MEMORANDUM AND ORDER
MILES W. LORD, District Judge.
On January 19, 1973, plaintiffs commenced this action against the Secretary of Agriculture of the United States and certain subordinate officials of the United States Department of Agriculture,
On February 15, 1973, pursuant to Plaintiffs' Motion for a Preliminary Injunction, a hearing was held before this Court in Duluth, Minnesota. At that time, oral argument was heard and briefs and affidavits were submitted by plaintiffs and defendants in support of their respective positions. At the conclusion of plaintiffs' argument, plaintiffs moved that the Court order the advancement of the trial on the merits and its consolidation with the application for the preliminary injunction, pursuant to Rule 65(a)(2), Federal Rules of Civil Procedure. Because the relief prayed for by plaintiffs and others similarly situated, if granted, will be fully meaningful only if granted prior to the 1973 planting season and in no event later than June 30, 1973, the Court granted the motion, ordered the consolidation, and advanced the trial on the merits to March 5, 1973. At that time, defendants moved to dismiss the amended complaint on the ground that the actions complained of were totally within defendants' discretion. Alternatively, defendants moved for summary judgment. Both motions were denied and full trial on the merits was held.
Plaintiffs are four farmers residing in the 15 county area designated as an "emergency loan" area, who were precluded from applying for emergency loans because of the directive of the Secretary of Agriculture halting the program in Minnesota. The action is brought as a class action. The Court finds that the class is so numerous that joinder of all members is impracticable; that there are common questions of law and fact common to the class; that the claims or defenses of the representative parties are typical of the claims or defenses of the class; and that the representative parties will fairly and adequately protect the interests of the class. Furthermore, the defendants have acted and refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. The action is maintainable as a class action with the class being defined as those farmers in need of agricultural credit as the result of "natural disasters" who operate farms in one or more of the fifteen Minnesota counties involved herein, and were precluded from applying for emergency loans by the directive of the Secretary of Agriculture and the actions taken thereunder terminating the emergency loan program in Minnesota.
Defendants include the Secretary of Agriculture, the National Administrator and Assistant Administrator of the Farmers Home Administration, the Chief of the Emergency Loan Division of the Farmers Home Administration; and the State Administrator of the Farmers Home Administration for the State of Minnesota.
In the fall of 1971 and spring of 1972, a large part of western and central Minnesota suffered excessive and prolonged rainfall to such extent as to seriously and injuriously interfere with and delay the planting of crops in the spring of 1972. With many years of experience, area farmers were unable to recall such extreme and prolonged conditions of rain and wetness. Because of these conditions, many farmers in the affected areas were unable to get into their fields to plant some of their 1972 crops at all. To the extent planting was possible, in many cases it was only possible critically late in the season—for example, late June or July, 1972. Even after planting, replanting was often required
As a result of these weather conditions, on June 26, 1972, defendant Earl Butz, United States Secretary of Agriculture, declared that fourteen counties in western and central Minnesota had experienced "natural disasters" and designated those fourteen counties "emergency loan areas." This designation was published in the Federal Register, Volume 37, No. 126, page 12854, and provides as follows:
COUNTIES Big Stone Pope Chippewa Renville Douglas Stevens Grant Swift Kandiyohi Traverse Lac qui Parle Wilkin Meeker Yellow Medicine
On June 26, 1972, pursuant to this designation of "emergency loan areas", the National Office of the FHA, by defendant Willard H. Ballard, Director of the Emergency Loan Division of the FHA, sent the following "notification" telegram to the Minnesota State Director of the FHA indicating that these fourteen Minnesota counties had been designated "emergency loan areas." This notification provides as follows:
On June 28, 1972, defendant Gordon F. Klenk, State Director of the FHA for the State of Minnesota, sent a bulletin to County FHA offices in each of the fourteen designated Minnesota counties. This bulletin provides in pertinent part as follows:
This bulletin (as well as the attached "News Release") indicates that emergency loan applications would be accepted and processed through June 30, 1973. It is clear, from the language of this bulletin, that the State Director anticipated that most applications would not be submitted until after the harvest season which was late November or early December, 1972.
Subsequent to the fourteen-county emergency loan designations of June 26, 1972, and the Stearns County designation of September 20, 1972, informational meetings were held throughout the designated areas by State, District and County FHA, officials. Relying upon the designations of the National Office of the FHA, these FHA officials informed interested farmers that: (1) applications would be accepted and processed through June 30, 1973; (2) that farmers should not file until after their harvest to make sure that all eligible losses were included in their applications; and (3) that plenty of money was available in the program. Relying upon these representations, many farmers, including plaintiffs and others similarly situated, waited until after the 1972 harvest to file emergency loan applications.
