MAPLE DRIVE FARMS LIMITED PARTNERSHIP, Plaintiff, Nicholas H. Smith, Plaintiff-Appellant, v. Tom VILSACK, Secretary, United States Department of Agriculture, Defendant-Appellee.
No. 13-1091.
United States Court of Appeals, Sixth Circuit.
Argued: Oct. 10, 2013. Decided and Filed: April 1, 2015.
781 F.3d 837
Finally, Navistar‘s delay has caused the SBC “actual prejudice.” Hurley, 610 F.3d at 338. The majority incorrectly asserts that Navistar raised arbitration in “its second substantive submission in the litigation.” Maj. Op. at 829-30. In fact, Navistar waited until its fourth substantive submission to raise the issue, sitting quietly on its arbitration rights while the parties litigated the SBC‘s right to intervene, the SBC‘s motion to enforce the settlement agreement, and Navistar‘s initial motion to dismiss. These litigation costs, though not as extreme as some cases, are sufficient to qualify as actual prejudice under our precedent. Compare Johnson Associates Corp., 680 F.3d at 720 (affirming district court‘s finding of waiver where “plaintiffs were prejudiced by unnecessary delay and expense because ‘the right to arbitrate was not asserted for eight months, during which motions were filed, requests for discovery materials were made and responses were prepared, and a judicial settlement conference was held.’ “).
CONCLUSION
In sum, I would hold that the instant dispute is not within the scope of the arbitration clause, and that even if the dispute were arbitrable, Sixth Circuit precedent compels a cоnclusion that Navistar waived its right to demand arbitration. I therefore respectfully dissent.
Before: BOGGS and SUTTON, Circuit Judges; and CLELAND, District Judge.*
OPINION
BOGGS, Circuit Judge.
The “Swampbuster” provisions of the Food Security Act of 1985 deny certain farm-program benefits to persons who convert a wetland on their property for agricultural purposes. Nicholas H. Smith challenges the United States Department of Agriculture‘s determination that Smith had converted 2.24 acres of wetland on his property and that he is, consequently, totally ineligible for program benefits. Specifically, Smith contends that the Department erred when it failed to: (1) analyze whether his purported conversion would have only a minimal effect on surrounding wetlands, a finding that would exempt him from ineligibility; (2) consider relevant factors that would reduce his penalties; and (3) exempt Smith‘s parcel on the ground that it was originally converted from wetland and farmed prior to the statute‘s passage. The district court denied relief. Because USDA acted without abiding by applicable regulations, we reverse the judgment of the district court and
I. Background
A. Statutory and Regulatory Background
The conservation title of the
The Act provides a number of exemptions from the ineligibility provisions. Relevant to this case are two exemptions. One, added to the Act in 1996, exempts farmers who convert:
A wetland previously identified as a converted wetland (if the original conversion of the wetland was commenced before December 23, 1985), but that the Secretary determines returned to wetland status after that date as a result of—
(i) the lack of maintenance of drainage, dikes, levees, or similar structures;
(ii) a lack of management of the lands containing the wetland; or
(iii) circumstances beyond the control of the person.
Even if a farmer does not qualify for these exemptions, the United States Department of Agriculture (USDA) retains discretion to reduce the ineligibility penalties for farmers who convert wetlands, in lieu of depriving those farmers of program benefits altogether. “Factors such as” the following “shall be considered [in] making this determination“:
the information that was available to the affected person prior to the violation, previous land use patterns, the existence of previous wetland violations under this part or under other Federal, State, or local wetland provisions, the wetland values, acreage, and functions affected, the recovery time for full mitigation of the wetland values, acreage, and func-
tions, and the impact that a reduction in payments would have on the person‘s ability to repay a USDA farm loan.
B. Factual Background
Nicholas H. Smith2 owns a 50-acre field in Hillsdale County, Michigan. He has personally farmed the land for over fifty years. This case concerns a 2.24-acre parcel on the land.
