Judge Marcia Morales Howard, a federal judge serving the United States District Court for the Middle District of Florida, recently ruled in a case involving the U.S. Department of Agriculture’s (“USDA”) debt relief program for socially disadvantaged farmers and ranchers (“SDFR”). She temporarily suspended the program by issuing a preliminary injunction. This case is in addition to several other ongoing lawsuits brought in other jurisdictions. The judge granted the injunction after the plaintiff, a Florida farmer, claimed the USDA’s loan forgiveness payments violates the United States Constitution. Specifically, the plaintiff argued Section 1005 of the American Rescue Plan Act of 2021 (“ARPA”) is unconstitutional because the statutory provision forgives USDA loans based on racial classifications and prohibits certain borrowers from participating in the debt relief program. Because the federal judge issued the preliminary injunction, the USDA and Farm Service Agency (“FSA”) is prohibited from issuing any payments or debt relief under §1005 of the ARPA until the judge orders otherwise. The injunction applies to debt relief payments to all SDFRs nationwide because preliminary injunctions are issued to preserve the status quo of the case. In other words, the injunction seeks to prevent harm and preserve the existing conditions of the case until it is resolved by the court.

Background

In response to the economic crisis caused by the coronavirus pandemic, Congress passed the ARPA stimulus relief bill. Section 1005 of the bill instructs the USDA to provide loan forgiveness in an amount up to 120% of a SDFR’s outstanding debt for certain direct and guaranteed USDA loans. While the USDA expected to start issuing debt relief payments for direct loans in early July, several farmers across the nation filed various lawsuits to challenging the USDA-led program.

On May 18, 2021, a Florida farmer filed suit against the USDA (Wynn v. Vilsack, No. 3:21-CV-514 (M.D. Fl. 2021)) to challenge the debt relief program created under §1005 of the ARPA. The plaintiff holds multiple farm loans, including Farm Operating Loans made directly by the FSA, that are eligible for loan forgiveness under the program. In the plaintiff’s complaint, however, he claims he is not eligible to receive debt relief under §1005 because he does not qualify as a SDFR, which is required to receive loan forgiveness under the program. Essentially, the plaintiff claims the debt relief provisions of the ARPA are unconstitutional because they violate his equal protection rights under the U.S. Constitution. Accordingly, the plaintiff asked the court to issue a preliminary injunction to prevent the USDA from issuing debt relief payments while the lawsuit is in progress. The judge granted the plaintiff’s request and the USDA is currently prohibited from distributing debt relief payments to SDFRs.

For a more in-depth discussion on ARPA, the debt relief provisions under §1005 of the ARPA, and the requirements that litigants must satisfy to obtain a preliminary injunction, check out a recent NALC article entitled “Legality of Minority Debt Relief Payments Called Into Question” here.

Issuing the Preliminary Injunction

To obtain a preliminary injunction, one factor a plaintiff must show is a likelihood of success on the merits of the case. This is often considered the most important factor in obtaining the injunction. In this case, the plaintiff needed to show that he was likely to succeed on the merits of his claim that the debt relief program was unconstitutionally violating his right to equal protection under the law. Once a constitutional claim is raised, the judge reviews the statute under a process called judicial review.

Depending on the type of claim, there are different levels of judicial review. In this case, the judge reviewed §1005 under strict scrutiny because the provision uses racial classifications to determine eligibility for the debt relief program. To survive strict scrutiny, the government must prove its race-based classification under §1005 is necessary to achieve a compelling governmental interest, and that the legislation is narrowly tailored to achieve that interest. Plaintiffs that successfully convince a court that an issue should be reviewed under strict scrutiny have a much higher likelihood of success due to the high burden put on the government.

Compelling Governmental Interest

To determine whether the government has a compelling interest in providing debt relief to SDFRs, Judge Howard first examined USDA’s purpose for providing debt relief based on racial classification. In general, the USDA claims the debt relief program serves a compelling interest for two reasons: (1) to remedy past discrimination against SDFRs in USDA-led loan programs, and (2) to prevent government funds from being used in a way that continues the effects of discrimination. In other words, the USDA claims that past and present discrimination against SDFRs warrants the need for the debt relief program under the ARPA.

To demonstrate that remedying past discrimination is a compelling interest, USDA provided historical evidence of discrimination within the agency, which includes:

  • Substantial decrease in SDFR-owned farms from 1920 to 1992;
  • USDA’s discriminatory treatment when providing loans to SDFRs, such as reducing loan amounts, less favorable loan terms, and how the USDA inadequately serviced these loans; and
  • USDA’s efforts to ignore complaints of discrimination made by SDFR.

