J.O.C. Farms, LLC v. Rural Cmty. Ins. Agency, Inc., 4:12–CV–186–D.

• Decision Date: 17 September 2015
• Docket Number: No. 4:12–CV–186–D.,4:12–CV–186–D.
• Citation: 131 F.Supp.3d 514
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: J.O.C. FARMS, LLC., Plaintiff, v. RURAL COMMUNITY INSURANCE AGENCY, INC., d/b/a Rural Community Insurance Services; Fireman's Fund Insurance Company; William J. Murphy, Administrator; Thomas James Vilsack, Secretary; and The United States of America Department of Agriculture, Risk Management Agency; Defendants.

131 F.Supp.3d 514

J.O.C. FARMS, LLC., Plaintiff,

v.RURAL COMMUNITY INSURANCE AGENCY, INC., d/b/a Rural Community Insurance Services; Fireman's Fund Insurance Company; William J. Murphy, Administrator; Thomas James Vilsack, Secretary; and The United States of America Department of Agriculture, Risk Management Agency; Defendants.

No. 4:12–CV–186–D.

United States District Court, E.D. North Carolina, Eastern Division.

Signed Sept. 17, 2015.

Hugh Stevens, Michael J. Tadych, Stevens Martin Vaughn & Tadych, PLLC, Raleigh, NC, for Plaintiff.

Neal Fowler, U.S. Department of Justice, Raleigh, NC, for Defendants.

ORDER

JAMES C. DEVER III, Chief Judge.

This case involves a dispute between J.O.C. Farms, LLC ("JOC Farms" or "JOC") and its insurer, Rural Community Insurance Agency, Inc. ("RCIS"), regarding proceeds under two federally reinsured crop insurance policies. On October 31, 2014, the court held a hearing and granted RCIS and the Fireman's Fund Insurance Company's motion to dismiss and granted in part and denied in part the motion to dismiss of William J. Murphy,¹ Thomas James Vilsack, and the United States Department of Agriculture's Risk Management Agency ("RMA"). See [D.E. 66, 67]. The only remaining claim is for judicial review under the Administrative Procedure Act ("APA").

On December 30, 2014, William J. Murphy, Thomas James Vilsack, and RMA (collectively, "federal defendants") moved for summary judgment on the remaining APA claim [D.E. 68] and filed a supporting memorandum [D.E. 69]. On February 6, 2015, JOC Farms responded in opposition to the federal defendants' motion for summary judgment [D.E. 72]. On February 9, 2015, JOC Farms filed an amended response in opposition to the motion for summary judgment [D.E. 73].² On March 2, 2015, the federal defendants replied [D.E. 77]. As explained below, the court denies the federal defendants' motion for summary judgment and remands the case to the Department of Agriculture.

I.

In 2009, JOC Farms purchased two Multi–Peril Crop Insurance Polices. Compl. [D.E. 2] ¶¶ 13, 17. "The Policies were underwritten by Fireman's Fund, reinsured by the USDA through the FCIC, issued by RCIS in its capacity as Fireman Fund's managing general agent, and placed through RCIS's agent Dwain Woolard d/b/a Wollard Insurance Agency, Inc." Id. ¶ 13. One policy insured JOC's farm in Pitt County, North Carolina, and the other insured JOC's farm in Beaufort County, North Carolina. See id. ¶ 19. The respective policies provided a tobacco crop yield guaranty to JOC, protecting against loss in case of unfruitful harvest returns. See id. ¶ 18. Under the policies, JOC's Pitt County farm was guaranteed a minimum yield of 345,277 pounds at $1.85 per pound and JOC's Beaufort County farm was guaranteed a minimum yield of 976,696 pounds at $1.85 per pound. Defs.' Reply [D.E. 77] 13 n. 11; AR 1025; cf. JOC's Resp. [D.E. 73] 19 (claiming the Beaufort farm was guaranteed 974,325 pounds); AR 601.³

JOC Farms's 2009 tobacco harvest "failed to meet ... expectations of yield and quality." AR 364; see Compl. ¶ 20, 28. For the 2009 season, JOC's total revenue from tobacco sales was $183,349 from the Pitt County farm and $795,533 from the Beaufort County farm. Compì. 28; AR 835–89; cf. AR 388 (noting that JOC sold 765,694 pounds of tobacco from the Beaufort County farm). On September 1, 2009, JOC reported its losses to RCIS and attributed them to plant disease. AR 170, 225, 369. On September 2, 2009, RCIS initiated an investigation of JOC's claims. AR 171. RCIS eventually paid JOC Farms $389,448 for its Pitt County losses. Compl. ¶ 53; cf. [D.E. 53–2] 1.⁴

On September 3, 2009, RMA elected to participate in the loss determination for the Beaufort County claim. AR 171,369. RCIS's and RMA's investigations lasted several months and included, among other things, field visits, stalk counts, and plant analysis and testing. See AR 171–72, 225–26, 372–81, 420.

On October 15, 2009, Gaylon Ambrose ("Ambrose"), an extension agent for the North Carolina Cooperative Extension Service, sent JOC Farms a letter detailing "observations as to the most likely causes that had a negative impact" on JOC's 2009 tobacco crops. AR 364–65. Ambrose identified tomato spotted wilt virus, black shank, brown spot, and tobacco mosaic virus as the primary "causes of crop yield and quality losses," but also noted that these diseases "were intensified by adverse weather conditions." AR 364–65. On November 10, 2009, RCIS changed the cause of loss, and claimed that only 60% of the losses were due to plant disease while the other 40% were caused by excess precipitation. See AR 172, 393, 584–86.

