Clarice A. Stahl v. USDA , 327 F.3d 697 ( 2003 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-2915
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Clarice A. Stahl; Loretta A. Anderson; *
Thomas K. Anderson; Don A. *
Armstrong; Mary A. Armstrong; Joseph *
Bauer; Coy Beardsley; Sue Beardsley; *
Anna Lou Bergtoll; Leo O. Bergtoll; *
Edwin C. Berkholtz, Jr.; Lois J. *
Berkholtz; Becky Bizzle; Gilbert Bizzle;*
Edroy Boe; Solveig Boe; Dennis D. *
Bromaghin; Phyllis G. Bromaghin, *
*
Plaintiffs/Appellants, * Appeal from the United States
* District Court for the
Darrell Bukaske, * District of North Dakota.
*
Plaintiff, *
*
Kathleen W. Burgess; Lesley W. *
Burgess; James E. Clark; Lillian Clark; *
Donald R. Cloose; Elvera O. Cloose; *
Robert H. Cotton; Delma K. Delp; Jay *
E. Delp; Robert N. Dettenhaim; Vicky *
R. Dettenhaim; Eleanor A. Gladish; *
Charles Leland Gladish; Frances A. *
Glinsmann; Wendell C. Glinsmann; *
Marvin F. Greiner; James A. Hamilton; *
Karla K. Ibes; Robert D. Ibes, Jr.; Don *
L. Jensen; Leola F. Jensen; Gladys M. *
Jourdan; Paul M. Jourdan; Catherine R. *
Kainz; Dennis L. Kainz; Carol *
Kinnischtzke; Karyl Kinnischtzke; Don *
A. McClanahan; Krystal G. *
McClanahan; Carol McCrery; Dennis *
McCrery; Gerald Mercer; Sharon O. *
Mercer; Terry R. Mercer; Allen H. *
Merrick; Carol A. Merrick; Clarence *
A. Merrick; Verna Merrick; Raymond *
Meyer; Raymond Meyer; Valerie *
Meyer; Mary Katherine Miller; Ralph *
A. Miller; Arlen W. Morgan; Lois E. *
Morgan; Linda A. Novak; Melvin J. *
Novak; Lindsay Orr; Julie Orr; *
Carl P. Palczewski; Esther L.
Palczewski; Frank L. Privratsky; Lonnie *
J. Privratsky; Marilyn J. Rahe; Robert F. *
Rahe; Johnny W. Roberts; Norma H. *
Roberts; Carol M. Roth; J. Richard *
Roth; Helen Rowan; Robert Rowan; *
D.L. Simmons; Cynthia L. Simmering; *
Donald C. Simmering, II; Bernadette L. *
Sobolik; Miles P. Sobolik; William J. *
Spiczka; Janice D. Spiczka; Harris O. *
Stevens; Jacqueline Stevens; Dennis *
Strom, doing business as Strom Ranch, *
Inc.; Phyllis Sullivan; Wayne Sullivan; *
Jennings D. Sunderland; Clarice *
Sunderland; Noelle J. Swanson; *
Richard A. Swanson; Jay R. Thacker; *
Valerie Thacker; Donna S. *
Throgmorton; Guy L. Throgmorton; *
Harold D. Volbrecht; Sheryl K. *
Volbrecht; Glenn O. Wagner; Herman F.*
Werle; Marsha L. Werle; Larry L. *
Zechiel; Ruth A. Zechiel; Arlene M. *
Ziemer; Rynold W. Ziemer; Terry W. *
Thomas, *
*
Plaintiffs/Appellants, *
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v. *
*
United States Department of *
Agriculture, Secretary of Agriculture, *
in her Official Capacity, Agent Ann M. *
Veneman, *
*
Defendant/Appellee. *
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Submitted: March 10, 2003
Filed: May 6, 2003
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Before WOLLMAN, RICHARD S. ARNOLD, and MURPHY, Circuit Judges.
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WOLLMAN, Circuit Judge.