1. Pre-2008 Activity on the Parcel
In November 1961, Smith and the Soil Conservation Service3 formed an agreеment, titled “Soil and Water Conservation Plan,” under which the agency would assist Smith in executing a conservation plan for the property. In the agreement, Smith affirmed that he “want[ed] to farm the conservation way” and sought “assistance in working out, putting into effect and maintaining the conservation practices needed on [the] farm.” The agency approved and helped finance a tile-drainage system to remove excess water and moisture from the 2.24-acre parcel on Smith‘s land.4 In 1964, Smith installed drainage tile with cost-share funding from USDA‘s Agricultural Stabilization and Conservation Service.5
Smith, with the help of USDA, successfully drained the parcel and grew commodity crops on the parcel at least through 1982.6 During this time, the Natural Resources Conservation Service (NRCS), an arm of USDA, provided Smith with technical assistance to implement the conservation plan. In the early 1980s, drainage through the parcel began to deteriorate, perhaps because of the drainage tile‘s collapse or blockage.
The administrative record contains annual aerial photos of the parcel from 1979 through 2003 and also for 2005. USDA states that these photos show both that, at least as early as 1979, the parcel had standing water and a consistent presence of woody overgrowth and also that the parcel‘s verdant nature differed from that of the surrounding cropland. The parties do not dispute that by 1985—the year that Congress enacted the Swampbuster provisions—the parcel had returned to a wetland condition. In June 1988, USDA determined that a wetland existed on Smith‘s property, and it informed Smith of this. In September 1993, USDA again determined that a wetland existed and again informed Smith.7
2. Post-2007 Activity on the Parcel
On October 27, 2008, Smith filed an “AD-1026” form with USDA indicating his intent to “[c]reate new drainage systems, or conduct land leveling, filling, dredging, land clearing, or stump removal.” Smith also indicated that his intent was not to modify “existing drainage” or to “maintain an existing drainage system.” By signing this form, Smith agreed “[not] to convert wetlands” and to allow USDA to enter and inspect his farm.
On October 30, 2008, NRCS notified Smith that it designated the 2.24-acre parcel as a wetland.
On November 14, 2008, Smith requested that NRCS reconsider its determination and asked to set a date to meet with the district conservationist to discuss the issue. He informed NRCS that he had originally installed drainage tile and planted the parcel in the 1960s, and he offered to provide evidence. On Nоvember 22, 2008, Smith also requested to mediate the dispute.8
On November 25, 2008, G.L. Kinter, an NRCS investigator, conducted a wetland analysis on Smith‘s property. Kinter analyzed the vegetation, hydrology, and soils of the parcel at two different transects. The record also contains several photographs taken of Smith‘s property on November 25.9
The following day, on November 26, 2008, NRCS notified the Michigan Agricultural Mediation Program that it agreed to mediate the dispute with Smith. Subsequently, on December 12, 2008, NRCS issued a “final technical determination” that classified the 2.24-acre parcel as “manipulated wetland.” On January 6, 2009, the Dispute Resolution Center of West Michigan notified Smith and NRCS that it would conduct a mediation session on January 28, 2009, at the Hillsdale County NRCS office.
On January 28, 2009, Smith and NRCS executed a mediation agreement. NRCS agreed to provide a wetland delineation and to provide Smith with advance notice of the date of the site visit to allow Smith to attend. NRCS also agreed to allow Smith to plant the field in the spring, so long as Smith did not remove trees.10 Both parties agreed to keep mediation open pending completion of the wetland delineation. Gary Rinkenberger, the NRCS appeals and mediation coordinator for Michigan, signed the agreement on behalf of NRCS. The parties agree that on the following day, January 29, 2009, Smith spoke by phone with Jason Wheeler, the NRCS district conservationist, and Wheeler permitted Smith to cut down trees so
Following the mediation session, Smith and NRCS exchanged correspondence to find a mutually agreeable date for NRCS to conduct the wetland delineation. In a March 23, 2009, letter, NRCS informed Smith that it would conduct the delineation on April 7, 2009. On March 28, 2009, Smith responded, stating that he would be out of state on that date; he indicated that he could accommodate a date after June 21, 2009. On April 9, 2009, NRCS proposed either June 22 or 23, 2009. On April 20, 2009, Smith agreed to a June 23, 2009, delineation.
That spring, prior to the NRCS wetland delineation, Smith farmed the parcel pursuant to the mediation agreement. Specifically, he cut down trees and mowed, plowed, tilled, and planted the land. He left stumps in place. In an area of the parcel that the parties refer to as the “northern neck,” Smith also filled in a ditch. Smith believed that his alteration to the northern neck was permitted because it was not a wet spot, as it sat at a significantly higher elevation.
