Louisiana Federal Land Bank v. Farm Credit Admin., 01-5366.

Citation336 F.3d 1075
Decision Date29 July 2003
Docket NumberNo. 01-5366.,01-5366.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (No. 00cv01582).

Daniel Joseph argued the cause for appellants. With him on the briefs was Beth Hirschfelder Wilensky. C. Fairley Spillman entered an appearance.

Edward Himmelfarb, Attorney, U.S. Department of Justice, argued the cause for federal appellees. With him on the brief were Roscoe C. Howard, Jr., U.S. Attorney, and Robert S. Greenspan, Attorney, U.S. Department of Justice.

Kathleen C. Kauffman argued the cause for appellee First South Farm Credit, ACA. With her on the brief were Nels J. Ackerson and L. Keith Parsons.

Before: GINSBURG, Chief Judge, and EDWARDS and GARLAND, Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge:

The Farm Credit Administration promulgated a rule eliminating geographical restrictions upon certain activities of lenders within the Farm Credit System, and thereby put them into competition with each other. The plaintiffs-appellants — lenders within the System — challenged the rule in district court, claiming it conflicted with the Farm Credit Act and with a 1992 Amendment thereto, and that the FCA promulgated the rule in violation of the procedural requirements of the Administrative Procedure Act. The district court, holding the FCA had complied with the proper procedures and the plaintiffs' statutory arguments were either without merit or had been forfeited, entered summary judgment for the FCA.

We hold the Agency was required by the APA to address the plaintiffs' comment before promulgating the rule. For that reason we reverse the judgment of the district court so this matter may be remanded to the FCA for further proceedings.

I. Background

The Congress established the Farm Credit System in order 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 legislature charged the FCA with oversight and regulation of the System. Id. §§ 2243, 2252. The System, which has been reorganized many times since its establishment in 1916, see Federal Farm Loan Act, ch. 245, 39 Stat. 360 (1916) (revised as Farm Credit Act of 1971, Pub.L. No. 92-181, 85 Stat. 583 (1971) (codified as amended at 12 U.S.C. §§ 2001 et seq.)), currently comprises six Farm Credit Banks (FCBs), an Agricultural Credit Bank (not relevant to this appeal), and over 100 local "associations," such as the Louisiana Federal Land Bank Association. The FCBs finance the local associations, which in turn provide eligible borrowers with credit for agricultural purposes and rural housing. 12 U.S.C. §§ 2013, 2015, 2017, 2075, 2093, 2279b. Plaintiff Farm Credit Bank of Texas (FCBT) is an FCB; the other plaintiffs are local associations.

The Act authorizes two types of credit facilities relevant to this case: direct loans and loan participations. 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). With regard to a non-System bank, however, the FCB may participate only in "loans... the [FCB] is authorized to make under this subchapter [12 U.S.C. §§ 2011-2023]." Id. § 2013(12)(C).

The Act itself contains no geographic restriction upon lending (except for a minor limitation imposed by the 1992 Amendment, discussed below). Nevertheless, the FCA historically has imposed such restrictions by chartering only one lender of each type to serve any given geographic territory and by regulation prohibiting an institution from making a direct loan to a borrower located in another institution's territory without the latter's consent. See 12 C.F.R. § 614.4070. Prior to the rulemaking here under review, these restrictions also applied to loan participations; 12 C.F.R. § 614.4000(d)(2) authorized an FCB to "participate in loans financing operations outside its chartered territory only if the [consent] requirements of § 614.4070 are met." 55 Fed. Reg. 24,861, 24,880 (June 19, 1990).

In November 1998 the FCA proposed a rule to modify 12 C.F.R. § 614.4070 by removing the geographic restrictions. 180 F.Supp.2d at 54; see 63 Fed.Reg. 60,219, 60,219/2-3, 60,222/2 (Nov. 9, 1998). The Proposed Rule would have both deleted what was then § 614.4000(d)(2), which had authorized FCBs to participate in loans subject to the geographical restrictions of § 614.4070, id. at 60,222/1, and revised § 614.4070 to authorize an FCB to "make loans, participate in loans, and provide related services to any eligible borrower." Id. at 60,222/2. The preamble to the Proposed Rule emphasized the FCA's desire to foster intra-System competition and "customer choice" by removing territorial restrictions both upon direct lending and upon participations in loans originated by others. Id. at 60,220/3.

