J.M. Fogg Farms, Inc. v. United States , 134 Fed. Cl. 363 ( 2017 )

In the United States Court of Federal Claims
No. 17-188C
(Filed: September 27, 2017)
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*
JAMES M. FOGG FARMS, INC., et al., *
* Conservation Security Program;
Plaintiffs, * National Resources Conservation
* Service; Breach of Contract Action;
v. * Statutory Provisions Not Incorporated
* into Contracts; Failure to State a
THE UNITED STATES, * Claim Upon Which Relief May Be
* Granted.
Defendant. *
*
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Alan I. Saltman, with whom was Richard W. Goeken, Smith, Currie & Hancock LLP,
Washington, D.C., for Plaintiffs.
Isaac B. Rosenberg, with whom were Chad A. Readler, Acting Assistant Attorney General,
Robert E. Kirschman, Jr., Director, and Patricia M. McCarthy, Assistant Director, U.S.
Department of Justice, Commercial Litigation Branch, Civil Division, Washington, D.C.,
for Defendant.
OPINION AND ORDER
WHEELER, Judge.
The key question presented in this case is whether federal statutes may be read into
government contracts as contractual terms that could give rise to breach. Plaintiffs allege
that the Government underpaid them pursuant to their Conservation Security Program
contracts. They also allege that the regulation the National Resources Conservation
Service implemented, laying out payment formulas for program participants, was contrary
to the 2002 Farm Bill, 16 U.S.C. § 3838a et seq., which created the conservation program.
Plaintiffs therefore claim that the Government breached their contracts by not paying them
the amounts to which they were entitled. In addition, Plaintiffs allege that Congress’s
enactment of the 2008 Farm Bill prevented them from renewing their contracts after
September 30, 2008, and was therefore an anticipatory repudiation of their alleged right to
renew their contracts. Pending before the Court is Plaintiffs’ motion for summary
judgment, as well as the Government’s motion to dismiss for failure to state a claim, or in
the alternative, cross-motion for summary judgment. For the reasons stated below, the
Government’s motion to dismiss is GRANTED, and Plaintiffs’ motion for summary
judgment is DENIED. Since the case is dismissed, the Court does not reach Plaintiffs’
motion for class certification.
Background
Plaintiff, James M. Fogg Farms, Inc., doing business as J.M. Fogg Farms, Inc., along
with a putative class comprised of Mark R. Flora, Peter S. Perkins, Richard M. Schools,
Jr., and Timothy Self, on behalf of themselves and all others similarly situated, commenced
this action on February 8, 2017. See Compl. Plaintiffs are participants in the Conservation
Security Program (“CSP”) administered by the Natural Resources Conservation Service
(“NRCS”) within the Department of Agriculture. Am. Compl. ¶¶ 6—7. In 2002, Congress
passed the Farm Bill, which created the CSP. See 16 U.S.C. §§ 3838a et seq. The statute,
when it was enacted, provided that “[t]he Secretary [of Agriculture] shall establish, and for
each of fiscal years 2003 through 2007, carry out a conservation security program to assist
producers of agricultural operations in promoting . . . conservation and improvement of the
quality of soil, water, air, energy, plant and animal life, and any other conservation
purposes . . . .” 16 U.S.C. § 3838a (2002).1 The named plaintiffs all entered into CSP
contracts in 2005, with each contract being for a base term of five years. Am. Compl. ¶¶
8—12.
To participate in the program, farmers were required to submit a conservation plan
to the Secretary. 16 U.S.C. § 3838a (b)(1)(A). Upon approval, the farmer would enter into
a conservation security contract with the Secretary. Id. at (e)(1). The statute directed the
Secretary to make payments upon the contracts “as soon as practicable after October 1 of
each fiscal year.” 16 U.S.C. § 3838c(a). The payments were to be calculated starting with
a base payment, which was then adjusted according to a reduction rate corresponding to
the level of the contract (Tier I, II, and III).2 Id. at (b). The base payments were to be
1
The statute was amended in 2006. The updated version states in relevant part: “The Secretary shall
establish and, for each of fiscal years 2003 through 2011, carry out a conservation security program to assist
producers of agricultural operations in promoting . . . conservation and improvement of the quality of soil,
water, air, energy, plant and animal life, and any other conservation purposes . . . .” 16 U.S.C. § 3838a
(2008).
