Midland Farms, LLC v. U.S. Dep't of Agric.

• Citation: 35 F.Supp.3d 1056
• Decision Date: 23 July 2014
• Docket Number: No. CIV 13–3029–RAL.,CIV 13–3029–RAL.
• Court: U.S. District Court — District of South Dakota
• Parties: MIDLAND FARMS, LLC, Plaintiff, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Risk Management Agency, Federal Crop Insurance Corporation, and NAU Country Insurance, Inc., Defendants.

35 F.Supp.3d 1056

MIDLAND FARMS, LLC, Plaintiff

v.UNITED STATES DEPARTMENT OF AGRICULTURE, Risk Management Agency, Federal Crop Insurance Corporation, and NAU Country Insurance, Inc., Defendants.

No. CIV 13–3029–RAL.

United States District Court, D. South Dakota, Central Division.

Signed July 23, 2014.

Mary K. Walker, Wendell L. Hoskins, II, Law Office of Wendell L. Hoskins II, Caruthersville, MO, Paul E. Bachand, Schmidt, Schroyer, Moreno, Lee & Bachand, Pierre, SD, for Plaintiff.

Cheryl Schrempp Dupris, U.S. Attorney's Office, Pierre, SD, R. Alan Peterson, Lynn, Jackson, Shultz & Lebrun, P.C., Sioux Falls, SD, Mitch D. Carthel, Timothy C. Williams, Sprouse Shrader Smith P.C., Amarillo, TX, for Defendants.

OPINION AND ORDER GRANTING MOTION TO DISMISS DEFENDANT NAU COUNTRY INSURANCE, INC.

ROBERTO A. LANGE, District Judge.

I. INTRODUCTION

NAU Country Insurance, Inc. (“NAU”) has filed a Motion to Dismiss the Complaint filed by Plaintiff Midland Farms, LLC (“Midland”), Doc. 11. Midland's Complaint has two counts. Doc. 1. Count I seeks judicial review of an agency decision under, among other statutes, the Administrative Procedure Act (“APA”), 5 U.S.C. § 701 et seq., and names as Defendants for that claim the United States Department of Agriculture (“USDA”), the Risk Management Agency (“RMA”), and the Federal Crop Insurance Corporation (“FCIC”) (collectively “Agency Defendants”). Doc. 1 at ¶¶ 41–42. Count II seeks a declaratory judgment and names as Defendants for that claim not only the Agency Defendants, but also NAU. Doc. 1 at ¶¶ 43–45. This Court grants NAU's motion to dismiss without prejudice to refiling after arbitration for the reasons explained below.

II. BACKGROUND & FACTS

A. Crop Insurance Program

In 1938, Congress passed the Federal Crop Insurance Act (“FCIA”), 7 U.S.C. § 1501 et seq., “to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance and providing the means for the research and experience helpful in devising and establishing such insurance.” Alliance Ins. Co. v. Wilson, 384 F.3d 547, 549 (8th Cir.2004) (quoting 7 U.S.C. § 1502 ). The FCIA created the federal crop insurance program and established Defendant FCIC. 7 U.S.C. § 1503. FCIC is a wholly-owned government corporation situated within another Agency Defendant, the USDA, that administers and regulates the federal crop insurance program. See id.; Alliance Ins. Co., 384 F.3d at 549. Congress created Defendant RMA in 1996 to operate and manage FCIC.¹ Am. Growers Ins. Co. v. Fed. Crop Ins. Corp., 532 F.3d 797, 798 (8th Cir.2008).

Originally, FCIC provided crop insurance coverage directly to producers. Alliance Ins. Co., 384 F.3d at 549. In 1980, Congress revised the FCIA to encourage FCIC to contract with approved, private insurance companies to sell and service crop insurance policies and have FCIC reinsure those policies. Ace Prop. & Cas. Ins. Co. v. Fed. Crop Ins. Corp., 440 F.3d 992, 994 (8th Cir.2006) (citing 7 U.S.C. §§ 1508(k)(1), 1508(b)(1) ). Most crop insurance policies now are offered privately through an approved insurance provider (“AIP”) and reinsured by FCIC, rather than issued by FCIC directly. See id. The terms and conditions of these policies are mandated by FCIC, published at 7 C.F.R. § 457.8, and are referred to as the “Basic Provisions.” See Skymont Farms v. Fed. Crop Ins. Corp., No. 4:09–cv–65, 2012 WL 1193407, at *5 (E.D.Tenn. Apr. 10, 2012) (noting that 7 C.F.R. § 457.8 “sets forth the ‘Basic Provisions' that are included in each crop insurance policy....”); Bissette v. Rain & Hail, LLC, No. 5:10–CV–40–D, 2011 WL 3905059, at *1 (E.D.N.C. Sept. 2, 2011) (“The crop insurance policy is a uniform policy, with terms and conditions mandated by RMA and published in the Code of Federal Regulations.”). Midland and NAU agree that the Basic Provisions apply to their dispute and that the Basic Provisions' arbitration clause covers Midland's claims of entitlement to coverage under the crop insurance policies. Doc. 1 at ¶¶ 25–26; Doc. 12 at 2, 9; Doc. 22 at 2, 5 (Midland admitting that its “policy claims are the subject of a pending, mandatory arbitration[ ], and [Midland] acknowledges that the arbitrator would be the proper finder of any disputed fact”).

B. Facts

NAU does not dispute the facts alleged in Midland's Complaint for purposes of its motion to dismiss. NAU is a Minnesota corporation that is an AIP of crop insurance policies reinsured by FCIC. Doc. 1 at ¶ 2. Midland is an Iowa limited liability corporation which owns farmland in Haakon and Stanley Counties in South Dakota. Doc. 1 at ¶ 1.

