Louisiana Federal Land Bank v. Farm Credit Admin.

Citation180 F.Supp.2d 47
Decision Date23 August 2001
Docket NumberNo. Civ.A.00-1582(RMU).,Civ.A.00-1582(RMU).
CourtU.S. District Court — District of Columbia

Daniel Mordecai Joseph, Beth Lea Hirschfelder, Akin, Gump, Strauss, Hauer & Feld, L.L.P., for plaintiffs.

Marcia Kay Sowles, U.S. Dept. of Justice, Civ. Div., Washington, DC, for Farm Credit Admin., U.S., defendants.

Nels John Ackerson, Kathleen C. Kauffman, Ackerson Group, chartered, Washington, DC, for First South Production Credit Ass'n, intervenor-defendant.

John Louis Oberdorfer, Patton Boggs, L.L.P., Washington, DC, for AGFIRST Farm Credit Bank, movant.


URBINA, District Judge.

Granting the Defendants' Motion for Summary Judgment; Denying the Plaintiffs' Motion for Summary Judgment

This matter comes before the court on cross-motions for summary judgment. The plaintiffs, Farm Credit Bank of Texas ("FCB-Texas") and others,1 seek a declaratory judgment that a regulation ("the Final Rule") promulgated by the defendant the Farm Credit Administration ("FCA"), is invalid. The Final Rule repealed existing FCA regulations that required Farm Credit System ("System") lending institutions to obtain consent from other System institutions when purchasing participation interests made by a non-System lender located outside the purchasing lender's chartered territory. The plaintiffs assert that the removal of the consent requirement: (1) violates the Farm Credit Act of 1971; (2) violates the 1992 amendments to the Farm Credit Act; (3) causes harm to the Farm Credit System, its borrowers and stockholders; (4) is invalid because the FCA failed to respond to significant comments to the Proposed Rule; (5) was promulgated by the FCA without providing sufficient notice of the substance of the regulation; and (6) is arbitrary, capricious and an abuse of discretion in violation of the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq. See Compl. ¶¶ 64-76.

After careful consideration of the parties' submissions, the relevant law and the entire record herein, the court concludes that the defendants are entitled to judgment as a matter of law. Accordingly, the court will grant the defendants' motion for summary judgment and deny the plaintiffs' motion for summary judgment.

A. The Farm Credit System

The Farm Credit System is a nationwide network of federally chartered, borrower-owned banks and lending associations. Established by Congress in 1916, the express goal of the Farm Credit System is to "improv[e] the income and well being of American farmers and ranchers by furnishing sound, adequate, and constructive credit ... to them." 12 U.S.C. § 2001(a). The Farm Credit Administration is an independent, executive-branch agency designed to oversee the Farm Credit System and administer the Farm System Act by prescribing necessary rules and regulations. See 12 U.S.C. § 2252(a)(9). Since its inception, Congress has revamped the Farm Credit System several times, introducing major revisions in 1971 and the mid-1980s in response to the agricultural financial crisis in the United States.2

The current Farm Credit System is comprised of six Farm Credit Banks, one Agricultural Credit Bank, and about 158 local associations. Through the local associations, the banks provide credit to eligible borrowers for agricultural and rural housing needs. See 12 U.S.C. §§ 2013, 2017, 2075, 2093 and 2279b. The statutes governing the System designate the type of loans each local association can make: Federal Land Bank Associations provide long-term loans; Production Credit Associations provide short- and intermediate-term loans; and Agricultural Credit Associations provide short-, intermediate-, and long-term loans.3 See 12 U.S.C. §§ 2071, 2091, 2279b and 2279c-1.4 Each System institution is jointly and severally liable for the acts of other System institutions. See, e.g., 12 U.S.C. §§ 2155(a)(1), 2096 and 2153(c)-(d). In addition, a farmer or rancher must purchase voting stock in his local association before receiving a loan from that association. See 12 U.S.C. § 2154a(c)(1). This feature not only ensures that the ranchers and farmers control some institutional decisions, but also that they remain eligible to receive more favorable terms of credit. See id.; see also Compl. ¶ 19.

Critical to the instant matter was Congress's move to consolidate the Farm Credit System in the mid-1980s. In 1987, Congress passed the Agricultural Act, which "both require[d] and encourage[d] institutions of the Farm Credit System to reorganize in order to better serve their farmer and cooperative members and cut costs." Pub.L. No. 100-233, 101 Stat. 1568 (1987); 133 Cong.Rec. S18, 459 (daily ed. Dec. 19, 1987) (remarks of Sen. Leahy, presenting the conference report). Section 401(a) of the 1987 Act mandated the mergers of Federal Land Banks and Federal Intermediate Credit Banks in each district to form Farm Credit Banks by July 6, 1988. See 12 U.S.C. § 2011 note.

