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Cases - Pandora

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA, ALEXANDRIA DIVISION

PANDORA FARMS, Plaintiff, v. SECRETARY UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant.

Civil Action No. 00-1753-A

Filed July 5, 2001

MEMORANDUM OPINION

This matter comes before this Court on Defendant the United States of America's Motion for Summary Judgment.

In this case Plaintiff has filed for equitable relief to enjoin the United States Department of Agriculture ("USDA") from enforcing an agreement entered into between the parties in 1989. Pandora Farms, Inc. ("Plaintiff") argues that the United States should be equitably estopped from enforcing a Shared Appreciation Agreement ("the Agreement" or "SAA") due to misrepresentations made by a government agent to the Plaintiff regarding the terms of the agreement; (2) and that the method of appraisal used to determine the repayment amount should be changed. Plaintiff also requests that this Court rule that monies due to the United States under the terms of the Agreement cannot be recaptured or collected in any form or fashion and that liens collateralizing such Notes are discharged and uncollectible, and that in the alternative that this Court suspend indefinitely the obligation to pay the recapture amount pursuant to 7 C.F.R. § 1951.914(h).

Plaintiff Pandora Farms is a dairy farm located in Catlett, Virginia. Between 1978 and 1981 Pandora Farms borrowed a total principle amount of approx. $ 1,082,860.99 from the United States Government through loan programs offered by the Farmer's Home Administration ("FMHA") and the Farm Service Agency ("FSA"), both division of USDA. In about 1989 Pandora Farms fell behind in its loan payments. It was then offered an opportunity to restructure the debt owed to the United States and entered into negotiations with the FSA to determine a non-bankruptcy resolution of the debt upon the property. As a result of these negotiations and the enactment of the Agricultural Credit Act of 1987, among the debt restructuring options, the FSA offered to restructure the debt. It offered to forgive a portion of the debt in exchange for Pandora Farms entering into the Agreement which required the repayment of certain monies to the government should the market value of the property rise within ten years.

The Agreement required Pandora Farms to repay to the United States a percentage of the increase in value of the property at the end of the ten years, or when certain events like ceasing farming, occurred in the ten years following the signing of the Agreement. Near the time of the signing, then County Supervisor for the FSA, conveyed to a Pandora Farms representative that no appreciation of the property would have to be repaid if at the end of the ten year term Pandora Farms had not been sold or conveyed to a new owner and continued to be a dairy farm during the duration of the agreement. This was not a correct statement of the law under the statute authorizing the debt restructuring, section 615 of the Agricultural Credit Act of 1987, entitled "Debt Restructuring and Loan Servicing," (now codified at 7 U.S.C. § 2001), which clearly defines the nature and terms of Shared Appreciation Agreements.

Pandora Farms retained the property subject to the Agreement for the ten years following the signing and continued to farm through this time. In a letter dated February 20, 1998, over a year period prior to the expiration of the Agreement, the FSA reminded Pandora Farms of its obligation under the Agreement. In a letter dated January 29, 1999, the FSA informed Pandora Farms that it was preparing to determine the value of the appreciation in the property pursuant to the Agreement and in accordance with federal statutes and regulations.

On July 27, 1999, an appraiser determined the current market value at $ 850,000 and employed an appraisal method that complied with federal regulations. In 1989 at the beginning of the ten year period of the Agreement the Pandora Farms property had been appraised by the FSA at a market value of $ 445,000 and had been conducted in accordance with then current federal regulations. Pursuant to the agreement the FSA calculated that Pandora Farms was required to repay the United States $ 197,500, or fifty percent of the appreciated value of the property. Pandora Farms objected to the enforcement of the SAA and refused to repay any appreciation in the market value of the property for 1989-1999 to the United States.

On May 8, 2000, Pandora Farms appealed the adverse decision to the USDA's National Appeals Division ("NAD") and requested a hearing to challenge the enforceability of the SAA. On June 15, 2000, a hearing was held before a USDA NAD Hearing Officer Lloyd Richardson. Pandora Farms argued that the written SAA was ambiguous and conflicted with the oral representation made by the County Supervisor to the borrower. Additionally it argued that the change between 1989 and 1999 in the method for determining current market value, dictated by the change in federal regulations, unfairly effected the amount of monies to be recaptured and the government should be estopped from changing the valuation methods. On July 13, 2000, the NAD issued an appeal determination affirming the decision of the FSA to enforce the Agreement. Specifically Hearing Officer Richardson determined that the Agency decision was in accordance with all applicable Agency regulations and federal statutes and with respect to the oral misrepresentation by the FSA County Supervisor, he found that the terms of the SAA as well as the implementing federal statutes and regulations required repayment such that Pandora Farms had adequate notice of the recapture requirement. The Plaintiff then requested a "Director Review Determination" by the Director of the NAD who issued a decision upholding the appeal determination on September 21, 2000.

