Opinion
Civil No. 02-2929 (DWF/JSM)
April 16, 2003.
Thomas H. Boyd, Esq., Winthrop Weinstine, Matthew J. Salzman, Esq., Bruce E. Baty, Esq., and Polly M. F. Biehl, Esq., Stinson Morrison Hecker, P. John Owen, Esq., National Crop Insurance Services, Inc., General Counsel, counsel for Plaintiffs.
Stephen K. Warch, Assistant Attorney General, David Aafedt, Assistant Attorney General, and Catherine M. Powell, Assistant Attorney General, Minnesota Attorney General's Office, counsel for Defendants.
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on March 14, 2003, pursuant to Plaintiffs' Motion for Summary Judgment and Defendant's Motion for Summary Judgment. This case involves a dispute over whether the Federal Crop Insurance Act ("FCIA") preempts state insurance regulatory law. For the reasons set forth below, Plaintiffs' motion is denied, and Defendant's motion is granted.
Background
Plaintiffs Alliance Insurance Company and Farmers Alliance Mutual Insurance Company (collectively, "Alliance") issued crop insurance policies to a number of sugar beet farmers in southern Minnesota. The policies are reinsured by the Federal Crop Insurance Corporation ("FCIC"), a wholly owned government corporation, and are regulated by the Federal Crop Insurance Act ("FCIA") contained in 7 U.S.C. § 1501, et seq. The sugar beet farmers suffered substantial losses when a series of freezes and thaws damaged sugar beets in 2000. After the losses, the sugar beet farmers submitted claims to Alliance; Alliance did not compensate the farmers for those losses. Whether the claims were denied because the farmers did not comply with submission requirements or because Alliance improperly handled the claims is the subject of other litigation. However, in the wake of the dispute, Defendant Minnesota Department of Commerce Commissioner ("the Commissioner") initiated an examination of Alliance pursuant to his authority under Minnesota law. Whether or not that examination is lawful is the subject of this litigation.
Alliance filed a complaint against the Commissioner in Federal District Court on August 15, 2002, asserting that the Commissioner did not have legal authority to undertake the examination because the FCIA alone regulates FCIC crop insurance policies and the FCIA preempts all other applicable state law regulating such insurance. Alliance and the Commissioner have filed cross motions for summary judgment.
Discussion
1. Standard of Review
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The court must view the evidence and the inferences which may be reasonably drawn from the evidence in the light most favorable to the nonmoving party. Enterprise Bank v. Magna Bank of Missouri, 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated, "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy, and inexpensive determination of every action.'" Fed.R.Civ.P. 1. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986).
The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enterprise Bank, 92 F.3d at 747. The nonmoving party must demonstrate the existence of specific facts in the record which create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials, but must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Krenik, 47 F.3d at 957.
2. Complete Preemption
Alliance asserts that the Commissioner lacks jurisdiction to carry out the examination because the FCIA comprehensively regulates FCIC crop insurance and directly conflicts with state regulatory procedures. Alliance concludes that the FCIA therefore necessarily preempts all state insurance regulatory law as applied to FCIC reinsured crop insurance. Specifically, Alliance asserts that the FCIA preempts the Commissioner's jurisdictional authority to carry out an examination of Alliance's market conduct practices.
Conversely, the Commissioner asserts that the Commissioner has proper jurisdiction to conduct the examination because the FCIA does not completely preempt state regulatory procedures. Rather, the Commissioner contends that Congress intended only to preempt those state laws which are inconsistent with the FCIA. Finding that the FCIA does not completely preempt state law, the Court declines to adopt Alliance's position and adopts, instead, the Commissioner's position.
"The Supremacy Clause of Art. VI of the Constitution provides Congress with the power to pre-empt state law." Louisiana Public Serv. Comm'n v. FCC, 476 U.S. 355, 368 (1986). Preemption occurs when Congress, in enacting a federal statute, expresses a clear intent to preempt state law. Id. Additionally, preemption occurs when "there is outright or actual conflict between federal and state law," or "where Congress has legislated comprehensively, thus occupying an entire field of regulation and leaving no room for the States to supplement federal law." Id. At all times, however, "Congressional intent is the touchstone of the complete preemption analysis." Magee v. Exxon Corp., 135 F.3d 599, 601 (8th Cir. 1998).
