Mendel v. Production Credit Ass'n of the Midlands

• Decision Date: 03 April 1987
• Docket Number: 86-4104.,Civ. No. 86-4098
• Citation: 656 F. Supp. 1212
• Parties: Dennis MENDEL and Thelma Mendel, Husband and Wife, Plaintiffs, v. PRODUCTION CREDIT ASSOCIATION OF THE MIDLANDS, Formerly Mitchell-Huron Production Credit Association, Defendant. PRODUCTION CREDIT ASSOCIATION OF THE MIDLANDS, f/d/b/a Mitchell-Huron Production Credit Association, Plaintiff, v. Dennis MENDEL and Thelma Mendel, Defendants.
• Court: U.S. District Court — District of South Dakota

656 F. Supp. 1212

Dennis MENDEL and Thelma Mendel, Husband and Wife, Plaintiffs, v. PRODUCTION CREDIT ASSOCIATION OF THE MIDLANDS, Formerly Mitchell-Huron Production Credit Association, Defendant.

PRODUCTION CREDIT ASSOCIATION OF THE MIDLANDS, f/d/b/a Mitchell-Huron Production Credit Association, Plaintiff, v. Dennis MENDEL and Thelma Mendel, Defendants.

Civ. Nos. 86-4098, 86-4104.

United States District Court, D. South Dakota, S.D.

April 3, 1987.

Fred Hendrickson, Sioux Falls, S.D., for Dennis and Thelma Mendel.

Steven M. Johnson, Yankton, S.D., for Production Credit Ass'n.

MEMORANDUM OPINION AND ORDER

JOHN B. JONES, District Judge.

FACTS

Dennis and Thelma Mendel (Mendels) started doing business with the Mitchell-Huron Production Credit Association, now Production Credit Association of the Midlands (PCAM) in 1979. The loans involved in these actions were made in 1985, with PCAM taking a security interest in the Mendels' farm machinery. Mendels also made an oral request for an additional loan in 1986 which was denied. At PCAM's request, the Mendels sold the farm machinery securing the 1985 debt, and the proceeds of $32,276.32 are being held by the Clerk of this court.

ISSUES

The Mendels sued PCAM in state court for damages, alleging breach of express and implied contract, breach of fiduciary duty and negligence. That action was removed to this Court as CIV 86-4104. PCAM sued the Mendels in this Court in CIV 86-4098, alleging that Mendels owed it $37,319.52 plus interest, asking that the proceeds of the sale of collateral be applied to the debt, and requesting that it receive judgment for the deficiency. PCAM made a motion for summary judgment in both actions, and the motion was heard on January 5, 1987.

This Court has diversity jurisdiction in both actions.

The issue in CIV 86-4104 is whether the Mendels can maintain an action for damages based on either (1) the Farm Credit Act of 1971 (FCA), 12 U.S.C.A. sections 2001 et seq. (1980 & Supp.1986), (2) the Farm Credit Amendments Act of 1985 (1985 Amendments), Pub.L. No. 99-205, 99 Stat. 1678, or (3) on state law.

The issues in CIV 86-4098 are the amount of the Mendels' indebtedness to PCAM, and whether PCAM has any claim to the proceeds of the sale of Mendels' farm personal property.

Under Federal Rule of Civil Procedure 56, summary judgment shall be granted "only when the moving party satisfies its burden of showing the absence of a genuine issue as to any material fact and that it is entitled to judgment as a matter of law." Foster v. Johns-Manville Sales Corp., 787 F.2d 390, 391 (8th Cir.1986). Accordingly, "the court must view the facts in the light most favorable to the opposing party and must give that party the benefit of all reasonable inferences to be drawn from the facts." Id. at 392.

MENDELS' DAMAGE CLAIM IN CIV 86-4104

1. Claims based on the Farm Credit Act.

The Mendels allege that PCAM violated several provisions of the FCA and its accompanying regulations, namely: (1) PCAM did not follow 12 C.F.R. section 612.2135 (1986) ("directors and employees shall observe, to the best of their abilities, the letter and intent of all applicable laws, regulations, rules, policy statements, instructions, and procedures of the Farm Credit Administration and System institutions...."), (2) PCAM did not loan the Mendels funds at the lowest possible cost contrary to 12 U.S.C.A. section 2075 (Supp. 1986) ("In setting the rates and charges, it shall be the objective to provide the types of credit needed by eligible borrowers, at the lowest reasonable costs...."), (3) PCAM has not distributed profits to its stockholders contrary to 12 U.S.C.A. section 2094(i)(1980) ("Dividends on stock, other than preferred stock ... may be paid by an association....") and 12 U.S.C.A. section 2095(b) (Supp.1986) ("available net earnings at the end of any fiscal year may be distributed on a patronage basis in stock, participation certificates, or in cash."), (4) PCAM did not notify the Mendels of its policy of forbearance contrary to 12 C.F.R. section 614.4510(b)(1) (1986) ("The policy shall provide a means of forbearance for cases when the borrower is cooperative, making an honest effort to meet the conditions of the loan contract, and is capable of working out of the debt burden."), (5) PCAM failed to follow its policy for lending under stress conditions contrary to the "Statement on Lending Under Stress Conditions" contained in the 50th Annual Report of the Farm Credit Administration 19-20 (1983) ("The Federal Farm Credit Board reaffirms the system's longstanding policy of forbearance — that is, sticking with a borrower so long as there appears to be a reasonable possibility for him to work out of financial difficulties and reestablish a fully viable farm business."), and (6) PCAM failed to inform the Mendels when they applied for their loans of their borrower's rights as set out in 12 U.S.C.A. sections 2201 and 2202 (1980 & Supp. 1986).

