Logan Farms, Inc. v. Espy (886 F. Supp. 781, 1995)

MEMORANDUM AND ORDER

CROW, District Judge.

On January 27,1993, Carolyn A. Burchett, as Director of the National Appeals Division (NAD) of the Agricultural Stabilization and Conservation Service (ASCS) of the United States Department of Agriculture, issued an eleven page decision addressing an appeal from a determination that Bohm Farm and Ranch, Inc., Logan Farms, Inc. (Logan Farms), Downs National Bank, Andrew Byrnes, Robert Shumate, Robert Bohm (Pete Bohm’s son) and Karen Smith, together, are one “person” for payment limitation purposes in various combinations for the crop-years 1985 through 1988. That decision, inter alia, found Logan Farms and Bohm jointly and severally liable for certain amounts to be refunded to the government. See 7 C.F.R. § 795.20. Specifically, the Secretary made the following determinations:

Year Finding Overpayment

1985 Bohm and Logan Farms treated as one person $ 16,705

1986 Bohm, Logan Farms, Smith, Shumate, Downs National Bank and Byrnes treated as one person 86,872

Year, Finding Overpayment

1987 Bohm, Logan Farms,' Downs National Bank, Robert Bohm and Byrnes treated as one person - ■ 65,187

1988 Bohm, Logan Farms, Smith, Robert Bohm and Byrnes treated as one person 12,505

Total Overpayments: $181,269

On December 9,1993, Logan Farms filed a complaint seeking judicial review of the defendant’s January 27, 1993, decision. Logan Farms seeks a declaratory judgment that it is a separate “person” under the Payment Limitation Regulations, that it is not jointly and severally liable for any overpayments, and requests that the defendant’s decision be set aside under Administrative Procedure Act (APA).

On January 25, 1994, Bohm filed a complaint similar to the complaint filed by Logan Farms, seeking judicial review of the defendant’s January 27, 1993, decision. Specifically, the complaint “seeks a declaratory judgment that the plaintiff should not be combined with the separate individuals and should be declared a separate 'person’ under the Payment Limitation Regulations and that the Department’s determination to. the contrary should be set aside pursuant to the judicial review provisions of the Administrative Procedure Act, 5 U.S.C. § 701, et seq. (1982).”

At the core of each plaintiffs position is their contention that Bohm was a “custom farmer” who provided custom farming services to each of his clients, one of which was Logan Farms. The plaintiffs contend that the Secretary’s determination that Bohm was not a custom farmer is based upon a misreading of the relevant regulations and a misapplication of the facts to those regulations.

On April 28, 1994, the defendant filed an answer and counterclaim to Bohm’s complaint. In its counterclaim, even though his own decision had ruled otherwise, the defendant asserted that Bohm entered into a scheme and device for the purpose of defeating the payment limitations provision found in the Agriculture and Food Act of 1981. See 7 C.F.R. § 795.17. As a consequence, the counterclaim alleged that Bohm and his accomplices received excess Commodity Credit Corporation Price Support and Production Adjustment Program payments totaling $196,316.29 for the program years of 1985 through 1988. Those program payments were unearned and obtained in violation of the statutory and regulatory restrictions on payments exceeding $50,000 per farming year. According to the defendant, the investigative branch of the Department of Agriculture, the Office of Investigations, conducted a formal investigation of Bohm and his accomplices and prepared a report containing evidence indicating that they had engaged in a scheme and device to defeat the annual $50,-000 program payment restriction. “The amount of the original claim has been reduced as a result of the administrative setoff of program payments to a current principal balances owed of $57,854.00 and interest of $12,140.55 as of May 1, 1994, with a daily accrual of $17.18.” The defendant asked the court to deny the relief requested by the plaintiff and for the court to enter judgment on its counterclaim in the amount of $57,-854.00 plus interest. The defendant filed a similar answer and counterclaim to Logan Farms’ amended complaint.

On July 5, 1994, this court entered an order consolidating Case No. 93^256-SAC and Case No. 94-4012-SAC for ail further proceedings (Dk. 17).

Bohm subsequently filed a motion to dismiss the defendant’s counterclaim, basically challenging the defendant’s ability to appeal his own decision. On November 23, 1994, the court entered an order denying without prejudice Bohm’s motion to dismiss the defendant’s counterclaim. See Logan Farms, Inc. v. Espy, No. 93-256-SAC, 1994 WL 732672, 1994 U.S. Dist.LEXIS 19139 (D.Kan. Nov. 23, 1994). However, the court ordered the defendant to show cause within ten days of the date of that order why his counterclaim should not be dismissed. On December 19, 1994, based upon the stipulation and agreement of the parties, the court granted the United States’ motion for an order dismissing its counterclaims against both Logan Farms and Bohm. See (Dk. 52).

This case comes before the court upon the following motions:

1. Motion for summary judgment of Logan Farms, Inc. (Dk. 24).

2. Motion for summary judgment [filed by Pete Bohm, d/b/a Bohm Farm and Ranch, Inc.] (Dk. 22).

3. Motion of the United States for Summary Judgment (Dk. 26).

A response to each motion for summary judgment has been filed. Bohm and the United States each filed a reply brief.