2
The statute directed the Secretary to establish three different tiers of CSP contracts that corresponded to
different time periods and levels of conservation. See 16 U.S.C. § 3838a(d)(5). Tier I contracts were for
five years and were to “address at least 1 significant resource for concern for the enrolled portion of the
agricultural operation.” Id. at (d)(5)(A). Tier II contracts were for between five and ten years, and similar
to Tier I contracts, address one significant resource of concern on the farm in question. Id. at (d)(5)(B).
Tier III contracts were for between five and ten years, and “apply a resource management system that meets
the appropriate nondegradation standard for all resources of concern of the entire agricultural operation.”
Id. at (d)(5)(C).
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“(according to the Secretary) – (i) the average national per-acre rental rate for a specific
land use during the 2001 crop year; or (ii) another appropriate rate for the 2001 crop year
that ensures regional equity.” Id. at (b)(1)(A).
The same section providing guidelines for payment calculations also authorized the
Secretary to promulgate regulations as is “necessary to ensure a fair and reasonable
application of the limitations established” under the payment provisions. Id. at (d)(2).
Pursuant to this authority, the NRCS promulgated regulations, through the standard notice
and comment rulemaking procedure, to expound upon the payment calculations for CSP
contracts. See 7 C.F.R. § 1469.23 (2005). In the interim regulations NRSC adopted in
2004, the agency explained that because the CSP statute did not provide for calculations in
the event that the program was not fully funded, the rules would provide for flexibility for
different funding situations. Conservation Security Program, 69 Fed. Reg. 34502, 34503
(June 21, 2004) (codified at 7 C.F.R. § 1469).
The statute further provided, with exceptions for Tier I contract renewals, “at the
option of a producer, the conservation security contract of the producer may be renewed
for an additional period of not less than 5 nor more than 10 years.” 16 U.S.C. § 3838a(e)(4).
In the 2008 Farm Bill, however, Congress amended the statute to provide that “[a]
conservation security contract may not be . . . renewed under this subchapter after
September 30, 2008.” Id. at (g)(1).
In their first count, Plaintiffs allege that the Government breached their CSP
contracts by using payment rates contrary to the minimum rates the CSP statute required,
effectively underpaying them. Am. Compl. ¶¶ 72—81. In their second count, pleaded in
the alternative to Count I, Plaintiffs allege that the Government breached their CSP
contracts by using payment rates contrary to the minimum rates in the CSP statute in Fiscal
Year 20073 and thereafter. Id. ¶¶ 82—89. In their third count, pleaded in the alternative
to Counts I and II, Plaintiffs allege that the Government breached their CSP contracts by
using payments contrary to the minimum rates in the CSP statute in Fiscal Year 2008 and
thereafter. Id. ¶¶ 90—98. In their fourth count, Plaintiffs allege that the 2008 Farm Bill’s
prohibition on renewals of CSP contracts after September 30, 2008 constituted a
repudiation and breach of all CSP contracts. Id. ¶¶ 99—102. Plaintiffs request the Court
to find that the Government breached their CSP contracts and award damages valued at the
difference between the statutory calculation method and what they were actually paid. See
id. ¶¶ 96—97. Plaintiffs further request the court to award damages valued at the amount
they would have been paid under the CSP contracts had they been able to renew their
contracts after September 30, 2008. See id. at ¶ 102.
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Plaintiffs explained in both their pleadings and motion briefs that before 2007, the NRCS was subject to
funding limitations, which would limit the amount it could pay on CSP contracts. Am. Compl. ¶ 83. In the
years after 2007, however, the NRCS was fully funded again, which Plaintiffs contend rendered the
regulations implementing reduction factors unreasonable. Id. ¶¶ 84—87.
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Plaintiffs moved for summary judgment pursuant to Rule 56 of the Court (RCFC)
on May 10, 2017. See Pls.’ Mot. Summ. J (Pls.’ Mot.). In its opposing response, the
Government moved to dismiss the case for failure to state a claim upon which relief can be
granted pursuant to RCFC 12(b)(6), or in the alternative, cross-moved for summary
judgment pursuant to RCFC 56. See Def.’s Mot. Dismiss, Cross-Mot. Summ. J., Opp’n to
Pls.’ Mot. Summ. J. (Def.’s Mot.). The Court heard oral argument on September 20, 2017.
