Kinion v. U.S., 93-1067

• Decision Date: 03 November 1993
• Docket Number: No. 93-1067,93-1067
• Parties: Aubrey KINION; Lois Kinion, Appellants, v. UNITED STATES of America; Mike Espy, Secretary of United States Department of Agriculture; Farmers Home Administration, Appellees, Farm Bureau Mutual Insurance Company of Arkansas, Inc., Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 639

8 F.3d 639

Aubrey KINION; Lois Kinion, Appellants, v. UNITED STATES of America; Mike Espy, Secretary of United States Department of Agriculture; Farmers Home Administration, Appellees Farm Bureau Mutual Insurance Company of Arkansas, Inc., Defendant.

No. 93-1067.

United States Court of Appeals Eighth Circuit.

Submitted Sept. 17, 1993.

Decided Nov. 3, 1993.

David D. Stills, Fayetteville, AR, argued (John C. Everett, on the brief), for appellants.

Stephen M. Reilly, U.S. Dept. of Agriculture, Washington, DC, argued (Matthew W. Fleming, Asst. U.S. Atty., Forth Smith, AR, and Raymond W. Fullerton, U.S. Dept. of Agriculture, Washington, DC, on the brief), for appellees.

Before MAGILL and HANSEN, Circuit Judges, and HAMILTON, ^* District Judge.

MAGILL, Circuit Judge.

Aubrey and Lois Kinion (the Kinions) appeal the district court's ¹ denial of their summary judgment motion and the grant of summary judgment to the United States. This case involves the interpretation of the Farmers Home Administration's (FmHA) regulations that implement the debt restructuring and loan servicing provisions of the Agricultural Credit Act of 1987 (the Act). Because we hold that the regulations require state director approval of a proposed buyout and that the FmHA's failure to meet the procedural requirements of the statute did not divest the FmHA of jurisdiction to act, we affirm the judgment of the district court.

I. BACKGROUND

The Kinions owe the United States $430,000. This debt is evidenced by promissory notes secured by mortgages on the Kinions' farm in Washington County, Arkansas. In November 1988, the Kinions became delinquent on these promissory notes, and the FmHA forwarded to the Kinions a "Notice of the Availability of Loan Service Programs for Delinquent Borrowers." On January 4, 1989, the Kinions completed and forwarded an application to the FmHA requesting consideration for possible debt restructuring and loan servicing. On March 3, 1989, the county supervisor determined that the Kinions were ineligible for loan restructuring because the present value of their proposed restructured loan would be less than the net recovery value--calculated to be $79,836 ²--of the Kinions' farm. The county supervisor, however, informed the Kinions on March 3, 1989, that they were eligible for "pay off" ³ at the net recovery value of $79,836. Under this process, the Kinions would pay the government the net recovery value of their farm, and the government would forgive the balance of the outstanding loan. The state supervisor never authorized the county supervisor's net recovery value determination.

On March 5, 1989, a severe snow and ice storm hit Washington County, Arkansas. As a result, two poultry houses on the Kinions' farm collapsed due to heavy accumulations of snow and ice. Farm Bureau Mutual Insurance Company of Arkansas insured the poultry houses, and on March 9, 1989, forwarded a check for $264,000 to the Kinions. ⁴ Upon receiving notice of the collapse of the poultry houses, the FmHA county supervisor notified the Kinions that the FmHA had put their file on hold. The county supervisor later informed the Kinions that the FmHA would not allow the Kinions to pay off their debt to the government for the net recovery value of $79,836. Subsequently, the county supervisor made additional recalculations of the Kinions' net recovery value, and on September 9, 1989, recalculated the net recovery value of the Kinions' farm, including the insurance proceeds, ⁵ to be $306,365. Finally, on November 15, 1989, the state director approved and authorized the buyout in the amount of $306,365.

The Kinions have rejected this recalculation and maintain that the FmHA is bound by the county supervisor's March 3, 1989 calculations that set the net recovery value at $79,836. They filed a declaratory judgment action seeking to establish that the FmHA was bound by its March 3, 1989 calculations and that the FmHA's later calculations were invalid. The district court granted the government's summary judgment motion, denied the Kinions' summary judgment motion, and held that (1) the March 3, 1989 calculations did not bind the FmHA because the state supervisor had not approved the buyout, and (2) the later FmHA calculations were valid. The Kinions timely appealed.

II. DISCUSSION

This case involves interpretation of the regulations implementing the debt restructuring and loan servicing provisions of the Act. Specifically, we must determine whether the FmHA was bound by its March 3, 1989 calculations of the net recovery value of the Kinions' farm. The Kinions argue that the March 3, 1989 calculations bound the FmHA because (1) the county supervisor had proper authorization under the FmHA regulations to accept a buyout, and (2) the FmHA could only consider information "in existence and of record" within sixty days of their request for loan servicing. We disagree.

