Case: Coleman v. Block

This case challenged the federal government’s servicing of farming loans in the 1980s. Prior to the case, the government had coerced farmers delinquent on their federal loan payments into foreclosing and liquidating their property. This class action resulted in a nationwide injunction that required adequate notice and procedural safeguards before adverse action could be taken against farmers who borrowed from the federal government.

In the late 1970s/early 1980s, American farmers faced a severe financial crisis. This took the form of a cost-price squeeze. The costs of farming increased, including mounting debts and interest. At the same time, prices for crops and livestock were falling. These forces were compounded by the nature of the farming market which includes high startup costs and uncertain crop yields. In 1981, land prices fell leading to a wave of foreclosures as many farmers were unable to refinance their loans.

In response to the crisis, in 1978 Congress enacted the Consolidated Farm and Rural Development Act (CFRDA) which allowed the Secretary of Agriculture to defer principal, interest, and foreclosure under various circumstances. This included when a borrower couldn’t make payment “due to circumstances beyond his control[.]”

By 1983 the CFRDA was rarely implemented. Instead, local Farmers Home Administration (FmHA) administrators were required to crack down on delinquent borrowers. This included quotas to reduce delinquencies by 23 percent. In most cases, the only feasible way to meet this requirement was forced foreclosure and liquidation. As such, foreclosures among farmers spiked nationwide. Once FmHA decided to liquidate, farmers faced numerous restrictions. Most notably, if farmers chose to appeal the decision, they could not use proceeds from their labor to pay for living or operation expenses during the pendency of their appeal. Additionally, farmers eating their own crops would be charged with conversion, a felony. Often this would occur without proper notice. As such, through these coercive financial limitations, farmers were effectively denied their procedural rights under the CFRDA.

Against this backdrop, on March 11, 1983, nine North Dakota farmers filed a class action complaint in the U.S. District Court for the District of North Dakota against the U.S. Secretary of Agriculture, the Administrator of FmHA, and local administrators. Represented by private counsel and the ACLU, they sought to represent a state-wide class of around 8,400 farmers who received or were eligible for FmHA loans. They alleged FmHA refused to allow farmers to apply for deferral, blocked funds necessary for living and operational expenses without notice and hearing, and subjected farmers to an unconstitutional appeals process. The suit sought injunctive relief to force the implementation of CFRDA’s deferral procedures and to require defendants to create regulations clarifying the government’s obligations and farmers’ rights under the CFRDA. Judge Bruce M. Van Sickle was assigned.

On May 5, 1983, the court certified the plaintiffs’ state-wide class. Additionally, the court rejected defendants’ argument that plaintiffs failed to exhaust their administrative remedies. The court reasoned that plaintiffs were contending and presented evidence that defendants denied their administrative remedies and procedural rights. As such, it made little sense to require them to use those procedures.

The court also granted plaintiffs requested preliminary injunction on two issues. First, FmHA was enjoined from taking adverse action against those in their farming loan program until regulations were created to implement the CFRDA. Second, FmHA was enjoined from taking any action that would deprive farmers of what they needed for essential living and operational expenses until regulations giving farmers adequate notice and hearing procedures were implemented. Coleman v. Block, 562 F. Supp. 1353 (D.N.D. 1983).

On November 14, 1983, the scope of the class and preliminary injunction was expanded nationwide. The court cited the advantage of resolving legal issues on a national scale in the absence of prejudice to defendants. Coleman v. Block, 100 F.R.D. 705 (D.N.D. 1983); Coleman v. Block, 580 F. Supp. 192 (D.N.D. 1983).

On February 17, 1984, the court made the injunction permanent in an order that determined the following.

• The Administrative Procedure Act’s provisions on administrative appeal hearings did not apply to FmHA foreclosure practices.
• The existing FmHA appeal process did not provide adequate due process.
• The coercion of freezing farmers’ use of the proceeds of their labor denied farmers a meaningful appellate process.
• A FmHA mortgagor was entitled to receive notice and a chance to be heard and present evidence before their land was liquidated or income frozen.
• The required hearing could be informal but hearing notes (as distinguished from a verbatim record) must be preserved.
• The nation-wide class was adequately defined. Defendants’ argument essentially fragmented the national class into dozens of sub-classes based on the differing laws and precedent of districts and circuits. However, this would have undermined judicial economy, the primary justification of national classifications.