The appellants entered into agreements with the United States Department of
Agriculture (USDA) whereby the USDA agreed to write-down a portion of their debt
in exchange for part of the appreciation in the value of their farms or ranches during
the term of the agreement. Appellants initiated this declaratory judgment action,
arguing that their obligation to pay ended with the term of the agreement and
challenging the USDA’s determination of the maximum amount collectible under the
agreements. The district court1 granted the USDA’s motion to dismiss. We affirm.
I.
The Agricultural Credit Act of 1987, 101 Stat. 1679 (1988), allowed farmers
and ranchers who were delinquent in payments on various agricultural loans to
1
The Honorable Rodney S. Webb, United States District Judge for the District
of North Dakota.
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restructure their debts. The Act provided for write-down of secured debt to reflect
the market value of the land securing the loan. In exchange for the write-down, the
USDA required each of the appellants to sign a Shared Appreciation Agreement
(Agreement). The Agreement provided in part:
As a condition to, and in consideration of, [USDA] writing down the
above amounts and restructuring the loan, Borrower agrees to pay
[USDA] an amount according to one of the following payment
schedules:
1. Seventy-five (75) percent of any positive appreciation in the
market value of the property securing the loan as described in the
above security instrument(s) between the date of this Agreement
and either the expiration date of this Agreement or the date the
Borrower pays the loan in full, ceases farming or transfers title of
the security, if such event occurs four (4) years or less from the
date of this Agreement.
2. Fifty (50) percent of any positive appreciation in the market
value of the property securing the loan above as described in the
security instruments between the date of this Agreement and
either the expiration date of this Agreement or the date Borrower
pays the loan in full, ceases farming or transfers title of the
security, if such event occurs after four (4) years but before the
expiration date of this Agreement.
The amount of recapture by [USDA] will be based on the difference
between the value of the security at the time of disposal or cessation by
Borrower of farming and the value of the security at the time this
Agreement is entered into. If the borrower violates the term of this
agreement [USDA] will liquidate after the borrower has been notified
of the right to appeal.
Appellants submitted affidavits asserting that the USDA county supervisors with
whom they signed the agreements had informed them that, if they had not paid the
loan in full, sold their land, or quit farming before the expiration of the agreement,
they would owe nothing.
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Appellants filed a declaratory judgment action, seeking a determination that
they owed no money to the USDA under the Agreement or, alternatively, that they
owed at most an amount specified on an exhibit attached to the Agreement. The
district court granted the USDA’s motion to dismiss for failure to state a claim on
which relief could be granted. On appeal, appellants contend that the district court
erred by considering matters outside the pleadings in resolving the USDA’s motion
to dismiss. In addition, the appellants contend that several issues of law cannot be
resolved in the USDA’s favor on the existing record.
II.
We review de novo the district court’s grant of a motion to dismiss, affirming
only if, accepting all allegations as true, it appears that the plaintiff can prove no set
of facts that would entitle him to relief. Schaller Tel. Co. v. Golden Sky Sys., Inc.,
298 F.3d 736, 740 (8th Cir. 2002). If the district court considered “matters outside
the pleading” in deciding a motion to dismiss, Rule 12(b)(6) requires that the motion
“be treated as one for summary judgment.” Fed. R. Civ. P. 12(b)(6); Casazza v.
Kiser, 313 F.3d 414, 417-18 (8th Cir. 2002).
A.
Appellants contend that the district court erred by considering matters outside
the pleadings and by refusing to convert the motion to one for summary judgment,
thereby denying the appellants an opportunity to conduct discovery or present
evidence. The government’s Rule 12(b)(6) motion to dismiss was accompanied by
a Rule 12(b)(1) motion to dismiss for lack of jurisdiction and six documentary
exhibits. Exhibits 1 and 5 were the Agreement and the “Exhibit B” form, both of
which were also attached to the appellants’ complaint. In a case involving a contract,
the court may examine the contract documents in deciding a motion to dismiss. See
In re K-Tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 889 (8th Cir. 2002); Rosenblum v.
