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Israel v. United States Department of Agriculture

March 08, 2002


Appeal from the United States District Court for the Western District of Wisconsin. No. 00 C 223--Barbara B. Crabb, Chief Judge.

Before Harlington Wood, Jr., Cudahy, and Kanne Circuit Judges.

The opinion of the court was delivered by: Kanne, Circuit Judge.

Argued October 23, 2001

In 1989, plaintiffs restructured an existing loan with the Farm Service Agency ("FSA")*fn1 and signed a ten-year agreement as part of that restructuring. The agreement required plaintiffs to pay the FSA a percentage of appreciation that accrued to their property if certain triggering events transpired ("recapture"). In 1999, the FSA determined that expiration of the agreement was one of the triggering events and sought recapture. Plaintiffs sought administrative review of the FSA's determination and argued that only three events triggered recapture: full payment on the loan, cessation of farming, or transfer of the title of their property. The National Appeals Division of the Department of Agriculture found that the terms of the agreement allowed recapture at the expiration of the agreement. Plaintiffs appealed that decision to the Director of the National Appeals Division for the Department of Agriculture, who affirmed. Plaintiffs then sought judicial review of the agency's determinations and argued that they were arbitrary and capricious, contrary to law, and unsupported by substantial evidence. The district court affirmed, and plaintiffs appealed. We affirm.

I. History

A. Shared Appreciation Agreement

Plaintiffs, Donald and Patsy Israel and Richard and Shirley Quinton, own a farming partnership called Israel and Quinton Farms. In the fall of 1989, plaintiffs were indebted to the FSA in the amount of $239,478.91. After negotiating with the FSA, the FSA reduced ("wrote down") plaintiffs' loan by $100,357.34. Plaintiffs were thus left with a restructured debt of $139,121.57, which was secured by a pre-existing real estate mortgage.

On September 15, 1989, as consideration for their write down, plaintiffs signed a ten-year Shared Appreciation Agreement ("Agreement") with the FSA, which was secured by a separate mortgage on plaintiffs' real property. The Agreement provided:

As a condition to, and in consideration of [FSA] writing down the above amounts and restructuring the loan, borrower agrees to pay [FSA] an amount according to one of the following payment schedules:

2. Fifty (50) percent of any positive appreciation in the market value of the property securing the loan above as described in the security instruments between the date of this Agreement and either the expiration date of the Agreement or the date Borrower pays the loan in full, ceases farming or transfers title of the security, if such event occurs after four years but before the expiration date of this Agreement.

The amount of recapture by [FSA] will be based on the difference between the value of the security at the time of disposal or cessation by Borrower of Farming and the value of the security at the time this Agreement is entered into. If the borrower violates the terms of the agreement [FSA] will liquidate after the borrower has been notified of the right to appeal. [emphasis added]

In April 1994, plaintiffs advised the FSA that they might arrange private financing to replace their FSA loan. The FSA told plaintiffs that this would cause the Agreement to "kick in," and that plaintiffs would then owe the FSA approximately $23,000.00 under the terms of the Agreement.*fn2 Plaintiffs never obtained private financing and, thus, did not trigger the Agreement by "pay[ing] the loan in full." On January 26, 1998, the FSA sent plaintiffs a letter and advised them that the payoff amount remaining on their loan was $118,910.20. The letter did not reference the Agreement.

In letters to plaintiffs dated April 24, 1997, November 6, 1997, and October 5, 1998, the FSA wrote:

Our records indicate that on September 15, 1989, the Farm Service Agency (FSA) wrote down $100,357.34 of your debt. As a consideration for this write down you were required to sign a Shared Appreciation Agreement (copy attached).

Essentially what this document says is that if the value of your real estate increases after the date of the write down, you will be responsible for repaying some or all of the debt FSA wrote down. If any repayment is due it will become due when any one of the following events happens.

1. Ten Years has passed.

2. You pay the rescheduled loan ...

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