McCall Stock Farms, Inc. v. U.S.

• Decision Date: 23 December 1993
• Docket Number: No. 93-5077,93-5077
• Citation: 14 F.3d 1562
• Parties: McCALL STOCK FARMS, INC., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1562

14 F.3d 1562

McCALL STOCK FARMS, INC., Plaintiff-Appellant, v. The UNITED STATES, Defendant-Appellee.

No. 93-5077.

United States Court of Appeals Federal Circuit.

Dec. 23, 1993.

Frederick B. Anderson, West Des Moines, IA, argued for plaintiff-appellant.

Mark D. Rubino, Atty., Commercial Litigation Branch, Dept. of Justice, Washington, DC, argued for defendant-appellee. With him on the brief were Stuart E. Schiffer, Acting Asst. Atty. Gen., David M. Cohen, Director and Sharon Y. Eubanks, Asst. Director.

Before NIES, Chief Judge, CLEVENGER and SCHALL, Circuit Judges.

CLEVENGER, Circuit Judge.

McCall Stock Farms, Inc., (MSFI) appeals the decision of the United States Court of Federal Claims, 30 Fed.Cl. 248 No. 90-1003C (Dec. 10, 1992), granting summary judgment for the government. Because MSFI has demonstrated no error in that decision, we affirm.

I

In 1978, John R. and Phyllis A. McCall, sole proprietors of McCall Farms and McCall Stock Farm, as joint obligors, obtained a $170,000 farm disaster loan from the Small Business Administration (SBA). The SBA's loan was secured by a second mortgage on 800 acres of the McCalls' land in Madison County, Iowa. In 1983, MSFI was incorporated under the laws of Iowa in order to provide an estate planning vehicle for the transfer of assets to the McCalls' children, John L. and Mary Lynn. MSFI leased lands owned by the parents, including part of the mortgaged land, and other lands owned by the children. The McCalls' family farm business thereafter was conducted under the name of MSFI. In 1984, the Department of Agriculture began making payments to the McCalls under various crop support contracts administered by the Agricultural Stabilization and Conservation Service (ASCS). Under some of the contracts, all the checks were made payable to MSFI. Under others, seventy-five percent went to MSFI and twenty-five percent went to John senior, directly reflecting the profit-sharing arrangement between him and his tenant, MSFI.

The senior McCalls defaulted on their borrowing from the SBA in January 1985. In 1987, the SBA learned that John R. McCall was entitled to payments from the ASCS. Consequently, on July 14, 1987, the SBA loan officer concerned with the outstanding McCall debt wrote to the Administrator of the ASCS, requesting under the Debt Collection Act of 1982, 31 U.S.C. Sec. 3716 (1988), that the ASCS offset any payments due to Mr. and Mrs. McCall, McCall Farms, or McCall Stock Farm (SBA's borrowers of record) against the outstanding debt to the SBA.

On December 16, 1987, the SBA loan officer sent McCall Stock Farms, Inc., and John R. and Phyllis A. McCall a letter by certified mail entitled "NOTICE OF INTENT TO COLLECT BY ADMINISTRATIVE OFFSET OF ASCS PAYMENTS." That letter, the receipt of which was duly acknowledged, also in writing, detailed with precision the amounts the McCalls owed to the SBA, stated the SBA's intent to begin offsetting the ASCS payments and advised the McCalls of their right to obtain an administrative review of that action. The December 16 letter is addressed jointly to MSFI and Mr. and Mrs. McCall. In the body of the letter the joint addressees are collectively referred to as "you." ¹ The McCalls chose not to seek such a review. The ASCS, after another written request by the SBA naming MSFI and Mr. and Mrs. McCall as its debtors, ² began in June of 1988 to offset the payments to MSFI and John senior, forwarding the money to the SBA. ³

The SBA proceeded on two alternative but complementary theories. One was that Mr. and Mrs. McCall, as landlords of MSFI, were the "ultimate recipients" of the ASCS payments made to MSFI. Letter from Christy Grundberg, SBA Attorney, to Jonathan M. Kimple, MSFI Attorney 1 (Aug. 2, 1988). The second was that MSFI was in substance and in equity the alter ego of Mr. and Mrs. McCall and thus liable for their debts under "the equitable principal [sic] of piercing the corporate veil." Id.

During the time the offsets were being made, much correspondence passed between the SBA and the McCalls' attorneys, who disagreed with SBA's contention that MSFI was but the alter ego of Mr. and Mrs. McCall and thus liable for their personal debt to the SBA. The McCalls' SBA loan was paid in full on January 23, 1989 as a result of the offset of the ASCS payments.

MSFI brought suit in the Court of Federal Claims on October 15, 1990, seeking a refund of all the ASCS payments to MSFI that the SBA had offset to satisfy the McCalls' debt.