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Travelbyus.com, Ltd., 299 F.3d 657, 661 (7th Cir. 2002). Exhibit 2 was a copy of
instructions to farmers regarding the Agreements that had been published in the Code
of Federal Regulations. 7 C.F.R. Part 1951, Subpart S, Exh. A (1989). Exhibit 4 was
a copy of a Department of Agriculture regulation. The district court may take judicial
notice of public records and may thus consider them on a motion to dismiss. Faibisch
v. Univ. of Minn., 304 F.3d 797, 802-03 (8th Cir. 2002). Exhibit 6, an Administrative
Notice issued by the USDA in June 1989, is a public record and was referenced by
appellants’ complaint. Accordingly, each of these exhibits properly could be
considered by the district court in ruling on a motion to dismiss. See Porous Media
Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
Exhibit 3 was the affidavit of Arthur Hall, Director of Farm Loan Servicing and
Property Management Division of the USDA’s Farm Service Agency. Although
primarily relevant to the USDA’s Rule 12(b)(1) motion to dismiss for failure to
exhaust administrative remedies, the affidavit contained a statement that recapture “is
triggered by certain events including expiration of the [Agreement].” In addition, the
USDA presented to the district court a 1989 Internal Revenue Service advisory letter
concerning the tax treatment of the Agreement and suggesting that the borrower
would owe the amount of write-down at the expiration of the Agreement. If
considered for purposes of interpreting the Agreement, Exhibit 3 and the IRS
advisory letter would constitute matters outside the pleadings and would require the
district court to convert the motion to dismiss into one for summary judgment.
However, “[t]he court has complete discretion to determine whether or not to accept
any material beyond the pleadings that is offered in conjunction with a Rule 12(b)(6)
motion.” 5A Wright & Miller, Federal Practice and Procedure § 1366, at 491 (2d ed.
1990); Casazza, 313 F.3d at 417-18. Despite the district court’s statement that it had
considered the “entire file,” these materials were irrelevant to its resolution of the
merits of the motion. Consequently, we conclude that the district court did not err in
resolving the USDA’s motion as one to dismiss rather than as one for summary
judgment.
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B.
“When the United States enters into contract relations, its rights and duties
therein are governed generally by the law applicable to contracts between private
individuals.” Mobil Oil Exploration & Producing Southeast, Inc. v. United States,
530 U.S. 604, 607 (2000) (citation omitted). The rule of construction that ambiguities
are to be construed against the drafter applies with equal, if not greater, force against
the United States. United States v. Seckinger, 397 U.S. 203, 209-10 (1970). Under
no circumstances, however, may we construe a contract in a manner that would
violate conditions that Congress has placed on funds appropriated for the program.
See Office of Personnel Mgmt. v. Richmond, 496 U.S. 414, 424-25 (1990) (citing the
Appropriations Clause, U.S. Const. art. I, § 9, cl. 7). Accordingly, we construe the
Agreement in light of the statutes and regulations authorizing the USDA to enter into
such agreements.
Title 7 U.S.C. § 2001 directs the Secretary of Agriculture to “modify
delinquent farmer program loans . . . to avoid losses to the Secretary on such loans.”
The Secretary is to give “priority consideration” to “writing-down the loan principal
and interest (subject to subsections (d) and (e)), and debt set-aside (subject to
subsection (e)), whenever these procedures would facilitate keeping the borrower on
the farm or ranch.” Id. § 2001(a)(1). In addition to avoiding losses to the
government, loan adjustments under § 2001 are intended “to ensure that borrowers
are able to continue farming or ranching operations.” Id. § 2001(a)(2). Eligibility for
the program is conditioned on, among other things, a net recovery to the government
at least as large as the recovery that would result from a “foreclosure on the property
securing the loan.” Id. § 2001(b)(4). Subsection (e) provides in part:
(e) Shared appreciation arrangements.
(1) In general.
As a condition of restructuring a loan in accordance with this section,
the borrower of the loan may be required to enter into a shared
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appreciation arrangement that requires the repayment of amounts written
off or set aside.
(2) Terms.
Shared appreciation agreements shall have a term not to exceed 10
years, and shall provide for recapture based on the difference between
the appraised values of the real security property at the time of
restructuring and at the time of recapture.
(3) Percentage of recapture.
The amount of the appreciation to be recaptured by the Secretary shall
be 75 percent of the appreciation in the value of such real security
property if the recapture occurs within 4 years of the restructuring, and
50 percent if the recapture occurs during the remainder of the term of the
agreement.