PCAM correctly asserts that the Farm Credit Act, together with accompanying regulations and policy statements, does not support a private cause of action under the facts of this case. See, Smith v. Russellville Production Credit Association, 777 F.2d 1544, 1547-48 (11th Cir.1985); Brekke v. Volcker, 652 F.Supp. 651 (D.Mont.1987); Creech v. Federal Land Bank of Wichita, 647 F.Supp. 1097, 1101 (D.Colo.1986); Aberdeen Production Credit Association v. Jarrett Ranches, Inc., 638 F.Supp. 534, 536-37 (D.S.D.1986); Corum v. Farm Credit Service, 628 F.Supp. 707, 719-20 (D.Minn.1986); Spring Water Dairy, Inc. v. Federal Intermediate Credit Bank of St. Paul, 625 F.Supp. 713, 718-20 (D.Minn. 1986); Apple v. Miami Valley Production Credit Association, 614 F.Supp. 119, 121-22 (S.D. Ohio 1985), aff'd, 804 F.2d 917 (6th Cir.1986); Birbeck v. Southern New England Production Credit Association, 606 F.Supp. 1030, 1037 (D.Conn.1985); Bowling v. Block, 602 F.Supp. 667, 671 (S.D.Ohio 1985), aff'd, 785 F.2d 556, 557 (6th Cir.) cert. denied, ___ U.S. ___, 107 S.Ct. 112, 93 L.Ed.2d 60 (1986); Hartman v. Farmers Production Credit Association of Scottsburg, 628 F.Supp. 218, 220-22 (S.D. Ind.1983). Contra Delaigle v. Federal Land Bank of Columbia, 568 F.Supp. 1432, 1437 (S.D.Ga.1983) (held 12 C.F.R. section 614.4510 had force and effect of law).

12 U.S.C.A. sections 2201 and 2202 do grant loan applicants certain rights. See e.g., Spring Water Dairy, 625 F.Supp. at 718. In this action, however, the Mendels are not asking this Court to force PCAM to follow the mandates of those sections. They are instead seeking damages for their alleged violation. The Mendels, therefore, do not appear as loan applicants, and sections 2201 and 2202 will not support an action for damages.

The Farm Credit Act, therefore, gives the Mendels no cause of action for damages, and PCAM is entitled to summary judgment on these claims.

2. Claims based on the Farm Credit Amendments Act of 1985.

The Mendels assert that Title III of the 1985 Amendments, and the accompanying legislative history, give them the right to bring a private cause of action thereunder. They argue that PCAM violated several provisions of the 1985 Amendments, namely: (1) PCAM did not develop a policy governing forbearance and did not provide the Mendels with a copy of its forbearance policy in violation of section 301 of the 1985 Amendments, (2) PCAM did not provide the Mendels with written notice of the reasons why their January, 1986 oral loan application was denied in violation of section 302 of the 1985 Amendments, (3) PCAM did not provide the Mendels with notice of their right to appeal the denial of their January, 1986 oral loan application to a credit review committee that included farm board representation in violation of section 304 of the 1985 Amendments, and (4) PCAM did not review the Mendels' loan once it was placed in non-accrual status to determine whether it could be restructured and did not notify the Mendels that they had a right to such review under section 307 of the 1985 Amendments.

The reported cases referred to above do not address the issue of whether the 1985 Amendments create a private cause of action. The 1985 Amendments do not expressly state that they are enforceable in a private cause of action. This Court, therefore, must determine whether a private cause of action can be implied. In doing so, the 1985 Amendments must be analyzed under the four-part framework established by the Supreme Court in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). Under this framework, this Court must determine whether: (1) the plaintiff is one of the class for whose especial benefit the statute was enacted, (2) there is any indication of legislative intent, explicit or implicit, either to create such a remedy or deny one, (3) it is consistent with the underlying purpose of the legislative scheme to imply such a remedy for plaintiff, and (4) the cause of action is one traditionally relegated to state law, in an area basically the concern of the states, so that it would be inappropriate to infer a cause of action based on federal law. Cort v. Ash, 422 U.S. at 78, 95 S.Ct. at 2088. "The central inquiry remains whether Congress intended to create, either expressly or by implication, a private cause of action." Touche Ross, 442 U.S. 560, 579, 99 S.Ct. 2479, 2488, 61 L.Ed.2d 82 (1979).

The caption of Title III of the 1985 Amendments is "Protection for Farmers and Other Farm Credit System Borrowers." Section 301(b), codified as 12 U.S. C.A. section 2199 (Supp.1986), requires system institutions to develop a policy of forbearance and to provide borrowers with a copy of that policy. Section 302 amended 12 U.S.C.A. section 2201 to require written notice of action on an application, including reasons for denial or reduction of the requested loan. Section 303 amended 12 U.S. C.A. section 2202 to require that credit review committees include farm board representation and made other changes in the...