Thursday, June 13, 2019
Prevented Planting Payments - Potential Legal Issues?
Weather conditions in the Midwest and the crop-growing regions of the Great Plains have made it likely that prevented planting payments will be utilized by a greater percentage of impacted farmers this summer. If that happens, what are the regulatory and legal rules that kick-in that the recipient-farmer becomes subject to?
Prevented Planting Payments
The crop insurance final planting dates for corn have passed, but many areas of the soybean growing region (basically south of Minnesota and east of Nebraska) still have final planting dates for soybeans that remain but will expire soon. A farmer must weigh options of changing crops, planting soybeans or simply not planting at all. The economics of the situation will dictate the outcome. Crop insurance companies can provide guidance on eligible acres and production practices and the applicable rules for prevented planting payments. It’s also important to know what neighboring farmers are doing. Being the only farmer in a particular area to utilize prevented planting payments is not a good thing. If that happens, crop insurance adjusters and underwriters may could suddenly become reluctant to allowing payment on the claim.
Legal and Regulatory Matters
The governing statute on prevented planting payments is 7 U.S.C. §1508a. The language contained in that statute defines such things as “first crop,” “second crop,” and “replanted crop.” It then lays out the options that a producer has when a “first crop” is lost and what the rules are when a “second crop” is planted. Also, specified is the effect on actual production history and the area conditions that are required for payment. Also, detailed are the exceptions for established double cropping practices, among other things.
As with participation in any federal government farm program, the participating farmer becomes subject to the regulatory and legal framework of the particular program. That means that any dispute must be appealed to a final decision through the administrative process before redress can be available in the judicial system. Failure to preserve the administrative record can result in a court being unable to provide a remedy even though it may be clear that the farmer should prevail. That’s not a good position to be in.
Recent Prevented Planting Court Decisions
It is common for a prevented planting dispute to end up in arbitration. Two recent federal court opinions have concerned the operation of the arbitration process with respect to prevented planting payments.
A case from Nebraska involved the statutory time limit for the notice of application to vacate a crop insurance arbitration award and whether that statutory time limit could be waived. In Karo v. NAU Country. Ins. Co., 901 N.W.2d 689, 297 Neb. 798 (2017), the plaintiffs farmed together in Holt County, Nebraska. They each obtained federally reinsured crop insurance policies that the defendant serviced. In 2012, the plaintiffs submitted “prevented planting” claims under their crop insurance policies, claiming they were unable to plant corn on certain acres due to wet conditions. The defendant denied the plaintiffs’ prevented planting claims, finding that excessive moisture was not general to the surrounding area and did not prevent other producers from planting acres with similar characteristics. Pursuant to the mandatory arbitration clause in the policies, the parties submitted their disputes to binding arbitration.
The arbitrator issued a final arbitration award in favor of the defendant on January 21, 2014. On May 15, 2014, the plaintiffs filed a petition for judicial review in the Holt County District Court seeking to vacate the arbitration award under §10 of the Federal Arbitration Act (FAA) which provides “the district court wherein the award was made may make an order vacating the award upon the application of any party to the arbitration. . . where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The district court granted the plaintiffs’ summary judgment motion and vacated the arbitration award finding that the arbitrator exceeded his powers and manifestly disregarded the law.
The defendant appealed, but failed to note in the appeal that the plaintiffs did not meet the three-month time limit for appealing. Consequently, because the defendant did not raise the issue of the violation of the three-month limit, the appellate court had to determine whether the time limit was jurisdictional in nature and, thus, could not be waived even if the parties do not raise the issue. According to the U.S. Supreme Court, absent such a clear statement, the restriction should be treated as non-jurisdictional in character. Section 9 of the FAA which enumerates the notice requirements for judicial confirmation expressly states that after service of proper notice “the court shall have jurisdiction over the adverse parties to the arbitration.” Consequently, the appellate court determined that this was a clear indication that Congress intended the statutory requirements for service notice of an application for expedited judicial review under the FAA to be jurisdictional in nature. The appellate court held that although different timeframes apply for serving notice under section 9 and section 12 of the FAA, there is no difference in the mandatory process by which the adverse party must be served with notice and no difference in the practical purpose for requiring such notice. Thus, it would make little sense for Congress to give clear jurisdictional weight to service notice in one context but not the other.
In addition, the appellate court saw no indication in the statute that Congress intended the notice requirements for expedited judicial review to be jurisdictional when a party seeks judicial confirmation, but not jurisdictional when a party seeks judicial vacatur or modification. Consequently, the court determined that whether an arbitrating party is applying for judicial review to confirm and award under section 9 or to vacate or modify an award under section 10 and 11, Congress intended that party’s failure to serve notice of the application within the mandatory time limits, would have jurisdictional consequences. Because the appellate court concluded that the three-month requirement is jurisdictional in nature and the plaintiffs failed to comply with the three-month requirement the district court did not have authority under the FAA to vacate the arbitration award. Because the district court didn’t have jurisdiction to enter a judgment vacating the arbitration award under the FAA, the district court’s judgment was void. That meant that the appeal from the district court’s judgment didn’t confer any appellate jurisdiction on the appellate court – the Nebraska Supreme Court. The district court’s judgment was vacated and the appeal was dismissed for lack of jurisdiction.
In a more recent case from North Carolina, an arbitrator’s award was vacated. In Williamson Farm v. Diversified Crop Insurance Services, No. 5:17-cv-513-D, 2018 U.S. Dist. LEXIS 49249 (E.D. N.C. Mar. 26, 2018), the plaintiff, a farming partnership, bought crop insurance from the defendant for the 2013 crop year. The plaintiff intended to buy full crop coverage on all planted acres, and the defendant’s agents represented that the coverage purchased was full coverage. The plaintiff incurred a loss on one parcel, and was prevented from planting on two other tracts. The plaintiff filed claims for the losses under the policy and the defendant denied coverage on the basis that one tract on which the claim was made was listed under the policy as being in a different county and the tracts on which the plaintiff was prevented from planting crops were improperly claimed on an Farm Service Agency report. The defendant conceded that the errors were the fault of the defendant’s agents.
The plaintiff sought arbitration pursuant to the policy and was awarded coverage on the claims and treble damages. The arbitrator’s award was based on legal theories of negligence, breach of fiduciary duty, constructive fraud and violation of state (NC) law. The defendant challenged the arbitrator’s award as beyond the scope and authority of the arbitrator insomuch as the arbitrator engaged in interpreting the meaning, scope and applicability of the crop insurance policy at issue rather than obtaining an interpretation from the Federal Crop Insurance Corporation (FCIC).
The court agreed, noting that 7 U.S.C. §1506(l) pre-empts the arbitrator’s award unless FCIC procedures had been followed. The court also noted that the treble damages were based on the arbitrator finding a violation of NC law involving unfair and deceptive trade practices without first seeking a ruling from the FCIC. Accordingly, the court vacated the award as being beyond the arbitrator’s authority. On appeal, the U.S. Court of Appeals for the Fourth Circuit affirmed. Williamson Farm v. Diversified Crop Ins. Services, 917 F.3d 247 (4th Cir. 2019).
The decision whether to plant a crop or simply file for prevented planting payments is an important one. In that decisionmaking process will be included the notion that this spring’s second round of market facilitation payments can only be received if a crop is planted. That’s a key point. But, once a claim is filed, the regulatory and administrative process kicks-in. Those rules can be complex and confusing. Another good reason to have an attorney specially trained in agricultural law matters at your side.