The FCA received more than 270 comments on the proposal, including one submitted by the plaintiffs, which argued that the FCA lacked statutory authority to promulgate the Proposed Rule, geographic limitations were integral to the statutory scheme, and permitting out-of-territory lending would hurt the System and its customers, especially small farmers. The FCBT also argued that the 1992 Amendment, which the Congress had enacted in the wake of the FCBT's acquisition of the assets of a failed Federal Land Bank, barred the FCA from authorizing other System institutions to engage in long-term lending within the failed bank's territory.

On April 25, 2000 the FCA published the Final Rule, which left § 614.4070 unchanged but removed the references to § 614.4070 from other regulations, including § 614.4000(d). 65 Fed.Reg. 24,101, 24,102/2. As the FCA explained, the Final Rule thus removed geographic restrictions from loan participations but not from direct loans, allowing an FCB to participate in a loan outside its territory without the consent of any other System institution. The FCA justified the rule primarily in terms of market efficiency and risk pooling. Id. at 24,101-24,102. The plaintiffs promptly asked the FCA to withdraw the Final Rule and to re-propose it for an additional comment period, but the Agency refused.

The FCBT and the other plaintiffs then sued the FCA in district court, seeking a declaration that the Final Rule was invalid. On cross-motions for summary judgment, the district court held, among other things, that (1) the FCA adequately responded to the comments presented to it, 180 F.Supp.2d at 62; (2) the Proposed Rule provided adequate notice of the substance of the Final Rule, id. at 62-63; (3) the Final Rule was not inconsistent with § 2013(12)(C) of the Act, id. at 57-59; and (4) the FCBT had forfeited its argument that the Final Rule was inconsistent with the 1992 Amendment because it did not raise that argument before the FCA. Id. at 59-60.

II. Analysis

The plaintiffs make two arguments on appeal. First, they claim the FCA did not comply with the notice and comment requirement of the APA when it promulgated the Final Rule. Second, they argue that the Final Rule violates the Farm Credit Act. The FCBT also presses its argument that the rule is barred by the 1992 Amendment.

A. Procedural Claims

The plaintiffs argue that the FCA's promulgation of the Final Rule was procedurally defective in two respects. First, the comment the plaintiffs submitted to the FCA applied not only to direct lending but also to loan participations and therefore required a response in the final rulemaking, which changes the regulation of participations. Second, the Proposed Rule did not provide adequate notice of the substance of the Final Rule.

1. Failure to Address Comment

As noted above, the Proposed Rule prompted over 270 comments including the one submitted by the plaintiffs. The preamble to the Final Rule said almost nothing about the comments, noting merely:

No commenter cited any statutory provision that restricts the authority of System banks and associations to participate in loans outside of their chartered territory. Only one comment letter mentioned the statutory authorities of System institutions to participate in loans.

65 Fed.Reg. at 24,101/2. The plaintiffs claim this statement did not adequately address their comment protesting the introduction of competition by the lifting of the geographic restrictions. In response the FCA points out that in the preamble to the Proposed Rule it had discussed out-of-territory lending and out-of-territory participations separately, whereas the plaintiffs' comment did not make such a distinction and was not specifically directed to the part of the Proposed Rule dealing with participations. Therefore, it argues, none of the comments it received was relevant to the Final Rule authorizing only out-of-territory participations and none required a response.

The FCA should have responded to the plaintiffs' comment. Although the FCA is not required "to discuss every item of fact or opinion included in the submissions" it receives in response to a Notice of Proposed Rulemaking, Pub. Citizen, Inc. v. Fed. Aviation Admin., 988 F.2d 186, 197 (D.C.Cir.1993), it must respond to those "comments which, if true, ... would require a change in [the] proposed rule." Am. Mining Cong. v. United States EPA, 907 F.2d 1179, 1188 (D.C.Cir.1990). In this case the plaintiffs' comment was applicable equally to a rule limited to participations and to one that also removed the geographic restriction upon direct lending: it argued against the introduction into the System of competition generally, without regard to...

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