On June 23, 2009, NRCS returned to Smith‘s property, as agreed upon, to conduct the wetland delineation. William Bowman, an NRCS investigator and soil scientist, analyzed the vegetation, hydrology, and soils. On July 24, 2009, NRCS notified Smith that “аccurate delineation of the wetland was not possible” because of significant alterations to the land since its prior site visit in November 2008. NRCS stated:
With the exception of some stumps from large trees that remain in the periphery of the wetland area, all woody vegetation within the wetland has been cleared and planted to a commodity crop. Additionally, there is evidence of the placement of fill in the north portion of the wetland, which has also been planted to a commodity crop.
Because Smith‘s activities resulted in “making production of a commodity crop possible, where it was not possible” previously, NRCS re-designated the parcel as “converted wetlands.” NRCS did not claim that Smith removed stumps or otherwise violated the January 28, 2009, mediation agreement. Nor did it reference the clause in the mediation agreement that stated: “the field involved can be planted this spring.”
Subsequently, NRCS notified the Farm Service Agency (FSA) that the 2.24-acre parcel on Smith‘s property constituted a converted wetland. The purpose of doing so was to allow FSA to determine Smith‘s eligibility for USDA program benefits.
On August 4, 2009, the Hillsdale County FSA executive director informed Smith that his wetland conversion rendered him indefinitely ineligible for $42,528 in annual USDA benefits.
3. Smith‘s Administrative Appeals
a. Initial Steps
From 2009 to 2011, Smith pursuеd two different appeals with USDA‘s National Appeals Division (NAD): NRCS‘s wetland determination and FSA‘s benefit-ineligibility determination.
In addition to pursuing formal appeals of the agency decisions, Smith also notified the mediator that he wished to reopen the mediation with NRCS. On September 22, 2009, the National Appeals Decision agreed to suspend Smith‘s NRCS appeal to allow the parties to pursue mediation.
On September 15, 2009, Smith appeared before the FSA‘s Hillsdale County Committee to contest the benefit-ineligibility decision. The committee consisted of the executive director, who had issued the decision denying Smith benefits, and three other members. According to the hearing minutes, Smith “voiced his frustration with the process thus far.” The committee informed Smith that it could not reverse the benefit-ineligibility decision so long as NRCS classified the parcel as converted wetland. The committee also suggested to Smith that it could not conduct an informal review because of Smith‘s pending mediation of the NRCS converted-wetland determination. On September 23, 2009, the county committee informed Smith that it officially upheld the decision of the executive director to deny benefits.
On October 14, 2009, Smith and NRCS conducted another mediation session regarding the converted-wetland determination. At the mediation, Smith presented NRCS with an extensive report by an independently retained wetlands expert that purported to show that Smith‘s activity on the parcel had had a minimal effect on wetlands in the area. Smith states (and USDA does not dispute) that NRCS refused to accept, consider, or even read his expert‘s report. Appellant Br. 15. The parties were unable to reach an agreement.
On October 21, 2009, Smith informed the National Appeals Division both that the county committee upheld FSA‘s ineligibility determination and also that mediation with NRCS failed. Smith stated that he was “anxious to resolve this matter,” and he requested that the National Appeals Division consolidаte his NRCS and FSA appeals. On October 26, 2009, the National Appeals Division reinstated Smith‘s NRCS appeal and notified him that it docketed his FSA appeal as Case No. 2010E000063. On November 3, 2009, Smith again requested that the National Appeals Division consolidate his two appeals “because the wetland and ineligibility determinations are inextricably linked.” On November 6, 2009, the National Appeals Division declined to consolidate Smith‘s two appeals because “the decisions under appeal have been issued by two different USDA Agencies.”
On December 16, 2009, and continued on January 7, 2010, the National Appeals Division conducted a formal hearing on Smith‘s two appeals. After the record in each case closed on January 28, 2010, Hearing Officer Mulholland requested an
b. The Hearing Officer‘s Decisions
On March 12, 2010, Hearing Officer Mulholland issued a decision in each appeal. In Smith‘s NRCS appeal, the hearing officer found that the 2.24-acre parcel qualified as converted wetland under the criteria of
In Smith‘s FSA appeal, the hearing officer found that because NRCS concluded that Smith had converted wetland, FSA properly deemed Smith ineligible for USDA benefits pursuant to
c. The Deputy Director‘s Decisions
On April 14, 2010, Smith pursued his appeals further by seeking review of the hearing officer‘s decisions with the Director of the National Appeals Division. The parties articulated their positions in several letters to the Director. On June 25, 2010, Smith inquired about the status of his appeal, writing that “the unresolved status has introduced great uncertainty” and “affected planting and crop management practices.”
