United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 26, 2009 Decided June 5, 2009
No. 08-5148
ENTERPRISE NATIONAL BANK,
APPELLANT
v.
THOMAS J. VILSACK, SECRETARY,
UNITED STATES DEPARTMENT OF AGRICULTURE,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:06-cv-01344)
John J. Richard argued the cause for the appellant.
Heather Graham-Oliver, Assistant United States Attorney,
argued the cause for the appellee. Jeffrey A. Taylor, United
States Attorney at the time the brief was filed, and R. Craig
Lawrence, Assistant United States Attorney, were on brief.
Before: HENDERSON, TATEL and KAVANAUGH, Circuit
Judges.
Opinion for the Court filed by Circuit Judge HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: Enterprise
National Bank n/k/a Enterprise Bank of Florida (Enterprise)
2
made a loan guaranteed in part by the United States Department
of Agriculture (Agriculture). When the borrower defaulted,
Agriculture declined to honor its guarantee based on
Enterprise’s allegedly negligent loan servicing. After Enterprise
obtained a favorable decision via Agriculture’s administrative
appeals process, Agriculture paid a portion of Enterprise’s loss
claim. Enterprise filed suit in district court seeking an order
compelling payment of its loss claim in full. On cross-motions
for declaratory judgment, the district court granted Agriculture’s
motion. Enter. Nat’l Bank v. Johanns, 539 F. Supp. 2d 343, 347
(D.D.C. 2008). For the reasons set forth below, we affirm the
district court’s judgment.
I.
Agriculture’s Rural Business-Cooperative Service (RBS)
administers the Business and Industry Guaranteed Loan
Program (B&I Program). See Business and Industrial Loan
Program, 61 Fed. Reg. 67,624 (Dec. 23, 1996).1 Under the B&I
Program, Agriculture guarantees loans made by private lenders
to rural businesses “to improve, develop, or finance business,
1
Agriculture has many subparts, some of which Agriculture
classifies as “agencies.” For example, RBS is referred to as an
“agency” in the regulations setting forth Agriculture’s appeals
procedure. 7 C.F.R. § 11.1. To avoid confusion, we refer to each
agency within Agriculture by name. The Agriculture Secretary
established RBS pursuant to 7 U.S.C. § 6944(a) (“[T]he Secretary is
authorized to establish and maintain within the Department the Rural
Business and Cooperative Development Service . . . .”). See 7 C.F.R.
§ 2003.26. RBS’s Administrator operates under the direction of the
Under Secretary for Rural Economic and Community Development,
id. § 2.48, and is authorized to “[c]ollect, service, and liquidate loans
made, insured, or guaranteed by [RBS].” Id. § 2.48(a)(14). RBS
administers the B&I Program through a Rural Development State
Director in each state, id. § 1980.401(d), including, in this case, the
State Director for Georgia.
3
industry, and employment and improve the economic and
environmental climate in rural communities.” 7 C.F.R.
§ 4279.101(b); see also 61 Fed. Reg. at 67,624. The private
lender is responsible “to ascertain that all requirements for
making, securing, servicing, and collecting the loan are
complied with.” 7 C.F.R. § 4279.1(b). Agriculture guarantees
payment to the lender of “[a]ny loss sustained by the lender on
the guaranteed portion [of the loan], including principal and
interest” or “[t]he guaranteed principal advanced to or assumed
by the borrower and any interest due thereon,” whichever is less.
Id. § 4279.72(a)(2)(i) & (ii). To receive payment, the lender
must submit a final report of loss to Agriculture with supporting
documentation. Id. § 4287.158(c). Agriculture reviews the
report and, upon approval, makes a loss payment to the lender
within 60 days. Id. § 4287.158(c)(6), (g). Under the B&I
Program, Agriculture’s guarantee is “unenforceable by the
lender to the extent any loss is occasioned by the violation of
usury laws, negligent servicing, or failure to obtain the required
security.” Id. § 4279.72(a).2
On July 19, 1999, Enterprise entered into a $5 million loan
agreement with Catfish, INT., Inc. (Catfish) as the borrower and
2
7 C.F.R. § 4279.72(a) provides in part:
Full faith and credit. A guarantee under this part constitutes
an obligation supported by the full faith and credit of the
United States and is incontestable except for fraud or
misrepresentation of which a lender or holder has actual
knowledge at the time it becomes such lender or holder or
which a lender or holder participates in or condones. . . . In
addition, the guarantee will be unenforceable by the lender
to the extent any loss is occasioned by the violation of usury
laws, negligent servicing, or failure to obtain the required
security regardless of the time at which the Agency acquires
knowledge thereof.
