Moseanko v. Yeutter, s. 90-5341

• Decision Date: 10 September 1991
• Docket Number: Nos. 90-5341,90-5546,s. 90-5341
• Citation: 944 F.2d 418
• Parties: Perry and Mary MOSEANKO and Dennis and Denise Dockter, Appellants, v. Clayton YEUTTER, Secretary of Agriculture; Vance Clark, Administrator of FHA; Milton Hertz, National Administrator of Agricultural Stabilization and Soil Conservation; Ralph W. Leet, State Director of FmHA; William Christmen, State Director of Agriculture Stabilization and Soil Conservation, Appellees. Perry and Mary MOSEANKO, Dennis and Denise Dockter, on behalf of themselves and others similarly situated, Appellants, v. Clayton YEUTTER, Secretary of Agriculture; Vance Clark, Administrator of FHA; Milton Hertz, National Administrator of Agricultural Stabilization and Soil Conservation; Ralph W. Leet, State Director of FmHA; William Christmen, State Director of Agricultural Stabilization and Soil Conservation, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 418

944 F.2d 418

Perry and Mary MOSEANKO and Dennis and Denise Dockter, Appellants, v. Clayton YEUTTER, Secretary of Agriculture; Vance Clark, Administrator of FHA; Milton Hertz, National Administrator

of Agricultural Stabilization and Soil Conservation; Ralph

W. Leet, State Director of FmHA; William Christmen, State

Director of Agriculture Stabilization and Soil Conservation,

Appellees.

Perry and Mary MOSEANKO, Dennis and Denise Dockter, on

behalf of themselves and others similarly

situated, Appellants, v. Clayton YEUTTER, Secretary of Agriculture; Vance Clark, Administrator of FHA; Milton Hertz, National Administrator

of Agricultural Stabilization and Soil Conservation; Ralph

W. Leet, State Director of FmHA; William Christmen, State

Director of Agricultural Stabilization and Soil

Conservation, Appellees.

Nos. 90-5341, 90-5546.

United States Court of Appeals Eighth Circuit.

Submitted March 11, 1991.

Decided Sept. 10, 1991.

Ervin J. Lee and Paul A. Temanson, Minot, S.D., argued (Lowell P. Bottrell, Fargo, N.D., Edward B. Reinhardt, Jr., New Town, N.D., Ervin J. Lee and Paul A. Temanson, Minot, N.D., on the brief) for appellants.

Michael E. Robinson, argued (Stuart M. Gerson, Stephen D. Easton, Robert S. Greenspan and Michael E. Robinson, on the brief), Washington, D.C., for appellees.

Before BOWMAN, Circuit Judge, HEANEY, Senior Circuit Judge, and LARSON, ^* Senior District Judge.

LARSON, Senior District Judge.

This appeal concerns plaintiffs' challenge of the procedures adopted by the Farmers Home Administration (FmHA) in 1986 to offset the farm program payments of farmers whose FmHA loans were delinquent. Two weeks after plaintiffs filed their class action complaint, FmHA instituted a moratorium on the use of the challenged regulations and later issued new regulations which provided many of the procedural protections plaintiffs had sought in their complaint.

The Moseankos agree these new regulations render their case moot, because none of their farm program payments were actually offset under the challenged regulations. The Dockters were subject to an "emergency" offset under the old regulations, however, and they contend FmHA should be ordered to refund the money that was offset under the "emergency" procedures. In addition, both the Moseankos and the Dockters argue they should receive attorney's fees as prevailing parties under the Equal Access to Justice Act, 28 U.S.C. § 2412(d), because the government's position in support of the challenged regulations was not "substantially justified."

We agree with plaintiffs that the district court misapplied the law and abused its discretion in concluding the government's position in support of the old "emergency" procedures was substantially justified. Accordingly, we reverse the court's attorney's fee order and remand with directions that plaintiffs be awarded their fees in connection with this litigation. We affirm the court's dismissal of the Dockters' request for an immediate return of the funds offset under the emergency procedures, however, because we conclude the hearing provided in the new regulations strikes the appropriate balance between the rights of the plaintiffs and the interests of the government under the circumstances presented in this case.

I.

We begin with the facts, which are undisputed. On October 25, 1982, Congress enacted the Debt Collection Act of 1982. Pub.L. No. 97-365, 60 Stat. 1749 (1982). The Act was formulated in response to reports by the General Accounting Office and Office of Management and Budget highlighting the magnitude of delinquent debt owed to the government. See S.Rep. No. 97-378, 97th Cong., 2d Sess. 3 (1982), reprinted in 1982 U.S.Code Cong. & Admin.News 3377, 3379. ¹ The Act contained provisions requiring credit applicants to supply a social security number, allowing agencies to screen credit applicants against IRS files of delinquent taxpayers, allowing agencies to report delinquent debtors to credit bureaus, and allowing agencies to contract with private collection services. Id. §§ 2-4, 7, 13, 96 Stat. 1749-51, 1752-53, 1757-58. Section 5 of the Act authorized the offset of a federal employee's salary for general debts owed to the government; section 10 authorized an administrative offset of funds otherwise owed to the debtor by the government. Id. §§ 5, 10, 96 Stat. 1751-52, 1754-55.