In March of 2008, Midland leased over 35,000 acres of farmland in Haakon and Stanley Counties to members of the Hardes family (“the Hardes”).² Doc. 1 at ¶¶ 8–9. In the Fall of 2008, the Hardes obtained four federally reinsured multi-peril crop insurance policies³ (“the Policies”) from NAU for its winter wheat crop. Doc. 1 at ¶ 10. Midland and the Hardes amended their lease in October of 2008 to require that the Hardes obtain crop insurance and transfer the right to indemnification under the Policies to Midland. Doc. 1 at ¶ 12. Although the Hardes obtained crop insurance, they did not assign immediately the right to indemnity to Midland. Doc. 1 at ¶¶ 10, 13.

In early 2009, the Hardes defaulted on their lease with Midland. Doc. 1 at ¶ 13. Owing money to both Midland and to other creditors, the Hardes assigned the right to indemnification under the Policies to creditors other than Midland, and NAU appears to have approved at least one such assignment. Doc. 1 at ¶¶ 16–17, 22. In February of 2009, Midland obtained a judgment from a South Dakota state court requiring, among other things, that the Hardes transfer to Midland the Policies' indemnification rights. Doc. 1 at ¶ 18. In July of 2009, the Hardes finally executed transfer of coverage and assignments of indemnity forms in favor of Midland. Doc. 1 at ¶ 21; Doc. 1–14 at 2. In September 2009, Midland filed a notice of claim with NAU for proceeds from the Policies. Doc. 1 at ¶ 23; Doc. 1–14. NAU denied Midland's claims. Doc. 1–14.

After NAU denied Midland's claims, “[Midland] and Defendant NAU entered into policy-mandated claims arbitration before the American Arbitration Association.” Doc. 1 at ¶ 25. The Basic Provisions require that questions of policy interpretation arising in arbitration be submitted to FCIC for its interpretation and any such interpretation binds the arbitrator. Doc. 1 at ¶ 26. Both parties submitted requests for interpretation to FCIC on certain policy provisions, including provisions relating to transferring and assigning coverage. Doc. 1 at ¶¶ 27–33. FCIC's interpretations were favorable to NAU. Doc. 1 at ¶ 29. Midland appealed the adverse interpretations and exhausted its administrative remedies. Doc. 1 at ¶¶ 37–38.

Midland thereafter filed its Complaint asserting that this Court has jurisdiction pursuant to the APA, the judicial review section of regulations applicable to the USDA's National Appeals Division codified at 7 C.F.R. § 11.13,⁴ the FCIA, and federal question jurisdiction under 28 U.S.C. § 1331. Doc. 1 at ¶ 6. Midland's Complaint does not allege diversity jurisdiction under 28 U.S.C. § 1332. Rather, Midland averred that its “cause of action arises from Defendant RMA's adverse response to a request for interpretation of certain administrative procedures of the Agency Defendants” and that “[a]ll of the wrongs complained of herein arise from regulatory interpretations made by the Agency Defendants[.]” Doc. 1 at ¶¶ 4, 7.

Midland makes specific jurisdiction allegations regarding each count. The Complaint alleges jurisdiction over Count I based on the APA, USDA administrative regulations, and the FCIA. Doc. 1 at ¶ 41. Midland in Count I names the Agency Defendants but not NAU as a defendant. See Doc. 1 at ¶¶ 41–42.

Count II seeks a declaratory judgment and is asserted against both NAU and the Agency Defendants. Doc. 1 at ¶¶ 43–45. Midland seeks the following declaration judgment:

(a) Plaintiff was entitled to have the transfers [of coverage] ... approved upon submission of its ... Transfer of Coverage applications;

(b) Plaintiff was thereby entitled to coverage under the Policies;

(c) Defendant NAU is bound to grant Plaintiff the protections afforded by the transferred Policies; and

(d) To the extent that Plaintiff has experienced a covered loss during the insurance period, indemnity shall be due and payable.

Doc. 1 at ¶ 45. Midland, in Count II, alleges that “[i]nsofar as this Court has obtained jurisdiction to review the actions of the Agency Defendants and the transferability of the Policies in question, declaratory judgment is warranted in this case pursuant to [The Declaratory Judgment Act, 28 U.S.C. § 2201 ] and 28 U.S.C. § 1331.” Doc. 1 at ¶ 44. Midland prays for this Court to “declare its judgment that [Midland] is entitled to coverage under the subject Policies, and to the protections and indemnity afforded thereunder; ... and for such other and further relief as may be just and proper.” Doc. 1 at ¶ 45. Midland also makes a jury demand. Doc. 1 at 13, Part V.

NAU moved to dismiss under Rule 12(b)(1), Rule 12(b)(3), and Rule 12(b)(6) of the Federal Rules of Civil Procedure.

Doc. 11. NAU makes two arguments in support of its motion: (1) that it is not a proper defendant in an APA judicial review action, and (2) that the declaratory judgment remedies Midland seeks in Count II must be resolved in the mandatory pending arbitration. Doc. 12 at 7–8. Midland does not dispute that its claims against NAU are subject to mandatory arbitration. For example, Midland's brief states that “Defendant NAU correctly asserts that Plaintiff's policy claims are the subject of a pending, mandatory arbitration action, and [Midland] acknowledges that the arbitrator would be the proper finder of any disputed fact.” Doc. 22 at 5 (footnote omitted). Midland also “fully expects to return to arbitration once its remedies for regulatory review...