Spring Water Dairy v. Fed. Intermediate Credit Bank

• Decision Date: 03 January 1986
• Docket Number: Civ. No. 4-84-1336.
• Citation: 625 F. Supp. 713
• Parties: SPRING WATER DAIRY, INC., Peter Henstra, Lois Henstra, husband and wife, Plaintiffs, v. FEDERAL INTERMEDIATE CREDIT BANK OF ST. PAUL, Production Credit Association of Worthington, Defendants.
• Court: U.S. District Court — District of Minnesota

625 F. Supp. 713

SPRING WATER DAIRY, INC., Peter Henstra, Lois Henstra, husband and wife, Plaintiffs, v. FEDERAL INTERMEDIATE CREDIT BANK OF ST. PAUL, Production Credit Association of Worthington, Defendants.

Civ. No. 4-84-1336.

United States District Court, D. Minnesota, Fourth Division.

January 3, 1986.

COPYRIGHT MATERIAL OMITTED

Kurt M. Anderson, Balyk & Associates, St. Paul, Minn., for plaintiffs Peter and Lois Henstra.

Robert M. Halvorson, Gary W. Koch, Gislason, Dosland, Hunter & Malecki, New Ulm, Minn., for defendants FICB and PCA.

Sandra M. Schraibman, Merril Hirsh, Attys., Dept. of Justice, Civ. Div., Washington, D.C., and Gary L. Norton, Senior Atty., Farm Credit Admin., McLean, Va., of counsel, for defendant Wilkinson.

Hubert H. Humphrey, III, Atty. Gen., Jean Boler, Sp. Asst. Atty. Gen., St. Paul, Minn., amicus curiae.

MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on the motion of each defendant to dismiss and the motion of plaintiffs Peter and Lois Henstra for a temporary restraining order or preliminary injunction. The Court will grant the motions to dismiss and will deny plaintiffs' request for injunctive relief.

FACTS

Plaintiff Spring Water Dairy, Inc. (Dairy) is a corporate family farming operation. Plaintiffs Peter and Lois Henstra are the sole shareholders of that corporation. Since 1967, plaintiffs have largely financed their farming operation through loans from one of the defendants in this action, the Production Credit Association of Worthington (PCA).¹ PCA's loans to plaintiffs were a series of one-year notes secured by property belonging to the individual plaintiffs and the corporate plaintiff. The individual plaintiffs also personally guaranteed the notes.

When it came time for renewal of the PCA loans in 1983, the PCA substantially devalued plaintiffs' assets which served as collateral. PCA demanded a large amount of additional collateral in the form of second real estate mortgages. Plaintiffs did not accede to the PCA's demands, thus the PCA did not provide plaintiffs with new credit for plaintiffs' 1983 operating expenses.

By February 1, 1984, plaintiffs owed the PCA approximately $387,000. PCA offered to subordinate its liens on plaintiffs' assets to allow plaintiffs to obtain financing elsewhere, on two conditions: plaintiffs would have to provide additional collateral, and plaintiffs would have to pay the interest which accrued during 1984 plus $30,000 of the principal. Plaintiffs contend that these conditions would have resulted in foreclosure of their real estate mortgages, and thus plaintiffs refused the PCA's offer. Subsequently, the PCA commenced a replevin action against plaintiffs in state court. The Dairy then filed a petition in bankruptcy under chapter 11.

Plaintiffs commenced the present action on December 17, 1984. In addition to the PCA, plaintiffs have named as defendants the Federal Intermediate Credit Bank of St. Paul (FICB) and Donald Wilkinson in his official capacity as Governor of the Farm Credit Administration (FCA).²

The FCA is an independent executive agency comprised of the FCA Board, the Governor, and other personnel. 12 U.S.C. § 2241. The FCA is mandated to charter, supervise, examine, and regulate the banks and associations that comprise the Farm Credit System (System). The System is divided into twelve Farm Credit Districts, each of which contains a federal land bank, a federal intermediate credit bank, a bank for cooperatives, and varying numbers of local federal land bank associations, local banks for cooperatives, and PCAs.... Those PCAs obtain funds from the FICB to finance operating and capital credit needs of eligible borrowers. The System banks and associations are owned by borrower-members and operated on a cooperative basis. Their function is to serve the credit needs of farmers, ranchers, and aquatic producers and harvesters.

Harper v. Farm Credit Administration, CIVIL 85-291-PA, slip op. at 5 (D.Ore. June 3, 1985).

Plaintiffs allege that the PCA and FICB violated various federal laws and regulations as well as state laws. A major allegation of plaintiffs is that these two defendants contravened a regulation which provides that the loan servicing policy of these lenders

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.