II

The Debt Collection Act authorizes administrative offsets where feasible to collect debts owed to the United States by any "person." 31 U.S.C. Sec. 3716(a). The statute does not, however, define the term "person" and is therefore silent on the question whether the statute applies to a person's "other self." See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-44, 104 S.Ct. 2778, 2781-83, 81 L.Ed.2d 694 (1984). Congress expressly required federal agencies to prescribe regulations to implement the debt collection statutes, see 31 U.S.C. Sec. 3716(b), and thus vested such agencies with general interpretive authority over the subject, see Martin v. Occupational Safety & Health Review Comm'n, 499 U.S. 144, 154, 111 S.Ct. 1171, 1177, 113 L.Ed.2d 117 (1991). The General Accounting Office (GAO) and the Department of Justice (DOJ) promulgated a regulation to serve as a general guideline to all federal agencies, who in turn were encouraged in their own required regulations to promulgate more detailed procedures "tailored to meet the needs and experiences of particular programs and activities." Federal Claim Collection Standards, 49 Fed.Reg. 8889, 8889 (1984) (final rule) (codified at 4 C.F.R. Secs. 102-105 (1993)). Both the SBA and the ASCS have promulgated agency-specific administrative offset regulations. See 13 C.F.R. Sec. 140.5 (1993); 7 C.F.R. pt. 1408 (1988) (redesignated as amended at 7 C.F.R. pt. 1403 (1993)).

Given the longstanding existence of the alter ego doctrine as a means to achieve fundamental fairness in particular fact circumstances, the SBA's practical construction of the word "person" as including alter egos is reasonable and within the range of permissible interpretations. See id.; see also United States v. Midwest Oil Co., 236 U.S. 459, 472-73, 35 S.Ct. 309, 312-13, 59 L.Ed. 673 (1915). Moreover, the SBA in this case also relied on a regulation promulgated by the Department of Agriculture that authorizes the use of administrative offsets against persons or entities different from the named individual debtors. See Letter from Christy Grundberg, Small Bus. Admin., to Jonathan M. Kimple re: John R. and Phyllis A. McCall (Feb. 3, 1988) ("Further[,] ASCS federal regulations provide that if the true ownership of the inventory remains the same then Administrative offset will be allowed against the newly created entity.").

The Department of Agriculture regulation (USDA) cited by SBA to the McCalls first provides generally for offsets (at the request of either USDA components or other federal agencies) and then, in a section headed "Debtors operating under more than one name," authorizes offsets "against amounts payable to a debtor who operates businesses under more than one name, provided there is identical ownership." 7 C.F.R. Sec. 1408.16 (1988) (redesignated as amended at 7 C.F.R. Sec. 1403.7(q) (1993)); see also 54 Fed.Reg. 52,876 (1989) (Agricultural Stab. & Conserv. Serv., Commodity Credit Corp. (CCC) final rule), amending and redesignating 7 C.F.R. Sec. 1408.16 (1988) pursuant to The Federal Claims Collection Act, as amended by The Debt Collection Act of 1982, 31 U.S.C. Secs. 3711-3719 (1988) (authorizing offsets "against amounts payable to a debtor who operates businesses under more than one name, provided there is identical ownership, or CCC determines that the debtor has established an entity for the purpose of avoiding the payment of the claim or debt.") (emphasis added); cf. id. at 52,876 (among the purposes of the rule is to prevent the "circumvention of offset by such practices as the assignment of payments to friends, relatives, partners, or subsidiary corporations, as well as increase the ability of CCC and ASCS to recoup delinquent debts.").

Finally, it must be emphasized that the Debt Collection Act was intended to supplement, and not displace, the government's pre-existing offset rights under the common law. See General Accounting Office, Federal Claims Collection Standards, 49 Fed.Reg. 8891 (1984) (final rule). The alter ego doctrine was firmly established in common law jurisprudence before enactment of the Debt Collection Act. The discretionary nature of the power so clearly conferred upon agencies to effect offsets in pursuing federal fiscal interests lends itself to the incorporation of the ad hoc, substance-over-form analysis underlying the determination in any particular case to employ the alter ego doctrine when implementing an administrative offset. See id. at 8898 (codified at 7 C.F.R. Sec. 102.3) ("... determination [to offset is] to be made on a case-by-case basis, in the exercise of sound discretion. Agencies ... consider not only whether administrative offset can be accomplished, both practically and legally, but also whether offset is best suited to further and protect all of the Government's interests.") (emphasis added).

Certainly in these particular circumstances, we will not challenge SBA's administrative interpretation of the Debt Collection Act to permit invocation of the alter ego doctrine in aid of the administrative offsets challenged by the McCalls. Since the agency interpretation did not go so far as to articulate a specific test for determining alter ego status, however, the judicial review to which the SBA's determination is subject is governed by the applicable common law test.

III

Our review of the judgment of the Court of Federal Claims that an evidentiary record raises no genuine issues of...