Smith v. Russellville Production Credit Ass'n

• Citation: 777 F.2d 1544
• Decision Date: 12 December 1985
• Docket Number: No. 85-7084,85-7084
• Parties: Charles Stinson SMITH and Jimmie Dean Smith, Plaintiffs-Appellants, v. RUSSELLVILLE PRODUCTION CREDIT ASSOCIATION, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1544

777 F.2d 1544

54 USLW 2390

Charles Stinson SMITH and Jimmie Dean Smith, Plaintiffs-Appellants, v. RUSSELLVILLE PRODUCTION CREDIT ASSOCIATION, et al.,

Defendants-Appellees.

No. 85-7084.

United States Court of Appeals, Eleventh Circuit.

Dec. 12, 1985.

Joe R. Whatley, Jr., Charles F. Norton, Falkenberry, Whatley & Heidt, Birmingham, Ala., for plaintiffs-appellants.

Bedford, Bedford & Rogers, Robert I. Rogers, Jr., Russellville, Ala., Maynard, Cooper, Frierson & Gale, James L. Goyer, III, Maibeth J. Porter, Birmingham, Ala., for defendants-appellees.

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

Before GODBOLD, Chief Judge, JOHNSON, Circuit Judge, and TUTTLE, Senior Circuit Judge.

JOHNSON, Circuit Judge:

Appellants, the Smiths, are lifelong family farmers. Starting in 1967, the Smiths became almost totally dependent on appellee Russellville Production Credit Association ("RPCA") for their credit needs. The RPCA is a federally chartered Production Credit Association ("PCA").

In January 1983, the Smiths negotiated a $92,000 loan from the RPCA, payable on January 1, 1984. In return for this loan, the Smiths mortgaged their house, crops, farm equipment, and RPCA stock. The year 1983 was an economic disaster for the Smiths. As of February 23, 1984, the Smiths owed the RPCA about $74,846, the Smiths having failed to discharge their repayment obligation on January 1, 1984. The Smiths received a certified letter from the RPCA on February 23 demanding payment in full of that amount, such payment to be received no later than March 2, 1984.

The Smiths requested that the RPCA enter into a nondisturbance agreement regarding the Smiths' farm equipment so that they could get a disaster loan from the Farmer's Home Administration and make a crop with the equipment in 1984. Then, on March 2, 1984, the Smiths filed a pro se complaint against the RPCA in the United States District Court for the Northern District of Alabama. In their complaint, the Smiths sought compensatory and punitive damages for alleged violations of both federal and state law.

The RPCA, exercising its rights under the security agreement, repossessed the Smiths' farm equipment in June 1984, and applied the sale proceeds to the outstanding loan balance. On September 5, 1984, the United States Small Business Administration ("SBA") purchased the balance of the Smiths' account, eliminating the Smiths' debt to the RPCA.

The pro se complaint was consolidated with three other similar cases filed by farmers, and then dismissed without prejudice on April 9, 1984, with leave to amend. The farmers filed an amended complaint on April 30, 1984, which complaint contained eight counts. The amended complaint included allegations that the RPCA had violated the requirements of the Farm Credit Act, 12 U.S.C.A. Sec. 2001 et seq., and the Truth-in-Lending Act ("TILA"), 15 U.S.C.A. Sec. 1605; and that the RPCA was guilty of fraudulent misrepresentation and wrongful foreclosure. The farmers sought compensatory and punitive damages.

On July 26, 1984, the court granted partial summary judgment in favor of the RPCA on two of the counts. After holding a pretrial hearing in December 1984, the court on January 23, 1985, granted partial summary judgment on four of the other counts and on the issue of punitive damages. The district court retained jurisdiction over the remaining state tort claims for fraudulent misrepresentation and wrongful foreclosure.

The Smiths filed a timely notice of appeal of the district court's order. The issues the Smiths raise on appeal are: (1) that the court erred in holding there is no private cause of action under the Farm Credit Act; (2) that the court erroneously determined as a fact that the loan transactions involved in the present case were made for agricultural purposes, and were therefore exempt from the disclosure requirements of the TILA; and (3) that the court erred in holding that the RPCA could not be liable for punitive damages because of sovereign immunity.

I. Farm Credit Act Does Not Create Private Right of Action

Appellants contend that the Farm Credit Act, 12 U.S.C.A. Sec. 2001 et seq., and the regulations promulgated thereunder provide them with a private right of action against the RPCA. PCAs are required by statute to prepare a program for furnishing credit to "young, beginning, and small farmers." See 12 U.S.C.A. Sec. 2207(a). In addition, a federal regulation states that, as a general policy, PCAs shall provide means of forbearance to cooperative borrowers. 12 C.F.R. Sec. 614.4510(d)(1). Appellants contend that these provisions impose affirmative legal duties on PCAs for the benefit of borrowers, and that borrowers have an implied private right of action to ensure that these duties are fulfilled. Appellants also argue that a statutory provision that PCAs may "sue and be sued," see 12 U.S.C.A. Sec. 2093(4), indicates that Congress intended to create an implied private right of action under the Farm Credit Act.

