Summary
finding failure to exhaust remedies is not a jurisdictional matter, but is a valid affirmative defense
Summary of this case from IN RE 2000 SUGAR BEET CROP INSURANCE LITIGATIONOpinion
Case No. 00-2347-JWL.
January 3, 2001.
MEMORANDUM ORDER
This matter comes before the court on defendant's motion to dismiss (Doc. 8). For the reasons set out below, the motion is granted.
• Background
Seven insurance companies brought this suit against the Federal Crop Insurance Corporation ("FCIC") for breach of the standard reinsurance agreements the companies had with the FCIC. The plaintiffs were approved by the FCIC to insure producers of agricultural commodities through the federal crop insurance program administered by the FCIC. Pursuant to the standard reinsurance agreements, the plaintiffs sold crop insurance policies to producers on the terms and conditions established by the FCIC regulations and the FCIC provided reinsurance for those policies. The standard reinsurance agreements required that both the insurance company and the FCIC bear some risk of loss associated with the policies. The plaintiffs claim that regulations adopted in 1996 by the FCIC changed the terms and conditions of the crop insurance policies and increased the plaintiffs' exposure to losses under the policies. The plaintiffs claim that because of this increased exposure, the plaintiff paid over 50 million dollars in claims that they would not have otherwise paid. Plaintiffs allege that the 1996 regulations constitute a breach of the plaintiffs' standard reinsurance agreements with the FCIC and seek damages in excess of 50 million dollars.
The FCIC moves to dismiss the plaintiffs' claims for failure of the plaintiffs to exhaust administrative remedies.
The failure of the plaintiff to exhaust administrative remedies is not a jurisdictional matter. See infra. While the motion to dismiss was brought under Rule 12(b)(1), this court will rule on the motion under Rule 12(b)(6). The Tenth Circuit has not resolved the issue of how to treat motions improperly brought under Rule 12(b)(1), see Hawkins v. Defense Logistics Agency of the Dept. of Defense, 99 F.3d 1149 (10th Cir. 1996), but a well-reasoned opinion of the Third Circuit directs district courts to consider such motions under Rule 12(b)(6) and this court believes the Tenth Circuit would follow the Third Circuit's reasoning. See Anjelino v. The New York Times Co., 200 F.3d 73, 87 (3d Cir. 2000) ("Failure to exhaust is `in the nature of statutes of limitation' and `do[es] not affect the District Court's subject matter jurisdiction. . . . Thus, the District court should have considered the exhaustion and timeliness defense presented in this case under Rule 12(b)(6) rather than Rule 12(b)(1).").
• Discussion
Section 6912(e) mandates that "a person shall exhaust all administrative appeal procedures established by the Secretary [of Agriculture] or required by law before the person may bring an action in a court of competent jurisdiction." 7 U.S.C. § 6912(e). The Secretary of Agriculture ("Secretary") established administrative appeal procedures for review of the FCIC decisions by regulation. 7 C.F.R. § 400.169. The regulations provide that final administrative determinations by the FCIC "may be appealed to the Board of Contract Appeals." 7 C.F.R. § 400.169(d). The Department of Agriculture ("Department") interprets the regulations as requiring appeal to its Board of Contract Appeals ("BCA") before an appeal to a district court is allowed:
Comment: One comment suggested that the rule be amended to permit companies to bypass the BCA and go directly to the district court or the National Appeals Division (NAD).
Response: It has been determined that the BCA is the best forum to hear these appeals. Although the BCA may not be an expert with respect to the SRA, it has extensive experience in contract matters. Since NAD does not have jurisdiction to hear any matter over which the BCA has jurisdiction, the BCA acquired jurisdiction over these cases. FCIC has no authority to permit any appeal to NAD. Further, administrative appeals provide the valuable service of permitting the Department to correct any errors and, therefore, conserving judicial resources. Therefore, the rule will not be amended to permit companies to appeal directly to the Federal courts or to NAD.61 Fed. Reg. 40952 (August 7, 1996).
