Summary of a Recent
Judicial Development in
Administrative Law

Farm Credit Administration Required to
Respond to Lender's Comment

Harrison M. Pittman
Staff Attorney

Summary of Decision

In Louisiana Federal Land Bank Ass'n v. Farm Credit Administration, 336 F.3d 1075 (D.C. Cir. 2003), the D.C. Circuit held that in promulgating a final rule the Farm Credit Administration (FCA) was required to respond to a comment submitted by lenders within the Farm Credit System (FCS).

Background

After the FCA promulgated a final rule that eliminated geographical restrictions upon direct loan and loan participation activities conducted by lenders within the FCS, several FCS lenders (hereinafter plaintiffs) brought an action against the FCA claiming, inter alia, that the rule was promulgated in violation of procedural requirements set forth in the Administrative Procedures Act. See Louisiana Federal, 336 F.3d at 1078. The FCA received approximately 300 comments on the proposed rule, including the one submitted by the plaintiffs that "asserted broadly that the FCA 'does not have statutory authority to implement intra-system competition,'" that the proposed rule would "'abolish Congress's carefully wrought statutory scheme of geographic boundaries and limitations'" and would be undesirable because it would undermine the "cooperation and interdependence" of the FCS. Id. at 1081. The preamble to the final rule, however, stated, that

No commenter cited any statutory provision that restricts the authority of System banks and associations to participate in loans outside of their chartered territory. Only one comment letter mentioned the statutory authorities of System institutions to participate in loans.

Id. at 1080 (citation omitted).

Arguments

The plaintiffs argued that this preamble statement failed to adequately address the comment they submitted, which protested the lifting of geographic restrictions. See id. The FCS asserted that "in the preamble to the Proposed Rule it had discussed out-of-territory lending and out-of-territory participations separately, whereas plaintiffs' comment did not make such a distinction and was not specifically directed to the part of the Proposed Rule dealing with participations." Id. FCS therefore argued that "none of the comments it received was relevant to the Final Rule authorizing only out-of-territory participations and none required a response." Id.

Analysis and Holdings

The court explained that "[a]lthough the FCA is not required 'to discuss every item of fact or opinion included in the submissions' it receives in response to a Notice of Proposed Rulemaking . . . , it must respond to those 'comments which, if true . . . would require a change in [the] proposed rule.'" Id. (citation omitted). Holding that the FCA "should have responded to the plaintiffs' comment," the court recognized that the plaintiffs' comment "was applicable equally to a rule limited to participations and to one that also removed the geographic restriction upon direct lending: it argued against the introduction into the System of competition generally, without regard to form." Id.

The court concluded that

We find unpersuasive the FCA's response that the plaintiffs' comment lacked adequate specificity to out-of-territory participations. The plaintiffs argued that geographical boundaries were required by . . . [statute] and that the Proposed Rule would break down those boundaries; the Final Rule did just that. True, it did so only as to participations, but that was not a trivial part of what the plaintiffs had argued was unlawful. . . . The FCA asserts that the term "out-of-territory" lending as used in the Plaintiffs' Comment denotes only direct loans and not loan participations, but it offers no reason, and we see none, to believe that. We interpret the plaintiffs' comment, in keeping with the rationale that underlies it, to relate to all forms of out-of-territory lending, including but not limited to participation in loans originated by others. As such, their comment deserves an answer.

Id. at 1080-81.

The case was decided on July 29, 2003; this summary was posted Apr. 30, 2004.