12 C.F.R. § 614.4510(d)(1) (hereafter "loan servicing regulation").

Plaintiffs allege that defendant Wilkinson, as governor of the FCA, has failed to direct PCA and FICB to comply with various regulations, including the loan servicing regulation. Plaintiffs further allege that Wilkinson implemented practices and procedures, as well as issued instructions, which induced the FICB and PCA to devalue plaintiffs' collateral.

DISCUSSION

Plaintiffs assert two bases for federal jurisdiction in this action, federal question jurisdiction, 28 U.S.C. § 1331, and the mandamus statute, 28 U.S.C. § 1361. Plaintiffs have five causes of action, three of which, Counts I, IV and V, are based on federal regulations and/or statutes. Counts II and III are state law claims founded on implied contract and misrepresentations and negligence.

1. Private Cause of Action under Farm Credit Act

In order for plaintiffs' federal causes of action to state a claim upon which relief can be granted, the Farm Credit Act (hereafter Act), 12 U.S.C. §§ 2001-2260, must allow for a private cause of action. The Act does not explicitly provide for a private cause of action, but in certain circumstances it is nevertheless appropriate to imply a private cause of action. See, e.g., Cannon v. University of Chicago, 441 U.S. 677, 688, 99 S.Ct. 1946, 1953, 60 L.Ed.2d 560 (1979). Two federal district courts have dealt with the issue of whether a private cause of action should be implied under the Act and both have concluded that a private cause of action should not be implied. Bowling v. Block, 602 F.Supp. 667, 670-71 (S.D.Ohio 1985), appeal pending, No. 85-3204 (6th Cir.); Hartman v. Farmers Production Credit Association of Scottsburg, No. 81-163-C, slip op. (S.D.Ind. Mar. 18, 1983). The Eleventh Circuit has just recently reached this same conclusion. Smith v. Russellville Production Credit Association, 777 F.2d 1544, 1546-47 (11th Cir.1985).

The United States Supreme Court has enunciated a four-part test to determine whether a private cause of action should be implied for violations of a federal statute:

First, is the plaintiff "one of the class for whose especial benefit the statute was enacted," — that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? And finally, is the cause of action 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 solely on federal law?

Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2088, 45 L.Ed.2d 26 (1975) (citations omitted); see also Shidler v. All American Life & Financial Corp., 775 F.2d 917, 921-24 (8th Cir.1985) (applying Cort factors to imply a private cause of action under an Iowa statute). The United States Court of Appeals for the Eighth Circuit has observed that "in more recent cases the Supreme Court has looked almost exclusively to congressional intent — the Cort v. Ash criteria being treated as indicia of that intent.... Since deciding Cort v. Ash the Court has become increasingly more reluctant to imply new private causes of action for damages." Hofbauer v. Northwestern National Bank of Rochester, 700 F.2d 1197, 1200 (8th Cir.1983) (citations omitted).

A. Act for the Special Benefit of Farmers

The first Cort criterion is that Congress passed the Act for the special benefit of a class in which plaintiffs are members. Merely because plaintiffs are benefited by the Act does not mean that plaintiffs have satisfied this first prong, rather, plaintiffs must show they are "members of a `special class' for whose benefit the statute was enacted." Hofbauer, 700 F.2d at 1200, citing Cannon, 441 U.S. at 689, 99 S.Ct. at 1953.

The Farm Credit System established by the Act seeks "to satisfy the peculiar credit needs of American farmers and ranchers while encouraging those farmers and ranchers to participate through management, control, and ownership of the system." Daley v. Farm Credit Administration, 454 F.Supp. 953, 954 (D.Minn.1978). See also 12 U.S.C. § 2001(a) (declaration of policy and objectives of the Act). Based on the objectives of the Act, plaintiffs³ conclude that it is beyond serious doubt that Congress passed the Act for the special benefit of farmers who need credit. Plaintiffs contend that even the district courts which have held that no private cause of action exists concede that the Act was created for the benefit of farmer-borrowers. This statement, however, is somewhat deceiving. The Hartman court stated that it was arguable that farmers constituted a special class of beneficiaries, Hartman, slip op. at 6, and the court gave the plaintiffs the benefit of the doubt on this point because the other elements of the Cort test led to the conclusion that no private cause of action existed.

Defendant Wilkinson argues that while farmers do benefit from the Act, the Act is not especially designed to aid farm borrowers who are unable to repay their debts. Thus, defendant Wilkinson conceptualizes plaintiffs as members of a class more narrow than simply farmers seeking credit; he perceives the class as farmers who are unable to repay their debts. Both definitions of the class of which plaintiffs are members seem plausible. Defendant Wilkinson, however, offers...