A court "must give substantial deference to an agency's interpretation of its own regulations." Thomas Jefferson University v. Shalala, 512 U.S. 504, 512 (1994). An agency's interpretation of its regulations must be given "`controlling weight unless it is plainly erroneous or inconsistent with the regulation.'" Id. (quoting Bowles v. Seminole Rock Sand Co., 325 U.S. 410, 414 (1945)). "Even if an agency's interpretation is not the only one permitted by the language of the rule, courts must respect it if it is at least a reasonable interpretation." City of Aurora v. Hunt, 749 F.2d 1457, 1462 (10th Cir. 1984). The plaintiffs point out that an agency's interpretation of its own regulations are not afforded deference if the interpretation "is not based on expertise in the particular field . . . but is based on general common law principles" Jicarilla Apache Tribe v. Federal Energy Regulatory Comm'n, 578 F.2d 289 (10th Cir. 1978). In the present case, the agency is interpreting its procedural rules and does not rely on common law principles. Great deference is due "to an agency's interpretation of its procedural rules." City of Gillette v. Federal Energy Regulatory Comm'n, 733 F.2d 883, 885 (10th Cir. 1984).
Two circuit courts have considered a similar administrative appeal procedure and both courts deferred to the agency's interpretation of its regulations in holding that the appeal procedure must be exhausted prior to a party bringing suit in district court. In Kobleur v. Group Hospitalization and Medical Services, Inc., 954 F.2d 705 (11th Cir. 1992), the Eleventh Circuit held that an administrative exhaustion requirement was created by the regulatory scheme implementing the Federal Employees Health Benefits Act ("FEHBA"), 5 U.S.C. § 8901. Regulations adopted by the Office of Personnel Management ("OPM") provided that if an enrollee seeks to challenge the denial of a claim, the enrollee "may" ask the OPM to review the claim. The OPM interpreted the regulation as mandating a request for review prior to an enrollee bringing suit in district court. The Kobleur court held that the OPM interpretation was controlling because deference is due to an administrative agency's interpretation of its own regulations and the OPM interpretation was "reasonable and consistent with the regulations' language." Kobleur, 954 F.2d at 711. The Second Circuit, in Kennedy v. Empire Blue Cross and Blue Shield, 989 F.2d 588 (2d Cir. 1993), addressed the same issue and agreed with the holding and rationale of the Kobleur court. Like the OPM interpretation of its regulations, the Secretary's interpretation is reasonable and consistent with the regulation's language and, therefore, is controlling.
See N.Y. State Dairy Foods, Inc. v. Northeast Dairy Compact Comm'n, 26 F. Supp.2d 249, 259 (D.Mass. 1998) (interpreting language providing that an appellant "may" file an appeal as meaning that the appellant "has the option of challenging the order by filing a petition rather than, for example, awaiting enforcement action.").
Plaintiffs argue that the statutory grant of "exclusive original jurisdiction" to United States district courts conflicts with the exhaustion requirement created by 7 U.S.C. § 9612(e) and 7 C.F.R. § 400.169. The grant of original jurisdiction to federal district courts does not conflict with an exhaustion requirement because a failure to exhaust administrative remedies does not necessarily divest a court of subject matter jurisdiction. An administrative exhaustion requirement only divests a court's jurisdiction if it is "more than a codified requirement of administrative exhaustion" and contains "sweeping and direct" statutory language that goes beyond a requirement that only exhausted actions be brought. Weinberger v. Salfi, 422 U.S. 749, 757 (1975). Section 6912(e) contains no sweeping and direct language barring federal question jurisdiction absent exhaustion of administrative remedies. The statutory language is precisely the type of language held in Weinberger not to limit federal jurisdiction. See Wright v. Morris, 111 F.3d 414, 420-21(6th Cir. 1997) (holding that 42 U.S.C. § 1997e(a) does not create a jurisdictional limit by requiring exhaustion because it "addresses a party's right to bring suit in court and does not speak in terms of jurisdiction or power of the court."); but see Sharpe v. FDIC, 126 F.3d 1147, 1155 (9th Cir. 1997) (finding the exhaustion requirement imposed by FIRREA to be a jurisdictional bar in light of the broad language that "no court shall have jurisdiction" absent exhaustion). A plaintiff's failure to exhaust administrative remedies, therefore, does not divest this court of jurisdiction but is an affirmative defense and subjects the complaint to a Rule 12(b)(6) motion to dismiss.