As anticipated by State FHA officials, a substantial portion of emergency loan applications were not submitted until after the harvest season—late November and December, 1972. Between that time and December 27, 1972, many farmers in the fifteen-county emergency loan area contacted local FHA officials for appointments to submit emergency loan applications. Because of the large number of applicants that sought to apply after harvest, County FHA officials were forced to make appointments with many such applicants to review their applications—before formal acceptance—in January, February and even March, 1973.
However, on December 27, 1972, without warning or notice of any kind, the Secretary of Agriculture, by teletyped message to the Minnesota State FHA office, directed the cessation of acceptance of emergency loan applications in these Secretarially designated counties. This teletyped message provides as follows:
The message was addressed to all State Directors of the FHA and was received in the Minnesota office at 4:20 p. m. on December 27, 1972 just prior to
None of the County Supervisors in Secretarially designated areas who administered the FHA emergency loan program at the local level received notice of the termination of the program in their counties on December 27; nor did any County FHA Supervisors receive this notice on the next day, December 28, 1972. All Federal offices were officially closed on December 28, 1972, because of President Truman's funeral. Consequently, it was not until December 29, 1972, that the State FHA office notified the County Supervisors of the termination. Typically, John Schulz, County Supervisor, FHA, for Chippewa and Yellow Medicine Counties, received notice of the termination at approximately 11 a. m. on December 29.
Testimony indicated that never before has a Secretary of Agriculture ordered the permanent halt of an emergency loan program in Secretarially designated emergency loan areas without notice and prior to the date specified in the original designation.
Subsequent to December 27, 1972, and prior to February 15, 1973, when this Court issued a Temporary Restraining Order directing FHA to resume accepting (but not processing) applications from farmers in the fifteen Minnesota Secretarially designated counties, all Minnesota FHA offices have refused to accept, process or consider emergency loan applications from plaintiffs and others similarly situated.
As the action is in the nature of mandamus, to compel defendants to perform ministerial duties owed plaintiffs, this Court has jurisdiction of the controversy under 28 U.S.C. § 1361. The scope of the Court's review is set out in Section 10 of the Administrative Procedure Act, 5 U.S.C. § 701 et seq.
The scope of review under the Administrative Procedure Act is stated at 5 U.S.C. § 706. That provision provides in pertinent part:
The doctrine of sovereign immunity, raised by defendants, is inapplicable since plaintiffs contend that the defendants' actions were beyond the scope of their authority or they were acting unconstitutionally. Dugan v. Rank, 372 U.S. 609, 621, 83 S.Ct. 999, 10 L.Ed.2d 15 (1962).
Conclusions of Law
It is the position of the plaintiffs that the unilateral termination of the emergency loan program without public notice was in violation of the mandatory language of the applicable statutes and administrative regulations, as well as violative of the due process clause of the Fifth Amendment. The Government, on the other hand, maintains that the administration of emergency loans is committed by law to the discretion of the Secretary, and hence is not subject to judicial review by this
The statutory basis for the emergency loan program is provided in 7 U.S.C. § 1961 which reads:
As to this part of the statute, it is clear that the decision whether or not to designate an area an "emergency loan area" is committed to the discretion of the Secretary. However, the Secretary has exercised his discretion in this regard; he has designated this fifteen county area as an "emergency loan area." 7 U.S.C. § 1961(b) "authorizes" the Secretary to make loans in such a designated area. The chief benefit flowing from a Secretarial designation is the availability of emergency loans. It is clear from the legislative history that Congress intended that emergency loans would be available in those areas designated as emergency loan areas. In the Senate Report accompanying the Agriculture Act of 1961 it is stated:
Furthermore, Section 5 of P.L. 92-385, adopted in August of 1972 as an amendment to 7 U.S.C. §§ 1961-1967 provides:
"Shall" is mandatory language. The only sensible reading of these statutes requires the Secretary to apply emergency loan benefits to all loans qualifying under these provisions. In order to apply the benefit provisions, the Secretary must first determine which loan applicants qualify. To follow the dictate of Congress, the Secretary must accept loan applications and consider them.
In Dubrow v. Small Business Administration, 345 F.Supp. 4 (D.Cal.1972), the right to apply for small business administration disaster loans was at issue. The government contended that under the Disaster Relief Act of 1972, 42 U.S. C. § 4451, the agency had absolute discretion to determine whether or not to
The situation in the instant case is virtually identical. It is clear from the reading of the statute that Congress has directed the Secretary to accept and consider loan applications from those counties which have been designated as "emergency loan areas." The Secretary's refusal to comply with the statutory language, and the subsequent termination of the emergency loan program was accomplished in excess of the Secretary's authority and is unlawful.