(4) Time of recapture.
Recapture shall take place at the end of the term of the agreement, or
sooner–
(A) on the conveyance of the real security property;
(B) on the repayment of the loans; or
(C) if the borrower ceases farming operations.
7 U.S.C. § 2001(e)(1)-(4).
Appellants contend that no recapture is due under the Agreement if the
expiration date is reached and none of the three triggering events listed in §
2001(e)(4)(A)-(C) has occurred. We accord deference to an agency’s interpretation
of ambiguous provisions in the statutes it is charged with administering. Gunn v.
USDA, 118 F.3d 1233, 1236-38 (8th Cir. 1997) (citing Chevron U.S.A., Inc. v.
Natural Resources Def. Council, Inc., 467 U.S. 837 (1984)). Although we agree with
the USDA’s construction of the statute, on this point we find it unambiguous.
Subsection (e)(4) states that “[r]ecapture shall take place at the end of the term of the
agreement.” Although Congress afforded the Secretary deference in determining
whether to require the borrower to enter into a shared appreciation agreement, 7
U.S.C. § 2001(e)(1) (Agreement “may be required”), the terms governing recapture
are mandatory, id. § 2001(e)(2)-(4) (Agreement “shall provide for recapture”). To the
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extent that the Agreement is ambiguous or that representations made by the USDA
county supervisors suggest that no recapture is due at the end of the term, the
mandatory provisions of the statute control. See Israel v. USDA, 282 F.3d 521, 527-
28 (7th Cir. 2002) (stating that § 2001 “strongly supported” construction of
Agreement requiring recapture at the expiration date of the agreement); Parmenter v.
FDIC, 925 F.2d 1088, 1095 (8th Cir. 1991) (“[A]nyone entering into an arrangement
with the Government takes the risk of having accurately ascertained that he who
purports to act for the Government stays within the bounds of his authority.” (quoting
FDIC v. Merrill, 332 U.S. 380, 384 (1947))).
Appellants also contend that the amount of any recapture due under the
Agreement is limited to a value labeled the “Equity Recapture Account Amount” in
Exhibit B, which was attached to the Agreement and a copy of which was given to
the borrower. Again, however, § 2001(e)(3) unambiguously specifies the amount of
recapture that is required. Seventy-five percent of the appreciated value of the
property is due if recapture occurs within four years of the write-down, and fifty
percent is due thereafter. 7 U.S.C. § 2001(e)(3). Nowhere in the Agreement or in
Exhibit B is there any indication that recapture is limited to the Equity Recapture
Account Amount. Rather, the Agreement is consistent with the requirements of §
2001. “[The Agreement] requires the repayment of amounts written off or set aside.”
Id. § 2001(e)(1). Read as a whole, § 2001(e) requires recapture of the amount written
down, up to fifty percent (or seventy-five percent if triggered within four years) of the
increased property value over the term of the agreement.
Appellants suggest that the Agreement’s term “either the expiration date of this
Agreement or . . .”, which appears in both the paragraph specifying seventy-five
percent appreciation and the paragraph specifying fifty percent appreciation, compels
the “absurd” result that upon expiration of the agreement the USDA could require
either fifty or seventy-five percent at its whim. Although the term of each Agreement
in this suit was ten years, the maximum authorized by § 2001(e)(2), the term could
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have been set at less than four years, which would trigger the seventy-five percent
figure upon expiration. Although we agree with appellants that the Agreement does
not represent the pinnacle of the drafter’s art, see Bukaske v. USDA, 193 F. Supp. 2d
1162, 1167 (D.S.D. 2002) (“[The Agreement] is poorly drafted.”), its terms are
reasonably plain and in any case may not be construed to conflict with the conditions
Congress has placed on participation in this program. We conclude that 7 U.S.C. §
2001 unambiguously requires recapture of fifty percent of the appreciated value of
the property securing the loan upon the expiration date of the Agreement, where the
expiration date occurs more than four years after the date of the agreement. Because
appellants’ asserted construction of the Agreement is inconsistent with the
requirements of § 2001, we find no error in the district court’s dismissal of their
claims.
We find appellants’ remaining arguments to be without merit.
The judgment is affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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