United States District Court, N.D. Ohio, Western Division
G. Carr Sr. U.S. District Judge
declaratory judgment action under 28 U.S.C. § 2201
concerns a farming cooperative's right to issue
“patronage rebates” to those of its members who
buy crop insurance from an insurer that the cooperative
plaintiff, Sunrise Cooperative, Inc. (Sunrise), is an Ohio
agricultural cooperative whose members are Ohio and Michigan
farmers. Sunrise owns a one-third stake in Lund and Smith
Insurance Services, LLC (L&S). Sunrise declares and pays
“patronage” to its members based on how much crop
insurance each member buys from L&S. This
“patronage” is essentially a rebate on a policy
premium that creates an incentive for the cooperative's
members to buy insurance from L&S.
2008, federal law has prohibited this kind of premium
rebating. 7 U.S.C. § 1508(a)(9)(A). But Sunrise has
continued to declare patronage under the statute's
“grandfather clause, ” which allows an
“entity” that, before enactment of the 2008
legislation, “was approved by the [Federal Crop
Insurance] Corporation to make such payments for the 2005,
2006, or 2007 reinsurance year.” 7 U.S.C. §
1508(a)(9)(B)(iii)(I). Having been so approved for those
years, Sunrise could continue making such payments after the
2008 law took effect.
2016, Sunrise merged with another farming cooperative,
Trupointe Cooperative, Inc. (Trupointe) and more than doubled
its membership. After the merger, Sunrise was the
Sunrise inquired of the United States Department of
Agriculture's Risk Management Agency (RMA) whether it
could, post-merger, continue making premium rebates, the RMA
advised Sunrise that it could not. The agency explained that,
as a result of its merger with a non-grandfathered entity
like Trupointe, Sunrise was no longer an “entity that
was approved” to declare patronage.
unsuccessfully contested the RMA's position
administratively, Sunrise brought this challenge to the
agency's decision under the Administrative Procedures
Act, 5 U.S.C. § 701, et seq.
is proper under 28 U.S.C. § 1331.
are the parties' counter-motions for summary judgment.
(Docs. 13, 16). For the following reasons, I grant the
defendants' motion and deny Sunrise's motion.
RMA is the principal federal regulator of the crop-insurance
market. It oversees a public-private partnership with
“approved insurance providers” (AIPs) who sell
and service crop-insurance policies in accordance with RMA
guidelines. See 7 U.S.C. §§ 1502, 1503,
agency also determines the cost of crop-insurance policy
premiums. 7 U.S.C. § 1508(d). It does so, in part,
because federal funds subsidize the operational and
administrative costs that the AIPs incur. 7 U.S.C. §
1516. Given this financial stake in the crop-insurance
market, the RMA professes “an interest in ensuring that
. . . the crop insurance market is operating efficiently and
effectively to protect and strengthen the economic stability
of America's agricultural producers, i.e., its
farmers.” (Doc. 16 at 9) (citing Doc. 12-3 at 37-38).
2000, the RMA prohibited AIPs from paying premium rebates,
dividends, and patronage refunds; it did so because, in its
view, such payments “may have an adverse effect on [the
agency's] ability to devise and establish an effective
and efficient crop insurance marketplace.” (Doc. 12-2
altered the no-rebate rule in the Agricultural Risk
Protection Act of 2000, 114 Stat. 358, which permitted a
limited form of rebating:
Payment on Behalf of Producers.
(i) Payment Authorized - If state law permits a licensing fee
or other payment to be paid by an insurance provider to a
cooperative association or trade association and rebated to a
producer with catastrophic risk protection or additional
coverage, a cooperative association or trade a1ssociation
located in that State may pay, on behalf of a member of the
association in that State or a contiguous State who consents
to be insured under such an arrangement, all or a portion of
the administrative fee required by this paragraph for
catastrophic risk protection.
7 U.S.C. § 1508(b)(5)(B).
the RMA's interpretation of this provision, an AIP could
pay a licensing fee to a cooperative, and the cooperative
could use that fee to pay patronage. (Doc. 12-2 at 26-27).
this change in the law, some cooperatives - including Sunrise
- purchased interests in crop-insurance agencies. In 2005,
2006, and 2007, the RMA approved Sunrise's arrangement
with L&S's parent company and permitted Sunrise to
pay premium rebates to its members. (Doc. 12-3 at 27-28).
to reports of premium-rebating abuses, Congress in 2008
changed course, enacting legislation that sought to, and did,
end rebate payments by nearly all cooperatives. Its only
deviation from this change in direction - at issue in this
case - was the grandfather clause. That provision permitted
Sunrise and other entities whom the RMA had previously
approved to pay patronage to continue doing so:
(9) Premium adjustments
Except as provided in subparagraph (B), no person shall pay,
allow, or give, or offer to pay, allow, or give, directly or
indirectly, either as an inducement to procure insurance or
after insurance has been procured, any rebate, discount,
abatement, credit, or reduction of the premium named in an
insurance policy or any other valuable consideration or
inducement not specified in the policy.
Subparagraph (A) does not apply with respect to -
* * *
(iii) a patronage dividend, or similar payment, that is paid
(I) by an entity that was approved by the Corporation to make
such payments for the 2005, 2006, or 2007 reinsurance year,
in accordance with subsection (b)(5)(B) as in effect on the
day before the date of enactment of this paragraph; and
(II) in a manner consistent with the payment plan approved in
accordance with that subsection for the entity by the
Corporation for the applicable reinsurance year.
7 U.S.C. § 1508(a)(9).
purpose of § 1508(a)(9)(B)(iii) was, according to the
bill's managers, to “‘grandfather in'
entities that have previously been approved by the Federal
Crop Insurance Corporation to make payments in accordance
with subsection (b)(5)(B) as in effect on the day before the
date of enactment.” Conference Report on H.R. 2419,
Food, Conservation, and Energy Act of 2008, 2008 WL 2038610,
*H3659. The managers also emphasized that the exception was a
The Managers expect the Corporation to exercise strict
oversight to ensure that these entities are operating
consistent with federal and state law and the payment plan
submitted and approved. The Managers understand through
discussions with RMA that the parties covered by the
grandfather clause represent the universe of parties engaged
in this activity. The Managers also understand from RMA that,
while two of the submissions are still under review, no
further requests are pending or ...