Producers SURE They Could Proceed to Court- Court Disagrees

June 14, 2013 | Roger McEowen and Erika Eckley

In general, disputed matters involving government administrative agencies must first be dealt with in accordance with the particular agency’s own procedural rules before the matter can be addressed by a court of law.  This is known as exhausting administrative remedies, and the exhaustion principle also generally requires that legal issues must be raised during the administrative process so as to be preserved for judicial review.  About the only time that administrative remedies need not be exhausted is when the plaintiff makes a direct “facial” challenge to the agency’s regulation that is at issue. In the following case, the plaintiffs admit they did not exhaust the administrative appeals process, but claim they were entitled to go directly to the court. Unfortunately for them, the court disagreed.

The case involved 38 Iowa corn and soybean producers who sought payments under the Supplemental Revenue Assistance Payments Program (SURE) for the 2008 crop year. They sued, alleging improper calculation of their SURE payments.  Under the SURE program, producers can receive disaster assistance payments for crop production or quality losses as a result of a natural disaster.  Producers can receive 60 percent of the difference between the disaster assistance program guarantee (SURE guarantee) and the farm’s total actual revenue.  USDA regulations set forth a formula that pegs the SURE guarantee at 120 percent of the product of three factors,one of which is the “price election for the commodity elected by the eligible producer.”  In turn, FSA regulations define “price election” as “the crop insurance price elected by the participant multiplied by the percentage of price elected by the participant.”  State committees, such as the Iowa FSA, and local county committees are responsible for administering FSA programs on the local level. 7 C.F.R. § 7.2. As part of their responsibilities, these FSA subdivisions use federal and statutory formulas to calculate and issue SURE Program payments under the supervision of the FSA.

The issue started when one of the producers contacted an attorney after being notified by the local county committee that his farming operation would not be receiving any SURE  payment. The producer claimed that the price election figure used by the county committee was incorrect. The county committee used the price election figures established by the USDA’s Risk Management Agency rather than the price election figure in each producer’s individual crop insurance policy. As a result, the SURE program payments were too low or resulted in no payment being made.

The attorney requested a rehearing of the county committee. At the rehearing, Iowa’s Chief Agricultural Program Specialist informed him that the matters were of “general applicability” and not eligible for administrative appeal. After the hearing, the attorney and the program specialist “agreed” that the administrative process would be a waste of time. The program administrator agreed to provide language on the county committee’s denial letter stating that the “issues raised in this appeal are not appealable,” but described the appeal process. The letters also included a statement at the end of the letter, which said, “If you do not file an appealability review request, your administrative review process has been exhausted.”

The remaining producers must have thought this was a great deal, because they all signed on to the scheme. All of the producers brought their claims to the county committees and all of the producers received the preceding statement on their letters. None of the producers sought further review. They brought suit.  The government defendants, however, sought dismissal of the suit on the basis that all 38 producers failed to exhaust administrative remedies before filing suit in district court.

The district court granted the government’s motion to dismiss.  While the court held that the producers did not exhaust their administrative remedies, the court also found there was no equitable doctrine to excuse the failure. The producers agreed they did not exhaust their administrative appeals, but appealed the court’s determination that no equitable doctrine could save their suit from this failure.

The appellate court noted that, at least in the Eighth Circuit, a failure to exhaust administrative remedies is not a jurisdictional bar to review, and the court can consider whether exhaustion is excused. In this case, the producers argued that their failure to exhaust administrative remedies should be excused either because the appeal was futile, the issue was a legal question, or because the government should be estopped due to the assurances made by the Chief Agricultural Program Specialist that an administrative appeal was not required. The appellate court rejected each argument. 

The court held that an administrative appeal would not have been futile, and would have focused on whether the price election issue was of general applicability or appealable. So, by failing to appeal, the producers did not allow the agency to determine whether the issue was one for which agency appeal would have been available.

The court also held that the National Appeals Division (NAD) had the statutory authority to determine appealability. Through its review of whether the price election was an appealable issue, the NAD would have drawn on its expertise in interpreting the statute. By failing to appeal to the agency, the producers prematurely interfered with the agency’s process and the question raised was directly within the purview of the agency’s knowledge. Because of this, the producers were not excused from appealing because they did not present an issue that was not suitable for administrative review and more properly resolved by the courts.

Finally, the court held that the producers were not entitled to an equitable remedy.  While the statement of the Iowa Chief Ag Program Specialist was not accurate, the court noted that information on the rules for appealing USDA administrative decisions was readily available.  For instance, the court referred to a 2011 NAD decision that reversed an FSA determination when the NAD concluded that “a farmer’s appeal asserting error in a SURE Program payment calculation was specific to the farmer’s individual circumstances and, therefore, appealable.”  USDA National Appeals Division, NAD Determinations, Case No. 2011E000297, Appealability Decision (Feb. 28, 2011).  The court clearly believed that some research on the part of the producers’ attorneys would have revealed the NAD decision.  Likewise, while the producers relied on the Specialist’s statement to their detriment, the court held that the producers couldn’t rely on the agreement to avoid the law and regulations that apply to USDA administrative appeals.  Also, the producers couldn’t prove that the Specialist’s statement was made with the intent to induce them to act on the false statement.  That was a key fact – the Specialist’s statement was merely negligent, it wasn’t affirmative misconduct.  Mere negligence of a government employee is not sufficient to give rise to an equitable estoppel claim.  

Because there was no exception to the producers’ failure to exhaust their administrative remedies, their district court’s dismissal of their suit was affirmed. Bartlett v. United States Department of Agriculture, No. 12-3087, 2013 U.S. App. LEXIS 11235 (8th Cir. June 5, 2013).