4
Erwin David Rabhan, president of Catfish, as the guarantor.
Catfish was obligated to use the loan proceeds for the
development of a catfish processing and distribution facility in
Georgia. Agriculture, acting through its Georgia State Director,
guaranteed 75% of the loan ($3.75 million) under the B&I
Program.3 The Loan Note Guarantee incorporated the language
of 7 C.F.R. § 4279.72(a), supra note 2. Loan Note Guarantee at
2, Joint Appendix (JA) 63 (Oct. 1, 1999) (Loan Note
Guarantee). It also defined “negligent servicing” as “the failure
to perform those services which a reasonably prudent lender
would perform in servicing . . . its own portfolio of loans that are
not guaranteed.” Id. Catfish subsequently defaulted.
Agriculture’s Office of Inspector General (OIG) investigated
Catfish’s president and its general contractor and discovered that
they had “conspire[d] to defraud [Agriculture and Enterprise]
out of a $5 million guaranteed B&I loan they were not entitled
to receive.” OIG Report of Investigation at 1, JA 755 (Feb. 4,
2003) (OIG Report). Catfish’s president as well as the general
contractor both pleaded guilty to one count of conspiracy and
were both sentenced to a term of imprisonment.
In November 2002, Enterprise reported a $4,213,434 loss to
the State Director and requested $3,160,075 (75% of the loss)
under the guarantee. On May 22, 2003, the State Director
denied Enterprise’s claim in full based on Enterprise’s allegedly
negligent servicing. He relied on the OIG Report’s finding that
Enterprise’s “lack of due diligence and negligence allowed for
fraudulent actions by [Catfish]” and that Enterprise “did not
comply with several conditions” of the guarantee. Letter from
F. Stone Workman, State Director, USDA Rural Development,
to R. Penny Rodgers, Vice President, Enterprise Bank, at 2, JA
208 (May 22, 2003).
3
Agriculture initially guaranteed 70% of the loan but later
increased the guarantee to 75% of the loan.
5
Enterprise appealed the State Director’s decision to the
National Appeals Division (Division). See 7 U.S.C. § 6996(a)
(right to appeal adverse decision to Division); 7 C.F.R. § 11.1(6)
(adverse decision includes Rural Business-Cooperative Service
decision).4 After a hearing, the Division hearing officer upheld
the State Director’s decision. Enterprise sought the Division
director’s review. The director may uphold, reverse or modify
the hearing officer’s determination or remand all or a portion of
the determination for further proceedings if the hearing record
is inadequate or new evidence has been submitted. 7 C.F.R.
§ 11.9(d)(1). The Division director remanded Enterprise’s case
because the hearing officer had not complied with certain
procedural regulations. On December 2, 2005, another hearing
officer issued a fifteen-page Remand Appeal Determination
(RAD) containing, inter alia, the following findings of fact.
First, “[Enterprise] failed to ensure that its borrower contributed
$2,950,000 to the project, and this occasioned a loss of
$2,950,000.” Remand Appeal Determination at 13, Enter. Nat’l
Bank, No. 2004S000154 (Dec. 2, 2005) (RAD). Second,
“[Enterprise] did not ensure that its borrower built [a
maintenance shed and guardhouse valued at $80,000 and] . . .
the absence of the facilities occasioned a loss of $80,000.” Id.
4
The Division is “an organization within the Department [of
Agriculture] . . . which is independent from all other agencies and
offices of the Department.” 7 C.F.R. § 11.2(a). The Division is
headed by a director who “reports directly to the [Agriculture]
Secretary.” Id.; see also id. § 11.22(a). The Division hears appeals
from “adverse decisions” by Agriculture “agencies.” Id. § 11.6(b)(1);
see id. § 11.1. An adverse decision is “an administrative decision
made by an officer, employee, or committee of an agency that is
adverse to a participant.” Id. § 11.1. The Division director assigns an
appeal to a Division hearing officer, id. § 11.8(b)(2), who conducts a
hearing and issues a “determination,” id. § 11.8(f). Both the
participant and Agriculture may seek the Division director’s review of
the hearing officer’s determination. Id. § 11.9(a).