A. Standard of Review

This court reviews the grant and denial of summary judgment motions de novo. Bannum, Inc. v. City of St. Charles, 2 F.3d 267, 270 (8th Cir.1993). We note that agency action is "entitled to a presumption of regularity," Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971), and that this court can "overturn the ... [agency's] decision only if it f[inds] that decision to be 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law,' " First Nat'l Bank v. Smith, 508 F.2d 1371, 1373 (8th Cir.1974) (quoting 5 U.S.C. § 706(2)(A) (1988)), cert. denied, 421 U.S. 930, 95 S.Ct. 1655, 44 L.Ed.2d 86 (1975). Further, our review of an agency's interpretation of its own regulations "is a narrow one, deferential to the agency's interpretation ... and only permitting reversal if the agency action is without a rational basis." Missouri v. United States Dep't of Educ., 953 F.2d 372, 375 (8th Cir.1992); see also Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 2781, 81 L.Ed.2d 694 (1984); Parker v. United States Dep't of Agric., 879 F.2d 1362, 1365 (6th Cir.1989) (analyzing action by the FmHA and stating that "[a] court should defer to an agency's interpretation of its own regulations so long as that interpretation is reasonable").

B. Debt Restructuring and Loan Servicing

The objectives of debt restructuring and loan servicing under the Act are two-fold: to keep farmers who are delinquent on their FmHA loan payments in farming, and to minimize the loss to the government from delinquent FmHA loans. 7 U.S.C. § 2001(a) (1988). When a farmer is delinquent in his FmHA loan, Congress has empowered the FmHA with a series of loan restructuring tools to further the Act's goals. ⁶ The specific procedures at issue in this appeal are write-down and buyout.

When the government authorizes a "write-down" of a delinquent farmer's loan, it forgives a portion of the principal or accumulated interest on the loan. 7 C.F.R. § 1951.906 (1989). Before the FmHA issues a write-down, the farmer must first submit a farm plan that predicts his future income and expenses. 7 U.S.C. § 2001(b)(3). The FmHA can write-down the farmer's debt to a level where the farmer can meet the new restructured loan obligations and also have sufficient income to pay living and farm operation expenses.

In order to minimize the loss to the government, the FmHA must calculate the present value of the loan payments under the write-down plan before authorizing the write-down. Id. § 2001(c)(3). The FmHA then must compare the present value of the loan payments under the proposed write-down with the net recovery value of the collateral, i.e., the net recovery to the government if it instituted involuntary liquidation proceedings. Id. § 2001(c)(5), (c)(6). If the present value of the loan payments under the proposed write-down is greater than the net recovery value, the FmHA authorizes a write-down of the farmer's debt. Id. § 2001(c)(5). If, however, the net recovery value is greater than the present value of the loan payments under the proposed write-down, that is--there is more money available to the government if FmHA forecloses on the farmer's collateral than if the loan is written down--the farmer is ineligible for a write-down. Id. § 2001(b)(4). Rather, the FmHA will give the farmer an opportunity to pay the net recovery value--a buyout--before the FmHA forecloses on the collateral. Id. § 2001(c)(6); 7 C.F.R. § 1951.909(h)(3) (1989). When the farmer pays the FmHA the net recovery value, this payment is referred to as a buyout. Id. § 1951.909(h)(3)(iv). If the farmer pays the FmHA the net recovery value, the FmHA will forgive the balance of the farmer's loans. 7 U.S.C. § 2001(c)(6).

A buyout is the least attractive alternative for the government because it results in the maximum loan forgiveness and financial loss to the government. Neither party disputes that the FmHA regulations require state supervisor approval of any proposed write-down. The parties dispute whether the state supervisor also must approve a buyout of a farmer's loan when write-down is not feasible.

C. Authorization of a Buyout

The FmHA has adopted regulations that implement the loan servicing program of the Act. The regulations define the relevant terms and set out the procedures by which the FmHA will make debt restructuring and loan servicing decisions. Specifically, § 903(b) states:

Authorities. All loan servicing decisions will be made by the County Supervisor except write-down of a borrower's debt. County Supervisors are authorized to accept a buyout when the borrower(s) pay the net recovery value of the FmHA security set forth in § 1951.909. Only State Directors are authorized to approve write-down of a borrower's debt. This includes debt written down when buy out [sic] at net recovery value takes place....

7 C.F.R. § 1951.903(b) (1989). The regulations also define write-down as "reduc[tion of] a borrower's...