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Prosser v. Federal Agricultural Mortgage Corp.

January 14, 2009

JEFFREY J. PROSSER, ET AL., PLAINTIFFS,
v.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: James Robertson United States District Judge

MEMORANDUM

The claim of pro se plaintiffs Jeffery Prosser and John Raynor*fn1 against the Federal Agricultural Mortgage Corporation (Farmer Mac) and the U.S. Department of Agriculture (USDA)is essentially that their financial support of the National Rural Utilities Cooperative Finance Corporation (CFC) is unlawful because it keeps CFC afloat so that CFC is not forced through financial necessity to do business with the plaintiffs and accommodate their business needs. CFC was originally named as a defendant, but plaintiffs conceded its motion to dismiss. Dkt. 14. Farmer Mac and USDA now both move to dismiss for want of subject matter jurisdiction. Those motions will be granted because, although the complaint is long on conspiracy theories and painstaking (if unilluminating) detail, it is fatally short on allegations of fact that would establish any of the required three elements of plaintiffs' standing.*fn2

Background

On a motion to dismiss under Rule 12(b)(1), I must consider the facts in the light most favorable to the plaintiff, but I may appropriately give allegations of fact "closer scrutiny" than under a Rule 12(b)(6) motion. See Macharia v. United States, 334 F.3d 61, 64, 69 (D.C. Cir.2003); Nat'l Ass'n of Home Builders v. U.S. Army Corps of Engineers, 539 F.Supp.2d 331, 337 (D.D.C. 2008). I may also "look beyond the allegations contained in the complaint." Jerome Stevens Pharm., Inc. v. Food & Drug Admin., 402 F.3d 1249, 1253-54 (D.C. Cir. 2005).

Defendant Farmer Mac is a public, federally chartered corporation created to establish a secondary market for agricultural real estate and rural housing mortgage loans and to increase the availability of financing at stable interest rates for American farmers and rural homeowners. Cmpl. at 4, 9. In order to comply with its mandate and fund its operations, Farmer Mac can issue debt and invest some of the capital it raises. FM MTD at 4-5. Defendant USDA is a government agency which, among other things, is authorized by the Rural Electrification Act of 1936, as amended (REDLG) § 313A to guarantee the repayment of bonds issued by certain not-for-profit lenders if the proceeds of the bonds are used to make loans for electrification or telephone purposes. USDA MTD at 2.

CFC is a private not-for-profit cooperative association which provides its members with financing to supplement the USDA's loan programs. CFC MTD at 2. Rural Telephone Finance Cooperative (RTFC), which has never been a party to this action, is a member of CFC and is also a private not-for-profit cooperative association which provides financing to its rural telecommunications members. CFC MTD at 2-3. CFC is the sole lender to RTFC and manages its affairs under a management agreement. Id.

Prosser was the beneficial owner of Innovative Communication Corporation (ICC) and Virgin Islands Telephone Corporation (Vitelco). Cmpl. at 23. Raynor was a board member of those companies. Id. Vitelco was a member of RFTC and ICC was an associate member of RTFC. Cmpl. at 23-24.

The complaint alleges -- and again, these allegations are taken as true for purposes of the pending motion -- that CFC uses RTFC as a "puppet" corporation; that, through a series of complicated maneuvers, it redirects RTFC's profits from loans made to the telecommunications sector to subsidize its electric sector members and to "cover up losses" on electric sector loans, Cmpl. at 5-6, Pl. USDA Opp. at 12-13; and that all this was "obscured from the public by suspect accounting techniques." Cmpl. at 8-15.

CFC (the complaint goes on to allege) is also bankrupt or virtually bankrupt. Cmpl. at 16. Farmer Mac and the USDA "bailed out" CFC by purchasing billions of dollars of its securities for greater than their market value and guaranteeing billions in loans to CFC made by the Federal Financing Bank, respectively. Cmpl. at 17-23. Both the USDA and Farmer Mac knew or should have known about CFC's improper use of RFTC's profits and its dire financial straits because they were evident from publicly filed documents. Id. The USDA and Farmer Mac ignored these problems, in part because of "cronyism." Cmpl. at 20-23.

ICC discovered CFC's use of RTFC's profits and threatened to bring a "derivative suit" against RTFC. Pl. FM Opp. at 20-22. In retaliation, RTFC foreclosed on an ICC loan. Id. RTFC had been financially damaged by CFC's practice of taking RTFC's profits for its own use, but the "bailout" of CFC by Farmer Mac and the USDA allowed CFC to fund RTFC's pursuit of foreclosure without accommodating ICC's needs. Id. As a result of the foreclosure litigation, ICC could not afford to and stopped making payments on loans held by RTFC with the result that ICC's parent companies and ICC itself went into bankruptcy, and ICC fired the plaintiffs, id.

CFC's use of RFTC's profits and the "bailout" continue today, and without them CFC would not be financially viable. Id. Prosser's recent attempts to conduct business with RFTC and CFC have been rebuffed. Pl. USDA Opp. At 15.

The plaintiffs assert that Farmer Mac's purchase of CFC loans violated various statutory and regulatory provisions, and that the USDA's acts, although not "patently illegal," constituted unwise investments that were contrary to the spirit of REDLG and made because of cronyism. PL. FM Opp. at 5-20; Pl USDA Opp. at 2. The plaintiffs also assert that, by bailing out CFC, Farmer Mac and the USDA aided and abetted what they allege was CFC's fraudulent use of RFTC's profits and coverup of its financial difficulties. Pl. FM Opp. at 17.

Analysis

"Article III standing is a prerequisite to federal court jurisdiction, and . . . petitioners carry the burden of establishing their standing." Am. Library Ass'n v. F.C.C., 401 F.3d 489, 493 ...


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