Stable Investment P'ship v. Vilsack
| Decision Date | 17 March 2014 |
| Docket Number | No. 12 C 5556,12 C 5556 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | STABLE INVESTMENT PARTNERSHIP, Plaintiff, v. TOM VILSACK, in his official capacity as SECRETARY, UNITED STATES DEPARTMENT OF AGRICULTURE, and the FARM SERVICE AGENCY, Defendants. |
MEMORANDUM OPINION AND ORDER
Maynerd Steinberg and Keith Parr, two lawyers working at a Chicago law firm, decided to buy (presumably for investment purposes) a farm in Livingston County, Illinois. After considering various ownership options, they decided to first create a general partnership – called Stable Investment Partnership – and then they had Stable buy the farm through an Illinois land trust. Under this unique type of ownership, the buyer enters into a contract with a bank which then holds both legal and equitable title to the property while the real buyer only has a personal property interest. However, under its contract with the bank, the real buyer retains, behind the scenes, all rights in and benefits of the property. One purpose for this arrangement is to keep the true owner hidden from the public.
After buying the property in this manner, Stable entered into a crop-share lease with Stanley Blunier who agreed to farm the land and share the profits. Blunier applied to the federal government, on both his behalf and the partnership's behalf, for federal farm benefits under the Direct and Counter Cyclical Payment Program ("DCP"), established by the Farm Security and Rural Investment Act of 2002, 7 U.S.C. § 7901 et seq. The parties provide little background about this program, but it appears to be a complex system administered by the Farm Service Agency in which the federal government pays farm owners and operators based on a complicated formula tied to base acres, payment yields, type of crop, and other measures, all designed to (among other things) counter fluctuations and down-turns in the price of farm crops.
The local FSA initially approved the application, both for Blunier as tenant and for the partnership as the owner. But someone at the FSA apparently became concerned about the partnership's status as owner and asked Stable to provide documents establishing that it was theowner, as required by farm regulations. Stable submitted its partnership agreement, the crop-share lease with Blunier, the trust agreement with the bank, and the Warranty Deed for the farm.
In October 2010, the FSA sent Stable a check for $448 representing its share of benefits for 2010. However, the FSA subsequently concluded that Stable was not eligible for the benefits because only the bank as trustee, holder of legal title, could be considered the owner for purposes of receiving DCP benefits.
Stable challenged the decision by filing appeals through the FSA administrative framework. The National Appeals Division held a hearing and then affirmed in a written order the original decision to deny Stable benefits. The central issue in the administrative appeal, which is the same issue now before us, is whether the beneficial owner of an Illinois land trust fits within the FSA's definition of an owner set forth in Section 718.2 of the federal farm regulations. Stable argued that the party having control of the property was the real owner whereas the FSA maintained that the party holding title is the relevant owner. The key portion of the ruling is the following:
The definition of owner [in Section 718.2] lists specific interests in land that qualify as ownership and does not state other land interests will qualify. Notably, the definition of owner includes several categories where the owner may not have title to the land, such as life estates, purchasers, and heirs, but does not include beneficial owners of land trusts. Although the farm program regulation may be inconsistent with established property law in some states and regulations of other federal agencies, the Secretary of Agriculture, responsible fo regulations controlling and directing farm programs and payments, has not expanded [the] Agency's ownership definition to include land trusts where beneficiaries hold a personal property interest while controlling the real estate without title. In conclusion, Appellant's arguments do not persuade me [that the] Agency's determination is inconsistent with the regulations.
(Dkt. # 14-6 at p. 8; R. at 183.)
Both sides move for summary judgment. Neither suggests any relevant facts are in dispute. The dispute is a legal question. The broader framing of the dispute is whether control or title is the critical factor for defining which party is an "owner" and thus eligible to receive payments from the federal government. Stable argues that the FSA's conclusion is arbitrary and capricious because Illinois law treats the beneficial owner of an Illinois land trust as the party having all the power and control and thus considers that party to be the "true owner" (Stable's phrase). Stable seems to concede that the direct relief it seeks in this lawsuit – the return of $448 in farm benefits – is relatively minor, but argues that the FSA's ruling will affect numerous farmers in Illinois who have used land trusts for over a century as a way to hold real property. The FSA argues that it must run a national program and is not bound by the unique aspects of Illinois property law. The FSA explains that it focuses on the title holder because this method is easier to verify ownership. The FSA merely has to check public property records.
The broader dispute about whether control or title is important must be filtered through the specific definition of "owner" set forth in Section 718.2. Both sides agree that this definition should be the focus of our analysis. Accordingly, we will quote it in its entirety:
7 C.F.R. § 718.2. The parties shorten this definition to this formulation: owner means one who has legal ownership, including (1) a federal agency, (2) a purchaser under a contract for deed, (3) one who has a life estate, (4) one who has purchased a farm in a foreclosure, and (5) an heir to property. An even simpler characterization is to say that it consists of a general definition plus five specific cases.
Stable has three main arguments. The first two basically track the two parts of the definition. Specifically, Stable's first argument is based on the general definition. To be sure, what we are calling the general definition is bare-bones. The word "owner" is defined as "legal owner." In other words, the general term is qualified merely by the adjective "legal." Stable asserts that Illinois courts consider the beneficiary of the land trust to be the "legal owner" because the beneficiary hasbroad powers of control and the party having control logically should be viewed as owner. Stable cites to several Illinois cases supposedly supporting this view.
We are not persuaded by this argument. It is true that the land trust beneficiary has broad powers of control under Illinois law. It is also true that some Illinois courts have held, in certain specific contexts, that it is reasonable to treat the beneficiary as an owner. See Pl. Mem. at 9-10 (citing cases). But we do not find that either proposition establishes the precise, critical point – namely, whether the land...
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