Summary of a Recent
Judicial Development in
Crop Insurance

No Takings in Breach of Contract
Claim Against FCIC

Randal Busby
National AgLaw Center Research Assistant

The United States District Court for the Southern District of Iowa has ruled that a crop insurer could not file a claim as an original action instead of as an appeal after it received an adverse administrative decision and further that the insurer could not assert a takings claim in the same action in which it had asserted a breach of contract claim. Am. Growers Ins. Co. v. Fed. Crop Ins. Corp., 210 F.Supp.2d 1088, 1095 (S.D. Iowa 2002). The court also ruled that it had jurisdiction over the action and that the Risk Management Agency ("RMA") was subject to suit. See id.

American Growers Insurance Company ("American Growers"), plaintiff, was a Nebraska corporation that provided multiple peril crop insurance ("MPCI") to farmers with its principal place of business in Council Bluffs, Iowa. See id. at 1090. The Federal Crop Insurance Corporation ("FCIC"), defendant, an entity within the United States Department of Agriculture "provides approved insurance companies, such as American Growers, with crop reinsurance programs." Id. In 1996, the RMA, also a defendant, was created to supervise the FCIC pursuant to 7 U.S.C. § 6933. See id. Phyllis Honer, also a defendant, was both the acting manager of the FCIC and acting administrator of the RMA. See id. at 1090-91. The court dismissed her from the suit because American Growers intended to voluntarily dismiss her. See id.

In 1995, American Growers entered into a Standard Reinsurance Agreement ("SRA") with the FCIC effective for the 1996 crop year "based on conditions established by the FCIC." Id. at 1090. On December 7, 1995, the FCIC issued regulations that modified the conditions for "prevented planting coverage" under the MPCI policies causing American Growers to suffer increased costs and losses when it paid claims. See id.

The FCIC denied repayment for the expenses to American Growers, which led to an appeal with the Board of Contract Appeals (the "Board") on September 25, 1998. See id. On June 15, 2000, a three-member panel of administrative judges granted the FCIC's motion for summary judgment. See id.

American Growers filed a three-count complaint in the district court "seeking damages rather than asking for a review of the decision of the Board." Id. American Growers also alleged a violation of the Federal Crop Insurance Act ("FCIA"), 7 U.S.C. §§ 1501-1515. American Growers also alleged that the violation of the SRA agreement resulted in a taking without just compensation. See id. at 1090-91. The defendants argued "that their motion to dismiss should be granted pursuant to Federal Rule of Civil Procedure 12(b)1 as this [c]ourt lacks subject matter jurisdiction to hear some of the claims against certain defendants, and under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted with respect to the remaining matters." Id. at 1091.

The court first considered whether American Growers could file an action for damages against the FCIC. See id. American Growers relied on the FCIA provision, 7 U.S.C. § 1506(d), that states:

[T]he FCIC may sue and be sued in its corporate name, but no attachment, injunction, garnishment, or other similar process, mesne or final, shall be issued against [the FCIC] or its property. The district courts of the United States . . . shall have exclusive original jurisdiction, without regard to amount in controversy, of all suits brought by and against [the FCIC] . . . . Any suit against [the FCIC] shall be brought in the District of Columbia, or in the district wherein the plaintiff resides or is engaged in business.

Id. (citing 7 U.S.C. § 1506(d)). The court determined that the language "sued and be sued" did not address the effect of a prior administrative decision or whether all administrative remedies must be exhausted before seeking judicial intervention. Id. (citing 7 U.S.C. § 1506(d)).

The court explained that "[i]n 1994, as part of a congressional act on the reorganization of the Department of Agriculture, the issue of exhaustion of administrative appeals in this context was addressed." Id. The 1994 legislation provided that

[n]otwithstanding any other provision of law, a person shall exhaust all administrative appeals procedures established by the Secretary or required by law before the person may bring an action in a court of competent jurisdiction against - (1) the Secretary; (2) the Department; or (3) an agency, office, officer or employee of the Department.

Id. at 1091-92 (quoting 7 U.S.C. § 6912(e)).

The administrative appeals procedures were established by the Secretary in 7 C.F.R. § 400.169. See id. at 1092. Under the procedure, the Deputy Administrator of Insurance Services must first decide a claim. See id. (citing 7 C.F.R. § 400.169(a)). The claimant must then request a final administrative decision on the disputed issue. See id. (citing 7 C.F.R. § 400.169(a)). The final administrative decision becomes appealable to the Board of Contract Appeals. See id. (citing 7 C.F.R. § 400.169(d)). American Growers followed this procedure; however, the Board did not decide in its favor. See id.

American Growers asserted that 7 U.S.C. § 1506(d) allowed them to file an original action against the FCIC. See id. It also asserted that there was no requirement to exhaust its administrative remedies and that the court did not have to consider the decision of the Board or review the administrative record. See id.

