Opinion
Civil Action No. 5:03-CV-143-C
March 31, 2004
ORDER
On this date the Court considered Roger Klurfeld's ("Defendant") Motion for Judgment, filed February 24, 2004, and Jack Reeves and JoAnn Reeves' ("Plaintiffs") Motion for Judgment, filed March 11, 2004. Defendant filed a Response to Plaintiffs' Motion on March 26, 2004. Plaintiffs did not file a response to Defendant's Motion by the March 29, 2004 deadline. After considering all the relevant evidence and arguments, the Court finds Defendant's Motion to be well taken and thus GRANTS Defendant's Motion for Judgment. In doing so, the Court DENIES Plaintiffs' Motion for Judgment.
I. BACKGROUND
This case arises as a request for this Court to review an administrative action. Plaintiffs filed their Original Complaint on June 17, 2003. Plaintiffs seek review of the final decision by the United States Department of Agriculture National Appeals Division ("NAD") that denied Plaintiffs' application for servicing and direct loan assistance. The NAD review process resulted in a decision which upheld the decisions of the Farm Service Agency ("FSA"). This lawsuit seeks judicial review of the NAD Director Review Determination, which is a final adverse action for purposes of review by this Court. The agency record in this case consists of Case Record for NAD Case No. 2002W001325 and Case Record for NAD Case No. 2002W001326.FARM SERVICE AGENCY PROCESS
On May 1, 2002, Plaintiffs signed and filed with the FSA a "Farm and Home Plan" with "date of balance sheet" stated to be March 26, 2002. On May 7, 2002, Plaintiffs filed with the FSA a "Request for Direct Loan Assistance," requesting a farm operating loan of approximately $98,000.00. The request for assistance was also used as the application for primary loan servicing.
On July 1, 2002, Keed Farms, Inc., ("Keed Farms") filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Keed Farms filed a "Schedule H" identifying Jack E. Reeves and JoAnn Reeves as co-debtors with Keed Farms on debt owed to City Bank-Morton and First United Bank-Sudan.
On July 10, 2002, First United Bank of Sudan filed suit against the Reeves Family Trust, Jack E. Reeves, JoAnn Reeves, and Daniel Reeves in the 154th Judicial District Court, Lamb County, Texas. Attached to that petition were copies of Commercial Guaranty agreements signed by Plaintiffs and dated August 16, 2001. Those agreements include the provision that Plaintiffs "absolutely and unconditionally guarantee and promise to pay First United Bank ("Lender") or its order, on demand, in legal tender of the United States of America, the indebtedness [of $162,000.00] of Keed Farms Inc. ("Borrower") to Lender on the terms and conditions set forth in this Guaranty." The Petition filed by First United Bank specifies that notice of demand for payment was sent to Plaintiffs on May 14, 2002.
Later, on July 11, 2002, Plaintiffs signed and filed with the FSA a second "Farm and Home Plan" with "date of balance sheet" stated to be June 24, 2002. The "Farm and Home Plans" and the "Request for Direct Loan Assistance" described above do not list debts owed by Plaintiffs to First United Bank of Sudan or to City Bank of Morton, either as co-obligors or as guarantors on notes given by Keed Farms.
The next day, on July 12, 2002, the FSA notified Plaintiffs that materials filed by Keed Farms in its bankruptcy proceeding had listed Plaintiffs as guarantors for debts of Keed Farms. The FSA instructed Plaintiffs to provide additional documentation for the debt owed to First United Bank of Sudan and any other debts for which Plaintiffs may have personal liability. The FSA provided Plaintiffs with a July 22, 2002 deadline to supplement and correct the filed documentation.
On July 22, 2002, Plaintiffs' representative contacted the FSA to advise the FSA that Plaintiffs were not co-debtors with Keed Farms. The representative claimed that Plaintiffs had no individual liability on the debt of Keed Farms because he contended that they signed only as guarantors. Plaintiffs contend that the Farm and Home Plan they submitted contained no instruction or guidance on the appropriate location for listing third-party guaranties. Plaintiffs also contend that the guaranty made by Plaintiffs did not affect Plaintiffs' personal liabilities because Keed Farms was not insolvent; rather, Keed Farms had adequate assets to pay its obligations. Plaintiffs also contend that they discussed the issue at length with the Texas State Office for resolution of the disagreement as to the proper method for stating or evaluating the guaranties.
On August 8, 2002, and August 13, 2002, the FSA notified Plaintiffs of the denial of their request for a direct operating loan and primary loan servicing. The FSA decisions were based on
a. the failure of Plaintiffs to disclose current, complete, and truthful information on the "Farm and Home Plans" dated May 1, 2002, and July 11, 2002;
b. the failure of Plaintiffs to disclose that they are obligated as co-debtor on accounts owed by Keed Farms to First United Bank of Sudan and City Bank of Morton;
c. the fact that Plaintiffs demonstrated a lack of good faith in dealings with the USDA;
d. Plaintiffs' delinquency to the FSA in the amount of $49,712.73; and
e. Plaintiffs' inability to propose a feasible plan.HEARING BEFORE THE NAD HEARING OFFICER
Plaintiffs sent requests for hearings to the NAD on or about September 3, 2002. Such action thereby appealed the FSA's decisions.
