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October 11, 2000


The opinion of the court was delivered by: Lamberth, District Judge.


Now before the Court are cross motions for summary judgment. Although the motions present a variety of issues, the Court need only consider two: (1) whether the defendant's interpretation of "eligibility" under 7 C.F.R. § 1951.909 is acceptable, and (2) whether the defendant's delay, if any, in processing the plaintiff's loan servicing application violated applicable law.

The Court finds for the defendant on both issues. Accordingly, the Court GRANTS the defendant's motion for summary judgment on those issues and DENIES the plaintiff's motion for summary judgment on those issues. The remaining issues, being rendered moot by the eligibility decision, are thus DISMISSED WITHOUT PREJUDICE.


I. The Statutory and Regulatory Scheme

In 1994, Congress created the FSA. One of the FSA's duties is the administration of the Farm Loan Programs, formerly handled by the Farmer's Home Administration. Under this program, the FSA makes loans to farmers for operating expenses and land purchases. These loans are normally secured by the farmer's real and personal property.

To assist farmers who fall behind in their loan payments, Congress also created the Primary Loan Servicing Program. See 7 U.S.C. § 2001 et seq. (1994). This program allows delinquent loans to be "serviced" by consolidation and rescheduling, reamortization, deferral, debt set-aside, and write-down. To qualify for primary loan servicing, four factors must be satisfied: (1) the borrower's delinquency must be "due to circumstances beyond the control of the borrower," (2) "the borrower must have acted in good faith with the Secretary [of Agriculture] in connection with the loan," (3) "the borrower must present a preliminary plan containing reasonable assumptions" that demonstrates an ability to meet all expenses under the restructured loan, and (4) the loan, if restructured, would yield a net recovery to the government equal to or exceeding what foreclosure would yield. 7 U.S.C. § 2001(b).

One of the loan servicing options, a loan write-down, can be accomplished through what is called a "conservation contract" — a contract between the Secretary of Agriculture and the farmer. Under the contract, the farmer grants an interest in his land to the government in exchange for a write-down of his debt.*fn1 A conservation contract is available if the farmer qualifies for primary loan servicing and four additional factors are met: (1) the contract property must be "wetland, upland, or highly erodible land", (2) the property must be "suitable" for the purposes involved, (3) the property must be loan security, and (4) the contract "better enables a qualified borrower to repay the loan." 7 U.S.C. § 349(c).

To assist in the administration of the loan servicing program, the Secretary of Agriculture has promulgated an extensive body of regulations. See 7 C.F.R. § 1951, subpart S. Of particular importance in this case are the Secretary's eligibility requirements that supplement the statutory requirements of 7 U.S.C. § 2001(b) listed above. Specifically, section 1951.909(c)(4) provides:

Borrowers with sufficient nonessential assets*fn2 to bring the FLP [Farm Loan Programs] loan current are not eligible under [part 1951, subpart S].

7 C.F.R. § 1951.909(c)(4). Neither the statutory nor the regulatory provisions specify a particular point in the loan servicing process when a final decision on eligibility must be rendered.

II. Factual and Procedural History

Joseph Cerniglia, the plaintiff, grows apples and grapes on his farm in Vermont. His farm is partially financed by loans from the FSA. In early 1995, being unable to make his loan payments, Mr. Cerniglia applied for primary loan servicing with the FSA. The FSA found him eligible for loan servicing in general, and a conservation contract in particular. Electing to service his loans with a conservation contract, the multi-stepped process of contract finalization was begun. Over a year later, the FSA, while still in the process of finalizing the contract, discovered through a local newspaper that Mr. Cerniglia had sold a portion of his winery to Stroh Brewery Company. The sale increased his nonessential assets to $2,084,284. At the time, only $167,615 was needed to bring his FSA loan current.

With this revelation, the FSA sought updated financial records from Mr. Cerniglia. After obtaining the necessary records, the FSA made a final decision on the conservation contract on January 27, 1998. The FSA decided that Mr. Cerniglia was not eligible for the conservation contract because he had sufficient nonessential assets to bring his accounts current.

Mr. Cerniglia appealed this decision to the National Appeals Division ("NAD") in the spring of 1998. He argued that he was found eligible for the contract in 1995 and that the regulations do not require continuous eligibility throughout the approval process. Further, he argued that, even if there were such a requirement, the FSA unlawfully delayed the processing of his application, thereby causing the final consideration of his contract to fall after his sale to Stroh's Brewery.

After a series of proceedings, the NAD hearing officer ruled on November 4, 1998 that (1) the FSA had the authority to ask for current financial information after the applicant had submitted a complete application, (2) Mr. Cerniglia's financial situation and assets were a relevant factor in considering a request for a conservation contract, (3) although eligibility for a conservation contract is initially determined at the beginning of the review process, the borrower must remain eligible for such servicing until the final closing, and (4) no credible evidence existed to support Mr. Cerniglia's allegations of unlawful delays.

This decision resulted in another appeal, this time to the NAD Director. On March 18, 1999 the NAD Director ruled that (1) Mr. Cerniglia's request for a conservation contract was separate from his earlier successful request for primary loan servicing, (2) when a conservation contract is considered without other primary loan servicing, there is no regulatory deadline within which the FSA must make a decision, (3) the FSA properly considered Mr. Cerniglia's post-1997 financial information to determine eligibility, and (4) the FSA properly found Mr. Cerniglia ineligible for a conservation contract because he had nonessential assets well in excess of his past due debt.

The NAD Director's decision gave rise to the instant civil action. As mentioned at the outset, the Court need only address two of the plaintiff's claims: (1) the claim that the FSA violated 5 U.S.C. ยง 706(2) in conducting a second review of his eligibility, and (2) the claim that the FSA violated 5 ...

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