Summary of a Recent
Judicial
Development in
Administrative Law1
FSA Must Follow Regulations in Effect
at the Time Shared Appreciation
Agreements Were Signed
Kurt B. OlsonNational AgLaw Center Graduate Assistant
In Davies v. Johanes [sic], 409 F. Supp. 2d 1150 (W.D. Mo. 2005), the United States District Court in the Western District of Missouri held that the USDA must use the same appraisal valuation method both at the time shared appreciation agreements were signed and at the time recapture is calculated. In 1992, plaintiffs restructured their Farm Service Agency (“FSA”; in 1992 it was known as the Farmers Home Administration) loans as authorized by the Agricultural Credit Act of 1987, writing down nearly $180,000 of debt. See id. at 1152. As a condition, plaintiffs also entered into a Shared Appreciation Agreement (“SAA”) allowing the USDA to recapture a percentage of any appreciated value between the time the SAA was signed and the earliest of one of the following events: selling the farm, ceasing farming operations, or the expiration of a 10-year recapture period. See id. When plaintiffs signed the SAA in 1992, the farm was appraised at “agricultural value” as required by the regulations in effect at that time In 2002, however, the farm was appraised at “highest and best use” as required by the current regulations. See id. at 1153-1154. Plaintiffs argued the farm should be appraised using the same “agricultural value” approach in both 1992 and 2002. See id. at 1155. The USDA argued that because the “highest and best use” in 2002 was agricultural, the 1992 and 2002 appraisals considered essentially the same factors, rendering meaningless any difference between the required appraisal methods. See id. at 1155, 1157. The court disagreed with the USDA, holding the “Government cannot retroactively apply amended regulations to alter the terms or construction of contracts it has already entered” and the use of “different formulas does not insure that the same value is being measured, and results in an improper comparison.” Id at 1156-1157. The court ruled the USDA must use the same appraisal method at the beginning and the end of the SAA, and that failure to do so is arbitrary, capricious, and in violation of law. See id. at 1158.
The case was decided on January 11, 2006; this summary was posted Apr. 17, 2006.