An evidentiary hearing was then held by the NAD Hearing Officer on or about October 29, 2002, in order to consider the adverse FSA decisions. Because the Hearing Officer determined that the issue of good faith was implicated in both adverse decisions, the appeals of both of the FSA decisions were combined for one hearing. The Hearing Officer issued his Appeal Determinations on November 26, 2002. The Hearing Officer concluded that Plaintiffs were liable for the payment of the Keed Farms' debt to First United Bank of Sudan. The Hearing Officer further determined that Plaintiffs would become liable for the Keed Farms' debt only upon default by Keed Farms. The Hearing Officer also found that Plaintiffs did not provide the FSA with financial information regarding their involvement with the Keed Farms' debt by the FSA-imposed deadline of July 22, 2002. The Hearing Officer also found that Plaintiffs did not understand, nor did they agree with, the FSA's determination on how Plaintiffs' financial involvement with the Keed Farms' debt should have been set out in the "Farm and Home Plan." The Hearing Officer also determined that the First United Bank of Sudan debt was the first time Plaintiffs had signed as guarantor on any notes. This determination was based upon testimony by Jack Reeves that this was the first time Plaintiffs had signed as guarantors on any notes. The Hearing Officer concluded that Plaintiffs demonstrated sincerity and honesty by providing the FSA with their financial involvement with Keed Farms. The Hearing Officer further concluded that the FSA was aware that Plaintiffs were involved with Keed Farms for several years. The Hearing Officer concluded that the FSA should have used the information that it had concerning the First United Bank of Sudan debt to develop a separate "Farm and Home Plan" and then make the loan approval and servicing determinations based upon the FSA-generated "Farm and Home Plan." The Hearing Officer based this determination upon his analysis of Title 7 C.F.R. § 1924.56(b).
However, the Hearing Officer stated that Plaintiffs were unable to develop a feasible plan because of their liability on the Keed Farms' debt. The Hearing Officer also determined that the FSA did not err in its decision to deny Plaintiffs' loan application based upon the existence of the delinquent FSA debt and failure to develop a feasible plan. The Hearing Officer, however, decided that the FSA had erred in its decision to deny the request for direct loan assistance and loan servicing based upon a failure to provide current, complete, and truthful information. NAD DIRECTOR REVIEW
On December 23, 2002, the FSA requested a NAD Director Review of the Hearing Officer's Conclusion that FSA erred in its decision to deny the request for direct loan assistance for failure of Plaintiffs to provide current, complete, and truthful information. The FSA based its appeal upon the following:
a. the Hearing Officer's findings that Plaintiffs were liable for the Keed Farms' debt to First United Bank of Sudan at the time the "Farm and Home Plans" were signed and submitted to the FSA;
b. the Hearing Officer's findings that Plaintiffs failed to disclose to the FSA Plaintiffs' liability on the First United Bank of Sudan debt;
c. financial information omitted by Plaintiffs from the "Farm and Home Plans" was clearly material to the FSA's evaluation of Plaintiffs' loan servicing options;
d. financial information omitted by Plaintiffs concerning Plaintiffs' liability for debt of Keed Farms was information within Plaintiffs' control;
e. the findings of the Hearing Officer are sufficient to conclude that Plaintiffs failed to provide current, complete, and truthful information to the FSA; and
f. the findings of the Hearing Officer are sufficient to conclude that Plaintiffs failed to demonstrate honesty and sincerity in carrying out Plaintiffs' undertakings with and obligations to the FSA.
The NAD Director affirmed both of the original FSA decisions, which were adverse to Plaintiffs. In the decision, the Director concluded that
a. the controlling regulations are codified at 7 C.F.R. § 1941 and 7 C.F.R. § 1951;
b. Plaintiffs failed to disclose their co-debtor status on accounts owed by Keed Farms to First United Bank of Sudan and to City Bank of Morton;
c. Plaintiffs do not dispute that they are delinquent $49,712.73 in payment to FSA, and they are therefore ineligible for an operating loan;
d. insofar as primary loan servicing is concerned, the Hearing Officer's determination was inconsistent with the laws and regulations of the FSA;
e. one of the eligibility requirements for primary loan servicing is that the borrower has acted in good faith, 7 C.F.R. § 1951.909(c)(2);
f. "good faith" is defined at 7 C.F.R. § 1951.906 in terms of borrowers who have demonstrated honesty and sincerity in complying with any written agreements made with the FSA;
g. Plaintiffs are individually liable for debt to First United Bank of Sudan, but Plaintiffs failed to disclose this liability in applying for loan servicing;
h. Plaintiffs' action in failing to disclose the debt to First United Bank of Sudan showed a lack of good faith;
i. the information which Plaintiffs failed to disclose to FSA is material in evaluating eligibility for both primary loan servicing and operating loan assistance;
j. substantial evidence supports the FSA decision that Plaintiffs lacked good faith;
k. FSA did not err in denying Plaintiffs' request for operating loan assistance because of delinquent FSA debt;
1. FSA did not err in denying Plaintiffs' request for operating loan assistance because of failure to provide current, complete, and truthful information; and
m. FSA did not err in denying Plaintiffs' request for primary loan servicing due to a lack of good faith.