On April 15, 2010, RMA's Raleigh Regional Office ("RRO") issued its final decision and concluded that no indemnity payment was due because JOC's "lack of timely harvest and failure to purchase and apply the proper fungicides ... contributed to the uninsured cause of loss." AR 371, 386–89. The RRO found that because JOC sold 765,694 pounds of tobacco and because an additional 256,248 pounds of tobacco was considered "production lost due to uninsured causes" and was therefore calculated into total production to count, the total production to count "exceed[ed] the total guarantee (sold production of 765,694 lbs. plus production lost to uninsured causes of 256,248 lbs. = 1,021,942 total production to count. This is more than the total guarantee of 974,325 lbs.)." AR 387–88.⁵ Thus, the RRO concluded that "no indemnity for the 2009 crop year" was warranted. AR 388.

In its decision, the RRO relied on Ambrose's observations and listed JOC's plant diseases as "Tomato Spotted Wilt, Brown Spot, Target Spot, Tobacco Mosaic Virus and Black Shank." AR 370, 384–85.⁶ The RRO found that JOC "did not purchase the proper or necessary fungicides to control or eliminate plant disease." AR 385. In particular, the RRO noted that Azoxystrobin is "the recommended product for target spot" and that black shank "should be treated with Mefenoxam." AR 385. Thus, the RRO concluded that the diseased crops were not covered because the policy excluded coverage for "damage due to insufficient or improper application of disease control measures." See AR 384; see also AR 780 (section 10(d) of the Guaranteed Tobacco Crop Provisions).

As for JOC's excess-precipitation claim, RCIS and RMA "research[ed] and gather [ed] the precipitation data for Beaufort County and JOC Farms, LLC during the months of June, July, August, and September 2009" and found that the "average rainfall received on [JOC's] tobacco farms was actually less than the average for Beaufort County." AR 370–71. Moreover, the 2009 rainfall in Beaufort County for this four-month period was 10.12 inches less than the 30–year historical rainfall average. See AR 371. The RRO also found that JOC "did not have the bam capacity to cure 198.55 acres of [its] tobacco," and "the insufficient bam space led to a lack of timely harvest resulting in the deterioration of un-harvested tobacco in the field." AR 386.

In May 2010, JOC Farms requested mediation and an administrative review of the April 15, 2010 decision. AR 392, 421. On May 26, 2010, the director of the Risk Management Services Division notified JOC that the administrative review would "be held in abeyance until Mediation has concluded." AR 392, 421. On May 28 and June 17, 2010, mediation sessions were held, but the parties did not resolve the dispute. AR 421, 481.

On June 30, 2010, the RRO issued a revised final decision ("revised decision"). AR 393–419, 421. In its revised decision, the RRO again concluded that "the lack of timely harvest and failure to purchase and apply the proper fungicides and other appropriate chemicals ... contributed to the uninsured cause of loss." AR 398; see AR 394–98. The RRO's revised decision again relied on Ambrose's observations, but removed target spot as a potential cause. See AR 394 (listing JOC's plant diseases as "Tomato Spotted Wilt Virus, Black Shank, Brown Spot, and Tobacco Mosaic Virus").

The RRO's revised decision detailed each of the claimed plant diseases, the appropriate treatment methods for each, and JOC's farming practices. AR 394–98. As for tomato spotted wilt virus, the RRO found that JOC "applied the appropriate rate of Admire Pro," the insecticide that the North Carolina State University 2009 Flue–Cured Tobacco Guide ("NCSU Guide") recommended, but that JOC "did not follow the recommendation of applying Admire Pro in the greenhouse to the seedlings, [and] instead ... applied it in the fields prior to transplanting [the] tobacco," which "indicates a less effective method of treatment was used." AR 395; see AR 361 (letter from JOC Farms to RMA detailing its farming practices). Moreover, the RRO found no evidence that Actigard, a recommended fungicide, "was purchased for [JOC's] 2009 tobacco crop." AR 395. Regarding black shank, the RRO noted that JOC's fumigant choice, Telone C–17, is a recommended product, but also claimed that Telone C–17 "does not provide complete control but is recommended for use by making a soil application prior to transplanting followed by an application at first cultivation and another application at lay-by." AR 397; see AR 360. Accordingly, the RRO found the JOC did not follow the recommended procedures for applying and using Telone C–17. AR 397–98. The RRO also found no evidence that Ridomil Gold or Ultraflourish, the "most effective" systematic fungicides, "were purchased for [JOC's] 2009 tobacco crop." AR 397. As for brown spot, the RRO determined that JOC "follow[ed] the [NCSU Guide] recommendations for the appropriate amounts of sucker control," but that JOC's application rate of Telone C–17 was ".2 gal/acre less than" recommended. AR 397–98; see also AR 360. Furthermore, the RRO found "visible evidence that [JOC] did not timely harvest, therefore, intensifying the Brown Spot in [its] tobacco fields." AR 398. Lastly, concerning tobacco mosaic virus, the RRO noted that "[s]trict sanitation procedures are necessary to...