6
at 12. The hearing officer concluded the Discussion portion of
the RAD as follows: “RBS’s decision is erroneous because RBS
has not correctly calculated the extent to which the alleged
negligence and other factors occasioned a loss.” Id. at 15. The
Determination section of the RAD concluded:
Under 7 C.F.R. § 11.8(e), [Enterprise] has the burden
of proving the adverse decision is erroneous by a
preponderance of the evidence. [Enterprise] has
proven that [Agriculture’s] decision is erroneous.
This is a final determination of the Department of
Agriculture unless a party to the appeal files a timely
request for review.
Id. Neither party appealed the RAD and it became the
Division’s final determination. See 7 C.F.R. § 11.8(f) (hearing
officer’s determination final if not appealed); 7 C.F.R.
§ 11.9(a)(1) (participant must appeal hearing officer
determination within 30 days after receipt), (2) (agency must
appeal hearing officer determination within 15 days after
receipt). “On the return of a case to an agency pursuant to the
final determination of the Division, the head of the agency shall
implement the final determination not later than 30 days after
the effective date of the notice of the final determination.” Id.
§ 11.12(a). “Implement” is defined as “the taking of action by
an agency of the Department in order fully and promptly to
effectuate a final determination of the Division.” Id. § 11.1.
On January 12, 2006, Enterprise’s counsel contacted
Agriculture’s Office of General Counsel by telephone regarding
the loss claim. Letter from John J. Richard, Attorney, Powell
Goldstein LLP, to Mark Lee Stevens, USDA Office of General
Counsel, JA 26-27 (Jan. 12, 2006) (memorializing telephone
conversation). According to Enterprise’s counsel, he “discussed
[with the General Counsel’s office] . . . that [Agriculture was]
currently processing [Enterprise’s] loss claim for payment in full
7
plus accrued interest.” Id. at 1, JA 26. On March 3, 2006,
however, the State Director notified Enterprise that Agriculture
would pay only $956,252.19 under the guarantee. He explained
that Enterprise’s loss claim had been reduced by $3,030,000
based on Enterprise’s negligent servicing, citing the hearing
officer’s findings that Enterprise had caused a loss of
$2,950,000 based on Catfish’s failure to make the required
equity injection and another $80,000 loss based on Catfish’s
failure to build the maintenance shed and guardhouse.
On July 28, 2006, Enterprise filed a complaint in the district
court pursuant to 7 U.S.C. § 69995 seeking a declaratory
judgment and an order compelling Agriculture to “process[] the
remainder of [Enterprise]’s loss claim for payment in full plus
accrued interest without delay.” Compl. at 19, Enter. Nat’l
Bank, 539 F. Supp. 2d 343 (No. 06-cv-1344). Enterprise alleged
that the State Director had “refused to comply with the
[Division’s] final determination,” which, Enterprise claimed,
required Agriculture to pay the full loss claim. Id. The parties
filed cross-motions for declaratory judgment and the district
court granted Agriculture’s cross-motion. Enter. Nat’l Bank,
539 F. Supp. 2d at 347. Enterprise timely appealed pursuant to
28 U.S.C. § 1291.
II.
“In reviewing de novo the district court’s grant of summary
judgment on [an agency’s] administrative decisions, we directly
review those decisions.” Mount Royal Joint Venture v.
Kempthorne, 477 F.3d 745, 753 (D.C. Cir. 2007) (citing
Castlewood Prods., LLC v. Norton, 365 F.3d 1076, 1082 (D.C.
5
“A final determination of the Division shall be reviewable and
enforceable by any United States district court of competent
jurisdiction in accordance with chapter 7 of Title 5.” 7 U.S.C. § 6999;
see also 7 C.F.R. § 11.13 (tracking statute).
8
Cir. 2004)). As noted earlier, we review a Division final
determination under the Administrative Procedure Act (APA),
5 U.S.C. §§ 701-06. See Deaf Smith County Grain Processors,
Inc. v. Glickman, 162 F.3d 1206, 1213 (D.C. Cir. 1998)
(“[Section] 6999 mandates that the District Court review . . . the
final determination of the [Division] under the APA’s ‘arbitrary
and capricious’ standard of review.”). Because neither side
appealed the RAD, it constitutes the “final determination of the
Division” and thus falls within 7 U.S.C. § 6999.
