Mcbride Cotton and Cattle Corp. v. Veneman

• Decision Date: 05 September 2003
• Docket Number: No. 99-824-PHX-ROS.,99-824-PHX-ROS.
• Citation: 296 F.Supp.2d 1125
• Parties: MCBRIDE COTTON AND CATTLE CORPORATION, et al., Plaintiffs, v. Ann VENEMAN, Secretary of the United States Department of Agriculture, Defendant.
• Court: U.S. District Court — District of Arizona

296 F.Supp.2d 1125

MCBRIDE COTTON AND CATTLE CORPORATION, et al., Plaintiffs, v. Ann VENEMAN, Secretary of the United States Department of Agriculture, Defendant.

No. 99-824-PHX-ROS.

United States District Court, D. Arizona.

September 5, 2003.

James T. Massey, Sisters, OR, Gary Doyle Condra, Merinda Kathryn Condra, Condra & Condra, Lubbock, TX, for Plaintiffs.

Jason R. Baron, Thomas W. Millet, Daniel Bensing, Timothy Zick, Washington, DC, Arthur G. Garcia, Phoenix, AZ, for Defendant.

ORDER

SILVER, District Judge.

Pending before the Court are cross-motions for summary judgment. On February 10, 2003, Plaintiffs filed a Motion for Summary Judgment [Doc. # 96], and on March 31, 2003, Defendant, the Secretary of Agriculture, filed her Motion for Summary Judgment [Doc. # 109]. The Court held a hearing on these motions on August 27, 2003. The Court concludes that Defendant's Motion for Summary Judgment will be granted.

I. Factual and Procedural Background

This case is on remand from the Ninth Circuit. On September 25, 2000, the Court dismissed the case for lack of subject matter jurisdiction, concluding that Plaintiffs failed to exhaust their administrative remedies. Order of Sept. 25, 2000 [Doc. # 74]. The Ninth Circuit reversed, holding that Plaintiffs' failure to exhaust administrative remedies was not a jurisdictional bar and that the failure to exhaust should be excused. McBride Cotton & Cattle Corp. v. Veneman, 290 F.3d 973 (9th Cir.2002). Having resolved the jurisdictional issues, the Ninth Circuit "remand[ed] all of [Plaintiffs'] claims to the district court for consideration on the merits." Id. at 982. The Ninth Circuit did not reach the merits of Plaintiffs' claims, and the merits are now at issue before the Court on the cross-motions for summary judgment.

The facts have been previously summarized in this Court's September 2000 Order and the Ninth Circuit's opinion in McBride. The Ninth Circuit summarized the facts as follows:

The five plaintiffs operate family farm businesses which receive contractual payments from farm programs administered by the United States Department of Agriculture's (USDA) Commodity Credit Corporation (CCC). Each plaintiff has at least one shareholder, member, or beneficiary who is a delinquent debtor on an agricultural loan administered by the USDA. None of the plaintiffs is a delinquent debtor. Through administrative offset, the Secretary of Agriculture took pro-rata shares of contractual payments owed to the non-debtor plaintiffs to satisfy delinquent debts owed by the respective individual debtors. In effecting these offsets, the Secretary gave notice to the individual debtors of the intent to offset and of available administrative remedies. As a matter of policy, however, the Secretary has interpreted the regulations as not requiring such notice to be given to the non-debtor entities.

On March 5, 2003, Plaintiffs filed a Second Amended Complaint, adding two new Plaintiffs, Square B, Inc. and GRH Land & Cattle Co.¹ Like the original Plaintiffs, the new Plaintiffs are non-debtor entities with at least one shareholder, member, or beneficiary who is a delinquent debtor on a farm loan administered by the USDA. In this case, both have at least one shareholder who is a delinquent debtor on an agricultural loan administered by the Farm Service Agency (FSA). Decl. of Condra ¶¶ 4-7 [Doc. # 99]. Through administrative offset, the Secretary has taken pro rata shares of contractual payments owed to these Plaintiffs to satisfy the debtors' delinquent debts, again without notice to the Plaintiff non-debtor entities. Id. at ¶ 8.²

One notable fact about the Secretary's actions is that though the CCC offset the debts against the Plaintiffs, the debts were owed (by non-Plaintiff debtors) to Farm Service Agency (FSA), a separate agency of the Department of Agriculture. In this case, Plaintiffs have entered into production flexibility contracts ("PFCs") with the CCC. These PFCs are authorized by 7 U.S.C. § 7211, and set the terms for production and management of cropland in return for federal payments. The CCC conducted its administrative offset through the administration of this program. However, the Secretary concedes that the Plaintiffs have no debts "due" to the CCC. The Secretary notes that "[i]n this suit, however, the plaintiff entities do not owe a `debt' to CCC; rather, the debts are owed by individual farmers participating in the plaintiff family operations [and the] plaintiff entities' rights are governed by [7 C.F.R.] §§ 1403 and 792." Def's Memorandum [Doc. # 115] at 9, n. 10. Therefore, the individuals' debts are owed to the FSA, not to the CCC.