Summary judgment is appropriate when there is no genuine issue as to any material fact. See FED. R. CIV. P. 56(c). An adverse party may not oppose a motion for summary judgment supported by affidavits through reliance on the allegations or denials of its pleading but must set forth by affidavits, or other means provided by Rule 56, specific facts which show a genuine issue of material fact. See FED. R. CIV. P. 56(e). Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). A material fact in dispute appears when its existence or nonexistence could lead a jury to different outcomes. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). A genuine issue exists when there is sufficient evidence on which a reasonable jury could return a verdict in favor of the nonmoving party. See id. Unsupported speculation is not enough to withstand a motion for summary judgment. See Ash v. United Parcel Serv., Inc., 800 F.2d 409, 411-12 (4th Cir. 1986). Summary judgment is appropriate when, after discovery, a party has failed to make a "showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). When a motion for summary judgment is made, the evidence presented must always be construed in the light most favorable to the nonmoving party. See Smith v. Virginia Commonwealth Univ., 84 F.3d 672, 675 (4th Cir. 1996)(en banc).

The Plaintiff's right to federal court review of the decision by the NAD arose under Administrative procedures Act ("APA"), Title 5, United States Code, §§ 701-706. Section 6999 of Title 7 authorizes the review of final agency decision by the USDA's NAD in federal court in accordance with the APA. In reviewing an agency decision under the terms of the APA, 5 U.S.C. §§ 701-706, a federal court must affirm the agency's decision unless the agency's decision was:

(1) arbitrary and capricious; an abuse of discretion, or otherwise not on accordance with the law;

(2) obtained without procedures required by law, rule or regulation having been followed; or

(3) unsupported by substantial evidence.

5 U.S.C. § 706(2). The federal court review is generally limited to the information presented at an administrative hearing or to an administrative hearing officer. Camp v. Pitts, 411 U.S. 138, 142, 36 L. Ed. 2d 106, 93 S. Ct. 1241 (1973) ("focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court."). The plaintiff is not entitled to de novo review of its claims in this forum. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415, 28 L. Ed. 2d 136, 91 S. Ct. 814 (1971) (de novo review is appropriate only where there are inadequate fact-finding procedures in an adjudicatory proceeding, or where judicial proceedings are brought to enforce certain administrative actions), overruled on other ground in Califano v. Sanders, 430 U.S. 99, 51 L. Ed. 2d 192, 97 S. Ct. 980 (1977).

The Agency's action must be upheld unless the plaintiff can meet its burden of proof that no rational basis exists for the agency's decision. "We need not decide whether... decision is supported by the preponderance of the evidence, nor, for that matter, whether it is supported by substantial evidence. To the contrary, we must sustain if it has a rational basis in evidence." Ethyl v. EPA, 176 U.S. App. D.C. 373, 541 F.2d 1, 37 (D.C. Cir. 1976) (en banc). The Plaintiff bears this burden of proof by clear and convincing evidence. Drexel [Heritage Furnishings, Inc. v. United States], 7 Cl. Ct. 134, 142 (citing Princeton Combustion research Lab, Inc. v. McCarthy, 674 F.2d 1016 (3rd Cir. 1982) and Goldammer v. Fay, 326 F.2d 268 (10th Cir. 1964)).

The Agency's decision here was rational and clearly supported by the applicable statute and regulations, and should be affirmed. The evidence demonstrates that the Hearing Officer reviewed all the loan documents involved in the case, as well as the federal statutes and regulations governing the USDA loan programs involved. The Administrative record demonstrates a careful and thorough analysis of the facts and legal issues involved in this matter. The Hearing Officer clearly addressed the misinformation by the County Supervisor concerning the recapture payment but pointed out that published Agency regulations and other documents, at all relevant times available to the Plaintiff, clearly state that recapture payment is required and due at the end of the SAA. Furthermore, the Hearing Officer acknowledged that the SAA does not state or imply that payment can be avoided by merely continuing to farm for the life of the agreement and points out that the SAA does not contain any clause or provision whereby the borrower can avoid payment at the end of the agreement. The Hearing Officer did state that farmers do rely on statements made by Agency employees due to the complex nature of Agency farm programs yet, the wording of the three page SAA is sufficiently clear that payment will be required, either before or at expiration of the agreement. Furthermore, as reiterated by the Hearing Officer, the SAA does not provide any circumstances under which the agreement can be satisfied without payment, as reiterated by the Hearing Officer.