Not only was the administrative action taken in excess of statutory authority, but it also was in violation of the duly promulgated regulations set up by the Department of Agriculture. Validly issued regulations of an administrative agency have the force and effect of statutes. See, Sheridan-Wyoming Coal Co. v. Krug, 84 U.S.App.D.C. 288, 172 F.2d 282 (1949). The failure of an administrative agency to follow its own established procedures constitutes a violation of procedural due process. Vitarelli v. Seaton, 359 U.S. 535, 79 S.Ct. 968, 3 L.Ed.2d 1012 (1959); Service v. Dulles, 354 U.S. 363, 77 S.Ct. 1152, 1 L.Ed.2d 1403 (1959); Accardi v. Shaughnessy, 347 U.S. 260, 74 S.Ct. 499, 98 L.Ed. 681 (1954). As stated in United States v. Heffner, 420 F.2d 809, 812 (4th Cir. 1970):
The regulations involved give the Secretary the discretion to determine whether or not an area should be designated as an "emergency loan" area.
However, under the applicable regulations the Secretary has no absolute authority to halt the emergency loan program in those areas designated as emergency loan areas. The language of the regulation is clear that emergency loans will be made available in the counties so designated.
Inasmuch as emergency loans were made available up until December 27, 1972, it could be argued that the Secretary fulfilled his obligation under the statutes and the regulations. However, in this respect the method of termination of emergency loan benefits must be considered. The rights of individuals in so important a matter as procuring emergency relief to help restore damage caused by a natural disaster should not be at the mercy of the whims of an administrator. The unilateral termination of the program without notice to the Minnesota farmers offends all traditional notions of fair play. The people have a right to expect better treatment from their government. In Gonzalez v. Freeman, 118 U.S.App.D.C. 180, 334 F.2d 570 (D.C.Cir. 1964), the Secretary of Agriculture debarred a contractor from doing any further business with the Department. The matter was handled in summary fashion. In defending a subsequent suit brought by the contractor, the government argued that since a citizen has no "right" to do business with the government, there is no standing for this lawsuit. Judge Burger, now Chief Justice, disposed of this argument:
In looking to the Secretary's actions it should be pointed out that although it is provided that the Secretary may specify the period within which initial loans may be made, nowhere is the Secretary given the authority to accelerate, or disregard the initial termination date. Looking to the Department's regulations, it is provided:
On June 26, 1972 and September 20, 1972, in compliance with these regulations, the National Office of the FHA did inform the State Director of the designation and did specify that the loans be available until June 30, 1973. Public notice was given as to this deadline. The regulation contemplates that the public will be informed as to the designation and the specified period for applying for the loans so as to provide opportunity to take advantage of the loan program. Nonetheless the Secretary, without prior notice, terminated the program depriving thousands of disaster victims from applying for emergency loans.
The unilateral termination of the program without notice was also a violation of a rule promulgated by former Secretary of Agriculture Clifford Hardin which states:
In essence the Department has adopted the rule making provisions of the Administrative Procedure Act, 5 U.S.C. § 553,
1) Give advance notice by publication in the Federal Register of the proposed rule making. This notice shall include a statement of the time, place and nature of the public rule making proceedings, reference to the legal authority under which the rule is proposed and the terms of the proposed new rule.
2) After that notice is given, the agency shall give interested persons an opportunity to participate in the rule making.
3) The agency shall incorporate in the rule adopted a statement of its basis and purpose.
4) After the substantive rule is adopted, it shall be published in the Federal Register, not less than thirty days before its effective date.
In adopting the directive of December 27, 1972, defendants did not comply with even one of these mandatory requirements, despite the fact that the directive would have a substantial impact on those regulated, and hence is a "rule" as contemplated in the statute. See, Pharmaceutical Manufacturers Association v. Finch, 307 F.Supp. 858 (D.Del.1970); Texaco Inc. v. FPC, 412 F.2d 740 (3rd Cir. 1969); National Motor Traffic Association
The failure to give notice prior to the termination of the loan program is also in violation of the Administrative Procedure Act, 5 U.S.C. § 551 et seq. As stated by Judge, now Chief Justice Burger in Gonzalez v. Freeman, supra:
Section 3 of the Administrative Procedure Act (5 U.S.C. § 552) provides, in mandatory language, as follows:
Inherent in these provisions is the concept that the public is entitled to be informed as to the procedures and practices of a governmental agency, so as to be able to govern their actions accordingly. The termination of the emergency loan program was without any notice, and was in violation of the provisions of the statute. The last paragraph of 5 U. S.C. § 552(a)(1) provides:
Notice after the termination of the loan program as was here given can in no way be considered timely. Furthermore, the deprivation of the right to file claims for the loans certainly adversely affected the plaintiffs.
