Rowell v. Secretary of Agriculture, s. 82-8544

• Decision Date: 15 August 1984
• Docket Number: 83-7147,Nos. 82-8544,s. 82-8544
• Citation: 738 F.2d 1556
• Parties: Inez CURRY and Remer Curry, et al., Plaintiffs-Appellees, v. John R. BLOCK, etc., et al., Defendants-Appellants. James McLeod ROWELL, Plaintiff-Appellant, v. SECRETARY OF AGRICULTURE, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1556

738 F.2d 1556

Inez CURRY and Remer Curry, et al., Plaintiffs-Appellees, v. John R. BLOCK, etc., et al., Defendants-Appellants.

James McLeod ROWELL, Plaintiff-Appellant, v. SECRETARY OF AGRICULTURE, et al., Defendants-Appellees.

Nos. 82-8544, 83-7147.

United States Court of Appeals Eleventh Circuit.

Aug. 15, 1984.

Ray Fullerton, U.S. Dept. of Agriculture, Washington, D.C., for defendants-appellants in 82-8544.

Martha A. Miller, Atlanta, Ga., for plaintiffs-appellees in 82-8544.

Catharine F. Haukedahl, Asst. Atty. Gen., St. Paul, Minn., for amicus curiae, State of Minnesota.

Allen J. Barkin, Legal Services Corp. of Alabama, Bay Minette, Ala., for plaintiff-appellant in 83-7147.

D. Broward Segrest, Asst. U.S. Atty., John C. Bell, U.S. Atty., Montgomery, Ala., for defendants-appellees in 83-7147.

Appeal from the United States District Court for the Southern District of Georgia.

Appeal from the United States District Court for the Middle District of Alabama.

Before RONEY, FAY and CLARK, Circuit Judges.

CLARK, Circuit Judge:

These consolidated appeals involve actions brought by borrowers who have defaulted on loans granted under the Consolidated Farm and Rural Development Act (CFRDA), 7 U.S.C. Sec. 1921 et seq. (1982). These borrowers challenge the Farmers Home Administration's (FmHA) implementation of loan servicing and foreclosure avoidance mechanisms contained in 7 U.S.C. Sec. 1981a. ¹ Section 1981a provides:

In addition to any other authority that the Secretary may have to defer principal and interest and forego foreclosure, the Secretary may permit, at the request of the borrower, the deferral of principal and interest on any outstanding loan made, insured, or held by the Secretary under this chapter, or under the provisions of any other law administered by the Farmers Home Administration, and may forego foreclosure of any such loan, for such period as the Secretary deems necessary upon a showing by the borrower that due to circumstances beyond the borrower's control, the borrower is temporarily unable to continue making payments of such principal and interest when due without unduly impairing the standard of living of the borrower. The Secretary may permit interest that accrues during the deferral period on any loan deferred under this section to bear no interest during or after such period: Provided, That if the security instrument securing such loan is foreclosed such interest as is included in the purchase price at such foreclosure shall become part of the principal and draw interest from the date of foreclosure at the rate prescribed by law.

7 U.S.C. Sec. 1981a (1982). The borrowers' challenge to the FmHA's implementation of Sec. 1981a can be summarized as follows. First, they contend that Sec. 1981a requires the FmHA to establish uniform administrative procedures: the FmHA must give borrowers personal notice of their right to apply for deferral relief ² and establish a procedural framework which would afford borrowers a hearing in which they could show their entitlement to relief. Second, the borrowers contend that Sec. 1981a directs FmHA to develop substantive standards by which to judge deferral applications: the FmHA must promulgate regulations on the eligibility criteria of Sec. 1981a. ³

In Rowell, the District Court for the Middle District of Alabama dismissed the borrower's complaint, finding that the deferral relief provided by 7 U.S.C. Sec. 1981a is discretionary and, therefore, the borrower had no right to demand such relief. In Curry, 541 F.Supp. 506, a class action, the District Court for the Southern District of Georgia granted on motion for summary judgment the borrowers' requested relief, finding that the FmHA's current regulations were both substantively and procedurally deficient. As to substance, the court found that Sec. 1981a imposes a mandatory duty upon the FmHA to implement eligibility criteria. As to procedure, the court determined that Sec. 1981a requires the FmHA to provide borrowers with personal notice of the availability of deferral relief and an opportunity to be heard. Furthermore, the court found unsatisfactory the content and placement of the notice to be given pursuant to the FmHA's proposed regulations. The borrower in Rowell appeals the district court's dismissal of the complaint, urging this court to adopt the Curry court's position. The government in Curry appeals the court's grant of relief, arguing that the Secretary has in fact satisfactorily implemented a deferral relief program.