In July 2010, NAD deputy director M. Terry Johnson issued two decisions.16 In Smith‘s NRCS appeal, the deputy director upheld the hearing officer‘s determination. The deputy director accepted that Smith believed “that he had the right to clear out
The National Appeals Division notified Smith that the deputy director‘s determination in the NRCS appeal was a USDA “final order” and “conclude[d] all administrative processing” of the appeal.
In Smith‘s FSA appeal, however, the deputy director reversed the hearing officer‘s determination because it was “not consistent with applicable regulations.” Maple Drive Farms, Case No. 2010E000063 (July 28, 2010).18 The deputy director found that the hearing officer failed to address Smith‘s argument that
d. Remand to FSA
On September 15, 2010, the FSA Hillsdale County Committee again considered Smith‘s request for partial relief from the withholding of USDA benefits. It denied Smith‘s request.
On November 9, 2010, the FSA Hillsdale County Committee held an informal hearing to reconsider whether it should recommend a reduction in Smith‘s penalties. The county committee noted that paragraph 737B of FSA Handbook 6-CP provided a list of factors to consider in determining whether relief from total ineligibility is warranted. According to the minutes of the hearing, the county committee asked Smith whether he would consider mitigation by designating another portion of his property as wetland. Smith replied “that NRCS stated he would have to mitigate up to 2 times the size and register it as a permanent easement.” A member of Smith‘s family told the committee that she felt “somewhat betrayed and over-policed on the issue.” Smith told the committee that “he was agоnized by the perception that [his family was] cheating on conserva-
The county committee “noted that the mediation agreement was not detailed and could have been misinterpreted.” It also noted that denying Smith all USDA benefits “may adversely affect good conservation practices” because of the total amount of Smith‘s cropland. The county committee also noted that the wetland violation at issue involved less than 0.2 percent of Smith‘s cropland.
On November 22, 2010, the Hillsdale County Committee issued a recommendation to the Michigan state FSA office, requesting “that some relief of penalties be granted for the violation.” The county committee stated that “the loss of benefits may adversely affect good conservation practices.”
On December 15, 2010, the Michigan state FSA office issued its own recommendation to Brandon Willis, the FSA deputy administrator for farm programs. The state FSA committee disagreed with the county committee and declined to support Smith‘s request for partial relief. The state committee stated that it “felt that [Smith] was well aware of [his] ability to regain USDA benefits through wetland mitigation.” The state committee did not address the factors in either
On March 30, 2011, the FSA deputy administrator notified the Michigan state FSA office that it did not approve Smith‘s request for a partial relief from the penalties. The deputy administrator stated that Smith could not receive USDA benefits unless “the wetland is ... restored or mitigated.” The deputy administrator quoted at length from
I have carefully reviewed the county committee request to reduce program payment ineligibility in the absence of both good faith and the restoration or mitigation of the converted wetland. Given the circumstances of this case, reduction of ineligibility according to CFR § 12.5(b)(5) and 6-CP, paragraph 737, is inappropriate. The submitted information shows that although Maple Drive Farms is aware of the need to restore or mitigate the converted wetland to regain eligibility for the USDA benefits, it has no intention to do so and, in fact, Maple Drive Farms has expressed an intention to continue cropping the converted wetland. Clearly, Maple Drive Farms is able to restore or mitigate the wetland, but is unwilling to do so.
On April 7, 2011, the FSA Hillsdale County executive directоr notified Smith that FSA had issued its final determination that Smith was totally ineligible to receive USDA program benefits. The executive director informed Smith that FSA determined that “a full reduction of benefits for the wetland violation is appropriate.”
On July 1, 2011, Smith filed suit in federal district court for judicial review of NRCS‘s wetland determination and of FSA‘s benefit-ineligibility determination. See Maple Drive Farms Family Ltd. P‘ship v. Vilsack, No. 1:11-CV-692, 2012 WL 6212905 (W.D.Mich. Dec. 13, 2012). The district court denied relief and upheld both agency determinations, see id. at *13, and it denied Smith‘s motion for reconsideration, Order at 3, Maple Drive Farms Family Ltd. P‘ship v. Vilsack, No. 1:11-CV-692 (Jan. 11, 2013).