Enterprise seeks relief “compelling agency action
unlawfully withheld” under 5 U.S.C. § 706(1), Compl. at 1,
arguing that the RAD required full payment of its loss claim, not
the partial payment Agriculture offered. Under section 706(1),
the plaintiff must “‘assert[] that an agency failed to take a
discrete agency action that it is required to take.’” Kaufman v.
Mukasey, 524 F.3d 1334, 1338 (D.C. Cir. 2008) (quoting Norton
v. S. Utah Wilderness Alliance, 542 U.S. 55, 64 (2004))
(emphases in S. Utah Wilderness Alliance). “[W]hen an agency
is compelled by law to act, but the manner of its action is left to
the agency’s discretion, the ‘court can compel the agency to act,
[although it] has no power to specify what th[at] action must
be.’” Id. (quoting S. Utah Wilderness Alliance, 542 U.S. at 65)
(alterations in Kaufman); see also Am. Ass’n of Retired Pers. v.
EEOC, 823 F.2d 600, 605 (D.C. Cir. 1987) (“Section 706(1)
does not provide a court with a license to substitute its discretion
for that of an agency merely because the agency is charged with
having unreasonably withheld action.”). Because the RAD did
not expressly order the performance of a discrete action,
however, we must review Agriculture’s implementation of the
RAD as action taken within its discretion.6
6
Indeed, the hearing officer may not be empowered to order any
action. According to the regulations, only the Division director is
explicitly given the “authority to grant equitable relief.” 7 C.F.R.
9
The RAD determined that the State Director’s decision to
“reduce[] [Enterprise’s] . . . loss claim to zero” was “erroneous.”
RAD at 15. Nevertheless, that conclusion was preceded by the
hearing officer’s detailed discussion of how Enterprise’s
negligent loan servicing caused $3,030,000 of the loss. Under
the Conditional Commitment, Rabhan was required “to
contribute $2,950,000 from personal funds . . . to secure the
guaranteed loan.” Id. at 13; see Conditional Commitment at 1,
JA 109 (June 24, 1998) (“[Agriculture] . . . will execute [the
Loan Note Guarantee,] subject to the conditions and
requirements specified in the regulations and herein.”).
Enterprise was required to ensure that Rabhan made the equity
injection. RAD at 13. Although both Rabhan and the general
contractor averred in affidavits that Rabhan made the equity
injection, he had not in fact done so. Id. at 13-14. According to
the hearing officer, Enterprise “did not check . . . bank records
or perform other due diligence to ensure” that Rabhan made the
equity injection, which failure “occasioned a loss of
§ 11.9(e). “Equitable relief” is defined as “relief which is authorized
under . . . laws administered by the agency.” Id. § 11.1. Moreover,
the National Appeal Division Guide states that the hearing officer “has
no authority . . . to order any action by the agency.” National Appeal
Division Guide at 48 (2004), available at http://www.nad.usda.gov/
nadguide.pdf (Guide). The Guide gives the following example: “[I]f
the Hearing Officer determines that a real estate appraisal was not
performed in a manner consistent with applicable regulations, the
errors in the appraisal will be noted, but the determination will not
direct the agency on how a new appraisal is to be performed.” Id. The
Guide states that a hearing officer “does not have the authority to grant
equitable relief.” Id. at 49. A hearing officer may determine whether
an agency erred in denying equitable relief but a determination that an
agency erred “is not itself a grant of relief by the [h]earing [o]fficer.”
Id. We need not decide the deference, if any, we owe the Guide
because, regardless whether the hearing officer can order relief, he did
not do so.