The Farm Credit Act was enacted to improve the income and well-being of American farmers by increasing the availability of sound, adequate, and constructive credit. To accomplish this objective, Congress created a farmer-owned cooperative credit system, one component of which was the PCAs. The Farm Credit Act contains no express provision granting individuals a federal cause of action to enforce the provisions of that act. However, courts have held that a statute which fails expressly to provide a private right of action can sometimes create an implied private right of action, where a private right of action is necessary to effectuate the purpose of the statute. See Florida Commercial Banks v. Culverhouse, 772 F.2d 1513, 1515-17 (11th Cir.1985).

In considering whether a statute creates an implied right of action, courts must focus primarily on the question of legislative intent. Culverhouse, supra, at 1517; Touche Ross & Co. v. Redington, 442 U.S. 560, 575-76, 99 S.Ct. 2479, 2488-89, 61 L.Ed.2d 82 (1979). In the present case, this Court must decide whether, in enacting the Farm Credit Act, Congress intended to create an implied right of action on behalf of borrowers such as the Smiths.

No private remedy exists in a statute which does not provide private rights to an identifiable class, does not prohibit conduct as unlawful, and whose legislative history is silent on the existence of a private right of action. Till v. Unifirst Federal Savings & Loan Association, 653 F.2d 152, 161 (5th Cir. Unit A 1981); Touche Ross, supra, 442 U.S. at 576, 99 S.Ct. at 2489. Appellants fail to bring to this Court's attention any language in the legislative history of the Farm Credit Act which would indicate that the act creates a private right of action. Our search revealed no such language. Also, the Farm Credit Act does not prohibit any conduct as unlawful. Thus, in order to hold that Congress intended to create an implied right of action, we must first decide whether the Farm Credit Act creates any affirmative obligations on the part of PCAs and, consequently, creates private rights on behalf of borrowers. If the Farm Credit Act does not impose any affirmative duties on the PCAs, then it follows that there cannot be any private right of action to ensure that those duties are fulfilled.

Appellants contend that a statutory requirement that PCAs prepare a program for furnishing credit to "young, beginning, and small farmers," see 12 U.S.C.A. Sec. 2207(a), imposes affirmative duties on the PCAs. This argument must be rejected. It is clear that the statutory provisions creating the PCAs did not confer substantive rights on behalf of any class of farmers to receive credit but, rather, set forth a general goal of channeling credit to the farming community and established the machinery through which to achieve this goal. See Bowling v. Block, 602 F.Supp. 667, 670-71 (D.Ohio 1985).

Appellants also argue that a regulation stating that, as a general policy, PCAs shall provide means of forbearance to cooperative borrowers, see 12 C.F.R. Sec. 614.4510(d)(1), imposes an affirmative duty on PCAs and provides the basis for an implied private right of action. Appellants rely on DeLaigle v. Federal Land Bank of Columbia, 568 F.Supp. 1432 (S.D.Georgia 1983), in which a district court held that this regulation imposes a legal duty on PCAs to establish loan servicing techniques and to advise borrowers of these procedures. Id. at 1436.

In determining whether a regulation has the "force and effect of law," the Supreme Court has distinguished between "substantive rules" on the one hand, and "interpretive rules, general statements of policy, or rules of agency organization, procedure, or practice" on the other. Chrysler Corp. v. Brown, 441 U.S. 281, 301, 99 S.Ct. 1705, 1717, 60 L.Ed.2d 208 (1979). For a regulation to have the force and effect of law, and thus to be the source of an affirmative legal obligation, it must be a "substantive rule." United States v. Harvey, 659 F.2d 62 (5th Cir. Unit B 1981).

In United States v. Harvey, supra, 659 F.2d at 62, this Court determined whether a provision in a Veterans Administration ("VA") loan servicing manual imposed a foreclosure avoidance duty on the VA, and created a correlative right in the mortgager to this performance. Id. at 63-64. The provision stated: "After the reasons for default have been determined, indulgence may be extended for a reasonable time to a worthy borrower who is unable immediately to begin the liquidation of his arrearage." Id. at 63. This Court held that the loan servicing provision did not have the force and effect of law. One of the grounds for this holding was that the provision was not a substantive rule but, instead, was a general statement of agency policy. Id. at 64.

Like the provision in Harvey, the "means of forbearance" regulation in the present case is not a substantive rule but, rather, is a general statement of agency...