Smith raises three claims on appeal: (1) he is exempt from ineligibility under
A. Prior-Converted-Wetland Exemption
The
Smith and USDA interpret the phrase “аfter that date” differently. Smith maintains that the exemption applies to farmland that was converted at one point in time and subsequently reverted to wetland status, regardless of whether the land was wetland on December 23, 1985. Smith reads the statute as if the final clause said “but that the Secretary determines returned to wetland status after that identification,” referring to the preceding phrase “previously identified as a converted wetland.” USDA argues, on the other hand, that the converted-wetland exemption applies “where the conversion occurred prior to December 23, 1985, an agricultural commodity had been produced at least once before December 23, 1985, and as of December 23, 1985, the converted wetland did not support woody vegetation and met [certain] hydrologic criteria.”
The language is admittedly an example of inartful statutory drafting. Both interpretations are sensible. See Horn Farms, Inc. v. Johanns, 397 F.3d 472, 475 (7th Cir.2005) (“Section 3822(b)(2)(D) is ambiguous.“). Under Smith‘s reading, the exemption applies to prior-converted wetland that returns to wetland status after the date on which it was previously designated as converted wetland. Under the agency‘s reading, the exemption applies to prior-converted wetland that returns to wetland status after December 23, 1985. In thе agency‘s view, December 23, 1985, is the crucial date on which to determine whether a parcel is wetland.
The crux of Smith‘s argument is that the phrase “that date” cannot refer to December 23, 1985—contained in parentheses—because parentheses are used only for non-essential material. ” ‘That date,’ ” Smith argues, “must refer to the subsection‘s only antecedent date outside the parenthetical“—the date the wetland was previously identified as converted. Appellant Br. 30. This argument is not without force. “No intelligent construction of a text can ignore its punctuation.” Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 161 (2012).
The agency‘s view is that “that date” refers to December 23, 1985, the nearest reasonable referent. We have previously honored the last-referent presumption and recognized that under the presumption, “qualifying phrases attach only to the nearest available target.” In re Sanders, 551 F.3d 397, 399 (6th Cir.2008). Moreover, “December 23, 1985” is not just the last date mentioned in the statutory text; it is the only date expressly referenced. For this reason and others, the Seventh Circuit found USDA‘s reading to be more
Smith and USDA discuss case law, statutory purpose, legislative intent, and relevant agency regulations in support of their respective interpretations of “that date.” In resolving this dispute, we defer to the agency‘s interpretation of the statute. See Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984); Horn Farms, 397 F.3d at 476 (applying Chevron deference to USDA‘s interpretation of the statute).
Because we here interpret “an agency‘s construction of the statute which it administers,” we first must determine “whether Congress has directly spoken to the precise question at issue.” Chevron, 467 U.S. at 842. It has not. The statute being “ambiguous with respect to the specific issue,” we then must determine whether “the agency‘s answer is based on a permissible construction of the statute.” Id. at 843. “If the agency‘s construction is a permissible one, even if it is not ‘the reading the court would have reached if the question initially had arisen in a judicial proceeding,’ then the court must defer to the agency‘s interpretation.” Ky. Waterways Alliance v. Johnson, 540 F.3d 466, 474 (6th Cir.2008) (quoting Chevron, 467 U.S. at 843 n. 11).
We cannot say that the agency‘s interpretation of the statutory text is impermissible. Accordingly, we defer to USDA‘s interpretation of
B. Minimal-Effect Exemption
1
Farmers are also exempt from Swampbuster‘s ineligibility provisions for the conversion of wetland that has “a minimal effect on the functional hydrological and biological value of the wetlands in the area, including the value to waterfоwl and wildlife.”