10
$2,950,000.” Id. The hearing officer also found that Catfish’s
“plans for the project included a maintenance shed and
guardhouse valued at $80,000,” which it was obligated to build
but, again, did not do. Id. at 5, 12. Enterprise likewise failed “to
ensure that [Catfish] buil[d] these structures,” which
“occasioned a loss of $80,000.” Id. at 12. As noted earlier,
Agriculture was not required to honor the guarantee “to the
extent any loss is occasioned by . . . negligent servicing.” Loan
Note Guarantee at 2, JA 63. Although the hearing officer did
not include in the Determination section of the RAD the precise
amount that he concluded Agriculture owed Enterprise under the
Loan Note Guarantee, we believe the State Director reasonably
interpreted the RAD in reducing the loss claim by $3,030,000.7
And, accordingly, the district court correctly upheld
Agriculture’s interpretation of the RAD and concluded—again
correctly—that its implementation thereof was neither arbitrary
nor capricious. See Purepac Pharm. Co. v. Thompson, 354 F.3d
7
Enterprise asserts, however, that the State Director may not look
beyond the Determination section of the RAD. It relies on the Guide,
which provides that “[t]he appeal determination is limited to whether
the agency erred or did not err in the adverse decision.” Division
Guide at 48. The Guide also states, however, that the hearing officer’s
“[f]indings of fact and conclusions constitute the essentials of the
appeal determination,” id. at 47, indicating that the State Director can
look beyond the Determination section. Further, even if we accept
Enterprise’s assertion, the State Director’s action is consistent with the
Determination section. In that section, the hearing officer found that
Agriculture’s “decision is erroneous.” RAD at 15. The “decision”
referred to is the State Director’s initial decision to reduce the loss
claim to zero. Id. Construing only the Determination section, then,
the State Director could calculate the loss claim in an amount other
than zero. His decision to reduce the loss claim by $3,030,000—the
loss caused by Enterprise’s negligent loan servicing—reasonably
implements the Determination section.
11
877, 883 (D.C. Cir. 2004) (upholding FDA’s denial of exclusive
right to sell generic drug under APA review).
Enterprise makes two additional arguments that we find
without merit. First, it argues that no evidence supported
Agriculture’s decision to reduce the loss claim to $956,252.19.
Agriculture had relied on the OIG Report in initially reducing
the loss claim to zero. The hearing officer on remand, however,
see supra p. 5, excluded the OIG Report from evidence because
Agriculture had submitted it to him ex parte. RAD at 7-8. He
found that Enterprise’s negligence had caused $3,030,000 in
losses based on evidence other than the excluded OIG Report,
including the testimony of Enterprise employees themselves. Id.
at 5, 12-13. Once the hearing officer issued the RAD,
Agriculture relied on his detailed findings of fact to calculate
Enterprise’s loss.
Second, Enterprise argues that the district court erred in
failing to consider evidence that Agriculture acted in bad faith
both in entering into the loan guarantee and during the
administrative appeal process.8 The hearing officer found that
Agriculture did not disclose to Enterprise that Rabhan had
attempted to defraud another lender as well as Agriculture in
1995. In its complaint, Enterprise alleged that Agriculture
officials had taken kickbacks from borrowers, including Rabhan,
in exchange for loan guarantees. The hearing officer found that
the RBS’s “failure to warn [Enterprise] did not cause the losses
in question,” a finding that Enterprise does not challenge. RAD
at 14. Instead of claiming that Agriculture’s bad faith conduct
led to an erroneous RAD, Enterprise argues only that
8
The district court concluded that “[Enterprise’s] many arguments
regarding [Agriculture’s] bad faith in its participation in the [Division]
review cannot be considered here, as this court looks only to the final
[Division] determination.” Enter. Nat’l Bank, 539 F. Supp. 2d at 345
n.1.
12
Agriculture interpreted the RAD in bad faith. Specifically, in its
brief to us, Enterprise maintains—without elaboration—that
Agriculture’s bad faith “goes directly to the context in which the
Agency made its decision to ignore the [RAD’s] operative
holding and . . . deny the Bank’s loss claim.” Appellant’s Br. at
21. As thus framed, Enterprise’s bad faith argument hinges on
our concluding that Agriculture “ignore[d]” the RAD in
reducing the loss claim to $956,252.19. See also Oral Argument
at 10:28, Enter. Nat’l Bank v. Vilsack, No. 08-5148 (argued Mar.
26, 2009) (Enterprise’s counsel: “[I]n a further example of the
bad faith that pervaded [Agriculture’s] treatment of [Enterprise]
throughout the entire process . . . they decided . . . they were
simply going to ignore what the [hearing officer] said.”). But
because we conclude that—far from ignoring the
RAD—Agriculture used the detailed findings included therein
to reduce Enterprise’s claim to $956,252.19, Enterprise’s bad
faith claim fails. Agriculture showed no bad faith in interpreting
the RAD to mean what it said.
For the foregoing reasons, we affirm the district court’s
judgment.
So ordered.