiffs sought judicial review of the agency's determination (count 1); a declaration as to the meaning of the shared appreciation agreement (count 2); injunctive relief for a state claim of negligent misrepresentation (count 3); and injunctive relief prohibiting defendant from collecting any appreciation (count 4). In a stipulation and order entered on October 23, 2000, the parties agreed to dismiss counts 2, 3 and 4, set a hearing for oral argument on April 16, 2001, and brief the issue of plaintiffs' challenge to the agency's determination that they are responsible for $96,500 in shared appreciation. Briefing on plaintiffs' request for judicial review is now complete. The decision of the Director of the National Appeals Division will be affirmed because I conclude that (1) when he determined that the shared appreciation agreement allowed the government to recover 50% of the appreciated value of plaintiffs' property upon the expiration of the agreement, his decision was not "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or "unsupported by substantial evidence," 5 U.S.C. § 706(2)(A), (E); and (2) plaintiffs cannot rely on the doctrine of equitable estoppel to prevent defendant from collecting the appreciation.

Subject matter jurisdiction is present under 7 U.S.C. § 6999 ("A final determination of the Division shall be reviewable and enforceable by any United States district court of competent jurisdiction in accordance with chapter 7 of Title 5.").

From the administrative record, I find the following facts.

FACTS

A. Shared Appreciation Agreement

Plaintiffs Donald and Patsy Israel and Richard and Shirley Quinton own a farming partnership called Israel and Quinton Farms. In 1988, Israel and Quinton Farms entered into negotiations with Farm Service Agency (formerly Farm Home Administration) for a write-down of their existing loans. On September 15, 1989, the parties signed a shared appreciation agreement, which was a condition to the debt write-down. At that time, plaintiffs had $239,478.91 in debt. Pursuant to the agreement, plaintiffs received a writedown in the amount of $100,357.34, leaving a restructured debt of $139,121.57, which was secured by preexisting real estate mortgages. At the time of the agreement, the market value of the property securing the loan was $152,000.

The shared appreciation agreement provides:

As a condition to, and in consideration of [Farm Service Agency] writing down the above amounts and restructuring the loan, borrower agrees to pay [Farm Service Agency] an amount according to one of the following payment schedules:

1. Seventy five (75) percent of any positive appreciation in the market value of the property securing the loan as described in the above security instrument(s) between the date of the Agreement and either the expiration date of this Agreement or the date the borrower pays the loan in full, ceases farming or transfers title of the security, if such event occurs four (4) years from the date of this Agreement.

2. Fifty (50) percent of any positive appreciation in the market value of the property securing the loan above as described in the security instruments between the date of this Agreement and either the expiration date of the Agreement or the date Borrower pays the loan in full, ceases farming or transfers title of the security, if such event occurs after four years but before the expiration date of this Agreement.

The amount of recapture by [Farm Service Agency] will be based on the difference between the value of the security at the time of disposal or cessation by Borrower of Farming and the value of the security at the time this Agreement is entered into. If the borrower violates the terms of this agreement [Farm Service Agency] will liquidate after the borrower has been notified of the right to appeal.

In notes dated April 5, 1994, Farm Service Agency loan officer Michael Drewiske wrote, "Richard Quinton and Donald Israel .... thought they might be able to get a loan from a Bank to refinance [Farm Service Agency] loan. I indicated that at such a time as they pay in full the shared appreciation agreement kicks in."

In a letter to plaintiffs Patsy and Donald Israel dated January 26, 1998, Farm Service Agency loan official Karolyn Corbett wrote,

When Donald and Richard were in our office to make your payment, you had some questions about your [Farm Service Agency] loan account.

The enclosed printout was obtained after your last payment was applied. Since we did a deferral action on your loan in 1989, the interest that was deferred has been paid in increments since that time.

That deferred interest amount does not show up on the first page of the printout. I have high-lighted the figures that add up to your payoff figure (the figure circled in red).

Therefore, your payoff consists of:

                QUPR (principal)           = $109,574.90
                QUIN (interest)            = $    586.91
                CPIN (deferred interest)   = $  8,748.45
                                             ___________
                                             $118,910.26
                

In letters to plaintiffs dated April 24, 1997, November 6, 1997 and October 5, 1998, District Credit Manager David Borman wrote,

Our records indicate that on September 15, 1989, the Farm Service Agency (FSA) wrote down $100,357.34 of your debt. As a consideration for this write down you were required to sign a Shared Appreciation Agreement (copy attached).

Essentially what this document says is that if the value of your real estate increases after the date of the write down, you will be responsible for repaying some or all of the debt [Farm Service Agency] wrote down. If any repayment is due it will become due when any one of the following events happens.

1. Ten years has passed.

2. You pay the rescheduled loan in full.

3. You ceased farming.

4. You transferred title to the property.

B. Administrative Proceedings

On June 30, 1999, the Farm Service Agency wrote plaintiffs letters stating, "The purpose of this letter is to inform you that the Shared Appreciation Agreement (SAA) you entered into as a result of receiving a `debt write down' will expire on September 14, 1999, which is 10 years after the date you signed it.... We have determined the amount of shared appreciation due is $96,500." Farm Service Agency calculated the amount due by using the following equation:

                       $345,000 (current appraisal)
                    -  $152,000 (1989 appraisal)
                       ________
                       $193,000 (net appreciation)
                                (shared appreciation agreement
                    ×       .50 sharing percentage)
                       ________
                       $ 96,500
                

In letters to plaintiffs dated September 9, 1999, the Farm Service Agency denied their requests for reconsideration and affirmed its decision to require them to pay $96,5000 in shared appreciation. The agency noted, "The Farm Service Agency is bound by the Code of Federal Regulations. [7 C.F.R. § 1951.914] covers servicing Shared Appreciation Agreements. [7 C.F.R. § 1951.914(b) ] states in part, shared appreciation is due at the end of the term of the Shared Appreciation Agreement."

On October 7, 1999, plaintiffs appealed to the National Appeals Division of the Department of Agriculture. (Plaintiffs' appeals were consolidated.) On November 18, 1999, a scheduling conference was held before Farm Service Agency Hearing Officer David Benner. In letters dated December 1 and 2, 1999, plaintiffs requested the issuance of subpoenas for the production of three witnesses: two Farm Service Agency employees who had made statements to plaintiffs regarding the shared appreciation agreement (Michael Drewiske and Karolyn Corbett) and one former county agent who had an opinion on the appraisal of plaintiffs' property (Russell Kiecker). In a notice dated December 8, 1999, Benner denied plaintiffs' request for subpoenas. On December 9, 1999, an evidentiary hearing was held before Hearing Officer Benner pursuant to 7 U.S.C. § 6997(c). At the hearing, plaintiffs testified about what Michael Drewiske and Karolyn Corbett had told them about the recapture provision in the agreement. On January 3, 2000, relying on 7 C.F.R. §§ 1951.914, 1922.201, Hearing Officer Benner held that the Farm Service Agency's decision to demand $96,500 in shared appreciation was not erroneous. Benner wrote,

The Appellants' Shared Appreciation Agreement (SAA) expired on September 14, 1999.... Therefore the Agency decision to calculate shared appreciation due is correct according to regulations.

The Appellants argue that the agreement "expired" on September 14, 1999, meaning that no shared appreciation is due. They also argue that they were told that this was the case at the time of signature. However, the agreement and the regulation clearly state that shared appreciation is due at the expiration of the agreement.

On or about February 4, 2000, plaintiffs appealed to the Director of the National Appeals Division for the Department of Agriculture. In a decision dated March...