Smith asserts that USDA acted contrary to law when it failed to conduct an onsite functional assessment to make a minimal-effect determination. Smith quotes the statutory and regulatory language and emphasizes the repeated use of “shall” throughout. See Appellant Br. 21-22. For instance, the “Secretary shall exempt a person from the ineligibility provisions” if the minimal-effect criteria are met,
Section 12.31(d) contemplates two kinds of minimal-effect determinations: one made “prior to the beginning of activities that would convert the wetland” аnd one made after a farmer has converted a wetland. (emphasis added). This distinction is
We find persuasive the Eighth Circuit‘s analysis of the minimal-effect exеmption. In Clark v. United States Department of Agriculture, 537 F.3d 934, 942 (8th Cir. 2008), the Eighth Circuit noted that Congress amended
2
In this case, the parties disputed at the administrative-appeal stage whether Smith ever requested a minimal-effect determination. NRCS‘s position during the administrative appeal was that “according to
The government‘s new argument on appeal is that Smith presented his evidence, NRCS considered the evidence, and NRCS simply was not persuaded by the evidence. The government represents to the court: “The agency considered the minimal effect evidence [Smith] submitted; however, it was not sufficient to carry his burden.” Appellee Br. 41.19 The government, tellingly, cites nothing in the 1,000-page administrative record to support its claim that NRCS considered Smith‘s minimal-effect evidence.20 Nor is it able to do so. Jason Wheeler, NRCS‘s own expert charged with evaluating Smith‘s 2.24-acre parcel, testified at the National Appeals Division hearing: “I did not conduct a minimal effect determination because I was not required to.” There is nothing in the administrative record indicating that NRCS considered Smith‘s minimal-effect evidence.
3
NRCS‘s other argument, throughout both the administrative appeal and this litigation, is that the minimal-effect exemption only applies in two narrow circumstances, at least in Michigan.21 Before the National Appeals Division, NRCS argued: “[A]ccording to [agency guidance] the State Conservationist is instructed to develop procedures for making minimal effect determinations. According to [this guidance] the [Michigan] State Conservationist has determined the procedure for minimal effect determinations.” The National Appeals Division deputy director, in turn, stated: “[I]n [Michigan], there are only two categories of conversion activities that have been identified as minimal effects situations.” Smith, Case No. 2009E000846 (July 23, 2010). Likewise, on appeal, the government argues that NRCS delegated authority to state NRCS offices to develop criteria for making minimal-effect determinations. See Appellee Br. 40.
An NRCS representative also testified before thе National Appeals Division hearing officer that NRCS, categorically, permits minimal-effect exemptions only in two narrow situations:
Q. Are these two situations the only two situations that the department will find a minimal effect?
A. In Michigan.
A. If [farmers] fall into either one of those categories, then we will give minimal effect. Otherwise we‘re not authorized to provide it. Q. ... I just want to make sure your testimony is clear because I think most people would be shocked to hear this, that the statute passed by Congress does not give the Agency any discretion to evaluate whether or not activity has a minimal effect except for those two [conditions]?
A. The State Conservationist evaluated that with the State Technical Committee, and they said these are the only two minimal effects we‘re going to allow in Michigan....
Q. That‘s astounding. Okay. With that in mind, then it is your position that as a matter of law, regardless of what the facts are that [Smith‘s wetlands expert] gave you on the functions and value of the wetland, irrespective of any of that, you are bound as a matter of law not to consider the functional wetland values and hydrology in the area unless it falls within [one] of those two categories? Is that your position?
A. That‘s my position.
The problem with the government‘s position is that it has no support in law. Nothing in the applicable regulations suggests that the state NRCS offices can establish a list of conditions that exhausts the universe of situations in which the agency will grant a minimal-effect exemption. The relevant federal regulation,
The government also relies on a provision in NRCS guidance that provides: “[State NRCS officials] will develop and issue minimal effect procedures for assessing wetland functions, making minimal effect determinations, and approving exemptions.” National Food and Sеcurity Act Manual (5th ed.), Title 180, Part 515.0(C). This provision, authorizing state NRCS officials to issue minimal-effect “procedures,” does not support NRCS‘s position that it need not consider Smith‘s minimal-effect evidence unless his conversion activity falls into one of two narrow situations.
