FSA appraisal regulations need not be identical, but must use same methodology and considerations to value property

The farmer in this case had $179,700 of FmHA (now FSA) debt written off in 1992 and entered into a Shared Appreciation Agreement (SAA) obligating them to pay a percentage of any appreciation in the property securing the remaining indebtedness that occurred between the beginning and end of the agreement. The applicable valuation regulation in 1992 required that the "agricultural value" of the property was to be determined primarily in accordance with the farm's income potential (earning power as a farm). However, by the time the agreement expired in 2002, the FSA changed the valuation regulation such that the farm's value was to be determined based on the farm's "rental value."  The FSA rejected the farmer's appraisal based on the 1992 rules and the administrative appeal process upheld the FSA's use of the revised valuation technique (which had the effect of increasing the amount that had to be paid back to FSA). Upon review, the Federal District Court for the Western District of Missouri reversed. The court determined based on fundamental principles of contract law that FSA was bound to follow the rules in effect at the time the SAA was entered into. As such, the trial court ruled that the appraisal method utilized at the beginning of the agreement must be the same rules that are utilized at the end of the agreement. 

However, the trial court’s opinion was reversed on appeal. The court first noted that the SAA did not prescribe any particular method for appraising the property. While the same standards and methodologies must be employed in both appraisals, the court held that the appraisal regulations need not necessarily be identical. While the 1992 appraisal was based on agricultural rental value, the court reasoned that the highest and best use standard of the 2002 appraisal was not inconsistent because the highest and best use of the plaintiff’s property was still agricultural, and rental value was based on what the farm could produce. Thus, both appraisals utilized consistent methodologies and evaluated the same considerations. So, the key was not whether the regulations were different. Instead, the key is whether the regulations used different methodologies to value the property. Davies v. Johanns, No. 06-1403, 2007 U.S. App. LEXIS 3230 (8th Cir. Feb. 14, 2007), rev’g, 409 F. Supp. 2d 1150 (W.D. Mo. 2005).