With respect to the calculation of the property's current market value in 1989 and 1999, NAD hearing Officer Richardson specifically found that: (1) the Agency correctly applied the federal regulations to determine current market value in 1989 (7 C.F.R. § 1922, Subpart E); and (2) the Agency correctly applied the revised federal regulation, 7 C.F.R. § 1922.201, which "requires that farm tracts be appraised for current market value and appraisers comply with the guidelines and standards as set out in Section I and II of the Uniform Standards of Professional Appraisal (USPAP) to determine the current market value in 1999. Based on these figures, the Hearing Officer found that the Agency accurately determined that Pandora Farms property had appreciated in market value during the ten year period of the SAA by $ 395,000. After reviewing the applicability of each statute and regulation to this case the Hearing Officer concluded, "The Agency's decision to enforce the Shared Appreciation Agreement signed October 3, 1989, by requiring Appellant to pay $ 197,500 was not erroneous." A subsequent review by the Director of the NAD, in the Director Review Determination, also found that the Agency's decision was in accordance with the laws and regulations of the Agency and consistent with the generally applicable interpretations of such laws and regulations. Because the Agency's decision was not arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law, the decision of the Agency's National Appeals Division is affirmed.

While Plaintiff argues that the Government should be equitably estopped from enforcing the Shared Appreciation Agreement because of the repayment misrepresentation made by the FSA official during the debt restructuring negotiations in 1989, Plaintiff's equitable estoppel claim fails. The United States Supreme Court has clearly held that misrepresentations by government officials simply cannot create an estoppel against the government. See Office of Personnel Management v. Richmond, 496 U.S. 414, 110 L. Ed. 2d 387, 110 S. Ct. 2465 (1990) and Federal Crop Insurance, Inc. v. Merrill, 332 U.S. 380, 92 L. Ed. 10, 68 S. Ct. 1 (1947).

An Executive branch agency may not provide funds to a citizen in a manner that exceeds the scope of authority or appropriations granted to the agency by Congress. "Because Congress alone exercises the ultimate power of the purse...funds may be paid out only on the basis of a substantive right to compensation based on the express terms of a specific statute." Richmond, 496 U.S. at 432. "[The] judicial use of the equitable doctrine of estoppel cannot grant respondent a money remedy that Congress has not authorized. Richmond, 496 U.S. at 426 (citing INS v. Pangilinan, 486 U.S. 875, 883, 100 L. Ed. 2d 882, 108 S. Ct. 2210 (1988)). The purpose of this policy:

... is to assure that public funds will be spent according to the letter of the difficult judgments reached by Congress as to the common good and not according to the individual favor of Government agents or the individual please of litigants.

Richmond, 496 U.S. at 428.

In the instant case, it is clear that Plaintiff is not entitled to relief which exceeds the scope of the Congressionally delegated authority. As noted, the express terms of the statute in question (and the contract signed) specifically directed that fifty percent of the amount of the appreciation in Plaintiff's property at the end of the ten year period shall be shared or repaid to the United States Government. 7 U.S.C. § 2001(e). The Plaintiff is not entitled to relief from his debt obligations which exceeds this authority. The "whole history and practice with respect to claims against the United States reveals the impossibility of an estoppel claim for money in violation of the statute." Richmond, 496 U.S. at 433. "To open the door to estoppel claims would only invite endless litigation over both real and imagined claims of misinformation by disgruntled citizens imposing an unpredictable drain on the public fisc." Id. See also Deaf Smith County Grain Processors v. Glickman, 333 U.S. App. D.C. 299, 162 F.3d 1206, 1214 (D.C. Cir. 1998) (equitable estoppel claim against the government rejected based on clear Supreme Court precedent in Richmond v. OPM).

Plaintiff Pandora Farms, Inc. cannot demonstrate by clear and convincing evidence that the decision of the National Appeals Division of the United States Department of Agriculture to enforce the Shared Appreciation Agreement was arbitrary, capricious, an abuse of discretion, or otherwise contrary to law. There is sufficient evidence in the record to support the NAD's findings and decision. In addition, the doctrine of equitable estoppel is inapplicable to the Plaintiff's claim, consistent with binding Supreme Court jurisprudence. Therefore, summary judgment is granted to Defendant and Plaintiff's Complaint is dismissed.

An appropriate Order shall issue.

Claude M. Hilton
CHIEF UNITED STATES DISTRICT JUDGE
Alexandria, Virginia
July 5, 2001

ORDER

For the reasons stated in the accompanying Memorandum Opinion it is hereby, ORDERED that Defendant's Motion for Summary Judgment is GRANTED.

Claude M. Hilton
CHIEF UNITED STATES DISTRICT JUDGE
Alexandria, Virginia
July 5, 2001

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