4
We set aside agency factual determinations when they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
One final note. The district court, in dismissing Smith‘s minimal-effect claim, placed dispositive emphasis on Smith‘s refusal to mitigate. See Maple Drive Farms, 2012 WL 6212905, at *9-10. Thе district court stated, without citation to any regulation: “To qualify for a minimal effect exception, a person must also agree to a mitigation plan.” Id. at *10. In its order denying Smith‘s motion for reconsideration, the district court maintained, without citation to authority, that “the issue of mitigation is at the least a fair practical consideration” and that “[o]ne proper factor to consider is the presence or absence of mitigation measures.” Order at 2-3, Maple Drive Farms, No. 1:11-CV-692 (Jan. 11, 2013). But as USDA now concedes on appeal, willingness to mitigate by imposing an easement on other acreage on one‘s property, or through other means, “is not an express requirement under
C. Penalty-Reduction Ineligibility
USDA retains discretion to reduce benefits for farmers who convert wetlands rather than deprive them of program benefits altogether. Smith contends that the Farm Service Agency еrred in requiring him to restore or mitigate the converted wetland before he could qualify for a penalty reduction. See Appellant Br. 26-28. Smith argues that FSA failed to consider the regulatory factors relevant to a penalty-reduction determination. USDA argues that Smith may not receive any future USDA benefits unless he agrees to restore his land or mitigate. See Appellee Br. 49 (“Smith must agree to restoration or mitigation, in order to receive future USDA program benefits.“). The district court held that FSA‘s refusal to reduce Smith‘s penalties was proper because of Smith‘s unwillingness to mitigate. Maple Drive Farms, 2012 WL 6212905, at *10-11.
1. Applicable Regulation and Guidance
Under USDA regulations, a person who converts a wetland “shall be ineligible for all or a portion of the USDA program benefits” subject to the wetland-conservation provisions.
Additionally, the regulation affords FSA discretion to adjust the penalties for a farmer deemed ineligible. The regulation provides that “ineligibility“—which may or may not entail total exclusion from USDA program benefits—“may be reduced, in lieu of the loss of all benefits ... based on the seriousness of the violation, as determined by the FSA Deputy Administrator for Farm Programs or designee upon recommendation by the FSA County Committee.”23 Ibid. Section 12.4(c) provides a non-exhaustive list of six factors that “shall be considered” by the FSA deputy administrator in determining whether to reduce penalties. The deputy administrator must consider “[f]actors such as” the following:
[1] the information that was available to the affected person prior to the violation[;]
[2] previous land use patterns[;]
[3] the existence of previous wetland violations under this part or under other Federal, State, or local wetland provisions[;]
[4] the wetland values, acreage, and functions affected[;]
[5] the recovery time for full mitigation of the wetland values, acreage, and functions[;]
[6] and the impact that a reduction in payments would have on the person‘s ability to repay a USDA farm loan.
Ibid. Three points are worth noting about
FSA further construes
2. Factual Background
As discussed above, Smith initially appealed FSA‘s ineligibility determination to USDA‘s National Appeals Division. On March 12, 2010, the NAD hearing officer upheld FSA‘s determination about Smith‘s ineligibility for program benefits. Maple Drive Farms, Case No. 2010E000063 (Mar. 12, 2010). Smith then sought further review by the NAD deputy director, who ruled for Smith. Maple Drive Farms, Case No. 2010E000063 (July 28, 2010). The deputy director found that the hearing officer‘s adverse decision was not consistent with the applicable regulation and that the FSA Hillsdale County Committee erred by failing to consider Smith‘s request for a penalty reduction under the
After the deputy director issued his decision, the Hillsdale County Committee revisited Smith‘s penalty-reduction request and eventually concluded that Smith qualified for the reduction. The county committee then recommended to the Michigan FSA office that the FSA deputy administrator provide “some relief of penalties” to Smith. The county committee noted that a high percentage of Smith‘s total farmland participated in USDA‘s conservation program and that Smith‘s existing conservation practices might deteriorate in the absence of benefits. Ibid. The county committee‘s position was that permitting Smith to participate in future conservation programs was in the interest of USDA‘s conservation goals. The Michigan FSA office rejected the county committee‘s recommendation; it instead recommended thаt FSA not grant Smith a penalty reduction.
The FSA deputy administrator—whose penalty-reduction determination is controlling under
The submitted information shows that although [Smith] is aware of the need to restore or mitigate the converted wetland to regain eligibility for USDA benefits, [he] has no intention to do so and, in fact, [Smith] has expressed an intention to continue cropping the converted wetland. Clearly, [Smith] is able to restore or mitigate the wetland, but is unwilling to do so.