The court disagreed and ruled that when § 1506 and § 6912(e) are read together "administrative remedies have to be exhausted before an action in this [c]ourt can be heard." Id. It also ruled that when Congress enacted § 6912(e), "it did so against the backdrop of principles of collateral estoppel, res judicata, and administrative estoppel." Id. (citation omitted). In other words, it prohibited multiple litigation by claimants attempting to achieve a favorable decision. See id. Therefore, the court found that American Growers could not circumvent the final administrative decision by filing an original action because it was unsatisfied with the result of the administrative proceedings. See id.

The court further ruled that it could only provide a judicial review in an administrative review context. See id. at 1093. It stated "in cases where Congress has simply provided for review, without setting forth the standards to be used or the procedures to be followed, [the Supreme Court] has held that consideration is to be confined to the administrative record and no de novo proceeding may be held." Id. at 1092-93 (quoting United States v. Carlo Bianchi & Co., Inc., 373 U.S. 709, 715 (1963)).

With respect to the plaintiff's claim that the defendant violated the FCIA, the court concluded that "it is unclear whether this matter was before the Board or could have been brought before the Board." Id. at 1093. Since this was a motion to dismiss, the court stated that matters outside of the pleadings would not be considered and that the claim would be "appropriately reserved for a ruling on a summery judgment motion." Id. (citing Jenson v. Klecker, 599 F.2d 243, 244 (8th Cir. 1979)).

The court next considered whether American Growers could maintain a breach of contract claim against the defendants. See id. The defendants asserted that the district court could not hear the breach of contract claim based on the Tucker Acts. See id. (citing 28 U.S.C. §§ 1346(a)(2) and 1491). Under the Tucker Acts, district courts do not have jurisdiction "'of any civil action or claim against the United States founded upon any express or implied contract with the United States or for liquidated or unliquidated damages in cases . . . which are subject to sections 8(g)(1) and 10(a)(1) of the Contract Disputes Act of 1978.'" Id. (citing 28 U.S.C. §§ 1346(a)(2)).

The court stated that the Contract Disputes Act, 41 U.S.C. § 602(a), "applies to any express or implied contract entered into by an executive agency for (1) the procurement of property, other than real property in being; (2) the procurement of services; (3) the procurement of construction, alteration, repair, maintenance or real property; or (4) the disposal of personal property." Id. (citing U.S.C. § 602(a)). Since none of the conditions in § 602(a) applied, the court decided that 7 U.S.C. § 1506(d) granted it jurisdiction over the claim against the FCIC. See id.

The defendants argued that if the plaintiff had properly filed a claim for the district court to review the administrative record, then 41 U.S.C. § 321, the Wunderlich Act, provided the appropriate scope of review. See id. at 1093-94. Since the defendants relied on the Board's decision and the SRA, the court stated that it would not consider matters outside of the pleadings and would not make an affirmative decision regarding the exact scope of review of the Board's decision. See id. at 1094. Nevertheless, the court granted American Growers leave to file a breach of contract claim that would seek a judicial review of the Board's adverse decision. See id.

Next, the court considered whether the RMA could be sued. See id. Since the RMA had supervisory authority over the FCIC, the court ruled that the two provisions, 7 U.S.C. §§ 1506 and 6912(e), were equally applicable to it and that RMA could therefore be sued. See id. at 1094.

Finally, the court considered whether American Growers complaint stated a constitutional takings claim for which relief could be granted. See id. The court explained that the government did not enter into the SRA with American Growers in a "proprietary or commercial role" because federal crop reinsurance was created to aid farmers in obtaining insurance and deferring some of their risk of loss by supporting insurance companies that provide the policies. See id.

The defendants argued that the plaintiff could not maintain a constitutional takings claim, under the Fifth Amendment of the Constitution, premised on an alleged breach of contract with the government. See id. The court stated that it is not "preferred under the law to have both claims in the same lawsuit." Id. (citations omitted). It also stated that the reason that a takings claim does not typically arise under government contracts is because the government is acting in its "commercial or proprietary capacity" and not in its sovereign capacity. Id. (citation omitted).

American Growers cited to Lynch v. United States, 292 U.S. 571 (1934), which held that government-issued insurance policies during World War I were not commercial and gave vested rights to the policy holders and beneficiaries. See id. at 1095. Nevertheless, the court distinguished the case and stated that courts only allow a "takings" claim with a breach of contract claim against the government if "the scope of the takings claim differed from that of the contract claim." Id. Since the issue was a new regulation that affected the SRA contract, the "takings" claim and the contract claim were the same subject matter. See id. Thus, the court concluded that American Growers could not maintain a "takings" claim because its interests were protected by the contract claim. See id.

The case was decided on June 26, 2002; this summary was posted June, 2003