The section 401(a) mergers occurred in every farm credit district except the Fifth Farm Credit District, located in Jackson, Mississippi. No merger occurred in Jackson because the FCA placed the Federal Land Bank of Jackson into receivership on May 20, 1988. In response to the Jackson Bank's failure, the FCA solicited bids from other System institutions for the purchase of the Jackson Bank's assets. See Compl. ¶ 21. FCB-Texas successfully bid for those assets, but conditioned its bid and acceptance of the loan obligations on FCA approval of an amendment to FCB-Texas's charter. The proposed amendment to the charter gave FCB-Texas territorial servicing rights in Alabama, Mississippi, and Louisiana. See id. at 23. The FCA accepted the bid and the charter amendment on February 10, 1989. See id. at 21.

As a result of FCB-Texas's acquisition of the failed bank, the FCA ordered a Section 401(a) merger between the Federal Intermediate Credit Bank in Jackson and FCB-Texas. Both the ordered merger and approved charter amendment were challenged in federal court by First South PCA, the Jackson Federal Intermediate Credit Bank and FCB-Wichita. The Fourth Circuit held that the FCA could not require such a merger under section 401(a). See First South Production Credit Ass'n v. Farm Credit Admin., 926 F.2d 339, 347 (4th Cir.1991).

The Court's refusal to allow a merger in Jackson left a three-state gap in the Farm Credit System. As the Court noted, "if there truly is a three-state gap ... then Congress may amend the statute to close it." First South, 926 F.2d at 346. In response to the Court's holding, Congress amended the Farm Credit Act of 1971 to recognize FCB-Texas's charter as "exclusive" for long-term lending in Alabama, Mississippi and Louisiana.5 See § 401(b); Compl. ¶ 24. In addition, Congress prohibited the FCA from authorizing other System institutions to "exercise lending authority" in the former Jackson district unless the stockholders and boards of directors of the System institutions currently chartered to lend there approved of such lending. See 12 U.S.C. §§ 2252(a)(2)(B)-(C); Compl. ¶ 26.

The plaintiffs contend that the Final Rule violates both of these amendments to the Farm Credit Act. See Compl. ¶¶ 67-68. The defendants respond that the regulation of participation lending is not a chartering action that would run afoul of § 2252(a)(2)(B)-(C) and therefore is well within their regulatory authority. See Defs.' Mot. to Dismiss at 17-18. In addition, the defendants argue that 12 U.S.C. §§ 2252(a)(2)(B)-(C) does not give the plaintiffs veto power over their regulations, because no other System institution possesses such veto power. See id. at 19-20.

B. Participation Authority

The Farm Credit Act authorizes System institutions to make loans in two ways: either directly or by "participating" in loans made by other institutions. In a "participation" loan, one financial institution makes a loan to a borrower and then sells or "allots" a portion or "interest" of the loan to one or more participants. See Charles Woelful, Encyclopedia of Banking and Finance 888 (10th ed.1994). These participations generally take the form of a two-party contract such as the following:

(i) the Selling Bank, having recited the fact that it has made a described loan to company X, "allots" a participation to the Purchasing Bank, usually expressed in terms of a percentage of principal and interest; (ii) the Selling Bank undertakes to service the loan i.e., to receive the payments of principal and interest and to remit the prescribed percentages thereof to the Purchasing Bank; (iii) the Selling Bank makes certain express representations and warranties to the Purchasing Bank; (iv) the Purchasing Bank undertakes to pay the Selling Bank the Purchasing Bank's percentage of the loan; (v) the Selling Bank sets forth the standard of care that it will use in servicing the loan ...; and (vi) the parties negotiate any additional required provisions....

Patrick J. Ledwidge, Loan Participation Among Commercial Banks, 51 TENN. L.REV. 519, 520-21 (1984). Before 1980, System lenders were allowed to participate only in loans with other System lenders. In 1980, however, Congress enlarged the scope of permissible participation loans to encompass non-System institutions. See Farm Credit Act Amendments of 1980, Pub.L. No. 96-592, 94 Stat. 3437 (1980). Farm Credit Banks may now participate in loans with non-System institutions so long as they are "loans that the bank is authorized to make under this subchapter." 12 U.S.C. § 2013(12)(C).

C. Geographic Restrictions

Before 1992, the Farm Credit Act contained no explicit geographic restrictions on lending. Nevertheless, the FCA used its broad grant of regulatory power to charter and structure institutions in a way that promoted exclusive territories. See 63...

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2 cases
  • Louisiana Federal Land Bank v. Farm Credit Admin., 01-5366.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • 29 Julio 2003
    ...In a loan participation, an institution such as an FCB buys an interest in a direct loan. See La. Fed. Land Bank Ass'n, FCLA v. Farm Credit Admin., 180 F.Supp.2d 47, 53 (D.D.C. 2001). An FCB may participate in loans originated either by System or by non-System banks. 12 U.S.C. § 2013(12). W......
  • Gray Panthers Project Fund v. Thompson
    • United States
    • United States District Courts. United States District Court (Columbia)
    • 6 Septiembre 2002
    ...others, and an agency "may not substitute its own policy for that of the legislature." Louisiana Fed. Land Bank Ass'n, FCLA v. Farm Credit Administration, 180 F.Supp.2d 47, 57 (D.D.C.2001). Put simply, agencies, like the rest of us, must obey the law — even if compliance is cumbersome, burd......

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