Under section 10, now codified at 31 U.S.C. § 3716, an agency could collect a claim by administrative offset only after prescribing regulations on collecting by way of offset and only after giving the debtor

(1) written notice of the type and amount of the claim, the intention of the head of the agency to collect the claim by administrative offset, and an explanation of the rights of the debtor under this section;

(2) an opportunity to inspect and copy the records of the agency related to the claim;

(3) an opportunity for a review within the agency of the decision of the agency related to the claim; and

(4) an opportunity to make a written agreement with the head of the agency to repay the amount of the claim.

31 U.S.C. § 3716. ²

General regulations implementing the Act were promulgated by the Comptroller General and the Attorney General of the United States. These regulations, called the Federal Claims Collection Standards, provided that each agency was to establish its own implementing regulations to determine, on a case-by-case basis, whether an administrative offset should be employed. See 4 C.F.R. § 102.3 (Federal Claims Collection Standards). The regulations required agencies to 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." Id. § 102.3(a)(2). See 31 U.S.C. § 3716(b). In particular, the regulations advised that in evaluating whether offset should be employed,

agencies may give due consideration to the debtor's financial condition, and are not required to use offset in every instance in which there is an available source of funds. Agencies may also consider whether offset would tend to substantially interfere with or defeat the purposes of the program authorizing the payments against which offset is contemplated.

4 C.F.R. § 102.3(a)(2).

A. FmHA's Initial Offset Regulations

Shortly after the Debt Collection Act was passed, FmHA suspended its use of administrative offsets as a means of collecting delinquent farm loans. ³ FmHA is a lender of last resort for farmers who cannot obtain credit from private lenders. The agency makes direct loans to farmers and ranchers through farm ownership, farm operating, and emergency loan programs. See H.R.Rep. No. 100-295(I) 71 (1987) reprinted in 1987 U.S.Code Cong. & Admin.News 2723, 2742. ⁴ Consistent with FmHA's mission to assist family farmers, these loan programs include provision for family living and farm operating expenses. See generally Coleman v. Block, 562 F.Supp. 1353, 1364 (D.N.D.1983); id., 580 F.Supp. 194, 196-98 (D.N.D.1984); id., 663 F.Supp. 1315, 1324 (D.N.D.1987), vacated as moot, 864 F.2d 604 (8th Cir.1988), cert. denied, 493 U.S. 953, 110 S.Ct. 364, 107 L.Ed.2d 351 (1989).

As of September 30, 1987, twenty-four percent of the 8,888 FmHA farm program borrowers in North Dakota were delinquent on their loan obligations. See Leet Aff. para. 2. ⁵ FmHA loan programs are not automatically terminated by delinquency, however. Rather, the agency is given broad authority to compromise and adjust loans and may grant loan deferrals where, for example, the borrower's inability to pay is due to circumstances beyond the borrower's control. See Coleman, 562 F.Supp. at 1360-61, 1364; id., 580 F.Supp. at 198-99.

FmHA's procedures for liquidating outstanding loans were enjoined in Coleman v. Block, when the district court ruled FmHA could not terminate a farmer's living and operating allowance, accelerate a farmer's debt, or foreclose on the property of any farmer-borrower without prior notice of (1) the reasons for the proposed action, (2) an explanation of the options for loan deferral or restructuring, and (3) an opportunity for a hearing. Coleman, 562 F.Supp. at 1367-68 (1983 preliminary injunction); 580 F.Supp. at 210-11 (1984 permanent injunction).

Prior to the Coleman preliminary injunction in 1983, an FmHA county supervisor who found a borrower was in default could liquidate the farmer's loan by refusing to release FmHA's lien on the farmer's crops or livestock. This refusal effectively terminated the farmer's income for family living and farm operating purposes, unless the farmer had income from another source. Faced with the elimination of their income stream, many borrowers sold off their property to pay the FmHA debt. If borrowers did not cure their default within sixty days of FmHA's decision to liquidate, their loans were accelerated and the entire balance was due immediately. Only then did FmHA's pre-1983 procedures give farmers the right to a hearing. Coleman, 562 F.Supp. at 1363; id., 580 F.Supp. at 200-01.

The Coleman court ruled these procedures violated due process, and ordered that debtors be given notice of loan restructuring options and the right to a hearing prior to FmHA's termination of allowances for family living and farm operating expenses. Id., 562 F.Supp. at 1367; 580 F.Supp. at 203-08, 210-11. In response to the Coleman court's orders, FmHA employed new forms which were sent to borrowers prior to any adverse action. Certain aspects of these new forms were again declared unconstitutional by the court on May 7, 1987. The court ordered that amended forms be used in all future accelerations. Id., 663 F.Supp. at 1333, 1342.

During the pendency of the Coleman litigation, on November 26, 1986, FmHA issued an interim rule which contained the procedures FmHA intended to use to exercise administrative offset pursuant to the Debt Collection Act, the Federal Claims Collection Standards...