The opinion of the court was delivered by: GREEN
JOYCE HENS GREEN, UNITED STATES DISTRICT JUDGE
Plaintiffs, several production credit associations ("PCAs"),
chartered under the Farm Credit Act of 1971, as amended, and operating under 12 U.S.C. § 2091, challenge as unconstitutional Section 201-6.29 of the Agricultural Credit Act of 1987, which requires PCAs to make a one-time purchase of "stock" from defendant Farm Credit System Financial Assistance Corporation ("FAC") in an aggregate amount of $ 177 million. This matter now comes before the Court on defendants'
motion to dismiss for lack of jurisdiction and for failure to state a claim, and plaintiffs' opposition thereto. For the reasons set forth below, defendants' motion is denied in part and granted in part.
The Farm Credit System, established by Congress in 1916,
is the nation's single largest agricultural lender. During 1985, 1986, and 1987, the System experienced significant losses due to the general economic condition of the agricultural community.
Sikeston Complaint, para. 14. In response, Congress enacted several amendments seeking to improve the System's poor financial condition.
Most recently, Congress enacted the Agricultural Credit Act of 1987, Pub. L. No. 100-233, which established a plan whereby a combination of funds from the System's healthy institutions, primarily the PCAs, and money from the United States Treasury would be used to revitalize the System. Before examining in more detail the changes implemented by the 1987 Act, brief background on the structure of the Farm Credit System is necessary.
PCAs, which lend directly to farmers, were created by Congress in the Farm Credit Act of 1933 and initially started with all federal funds. All of the government capital was paid back by the PCAs in 1968, however, and they are all now fully owned by their farmer-members. H. Rep. No. 96-1287, 96th Cong., 1st Sess. 16 (1980). To obtain a loan from a PCA, a farmer must own or purchase stock or certificates in the PCA in the amount of 5% of the loan. 12 U.S.C. § 2094.
PCAs can give their shareholders dividends, allocations, patronage distributions in stock, certificates, and cash; shareholders are also entitled to the assets of the PCAs upon liquidation. 12 U.S.C. §§ 2094, 2095. PCAs must, however, obtain FICB approval of loan terms and conditions, dividends, and interest rates. 12 U.S.C. §§ 2073(a), 2094(i), 2096(b). The PCAs must also maintain a surplus account as prescribed by the FICBs, 12 U.S.C. § 2096(b), and cannot liquidate without FICB approval. 12 U.S.C. § 2183(a). PCAs elect their own directors, officers, and shareholders, but the salary of their officers and employees, and the appointment and compensation of the chief executive officer, must be approved by the FICBs. 12 U.S.C. §§ 2072, 2093, 2094, 2096. The FICBs provide funds to the PCAs through loans and sale of stock, and depend on the PCAs as the FICBs' sole shareholders. 12 U.S.C. § 2073(b). FICBs can require the local PCAs to purchase initial or additional stock in an amount determined by the banks in order to meet the banks' capital needs. 12 U.S.C. § 2073(b), (c), (g).
The Agricultural Act of 1987 introduced two new entities into this network of agricultural credit organizations: (1) the Farm Credit System Assistance Board ("Assistance Board"), to provide financial assistance to FCS institutions, 12 U.S.C. § 2278a, and (2) the Farm Credit System Financial Assistance Corporation ("FAC"), to raise capital for the Assistance Board. 12 U.S.C. § 2278b. Congress provided that the FAC's funds would be generated using two mechanisms: an "assistance" fund and a "trust" fund. Under Section 201-6.26, 12 U.S.C. § 2278b-6, FAC will issue up to $ 4 billion in 15-year debt obligations guaranteed by the United States Treasury. This money will be used to purchase stock in ailing institutions, providing a "direct capital infusion" for the FCS. Plaintiffs do not challenge Congress' wisdom in establishing this assistance fund, but do vigorously object to the creation of the trust fund, which is funded solely from the proceeds from a one-time purchase of FAC "stock" by the PCAs and FCS Banks. Section 6.25(b), 12 U.S.C. § 2278b-5; Section 6.29, 12 U.S.C. § 2278b-9. Congress required each PCA to purchase stock in the amount by which its "unallocated retained earnings"
exceeds 13% of its assets, measured as of December 31, 1986.
The trust fund monies will be invested by FAC in United States Treasury securities, Section 6.25(b), 12 U.S.C. § 2278b-5, and used as a "capital cushion" by FAC in administering the $ 4 billion assistance fund. Beginning five years after FAC issues the bonds, the trust fund is available to cover any default by FCS institutions on payments of interest due on those bonds. 12 U.S.C. § 201-6.26(d)(3)(A)(i). After 15 years, the trust fund will be used to cover defaults on the loan principal, i.e., to redeem that institution's preferred stock that was issued to obtain financial assistance from FAC. 12 U.S.C. § 201-6.26(d)(3)(B)(iii). Upon termination of the FAC, any money in the trust fund will be transferred to the Insurance Fund established by Section 302-5.60.
Plaintiffs allege that, in exchange for purchasing the stock, they receive no benefits of any kind and that the stock "is and will always be worthless." Sikeston Complaint, para. 23. The "stock" is stock in name only, and amounts to "nothing more than evidence of the amount of the assessment levied on each contributing institution." Sikeston Supplemental Complaint, para. 9 (Appendix I). Defendants do not dispute that the stock provides no direct benefit to plaintiffs, but contend that the reward for the PCAs is the general system-wide benefit of improving the financial condition of the Farm Credit System, if not rescuing it from disaster. Overall, defendants characterize the Farm Credit System as a nationwide, cooperative, interdependent network of quasi-governmental financial institutions and stress that the federally-chartered PCAs are a vital and integral part of this system.
In contrast, while acknowledging that the PCAs generally operate under the supervision of the FICB for each district, plaintiffs paint a picture of the PCAs as virtually independent, wholly farmer-owned, autonomous lending agencies, a "loose federation of individual corporations" that have little important contact with the other FCS institutions. As discussed below, the various public and private characteristics of the PCAs directly affect the analysis of the constitutional challenges raised by plaintiffs in this case; and, the Court finds that the inherency and strength of these characteristics require further development.
After the Court denied temporary relief, plaintiffs made the required stock purchases on March 7, 1988.
Section 201-6.29(d). Plaintiffs then supplemented or amended their complaints to renew their substantive challenge to Congress' legislative trust fund scheme.
Plaintiffs challenge the one-time stock purchase scheme as:
(1) a taking for public use without just compensation in violation of the fifth amendment; (2) a deprivation of property without due process in violation of the fifth amendment; (3) a denial of plaintiffs' rights of access to
the courts; and (4) a bill of attainder.