Notice & Comment

Bartlett v. USDA: Futility, Legal Question and Equitable Estoppel Revisited, by Katherine Kennedy

The Eight Circuit recently upheld a district court decision dismissing a group of suit against the U.S. Department of Agriculture (“USDA”) on the grounds that the plaintiffs did not exhaust their administrative remedies. In a case before the Honorable Raymond Gruender, Bartlett v. U.S. Dept. of Agric., 716 F.3d 464 (8th Cir. 2013), thirty-eight individuals and entities who farm corn and soybeans in several counties in Iowa (collectively, the “Producers”) brought action against federal and state agencies and officials, alleging that defendants used an improper price-election figure when calculating payments for which the farmers allegedly were eligible under the Supplemental Revenue Assistance Payments Program (SURE Program). The defendants are the USDA; the Farm Service Agency (“FSA”); the Farm Service Agency for the State of Iowa (“Iowa FSA”); Secretary of Agriculture Thomas J. Vilsack; Acting Administrator of the Farm Service Agency, Bruce Nelson; and Executive Director of the Iowa Farm Service Agency, John Whitaker (collectively, the “Government”). The USDA, through its division the FSA, implements the SURE Program at the federal level.

Congress created the SURE Program through the Food Conservation and Energy Act of 2008.  The FSA is responsible for adopting regulations to administer the program. The SURE Program provides disaster assistance payments to eligible producers for losses in crop production or quality resulting from a natural disaster. Under the SURE Program, eligible producers may receive sixty percent of the difference between the disaster assistance program guarantee (“SURE guarantee”) and the total actual revenue of the farm. Pursuant to a statutory formula, the SURE guarantee is equal to 120 percent of the product of three factors, one of which is the “price election for the commodity elected by the eligible producer” (“price election”). 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. 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.

This case was an issue of administrative remedies before seeking a federal court’s review. A SURE program participant may seek administrative review of certain adverse county committee determinations by requesting reconsideration by the county committee, appealing to the state committee, requesting reconsideration by the state committee, agreeing to mediation, or appealing to the USDA National Appeals Division (“NAD”). The NAD is a separate subdivision within the USDA and is independent of all other USDA agencies and offices, including local department officials. The Secretary of Agriculture appoints the Director of the NAD and the NAD Director makes the final administrative decision as to whether an agency decision is appealable. Only “final determination[s]” by the NAD are “reviewable and enforceable” by district courts.

Yet under the statutory framework, not all county committee decisions are eligible for administrative review. By regulation, neither the FSA nor the NAD has the authority to review matters of “general applicability.” The relevant FSA regulations state that unappealable county committee determinations include decisions regarding:

“(1) Any general program provision or program policy or any statutory or regulatory requirement that is applicable to similarly situated participants; [or] (2) Mathematical formulas established under a statute or program regulation and decisions based solely on the application of those formulas.”

7 C.F.R. § 780.5(a).

The regulations provide both the State Executive Director and the NAD Director with the authority to determine whether an adverse county committee decision is appealable. However, the State Executive Director’s determination is not a final agency action; rather, it “is considered by FSA to be a new decision.” So, only the NAD Director has the final authority to determine whether an FSA decision falls into the categories of issues that are eligible for administrative appeal, and only a final decision of the NAD is reviewable by a district court.

The Producers each submitted an application for a SURE Program payment for the 2008 crop year. The dispute in this case centers on the price election figure that the county committees used to calculate the Producers’ SURE Program payments. Specifically, the Producers alleged that the price election should have been determined by using the price election figure in each of their individual crop insurance policies, rather than the price election figures established by the USDA’s Risk Management Agency (“RMA”). The Producers argued that the county committees’ decision to use the RMA price election figures resulted in SURE Program payments that were erroneously low, and in some cases, zero.

The Court reviewed this case de novo and first addressed whether the exhaustion statute was jurisdictional or not. The applicable statute, 7 U.S.C. § 6912(e), provides that “a person shall exhaust all administrative appeal 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 [of the USDA]; (2) the [USDA]; or (3) an agency, office, officer, or employee of the [USDA].” The Court previously held “that § 6912(e) is nothing more than ‘a codified requirement of administrative exhaustion’ and is thus not jurisdictional.” 440 F.3d at 999 (quoting Salfi, 422 U.S. at 757, 95 S.Ct. 2457). The Court held that the Producers’ failure to exhaust their administrative remedies is not a jurisdictional bar to review and the court may consider whether exhaustion is excused under a limited number of exceptions.

The Producers advanced three alternative arguments as to why they were not required to exhaust their administrative remedies: 1) further appeal within the USDA would have been futile, 2) their claim raised a purely legal question, and 3) the Iowa FSA’s misconduct equitably estops the Government from asserting the failure to exhaust defense.