Discussion
A. Standard of Review
A complaint fails to state a claim upon which relief may be granted within the
meaning of RCFC 12(b)(6) “when the facts asserted by the claimant do not entitle him to
a legal remedy.” Briseno v. United States, 83 Fed. Cl. 630, 632 (2008) (citation omitted).
On a RCFC 12(b)(6) motion, the Court must construe allegations in the complaint
favorably to the plaintiff. See Extreme Coatings, Inc. v. United States, 109 Fed. Cl. 450,
453 (2013). In this vein, a plaintiff need only assert “sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (citation omitted). A claim is plausible on its face when “the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. Finally, a plaintiff may not simply
plead “labels and conclusions” or “a formulaic recitation of the elements of a cause of
action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations omitted).
B. Plaintiffs Have Not Alleged a Contractual Term that Entitles Them to Relief.
The crux of Plaintiffs’ argument for Counts I—III is that the payments made
according to their contracts, outlined in the regulations, were not based on their strict
reading of the CSP statute, and that this misreading constituted a breach of contract.
Compare 7 C.F.R. § 1469.23(a)(1), with 16 U.S.C. § 3838c(b). The Government contends
that the contract did not expressly incorporate the statutory provisions, and thus the
Plaintiffs have not sufficiently alleged a contractual term that has been breached. See
Def.’s Mot. The Court agrees with the Government.
To recover for a breach of contract, a party must plead and establish: (1) “a valid
contract between the parties;” (2) “a duty arising out of the contract;” (3) “a breach of that
duty;” and (4) “damages caused by that breach.” BPLW Architects & Eng’rs, Inc v. United
States, 106 Fed. Cl. 521, 533 (2012) (citing San Carlos Irrigation & Drainage Dist. v.
United States, 877 F.2d 957, 959 (Fed. Cir. 1989)). While it is undisputed that Plaintiffs
have alleged the existence of their CSP contracts, they do not point to a specific term of
the contract that has been breached. With this in mind, Plaintiffs argue that the Court must
read the CSP statute into the contract, as the statutory requirements for payment
calculations are what they alleged have been breached. The Federal Circuit, however, has
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held that it is “reluctant to find that statutory or regulatory provisions are incorporated into
a contract with the government unless the contract explicitly provides for their
incorporation.” St. Christopher Assocs., L.P. v. United States, 511 F.3d 1376, 1384 (Fed.
Cir. 2008) (citing Smithson v. United States, 847 F.2d 791, 794 (Fed. Cir. 1988)).
While the contracts expressly incorporated the regulations, they did not incorporate
the statute. See, e.g., Am. Compl. Ex. 1, at 58. Thus, Plaintiffs did not have a contractual
right to anything provided in the statute, either the method of calculating payments, or the
renewal option. It follows then that Plaintiffs cannot assert any NRCS action they consider
contrary to the statute as entitling them to damages for breach of contract, especially when
NRCS’s actions were undertaken pursuant to the agency’s own rules promulgated through
the proper rulemaking and comment procedure.
Absent any other contractual term obligating the Government to some other
payment scheme, to the extent that Plaintiffs claim payment under the CSP statute, this is
not a money-mandating source of law sufficient to grant this Court jurisdiction to hear the
claim. See Meyers v. United States, 96 Fed. Cl. 34, 60 (2010). Therefore, because
Plaintiffs have failed to allege a contractual term entitling them to relief, their claim must
be dismissed.
Finally, this case is virtually identical to two other cases filed in this Court, brought
by the same attorney as here, where the Court (Judge Lynn J. Bush) ruled adversely to
plaintiffs, rejecting outright the same theories of recovery now advanced yet again. Meyers
v. United States, supra; Earman v. United States, 114 Fed. Cl. 81 (2013). For the third
time, these cases have no merit.
Conclusion
Based upon the forgoing, the Government’s motion to dismiss is hereby
GRANTED. Plaintiffs’ motion for summary judgment is DENIED. The Court does not
reach the Government’s alternative cross-motion for summary judgment. Pursuant to
RCFC 54(d), Defendant may recover its reasonable costs, if any.
IT IS SO ORDERED.
s/Thomas C. Wheeler
THOMAS C. WHEELER
Judge
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