The deputy administrator mentioned
The district court found that the deputy administrator‘s decision was not arbitrary and capricious because Smith refused to mitigate when “section 12.5(a)(5)(C)(iv), section 12.4(c), and the Handbook ... all
3. Analysis
At issue is whether the deputy administrator‘s review of Smith‘s penalty-reduction request case was arbitrary and capricious.
a. The Deputy Administrator‘s Decision
We analyze the deputy administrator‘s decision in light of the FSA Handbook guidance as it appeared at the time Smith first sought penalty-reduction relief before the FSA Hillsdale County Committee in September 2009. There are numerous problems with the deputy administrator‘s decision.
First, the decision‘s reliance on
The second problem with the deputy administrator‘s decision is that, though it mentioned the correct section of the FSA Handbook, it did not apply that section. The district court, correctly, noted that “the [deputy administrator] cited ... Handbook Paragraph 737,” which is the relevant section. Maple Drive Farms, 2012 WL 6212905, at *11. But “citing” is not applying. The district court found that the deputy administrator “did apply the Handbook paragraph that interprets section 12.4(c).” Ibid. Nothing in the deputy administrator‘s opinion, however, suggests that he applied the section of paragraph 737 that interprets the
Rather, as Smith notes, the deputy administrator only “fleetingly refer[s]” to paragraph 737. Appellant Br. 27. Further, the deputy administrator cites paragraph 737B alongside
Regardless of the deputy administrator‘s citations and references, his decision is substantively grounded in
The deputy administrator‘s decision is particularly disconcerting in light of the previous findings of the National Appeals Division deputy director. First, it is odd that the deputy administrator concluded that Smith did not act in good faith when the NAD deputy director recognized in Smith‘s NRCS appeal that Smith did act—at least in part—in good faith: “I accept that [Smith] believed that not all of the area was properly delineated as wetland, that he had the right to clear out a 45-year-old drainage system, and that the mediation agreement gave him permission to crop the land.” Smith, Case No. 2009E000846 (July 23, 2010). Second, and more disconcerting, is that the NAD deputy director concluded that the FSA county committee erred when it did not consider Smith‘s penalty-reduction request pursuant to
USDA argues that the deputy director properly considered mitigation as a factor in denying a penalty reduction because “[m]itigation is listed as one of the factors that the DAFP is to consider in granting relief under
b. The FSA Handbook
The guidance in the FSA Handbook has been conspicuously revised since the deputy administrator issued his decision in Smith‘s case. See Farm Serv. Agency Handbook 6-CP: Highly Erodible Land Conservation and Wetland Conservation Provisions (Rev. 4, Amend. 1 Feb. 6, 2012), 6-111 to 6-112. What is conspicuous about the revision is that the new guidance contains the exact two dispositive criteria that the deputy administrator relied on in his opinion below. The new FSA guidance contains almost the exact language that the FSA deputy administrator used in his opinion. The deputy administrator stated: “Clearly, [Smith] is able to restore or mitigate the wetland, but is unwilling to do so.” (emphasis added). The new FSA guidance states that a farmer is ineligible
On remand, FSA must apply the version of its guidance that was in effect at the time Smith initially sought a penalty reduction in September 2009. “[A]dministrative rules will not be construed to have retroactive effect unless their language requires this result.” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988). Generally, “[r]etroactive application of policy is disfavored.” Iowa Power & Light Co. v. Burlington N., Inc., 647 F.2d 796, 812 (8th Cir.1981). FSA may not apply its new guidance retroactively.
We need not decide today whether FSA‘s new guidance is legal or whether the ability to mitigate is a permissible factor for consideration under
III. Conclusion
This complicated case only involves a 2.24-acre parcel of land. But Smith contends, and we have no reason to doubt, that this case has ramifications for thousands of corn and soybean farmers. In January 2009, USDA signed a mediation agreement with Smith, permitting him to plant the parcel in the spring and cut down trees so long as Smith did not remove stumps. USDA has never argued that Smith intentionally violated this agreement. Nonetheless, USDA has permanently deprived Smith of program benefits and forced him to navigate a bureaucratic labyrinth. All the while, USDA has demonstrated a disregard for its own regulations and insisted that Smith mitigate his
At oral argument, USDA stated that “the fact that [Smith] would not come to the mitigation or restoration table colored the reaction of the agency.” The fact that Smith‘s stance on mitigation may have “colored” the agency‘s relationship with him does not mean that USDA is entitled to ignore the law.
We defer to USDA‘s interpretation of the prior-converted wetland exemption in