Issues

This appeal requires us to address, first, whether 7 U.S.C. Sec. 1981a imposes a mandatory or discretionary duty on the Secretary of Agriculture to implement a deferral program. If a mandatory duty is imposed, we then must determine what procedures and substantive standards are essential to a properly implemented deferral program under 7 U.S.C. Sec. 1981a. We must then decide whether current FmHA regulations and/or practices implementing the deferral program supply these essential components. If they do not, we must finally determine whether the Secretary must employ the rulemaking procedure of the Administrative Procedure Act, 5 U.S.C. Sec. 551 et seq. (1982), to supply these missing elements.

Discussion

1. Mandatory vs. Discretionary

The parties disagree over the meaning of the following language: "the Secretary may permit ... the deferral of principal and interest on any outstanding loan ... and may forego foreclosure...." 7 U.S.C. Sec. 1981a (emp. added). The government, in its brief and in the court below, made the sweeping argument that the permissive language "may" indicates that Congress made implementation of the program optional and gives the FmHA complete discretion to decline to implement the deferral program. The borrowers, on the other hand, argue that the program itself is not optional at all and must be implemented, but the decision whether to grant a deferral in a particular case is entrusted to the Secretary's sound discretion.

At oral argument, the government retracted from its extreme position. The government now concedes that Sec. 1981a mandates the FmHA to give borrowers notice of the availability of deferral relief. The government does not concede, however, that other procedural protections, such as an opportunity to be heard, are mandated. Furthermore, the government contends that Sec. 1981a does not require the Secretary to promulgate any substantive criteria to determine borrowers' eligibility for deferral relief.

The government's shift in position at this late stage helps point out the true focus of this appeal. ⁴ To argue that the statute mandates certain procedural aspects of a deferral relief program but not certain substantive aspects is not to argue that the statute mandates no program at all; rather, the very fact that notice of a program must be given ⁵ demonstrates that some sort of program must exist. In light of the government's concession that the statute requires notice, any other construction of Sec. 1981a would create an illogical statutory scheme in which the FmHA is required to give borrowers notice of a nonexistent program. Such could not be Congress' intent. ⁶ Congress has created a deferral relief program and the question is not whether, but how, the FmHA is to implement it. Therefore, we now turn to this important question.

2. Essential Components of the Deferral Relief Program

Having determined that Sec. 1981a mandates the FmHA to implement a deferral relief program of some description, we now identify the precise requisites of such a program. We agree with the Eighth Circuit in Allison v. Block, 723 F.2d 631 (8th Cir.1983), in holding that proper implementation of a deferral relief program contains both procedural and substantive components. That is, Sec. 1981a "creates a right to have certain uniform procedures established and requires the Secretary to develop substantive standards applicable to deferral applications." Id., 723 F.2d at 634 (footnote omitted). See also Matzke v. Block, 732 F.2d 799 (10th Cir.1984).

a. Procedural Requisites

As already noted, the government has conceded that notice is mandatory under Sec. 1981a. The district court in Curry, however, went beyond the government's concession, and analyzed the procedure question as follows:

The language of [Sec. 1981a] expressly provides that the deferral mechanism is triggered "at the request of the borrower." Further, no deferral relief will be forthcoming absent "a showing by the borrower that due to circumstances beyond the borrower's control the borrower is temporarily unable to continue making payments of such principal and interest when due without unduly impairing the standard of living of the borrower." ... Logically, the borrower is unable to request the deferral relief and show his eligibility to receive the same unless he has notice of the contents of Sec. 1981a and an opportunity to be heard.

541 F.Supp. at 522. Thus, without addressing the borrowers' due process arguments, the Curry court concluded that the statute itself embodied the procedural protections of notice and an opportunity for a hearing. Similarly, the Eighth Circuit in Allison concluded that "the rudimentary elements of adequate notice and an opportunity to be heard are embodied in the language of Section 1981a." 723 F.2d at 634. We agree with the conclusions of the Curry and Allison courts. ⁷

b. Substantive Requisites

The district court in Curry concluded that proper implementation of the deferral relief program required the FmHA to establish eligibility criteria for Sec. 1981a relief. 541 F.Supp. at 522, 526. Likewise, the Allison court determined that "[g]ood faith consideration of the Section 1981a deferral alternative by the Secretary requires the existence of some substantive standards which, if met, entitled the borrower to relief." 723 F.2d at 636. We agree that the deferral relief program would be a mere "empty procedural shell" in the absence of...