Sunrise Coop., Inc. v. U.S. Dep't of Agric., Case No. 3:16CV1297
| Decision Date | 06 June 2017 |
| Docket Number | Case No. 3:16CV1297 |
| Parties | SUNRISE COOPERATIVE, INC., Plaintiff v. UNITED STATES DEPARTMENT OF AGRICULTURE, et al., Defendants |
| Court | U.S. District Court — Northern District of Ohio |
David C. Barrett, Jr., Kristi K. Wilhelmy, Troy A. Callicoat, Barrett, Easterday, Cunningham & Eselgroth, Dublin, OH, for Plaintiff.
Guillermo J. Rojas, Jody L. King, Office of the U.S. Attorney, Northern District of Ohio, Toledo, OH, Lisa Hammond Johnson, Office of the U.S. Attorney, Northern District of Ohio, Cleveland, OH, for Defendants.
This declaratory judgment action under 28 U.S.C. § 2201 concerns a farming cooperative's right to issue "patronage rebates" to those of its members who buy crop insurance from an insurer that the cooperative partly owns.
The plaintiff, Sunrise Cooperative, Inc. (Sunrise), is an Ohio agricultural cooperative whose members are Ohio and Michigan farmers. Sunrise owns a one-third stake in Lund and Smith Insurance Services, LLC (L&S). Sunrise declares and pays "patronage" to its members based on how much crop insurance each member buys from L&S. This "patronage" is essentially a rebate on a policy premium that creates an incentive for the cooperative's members to buy insurance from L&S.
Since 2008, federal law has prohibited this kind of premium rebating. 7 U.S.C. § 1508(a)(9)(A). But Sunrise has continued to declare patronage under the statute's "grandfather clause," which allows an "entity" that, before enactment of the 2008 legislation, "was approved by the [Federal Crop Insurance] Corporation to make such payments for the 2005, 2006, or 2007 reinsurance year." 7 U.S.C. § 1508(a)(9)(B)(iii)(I). Having been so approved for those years, Sunrise could continue making such payments after the 2008 law took effect.
In 2016, Sunrise merged with another farming cooperative, Trupointe Cooperative, Inc. (Trupointe) and more than doubled its membership.1 After the merger, Sunrise was the surviving corporation.
When Sunrise inquired of the United States Department of Agriculture's Risk Management Agency (RMA) whether it could, post-merger, continue making premium rebates, the RMA advised Sunrise that it could not. The agency explained that, as a result of its merger with a non-grandfathered entity like Trupointe, Sunrise was no longer an "entity that was approved" to declare patronage.
Having unsuccessfully contested the RMA's position administratively, Sunrise brought this challenge to the agency's decision under the Administrative Procedures Act, 5 U.S.C. §§ 701, et seq.
Jurisdiction is proper under 28 U.S.C. § 1331.
Pending are the parties' counter-motions for summary judgment. (Docs. 13, 16). For the following reasons, I grant the defendants' motion and deny Sunrise's motion.
The RMA is the principal federal regulator of the crop-insurance market. It oversees a public-private partnership with "approved insurance providers" (AIPs) who sell and service crop-insurance policies in accordance with RMA guidelines. See 7 U.S.C. §§ 1502, 1503, 1508(k).
The agency also determines the cost of crop-insurance policy premiums. 7 U.S.C. § 1508(d). It does so, in part, because federal funds subsidize the operational and administrative costs that the AIPs incur. 7 U.S.C. § 1516. Given this financial stake in the crop-insurance market, the RMA professes "an interest in ensuring that...the crop insurance market is operating efficiently and effectively to protect and strengthen the economic stability of America's agricultural producers, i.e., its farmers." (Doc. 16 at 9) (citing Doc. 12–3 at 37–38).
Before 2000, the RMA prohibited AIPs from paying premium rebates, dividends, and patronage refunds; it did so because, in its view, such payments "may have an adverse effect on [the agency's] ability to devise and establish an effective and efficient crop insurance marketplace." (Doc. 12–2 at 25).
Congress altered the no-rebate rule in the Agricultural Risk Protection Act of 2000, 114 Stat. 358, which permitted a limited form of rebating:
7 U.S.C. § 1508(b)(5)(B).
Under the RMA's interpretation of this provision, an AIP could pay a licensing fee to a cooperative, and the cooperative could use that fee to pay patronage. (Doc. 12–2 at 26–27).
After this change in the law, some cooperatives—including Sunrise—purchased interests in crop-insurance agencies. In 2005, 2006, and 2007, the RMA approved Sunrise's arrangement with L&S's parent company and permitted Sunrise to pay premium rebates to its members. (Doc. 12–3 at 27–28).
Responding to reports of premium-rebating abuses, Congress in 2008 changed course, enacting legislation that sought to, and did, end rebate payments by nearly all cooperatives. Its only deviation from this change in direction—at issue in this case—was the grandfather clause. That provision permitted Sunrise and other entities whom the RMA had previously approved to pay patronage to continue doing so:
7 U.S.C. § 1508(a)(9).
The purpose of § 1508(a)(9)(B)(iii) was, according to the bill's managers, to " ‘grandfather in' entities that have previously been approved by the Federal Crop Insurance Corporation to make payments in accordance with subsection (b)(5)(B) as in effect on the day before the date of enactment."
Conference Report on H.R. 2419, Food, Conservation, and Energy Act of 2008, 2008 WL 2038610, *H3659. The managers also emphasized that the exception was a limited one:
In November, 2015, before the merger of Sunrise and Trupointe, the RMA asked Sunrise to submit a formal inquiry as to whether, post-merger, it would be eligible to issue patronage under § 1508(a)(9)(B)(iii). (Doc. 12–2 at 21).
In its responsive submission, Sunrise asserted that it would still qualify for the exception because in its post-merger form, it would be the same "entity" that the RMA had approved to pay patronage during the 2005–07 period. This was so, Sunrise maintained, because both Ohio corporate law and federal tax law would deem the post-merger Sunrise to be the same legal entity as the pre-merger Sunrise. (Id. at 2–4).
After considering that submission, the RMA in February, 2016, notified Sunrise that its merger with Trupointe would render it ineligible to pay patronage.
The agency explained that it interpreted § 1508(a)(9)(B) to mean that "any substantive change in the cooperative association, including any mergers or acquisitions, means that the cooperative association is no longer considered to have been approved by RMA to make [premium-rebate] payments for the 2005–2007 reinsurance years." (Id. at 12).
According to the RMA, it was incumbent on it to interpret the grandfather clause in light of the congressional desire to stop the growth in premium-rebating:
Section 508(a)(9)(B) creates a very narrow exception to a very broad prohibition. It is very clear that Congress did not want to allow the payment of patronage dividends through any cooperative association that was not previously approved or it would not have revised section 508(b)(5)(B) of the FCIA to eliminate the authority for cooperatives to pay patronage dividends. Therefore, RMA narrowly construes the exception provided in section 508(a)(9)(B) of the FCIA to include only those cooperative associations approved for the stated years with the same entity structure. To interpret the provision in any other manner could render the prohibition meaningless because approved cooperatives could merge with any number of other cooperatives, while keeping the original name of the approved marketplace, and effectively disrupting the marketplace, the very outcome Congress sought to eliminate.
(Id. ).
Sunrise disputed that construction of § 1508(a)(9)(B)(iii) in a March, 2016, letter to the RMA. According to Sunrise, nothing in the statute's...
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