As justification for terminating the loan program in Minnesota, the government argues that there was a shortage of available funds. The emergency loan program is funded by a "revolving fund" referred to as the Agriculture Credit Insurance Fund. Moneys received in connection with loans procured under the fund are credited to the fund and are used for making additional loans. In order to obtain additional money for the fund the Secretary of Agriculture is authorized to make and issue notes to the Secretary of Treasury. 7 U.S.C. § 1928. To draw upon the fund, the Secretary of Agriculture must procure an apportionment from the Office
It is the opinion of the Court that the government's contentions are not justified. It is true that the Secretary is prohibited from spending funds in excess of the apportionment. However, there is nothing magic in an apportionment; that is, an original apportionment by the Office of Management and Budget is subject to change. In fact, the Office of Management and Budget is required by law to review each apportionment at least four times each year in order to make "effective use of the appropriation concerned." 31 U.S.C. § 665(c)(4).
In appropriating funds for the emergency loan program, Congress set no monetary limit on the funds that may be apportioned for emergency loans. The appropriation reads as follows:
In January and again in February of 1973, the Secretary did request and receive additional apportionments of funds for emergency loans bringing the total apportionment of funds to $500 million. The government offers no explanation as to why the Secretary could not request an apportionment that would be sufficient to cover the claims of the plaintiffs in this case. The Secretary has made the determination that there were needs for agricultural credit in the fifteen Minnesota counties involved, yet the Secretary is apparently unwilling to take the necessary procedural steps to insure that the financial needs of the farmers involved are fulfilled in the manner contemplated by Congress. Congress has appropriated sufficient funds to carry out the emergency loan program. It is the Secretary's duty to request an apportionment from the Office of Management and Budget, that would carry out the directives of Congress.
It may be that the Secretary questions the efficacy of the emergency loan program. It is not the role of the Courts to pass upon the necessity or soundness of a duly-promulgated law; likewise, an administrator should not engage in such a practice. It is the duty of the Courts to interpret the law and it is the function of the Administrator to enforce and effectuate the laws passed by Congress.
Furthermore, although the emergency loan program was terminated in Minnesota without notice on December 27, 1972, the program was continued in the areas declared as disaster areas by the President. Since December 27, 1972, $270 million has been obligated for emergency loans and the Department anticipates that another $150 million in emergency loans will be approved. If
The bill that eventually became P.L. 92-385 was originally proposed by the Administration, solely to benefit victims of Hurricane Agnes in areas designated by the President. However, while the bill was being considered in Senate Committee, word was received of the disastrous weather conditions in West Central Minnesota. The report states:
The Secretary's actions in giving a preference to Presidentially designated areas is not in keeping with the Congressional intent in promulgating the emergency loan program.
It is the opinion of the Court that the defendants have a ministerial duty to implement the emergency loan program as directed by Congress, that the unilateral termination of the program without notice to the plaintiffs in this case was in violation of the statutes, the agency's own regulations, and due process of law. Furthermore to the extent that the administrators may have some discretion under the applicable statutes, in terminating the emergency loan program in Minnesota without prior notice, the administrator acted in an arbitrary and capricious manner.
Order for Judgment
Based on the reasons as set forth in the attached Memorandum,
It is hereby ordered that:
1. Defendants' action of December 27, 1972, which terminated, without notice, the FHA Emergency Loan Program in Minnesota, is unlawful and all subsequent actions taken in implementation or furtherance of that action are unlawful.
2. Defendants' Motion to Dismiss Plaintiffs' Amended Complaint for failure to state a claim upon which relief may be granted, is denied.
3. Defendants' alternative Motion for Summary Judgment is denied.
4. Persons situated similar to plaintiffs, within the class represented by plaintiffs, include established farmers (a) who suffered loss as the result of natural disasters; (b) who operate
5. Defendants, their successors and agents shall reinstate the Farmers Home Administration (FHA) Emergency Loan Program for natural disaster victims in the fifteen Minnesota counties designated Emergency Loan Areas by the Secretary of Agriculture on June 26, 1972 and September 20, 1972, which program was unlawfully terminated by the Secretary of Agriculture on December 27, 1972. To accomplish this, it is ordered that the defendants, their successors and agents shall:
It is further ordered that this Order shall take effect immediately, except that Subparagraph (c) of this Order, which directs the payment and delivery of loan proceeds, is stayed for a period of ten days from the date hereof.
It is further ordered that in the event an appeal is taken, because of the urgency of this matter, the parties are directed to take all possible steps to procure an expedited appeal.
Apportionments shall be reviewed at least four times each year by the officers designated in subsection (d) of this section to make apportionments and reapportionments, and such reapportionments made or such reserves established, modified, or released as may be necessary to further the effective use of the appropriation concerned, . . ..