Summary of a Recent
Judicial Development in
Farm Programs

Ninth Circuit Rules that Exhaustion
Requirement Was Not Jurisdictional

Harrison M. Pittman
Staff Attorney

The United States Court of Appeals for the Ninth Circuit has held that the exhaustion requirement contained in the Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994, 7 U.S.C. Sec. 6912(e), did not deprive the district court of subject matter jurisdiction. McBride Cotton and Cattle Corp. v. Veneman, 290 F.3d 973 (9th Cir. 2002). The Ninth Circuit also ruled that the nondebtor-plaintiffs' failure to exhaust their administrative remedies pursuant to 7 U.S.C. Sec. 6912(e) was excused because of the plaintiffs' alleged collateral and colorable constitutional claims in their complaint, and because any attempt made by the plaintiffs to exhaust their administrative remedies would have been meaningless. Id.

All five plaintiffs involved in this action were nondebtor family farm business entities. Id. at 976. None of the plaintiffs were delinquent on any type of USDA loan. Id. However, the plaintiffs received contractual payments derived from farm program payments from at least one of its members who was delinquent on some type of USDA administered federal loan. Id. In order to satisfy the debts owed by the various individual debtors, the Secretary began collecting, through administrative offset, pro rata shares of contractual payments owed to the plaintiffs. Id. Pursuant to USDA policy, notice of the administrative offset was given only to the individual debtors. Id. No notice was given to any of the plaintiff-entities. Id.

The plaintiffs alleged that the Secretary was "required by due process and by statute to give prior notice directly to nondebtor entities of an intent to administratively offset delinquent debts of an individual debtor." Id. at 980, n.1. The plaintiffs also alleged that the Secretary was required by regulations to give such notice to nondebtor entities, and that if the regulations did not require the Secretary to give such notice, then the regulations exceeded the scope of the Secretary's authority. Id.

Sec. 6912(e) states, in relevant part, that "[n]otwithstanding any other provision of law, a person shall exhaust all administrative appeal procedures established by the Secretary [of Agriculture] or required by law before the person may bring an action in a court of competent jurisdiction against (1) the Secretary; (2) the Department; or (3) an agency, office, officer, or employee of the Department." Id. at 978.

The district court dismissed the plaintiffs' case for lack of subject matter jurisdiction because they failed to exhaust their administrative remedies as required by Sec. 6912(e). Id. The district court did not consider any other issue. Id. The plaintiffs appealed this decision to the U.S. Court of Appeals for the Ninth Circuit.

The Ninth Circuit stated that an exhaustion statute could limit federal court jurisdiction if the statute is "'more than a codified requirement of administrative exhaustion' and contains 'sweeping and direct' language that goes beyond a requirement that only [administratively] exhausted claims be brought.'" Id. (quoting Weinberger v. Salfi, 422 U.S. 749, 757 (1975) (and quoting Anderson v. Babbit, 230 F.3d 1158, 1162 (9th Cir. 2000)). The court added that the"failure to exhaust does not deprive a federal court of jurisdiction when the exhaustion statute is merely a codification of the exhaustion requirement." Id. (citing Rumbles v. Hill, 182 F.3d 1064, 1067 (9th Cir. 1999)).

In Anderson the exhaustion statute required that "'[n]o decision which at the time of its rendition is subject to appeal to the Director or an Appeals Board shall be considered final so as to be agency action subject to judicial review under 5 U.S.C. Sec. 704 . . . . '" Id. (citing Anderson, 230 F.3d at 1162) (quoting 43 C.F.R. Sec. 4.21(c)). In Rumbles the exhaustion requirement of 42 U.S.C. Sec. 1997e(a) read, "No action shall be brought with respect to prison conditions under section 1983 of this title, or any other Federal law, by a prisoner confined in any jail, prison, or other correctional facility until such administrative remedies as are available are exhausted." Id. at 979 (citing Rumbles 182 F.3d at 1067). In both Anderson and Rumbles the Ninth Circuit held that the language of the exhaustion statutes in question did not contain the kind of "sweeping and direct language" which would divest a federal court of jurisdiction. Id.

The exhaustion requirement at issue in Henderson v. Bank of New England, 986 F.2d 319 (9th Cir. 1993), read:

Except as otherwise provided in this subsection, no court shall have jurisdiction over (i) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the Corporation has been appointed receiver, including assets which the Company may acquire from itself as such receiver; or (ii) any claim relating to any act or omission of such institution or the Corporation as receiver.