The extent to which Congress intended to preempt state law is stated explicitly in the FCIA:
State and local laws or rules shall not apply to contracts, agreements, or regulations of the Corporation or the parties thereto to the extent that such contracts, agreements, or regulations provide that such laws or rules shall not apply, or to the extent that such laws or rules are inconsistent with such contracts, agreements, or regulations.7 U.S.C.A. § 1506(l) (1999). More specifically, Congress expressed its intent that while state and local government authorities are precluded from levying fines or judgments against insurance companies for acts consistent with the FCIA, "nothing herein is intended to preclude any action on the part of any authorized State regulatory body" regarding activity that is not required or prohibited by the FCIA or the FCIC's regulations. 7 C.F.R. § 400.352(b)(4).
The Commissioner is responsible for enforcing regulatory standards contained in Minnesota Statutes Chapter 72A which is designed to ensure insurance companies handle their policy holders' claims in a reasonable manner. To enforce these standards, the Commissioner has authority under Minn. Stat. § 60A.031 to conduct an examination of insurance companies and "all aspects of the examinee's affairs, practices, and conditions." Minn. Stat. § 60A.031, subd. 2a (2002).
Alliance's assertion that the FCIA and its regulations conflict with Minnesota law is unfounded. Alliance points to five specific instances of conflict between the FCIA and Minnesota law. Most of the alleged conflict pairs address two different issues and therefore do not pose any real conflict between state and federal law. For example, that 7 C.F.R. § 475.109 ¶ 12(a) requires representative sample crop strips to be maintained for 15 days after harvest is a different issue than the requirement in Minn. Stat. § 72A.201, subd. 4(1), that the insurance company acknowledge receipt of an insured's claim within ten days of receipt. Furthermore, insofar as specific provisions of the FCIA are inconsistent with Minnesota law, those individual provisions are preempted according to the plain language of 7 U.S.C.A. § 1506(l). Indeed, the Commissioner concedes that the FCIA curtails certain aspects of his regulatory authority, arguing only that the preemption is not complete.
Alliance's assertion that the FCIA comprehensively regulates the field of FCIC crop insurance is also without merit. Again, in 7 U.S.C.A. § 1506(l), Congress indicated that only those state statutes which are inconsistent with the FCIA are preempted. Congress clearly contemplated that some state statutes would remain applicable to FCIC reinsured crop insurance. Thus, contrary to Alliance's assertion that Congress, by enacting the FCIA, intended to preempt state regulatory law, Congress intended to allow for state regulation of federally reinsured crop insurance policies to the extent that state law is not inconsistent with the FCIA.
The Court's conclusion is consistent with the findings of other federal courts deciding the issue. The four circuits deciding the question agree that the FCIA does not completely preempt state law. See Rio Grande Underwriters, Inc. v. Pitts Farms, Inc., 276 F.3d 683, 686 (5th Cir. 2001) (holding that the FCIA does not meet the complete preemption test); Meyer v. Conlon, 162 F.3d 1264, 1268-70 (10th Cir. 1998) (holding that the FCIA has only partial preemptive power); Williams Farms of Homestead, Inc. v. Rain and Hail Ins. Services, Inc., 121 F.3d 630, 633-34 (11th Cir. 1997) (holding that the FCIA does not completely preempt state law); Holman v. Laulo-Rowe Agency, 994 F.2d 666, 669 (9th Cir. 1993) (holding that claims against agents selling FCIC insurance are not completely preempted). While the Eighth Circuit Court of Appeals has not yet considered the issue, the District of Minnesota has also previously concluded that the FCIA does not completely preempt state law. See Agre v. Rain Hail LLC, 196 F. Supp.2d 905, 912 (D.Minn. 2001) (declining to find that the FCIA completely preempts state law); see also Reimers v. Farm Credit Services AgCountry, 2001 WL 1820379, 2001 U.S. Dist. LEXIS 8388 (D.N.D. June 22, 2001) (holding that the FCIA does not completely preempt state law).
Thus, the Court finds that the FCIA and its regulations do not completely preempt insurance regulatory standards contained in Minnesota Statutes Chapter 72A or the Commissioner's jurisdiction under Minn. Stat. § 60A.031 to examine Alliance's insurance affairs, practices, and conditions. Accordingly, the Court grants summary judgment in favor of the Defendant and dismisses the case.
Although the Court holds that the Commissioner's regulatory authority is not completely preempted by the FCIA, this order does not give the Commissioner carte blanche to conduct a sweeping investigation of Alliance. As noted above, the FCIA almost certainly preempts some specific state regulations that directly conflict with federal statute or regulation. The burden is now on the Commissioner to limit the scope of his investigation to avoid running afoul of the FCIA and, thus, to avoid further litigation.
For the reasons stated, IT IS HEREBY ORDERED:
1. Plaintiffs' Motion for Summary Judgment (Doc. No. 24) is DENIED;.
2. Defendant's Motion for Summary Judgment (Doc. No. 17) is GRANTED; and
3. The COMPLAINT is DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.