It is this Director Review Determination, the final decision of the agency, which Plaintiffs seek to have this Court review under the Administrative Procedure Act, 5 U.S.C. § 701 et seq.
II. STANDARD
A person adversely affected by a decision made by an agency within the United States Department of Agriculture ("USD A") may appeal to the NAD. 7 U.S.C. § 6996. An evidentiary hearing is held before a Hearing Officer of the NAD. 7 U.S.C. § 6996 and 6997. The decision of the NAD Hearing Officer may be appealed to the NAD Director. 7 U.S.C. § 6998. Any final determination by the NAD Director is appealable to a U.S. District Court. 5 U.S.C. § 701 et seq. Jurisdiction for review of a final NAD determination is vested exclusively in the district courts. 7 U.S.C. § 6999.Judicial review by a U.S. District Court is defined by the following principles: (1) it is limited to the agency record, see Camp v. Pitts, 411 U.S. 138, 142 (1973); Texas-Capital Contractors v. Abdnor, 933 F.2d 261, 264 (5th Cir. 1990); (2) agencies are given deference in interpreting regulations and statutes that agency administers, see id. at 264; and (3) review is limited to final agency actions. 5 U.S.C. § 704. Final agency decisions are reviewed to determine whether the decision was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A) (1996); Camp, 411 U.S. at 142. Under the scope of review outlined in 5 U.S.C. § 706(2)(D), the reviewing court shall also determine if the agency action, findings, and conclusions failed to observe procedure required by law. 5 U.S.C. § 706(2)(D). A decision is arbitrary or capricious when it is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Wilson v. U.S. Dep't of Agriculture, 991 F.2d 1112, 1215 (5th Cir. 1993). The decision must have a rational basis. Id. at 1215. A court is not to substitute its judgment for that of the agency. Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto Ins., 463 U.S. 29, 43 (1983). However, the grounds upon which an administrative order must be judged are those which the record discloses that the agency's actions were based upon. See SEC v. Chenery, 318 U.S. 80, 87 (1943). The burden of proof rests with the party challenging the agency action and that party must show that the agency action was arbitrary and capricious. See Ward v. Campbell, 610 F.2d 231, 235 (5th Cir. 1980).
III. ANALYSIS
The issues presented to this Court are (1) whether the NAD properly affirmed the FSA decision to deny Plaintiffs' request for operating loan assistance because of delinquent federal debt and failure to provide current, complete, and truthful information; and (2) whether the NAD properly affirmed the FSA decision to deny Plaintiffs' request for primary loan servicing due to a lack of good faith.
After a careful review of the agency records and the pleadings and responses filed in this case, this Court is of the opinion that the decisions and NAD Director Review Determination at issue are supported by substantial evidence and are not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. The Court finds that the NAD Director properly affirmed the FSA decisions to deny the Plaintiffs' request for operating loan assistance because of delinquent debt. The Court further finds that the NAD Director properly affirmed the FSA decisions to deny the Plaintiffs' request for operating loan assistance and for primary loan servicing due to a lack of good faith, demonstrated by the Plaintiffs' failure to disclose the debt owed to First United Bank of Sudan and City Bank of Morton. Thus, the Court finds that the NAD Director Review Determination stands.
The Court finds that Plaintiffs' argument that 7 C.F.R. § 1924.56(b) should apply to these facts is misplaced. The FSA could not have created a separate Farm and Home Plan because the FSA did not have accurate, complete, and truthful information as to the liability of the Plaintiffs for Keed Farms' debt. The FSA specifically requested that the Plaintiffs provide that information by a specific deadline, and the Plaintiffs failed to do so. Thus, in this instance, there was not a disagreement on how to use the Keed Farms' debt in developing and evaluating the plan. Instead, in this instance, the applicant refused to furnish accurate, complete, and truthful information.
Additionally, the Court finds that Plaintiffs' argument that the documents they executed relating to the 2002 Farm Home Plan and the Request for Direct Loan Assistance did not constitute an agreement between them and the FSA is erroneous. Execution by the United States is not required in such situations for there to be an agreement between the United States and the applicant/borrower. There is, to be certain, at least implied agreement in such situations.
IV. CONCLUSION
This Court finds that Defendant's Motion for Judgment is well taken and should be GRANTED in its entirety and that Plaintiffs' Motion for Judgment should be DENIED.Judgment shall be entered accordingly.
SO ORDERED