Section 6912(e) provides that "a person shall exhaust all administrative appeal procedures established by the Secretary or required by law before the person may bring an action in a court of competent jurisdiction." 7 U.S.C. § 6912(e).
Plaintiffs also argue that the procedure of appeal to the BCA is inappropriate because the BCA's enabling statute does not grant the BCA jurisdiction over the plaintiff's claims. The BCA's enabling statute, the Contract Disputes Act of 1978, directs the Department to create a board to hear appeals of final agency determinations regarding contracts entered into by the agency for property or services. The Act's instruction to allow appeal to the BCA in specific cases does not limit the Department's authority to also allow appeal to the BCA in other cases. Nothing in the Act limits the board to hearing the type of cases listed in the Act. Section 9612(e) grants the Secretary the authority to determine the administrative appeal procedure and the Secretary selected the Department's BCA for administrative appeals of final agency determinations. See 7 C.F.R. § 24.4(b) ("The Board shall have jurisdiction of appeals of final administrative determinations of the [FCIC] pertaining to standard reinsurance agreements under 7 C.F.R. § 400.169."). There is no need for further Congressional action to confer authority on the BCA to hear the appeals.
Furthermore, the plaintiffs make only a conclusory assertion that the contracts at issue are outside of the scope of the type of cases the listed in the Act.
Plaintiffs argue that section 6912(e) does not create an exhaustion requirement for appeals of the FCIC decisions. The plaintiffs argue that section 6912(e) is not applicable to the BCA because section 6912(e) was part of the 1994 Reorganization Act which created the National Appeals Division ("NAD"). Section 6912(e) creates an exhaustion requirement for all suits brought against the Secretary, Department, or any "agency, office, officer, or employee of the Department." While section 6912(e) was part of the Reorganization Act and the Act created the NAD, neither the language of the statute nor legislative history indicates that section 6912(e) applies only to the NAD. The plain language of the statute requires exhaustion of the administrative appeal procedure created by the Secretary prior to a suit being brought against any Department agency and without regard to whether the procedure includes appeal to the NAD. "The exceptions to our obligation to interpret a statute according to its plain language are `few and far between.'" Lindsay v. Thiokol Corp., 112 F.3d 1068, 1070 (10th Cir. 1997). The provisions of the Reorganization Act extended well beyond the creation of the NAD and the plaintiffs do not offer a compelling reason why the plain language of the statute should be ignored and the statute interpreted as applying only to appeals taken to the NAD. The FCIC also correctly points out that courts have applied the section 6912(e) exhaustion requirement to appeals taken to bodies other than the NAD. See, e.g., Kleissler v. United States Forrest Service, 183 F.3d 196 (3d Cir. 1999).
The plaintiffs also argue that to the extent that there is an exhaustion requirement, there is an exception to the requirement that is applicable to this case. According to the plaintiffs, the complaint alleges that the FCIC acted in a manner that is at odds with the language of a statute and that such an allegation exempts the plaintiffs from exhausting administrative remedies. The cases cited by the plaintiffs for support stand for the proposition that despite the absence of a final agency determination, a district court may enjoin an agency action in defiance of an express statutory prohibition. The plaintiffs do not allege that the FCIC acted in defiance of any statutory prohibition before administrative proceedings have produced a final agency determination. The exception is inapplicable, especially given this court's finding that the Secretary's requirement of appeal to the BCA is valid.
The plain language of section 6912(e) requires exhaustion of the administrative appeal procedures established by the Secretary. Regulations provide that a final administrative determination by the FCIC may be appealed to the BCA and the Secretary interprets the regulations as requiring appeal to the BCA before a party may sue in district court. This interpretation is not plainly erroneous or inconsistent with the regulations, and, therefore, is controlling. Because the plaintiffs have failed to exhaust administrative remedies, their claims are dismissed pursuant to defendant's motion.
IT IS THEREFORE ORDERED BY THE COURT THAT the defendant's motion to dismiss (Doc. 8) is granted.
IT IS SO ORDERED this _____ day of January, 2001.