Coleman v. Block, 580 F. Supp. 194 (D.N.D. 1984).

Plaintiffs requested the defendants be found in contempt of the court’s February 1984 order. They alleged defendants violated the order by refusing to release certain funds for living and operating expenses. Additionally, they argued that allowing FmHA unfettered discretion in creating and approving farm and home plans would effectively allow circumnavigation of the order.  Relief sought included releasing funds for living and operating expenses, funds for debt repayment, and attorney’s fees. Plaintiffs also sought $25,000 for pain, mental anguish, and loss of reputation and $100,000 in punitive damages. Defendants responded with a motion to dismiss by broadly alleging issues with everything from subject matter jurisdiction to pleading errors. On June 18, 1985, the court denied the defendants’ motion to dismiss but also denied plaintiffs’ motion for contempt and claim for punitive damages. They found that the permanent injunction’s restrictions applied to operating allowances “previously determined” in the administration of an existing loan. Additionally, the proper remedy for the plaintiffs’ circumnavigation allegations would be modification of the permanent injunction itself. Coleman v. Block, 1985 WL 3999 (D.N.D. 1985).

On March 3, 1986, the court’s February 1984 order was amended to clarify that borrowers had a statutory and regulatory entitlement to reasonable living and operating expenses. As such, allowances for either could not be terminated until the borrower was provided due process as set forward in the February 1984 order. This was in response to FmHA requiring farmers’ proceeds be used only to pay outstanding debt and not living or operational expenses. Coleman v. Block, 632 F. Supp. 997 (D.N.D. 1986).

At the same time, FmHA had drafted new rules in response to the amended injunction. This included the application of the Food Security Act of 1985. Under this law, the Secretary of Agriculture, when accelerating a loan (i.e., requiring all the loan to be paid immediately), had the authority to release an amount of funds to pay essential living and operational expenses. The amount of funds was entirely up to the Secretary. Plaintiffs argued that this application of the law gave farmers no part in determining what expenses were essential or necessary. Thus, on March 3, 1986, the court issued an order requiring farmers who disputed allocations be given proper notice and the opportunity to appeal. Coleman v. Block, 632 F.Supp. 1005 (D.N.D. 1986).

On January 21, 1986, plaintiffs had filed a supplemental class action complaint. It included 14 claims for relief. On May 7, 1987, the court responded to plaintiffs’ supplemental complaint. Of the 14 claims, 11 were dismissed entirely with prejudice.

The relief sought in Claim 10 was granted. Plaintiffs challenged numerous FmHA forms as violating the Fifth Amendment’s Due Process Clause. Specifically, the form and content of the notice “must be such as one desirous of actually informing the absentee might reasonably adopt to accomplish it.” Defendants were ordered to amend one of the forms, FmHA 1924-26, which presented the borrower with a series of loan servicing options. The court required defendants to add a prominently displayed statement that explained the various options listed and the effect of choosing each.

Claim 7 was granted in part. It sought to invalidate three of the thirteen requirements (listed in 7 C.F.R. § 1951.44) FmHA considered for determining a borrower’s eligibility for loan deferral. Plaintiffs argued that the requirements exceeded the agency’s statutory authority. These included whether the borrower had attempted voluntary debt adjustments or rescheduling with other creditors; whether the borrower had punctually paid all real estate taxes, property insurance premiums, and had otherwise complied with conditions on their loan documents; and whether the borrower had applied recommended production and financial management practices. The court dismissed this claim except in so far as it challenged FmHA’s failure to include a concise general statement of the basis and purpose for the rule when it was published. Defendants were ordered to submit such a statement to the court in 30 days.

Claim 6 was stayed. It alleged that a FmHA’s form, which was used to forecast farming income and expenses, was arbitrary and capricious as it was virtually impossible to complete. The court stayed this claim on information that it would be resolved in the party’s settlement negotiations.

Claims 1, 2, 3, and 5 were resolved by the parties and thus dismissed.

• Claims 1 & 2 had alleged FmHA’s 1985 regulations were arbitrary and capricious as they eliminated the previous priority given for release of funds for necessary family and living expenses. However, FmHA’s policy on this issue had been subsequently modified to plaintiffs’ satisfaction.
• Claims 3 & 5 alleged that no hearings or appellate process was available to borrowers who were denied required releases for living and operating expenses or were unable to agree with their local FmHA official on the use of future income from farming. However, FmHA’s appellate process had since been expanded to these situations to plaintiffs’ satisfaction.