Id. (quoting 12 U.S.C. Sec. 1821 (d)(13)(D)). The court held that this language "was jurisdictional because the statute 'strips all courts of jurisdiction over claims made outside the administrative procedures of Sec. 1821 . . . . '" Id. (quoting Henderson, 986 F.2d at 320).

The exhaustion statute involved in Gallo Cattle Co. v. United States Dep't of Agric., 159 F.3d 1194 (9th Cir. 1998) read, in relevant part, "The district courts of the United States in any district in which [any person subject to an agency issued order or judgment] in which such person is an inhabitant or carries on business are hereby vested with jurisdiction to review [the agency's ruling], if a complaint for that purpose is filed within [the requisite period of time]." Id. (quoting 7 U.S.C. Sec. 4509). The Ninth Circuit ruled that the language at issue in Gallo limited federal court jurisdiction because "it explicitly granted the district court jurisdiction over only those claims which had previously been presented to the Secretary by administrative petition. Id. (citing Gallo Cattle, 159 F.3d at 1197-98).

After making these comparisons, the Ninth Circuit ruled that nothing in Sec. 6912(e) limited federal court jurisdiction over the plaintiffs' claims. Id. The court stated that the language of Sec. 6912(e) was "similar to the language which, in Anderson and Rumbles, we held was merely a codification of the exhaustion requirement." Id.

Having determined that Sec. 6912(e) did not limit federal court jurisdiction, the court examined whether the plaintiffs' failure to exhaust their remedies under Sec. 6912(e) was excused. In Anderson the Ninth Circuit held that even when an exhaustion requirement does not limit jurisdiction, a court should still require the plaintiff to exhaust their administrative remedies unless the plaintiff's action alleges a constitutional claim which is "(1) collateral to a substantive claim of entitlement, (2) colorable, and (3) 'one whose resolution would not serve the purposes of exhaustion.'" Id. at 980 (citing Anderson 230 F.3d at 1163) (quoting Hoye v. Sullivan, 985 F.2d 990, 991 (9th Cir. 1992)). The court ruled that the plaintiff fulfilled each of these three requirements. Id.

For a claim to be collateral to a substantive claim of entitlement, it must not be "'bound up with the merits so closely that [the court's] decision would constitute 'interference with agency process.''" Id. (quoting Johnson v. Shalala, 2 F.3d 918, 922 (9th Cir. 1993) (and Johnson v. Sullivan, 922 F.2d 346, 353 (7th Cir. 1990)). The court agreed with the plaintiffs' contention that their particular claims did not "interfere with the agency's process because there is no agency process by which these claims may be resolved." Id. (citing Gold Dollar Warehouse, Inc. v. Glickman, 211 F.3d 93, 99 (4th Cir. 2000) (stating that plaintiffs were not required under 7 U.S.C. Sec. 6912(e) to exhaust facial challenge to scope of Secretary's authority because such a challenge could not be considered by the National Appeals Division)).

The Ninth Circuit also concluded that the plaintiffs' due process claim was "colorable." Id. at 981- 82. To be colorable, a claim must not be made simply to establish jurisdiction, and it must not be "'wholly insubstantial, immaterial, or frivolous.'" Id. at 981 (quoting Cassim v. Bowen, 824 F.2d 791, 795 (9th Cir. 1987)). Also, a plaintiff must "allege 'facts sufficient to state a violation of substantive or procedural due process.'" Id. (citing Anderson, 230 F.3d at 1163) (quoting Hoye, 985 F.2d at 991-92). The plaintiffs' allegation of a due process violation by itself is not sufficient to substantiate a colorable claim. Id. The due process claim must be based on "'facts sufficient to state a violation of substantive or procedural due process.'" Id. (quoting Hoye, 985 F.2d at 991-92). The court reasoned that the plaintiffs' claims were sufficient to create a colorable action, thus satisfying the second prong of the Hoye test. Id.

Finally, the court opined that any attempt by the plaintiffs to administratively pursue their claims would have been futile, and, thus, would not serve the purposes of exhaustion. Id. at 982. In this particular case, the National Appeals Division lacked any authority to resolve the plaintiffs' claims. Id. Therefore, the plaintiffs' failure to exhaust their administrative remedies was excused because, "[r]equiring exhaustion would be an idle act." Id. (citing Bowen v. City of New York, 476 U.S. 467, 484-85 (1986)).

This case summary was prepared July, 2002.