While not raised by any of the parties, since the time the parties filed their respective motions for summary judgment, the Tenth Circuit has explicitly prohibited the use of summary judgment procedures in reviewing decisions under the Administrative Procedure Act. According to the Tenth Circuit, the use of summary judgment procedures by the district court “is inconsistent with the standards for judicial review of agency action under the APA.” Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1579 (10th Cir.1994). One of the primary reasons that summary judgment is an inappropriate procedure for review under the APA is that “it permits the issues on appeal to be defined by the appellee and invites (even requires) the reviewing court to rely on evidence outside the administrative record.” Id. at 1579-1580. “Reviews of agency action in the district court’s must be processed as appeals.” Id. at 1580. In Olenhouse, based upon the district court’s reliance on summary judgment procedures, including reliance on materials outside the administrative record, as well as other errors, the Tenth Circuit reversed the district court.

In face of the pending motions for summary judgment, the court believes there are two options: (1) Deny the pending motions for summary judgment and set a schedule for briefing the issues presented on appeal; or (2) Ignore the summary judgment standards and treat the pending motions for summary judgment and responses and replies filed by each of the parties as briefs of the respective parties. The court believes the latter course to be the most expeditious and beneficial to the parties. Each of the parties has been provided with ample opportunity to advance any and all legal and factual arguments in support of their respective positions. Because the court will base its decision on the standards actually governing this case, and because the court will rely only upon the evidence contained in the administrative record in determining whether the Secretary’s decision was arbitrary, capricious or contrary to the law, none of the parties will be prejudiced by the posturing of their respective positions as motions for summary judgment. Requiring the parties to invest the time, money and resources to file new briefs, briefs which essentially advance the same legal and factual points without summary judgment nomenclature, would serve little or no purpose.

Standard of Review

“The [APA] provides that ‘[a] person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof,’ 5 U.S.C. § 702, and [the Supreme Court has] read the Act as embodying a ‘basic presumption of judicial review.’ ” Mount Evans Co. v. Madigan, 14 F.3d 1444, 1449 (10th Cir.1994) (quoting Lincoln v. Vigil,—U.S.-,-, 113 S.Ct. 2024, 2030, 124 L.Ed.2d 101 (1993) (quoting Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 5. Ct. 1507, 1511, 18 L.Edüd 681 (1967))). Actions of agencies reviewed under the APA shall not be overturned unless “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A); see Colorado Department of Social Services v. United States Department of Health and Human Services, 29 F.3d 519, 522 (10th Cir.1994) (“We review the agency action to determine if it is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ See Administrative Procedure Act, 5 U.S.C. § 706(2).”).

The court examines whether the agency based its decision on consideration of relevant factors, whether there has been clear error of judgment, and whether the agency complied with procedural requirements. Citizens to Preserve Overton Park [v. Volpe], 401 U.S. [402] at 416 [91 S.Ct. 814, 823-24, 28 L.Ed.2d 136.] (1971). While the court is to make a “searching and careful” inquiry into the facts, it is not to substitute its judgment for that of the agency. Citizens to Preserve Overton Park, 401 U.S. at 416 [91 S.Ct. at 823-24.] Judicial review focuses on the administrative record existing before the agency. Camp v. Pitts, 411 U.S. 138, 142 [93 S.Ct. 1241, 1244, 36 L.Ed.2d 106] (1973).

State of Kan., ex rel. Todd v. United States, 791 F.Supp. 1491, 1494 (D.Kan.1992), aff'd, 995 F.2d 1505 (10th Cir.1993).

Because the arbitrary and capricious standard focuses on the rationality of an agency’s decisionmaking process rather than on the rationality of the actual decision, “it is well-established that an agency’s action must be upheld, if at all, on the basis articulated by the agency itself.” Motor Vehicle Mfrs., 463 U.S. at 50 [103 S.Ct. at 2870.] Thus, the grounds upon which the agency acted must be clearly disclosed in, and sustained by, the record. American Petroleum [Institute v. Environmental Protection Agency ] 540 F.2d [1023] at 1029 (10th Cir.1976) (construing Motor Vehicle Mfrs.).

Olenhouse, 42 F.3d at 1575.

In Olenhouse, the Tenth Circuit held that an agency’s action will not be sustained unless it is supported by substantial evidence:

In addition to requiring a reasoned basis for agency action, the “arbitrary or capricious” standard requires an agency’s action to be supported by the facts in the record. In reviewing the administrative record for factual support, we adopt the analysis articulated by then-Judge Scalia in Ass’n of Data Processing v. Bd. of Governors, 745 F.2d 677, 683 (D.C.Cir.1984), and rule informal agency action will be set aside as arbitrary if it is unsupported by “substantial evidence.” This is not to substitute the “arbitrary or capricious” standard applicable to informal agency action under § 706(2)(A) with the arguably more stringent standard of review applicable to formal agency action under § 706(2)(E). It is simply an acknowledgment that

“when the arbitrary or capricious standard is performing that function of assuring factual support, there is no substantive difference between what it requires an