The Second Amended Complaint lists six claims for relief: (1) unlawful takings without just compensation in violation of the Fifth Amendment; (2) deprivation of property without meaningful procedures to challenge the deprivation in violation of the Due Process Clause of the Fifth Amendment; (3) unlawful seizure in violation of the Fourth Amendment; (4) a claim that the Secretary exceeded her authority under Congressional authorization; (5) a claim that the Secretary violated the mandates of the Federal Claims Collection Act and applicable regulations; and (6) violations of unnamed rights "created and afforded under state law." Id. at ¶ 121. The claims are brought pursuant to the Court's authority to review agency actions under the Administrative Procedures Act, 5 U.S.C. §§ 702-706. In particular, § 706(2) provides that the Court reviewing agency action shall "hold unlawful and set aside agency action, findings, and conclusions found to be — (A) arbitrary capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; [or] (D) without observance of procedure required by law. . ."

Aside from the sixth claim,³ Plaintiffs present two types of claim in the Second Amended Complaint: challenges to the Secretary's statutory authority (the fourth and fifth claims) and challenges to the constitutionality of the Secretary's actions (the first, second, and third claims). The Court will first analyze the statutory challenges and determine if the Secretary's actions were authorized by law

II. Analysis

A. Statutory Authority

Initially, Plaintiffs argue that the CCC had no statutory authority to collect the debts owed by the individual debtors to the FSA, and therefore could not collect them using administrative offset against the Plaintiffs. Although there is a tangled web of regulations governing the Secretary's offset actions at issue here, the Secretary has stated that "the CCC, in making the offsets at issue acted exclusively pursuant to its independent statutory and regulatory offset authority, see 7 U.S.C. § 714b(k); 7 C.F.R. § 1403.7, as well as its contractual rights under the PFC contracts that plaintiffs signed." Def.'s Memorandum [Doc. # 115] at 6.⁴ Therefore, the Court must determine if the CCC was authorized by statutory authority or by the terms of the contract to conduct the administrative offset.

(1) Does the CCC have the authority to collect debts owed to the FSA against non-debtors under 15 U.S.C. § 714?

The Secretary's first argument is that the CCC offset the payments pursuant to its own statutory and regulatory authority. The Secretary relies on 7 C.F.R § 1403.7, which governs the CCC's "[c]ollection by administrative offset." Section 1403.7 clearly contemplates that the CCC may collect debts that are due to other agencies. For example, § 1403.7(j)(1) provides that "[d]ebts due any agency other than CCC shall be offset against amounts payable by CCC to a debtor when an agency of the U.S. Government has submitted a written request [complying with number of procedures]." (emphasis added). Section 1403.7(1) lists the priority of debts that should be collected by offset, with debts to the CCC ranked ahead of debts to other agencies of the USDA, in turn ranked ahead of debts to other government agencies. Importantly, these provisions govern only when the debtor itself receives payments from the CCC. By their plain language, these provisions refer to the CCC's authority to collect debts owed by the actual entity receiving payments, not debts owed by the shareholder of an entity receiving amounts payable from the CCC.⁵

To conduct administrative offset against a non-debtor entity, the CCC relies on § 1403.7(q), which provides that "[a]ny action taken [by the CCC] by the provisions of this section may be taken: (1)[a]gainst a debtor's pro rata share of payments due any entity which the debtor participates in, either directly or indirectly, as determined by CCC." (emphasis added). This provision allows the CCC to assess if the debtor "participates" in an entity, and conduct a pro rata administrative offset against that entity if it so determines. Further, since the CCC is authorized to offset "debts due any agency other than the CCC," it may offset payments of debts due to other agencies, such as the FSA. 7 C.F.R. § 1403.7(j)(1).

Plaintiffs argue that this regulation, § 1403.7(q), is invalid because it exceeds the CCC's authority. Plaintiffs argue both that the CCC has no power to collect the debts of another agency at all, and that even if the CCC had the authority to collect debts due to another agency, it had no authority to collect debts from non-debtor entities. The Court finds the Plaintiffs' argument unpersuasive.

Generally, because the United States is considered a unitary creditor, individual agencies may collect the debts of other agencies if the collecting agencies are authorized to do so. Cherry Cotton Mills v. United States, 327 U.S. 536, 539, 105 Ct.Cl. 824, 66 S.Ct. 729, 90 L.Ed. 835 (1946); see In re Hal, Inc., 122 F.3d 851, 852-53 (9th Cir.1997) ("The Supreme Court clearly adopted the unitary setoff rule for government...