The judge agreed with USDA that the agency has a history of past discrimination against SDFRs. However, taking the evidence into account, the judge identified remedial measures the government previously implemented to correct USDA’s past discrimination. These remedial measures the judge mentioned include:

  • Providing grants to increase outreach and assistance to SDFRs, such as the 2501 Program;
  • Offering almost $2.4 billion in class action settlements for SDFR groups who were discriminated against by the agency;
  • Creating positions within USDA that responsible for ensuring the agency complies with all civil rights laws; and
  • Adopting measures to increase SDFR participation on committees that oversee USDA’s loan programs.

According Judge Howard, these previous measures remedied USDA’s past discrimination, and thus, there is no need for continued remediation under the §1005 debt relief program. However, the judge stated that the government can still prove it has a compelling interest for §1005’s debt relief program. To do this, USDA must provide sufficient evidence which shows the previous measures were insufficient to remedy the harm caused by the agency’s past discrimination, or evidence that shows that USDA is still a passive or active participant in discrimination against SDFRs.

To prove the past remedial measures were inadequate to cure the effects of past discrimination, the USDA argued that previous SDFR debt relief for was incomplete because the settlements did not cure the problems faced by SDFRs. Also, the USDA claimed that the agency’s prior outreach efforts to SDFR was insufficient and prevented SDFRs from participating in agency-led programs. Last, USDA explained that SDFRs currently face certain barriers that make it difficult for them to obtain financing.

Ultimately, USDA’s arguments did not persuade the judge. According to the judge, USDA’s arguments and evidence of the inadequacy of past remedial measures does not support a compelling interest in providing a debt relief program based on racial classifications. Further, Judge Howard indicated that the evidence does not support a finding that USDA continues to participate in discriminatory lending practices against SDFRs. Therefore, the judge concluded that USDA does not have a compelling interest for administering a race-base debt relief program to SDFRs.

Narrowly Tailored

Next, Judge Howard examined §1005 to determine whether the statutory provision is narrowly tailored. In general, a statute that includes racial preferences is not narrowly tailored if there are alternative race-neutral measures that will satisfy the government’s interest. Here, the judge found that §1005 is not narrowly tailored.

In the judge’s written order, she provided several reasons why §1005 is not narrowly tailored. One reason offered by the judge is that the necessity for this specific debt relief is unclear. Essentially, the necessity for this program is unclear because it benefits only SDFRs who successfully received farm loans from USDA, and the evidence of past discrimination does not indicate how this group of SDFR-borrowers have been subject to past or present discrimination. In other words, the USDA’s evidence does not explain why debt relief is necessary for this specific group of SDFRs because it does not suggest how these borrowers have been subject to past or present discrimination.

Another reason §1005 is not narrowly tailored, according to the judge, is that the program is inflexible. Judge Howard stated the program is inflexible because the only qualifying factor to participate in the program is a borrower’s race or ethnicity. Section 1005 does not consider other factors to determine eligibility, such as the financial situation of each individual borrower. Because racial classification is the only qualifying factor, the statutory debt relief provision is not narrowly tailored.

Additionally, the judge determined §1005 is not narrowly tailored because it does not focus on remedies for specific instances of past discrimination. Judge Howard explained §1005 offers loan forgiveness payments to SDFRs who may have never suffered discrimination from USDA or faced financial stress resulting from the coronavirus pandemic. Furthermore, the judge pointed out the program does not offer debt relief to SDFRs who unsuccessfully obtained a farm loan because of USDA’s discriminatory practices or SDFRs who no longer have farm loans as a result of the prior discrimination. According to the judge, the government did not consider other race-neutral alternatives to the debt relief program under §1005, and therefore, the statutory provision is not narrowly tailored.

Conclusion

Overall, Judge Howard determined that §1005 does not meet the strict scrutiny test, which means that the plaintiff has a likelihood of success in showing the debt relief program violates his equal protection rights. Accordingly, the judge issued a preliminary injunction in favor of the plaintiff, and USDA is currently prohibited from distributing debt relief payments to any SDFRs under §1005 of the ARPA. While there is an opportunity for this injunction to be lifted before the case is fully resolved, there are several other cases pending a judge’s decision to either grant or deny a preliminary injunction against USDA. Consequently, if any of these courts issue a preliminary injunction as well, it is unlikely that debt relief payments under §1005 will be issued in the coming months.

An update to this article will be published as this lawsuit moves forward.

 

To read the complaint from Wynn v. Vilsack, click here.

To read the judge’s order granting the preliminary injunction in Wynn v. Vilsack, click here.

To read the complaint from Dunlap v. Vilsack, click here.

To read the complaint from Kent v. Vilsack, click here.

To read the complaint from Holman v. Vilsack, click here.

To read the complaint in Carpenter v. Vilsack, click here.

To read the complaint from Miller v. Vilsack, click here.

To read the complaint from Faust v. Vilsack, click here.

For more on the Faust v. Vilsack case, click here.

For more information on Section 1005 of the ARPA, click here.

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