Futility: The Producers argued that their failure to exhaust should be excused as futile because the NAD lacked authority to hear their appealability claim, and even if it possessed such authority, the USDA did not have authority to grant effective relief on the underlying price election issue. The rule is: “An administrative remedy will be deemed futile if there is doubt about whether the agency could grant effective relief.” The Court then used the McCarthy v. Madigan case from the Supreme Court to provide examples of specific circumstances that render an administrative remedy futile. 503 U.S. 140 (1992). The Court in this case then calls the Producer’s argument circular: “By assuming that the price election issue is one of general applicability, Producers’ argument necessarily makes its conclusion that the question is unappealable. However, the question of general applicability is what would be at issue had the Producers appealed the question of appealability to the NAD.”

The Court then analyzed this argument within the framework of agency discretion. The Court stated that since the ultimate authority to interpret 7 C.F.R. § 780.5 and determine whether a decision is appealable lies not with the FSA county committees but with the NAD, the Producers should have taken the review to the next step. Further, the FSA county committee decision letters sent to the Producers acknowledged that their appealability determination is neither final nor dispositive by outlining the available appeal procedures. The Court held that because the NAD is vested with final authority to determine whether an issue is appealable, an FSA decision that an issue is not appealable does not make an appeal to the NAD futile, and the Producers’ attempt to treat the FSA’s appealability determination as final amounts to an end run around the administrative appeal process.

Legal Question: The Producers argued that the legal question exception excuses their failure to exhaust. Under the legal question exception, also called the legal issues exception, a party’s failure to exhaust should be excused if the issues “are legal questions which are not suitable for administrative resolution and are more properly resolved by the courts.” However, the legal issues exception is extremely narrow and should only be invoked if the issues involved are ones in which the agency has no expertise. The Court continues stating that in requiring exhaustion in cases that call for agency expertise, the requirement prevents premature interference with agency processes, so that the agency may function efficiently and correct its own errors. It also “afford[s] the parties and the court the benefit of [the agency’s] experience” and “complete[s] a record which is adequate for judicial review.” The parties had offered different principles to apply to this exception.

The Court noted that Congress specifically vested the NAD with the authority to determine appealability. Through this appealability review, SURE participants call upon the NAD to draw on its expertise in interpreting the statutes to determine whether a matter is subject to further USDA review. The Court held, though, that the Producers did not avail themselves of that expertise, and by intentionally bypassing the administrative appeal process and proceeding directly to federal district court, they undermined the purposes of exhaustion and “premature[ly] interfer[ed] with agency processes.”

Equitable Estoppel: The Producers argued that the Government should be equitably estopped from asserting the defense of failure to exhaust administrative remedies based on allegedly misleading statements regarding exhaustion contained in the FSA letters and by statement, a contention squarely rejected by the D.C. Circuit in Deaf Smith, 162 F.3d at 1214. The Supreme Court has warned circuit courts about applying the doctrine of equitable estoppel to the government. This Court does note, though, that that does not mean the government is entirely immune. However, It does increase the burden an opposing party must carry in order to prevail on its estoppel claim. Therefore, to succeed on a claim of equitable estoppel against the government, a plaintiff must prove all the elements of equitable estoppel and also that the government committed affirmative misconduct.

The Supreme Court has imposed a more stringent standard for estopping the government because there is a strong public interest in upholding the rule of law, even where hardship may result to individuals in particular cases. The claimant bears the “heavy burden” of establishing that the government engaged in affirmative misconduct. If a claimant satisfies the affirmative misconduct requirement, he then must prove the four traditional elements of estoppel: (1) a “false representation by the government;” (2) government intent to induce the claimant to act on the misrepresentation; (3) a lack of knowledge or inability to obtain true facts on the part of the claimant; and (4) the claimant’s “reliance on the misrepresentation to his detriment.” Rutten v. United States, 299 F.3d 993, 995 (8th Cir.2002).

The Court held that the Producers failed in their equitable estoppel claim because they could not prove affirmative government misconduct. Although no precise definition of affirmative misconduct exists outside the immigration context, the Eighth Circuit states that case law makes it clear that affirmative misconduct is something more than mere negligence. Further, because the Producers were told in their letters that there was another step to take in their administrative review, the Court held that the Producers fail on the underlying elements of estoppel.

Thus, the Court held that since the Producers were unable to demonstrate that any of the limited exceptions to the administrative exhaustion requirement applied, the district court did not err in dismissing their suit for failure to exhaust. 

This post was originally published on the legacy ABA Section of Administrative Law and Regulatory Practice Notice and Comment blog, which merged with the Yale Journal on Regulation Notice and Comment blog in 2015.

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