The remaining claims were dismissed.

• Claim 4 challenged FmHA’s policy for not releasing funds for living and operating expenses if the borrower had sufficient non-farming income to meet those expenses. Plaintiffs cited 7 U.S.C. § 1985, arguing it required the Secretary of Agriculture to release funds sufficient to cover essential living and operating expenses. The court dismissed and deferred to the agency’s interpretation as plaintiffs had failed to show clear error.
• Claims 8 and 9 challenged FmHA’s simultaneous liquidation procedure under the Due Process Clause. This arose when a farmer had multiple FmHA loans. When liquidation of one sufficiently threatened repayment of the others, they were all subject to liquidation. Plaintiffs’ challenges were two-fold. First, the terms of the regulations on when jeopardization can be found were too vague. Second, borrowers were not given sufficient notice of when their loans were accelerated because of jeopardization. The court dismissed after deferring to agency expertise. The court determined the situation described by plaintiffs was unlikely and that plaintiffs had failed to respond to defendants’ argument that the rule had been in effect for 27 years before being challenged.
• Claim 11 alleged FmHA failed to comply with publication and explanation requirements regarding various forms and documents. The court dismissed as FmHA’s forms were not “rules” and thus were not subject to those requirements.
• Claims 12, 13, and 14 all challenged FmHA’s “pretermination package” which was used to accelerate delinquent debts. The court dismissed these claims, primarily citing plaintiffs’ delayed challenge. The package had already been used in thousands of accelerations. Under principles of equity, plaintiffs couldn’t force the burden caused by their delay on to FmHA.

Coleman v. Block, 663 F. Supp. 1315 (D.N.D. 1987). Both parties appealed the above order to the U.S. Court of Appeals for the Eighth Circuit.

On December 28, 1988, the Eighth Circuit released its opinion. It determined both parties’ appeals had been mooted by the 1987 passage of the Agricultural Credit Act. Specifically, Title VI of the law, titled “Farmers Home Administration Loans,” made extensive changes to the statutory provisions that formed the background for this litigation. This included much more stringent and individualized notice requirements. Specifically, notice for delinquency was required to include detailed descriptions of all loan assistance programs available, procedural rights, filing requirements, and all relevant forms. It also included special provisions for the release of funds derived from secured crops and chattels for farmers whose loans had been accelerated between 1985 and 1987.

Plaintiffs argued that the Act gave them less than what they were seeking in this lawsuit. However, the court responded that “[t]he [plaintiffs] proceed on the incorrect assumption that Congress intended its reform of FmHA practices to operate separately from the federal courts' adjudication of claims arising during the period preceding the Act.” Additionally, the court expressed concerns about separation of power, stating that “Congress is free to alter such a system of entitlements during the pendency of a case, and when it does, the reviewing court must ‘apply the law as it is now, not as it stood below.’” As such, the plaintiffs could not proceed unless they showed that the 1987 Act itself was unconstitutional.  The district court’s order was vacated, and the case remanded with directions to dismiss. Coleman v. Lyng, 864 F.2d 604 (8th Cir. 1988). The U.S. Supreme Court then denied certiorari. Coleman v. Yeutter, 493 U.S. 953, 110 S. Ct. 364, 107 L. Ed. 2d 351 (1989).

As a final resolution of the above situation, the district court ordered that:

• FmHA was enjoined from accelerating any loan which had not been accelerated before May 7, 1987, unless FmHA provided the borrower with corrected notice forms as required by the May 7, 1987 order.
• For class members whose loans were previously accelerated, acceleration was reversed and FmHA required to give the borrower a chance to comply with the corrected notice forms.
• FmHA was enjoined from initiating or completing foreclosures on loans accelerated before May 7, 1987 until 30 days after the corrected notice forms were made available to the debtor.
  In the words of Judge Van Sickle, “[f]inally--at least for a while—the whiffletree was straight across the wagon tongue.” However, in the following years, there were numerous ancillary contempt proceedings.

The first was a contempt proceeding brought by an Illinois farmer alleging violation of the injunctive relief from Coleman. He alleged that a demand for voluntary conveyance was made of him without notification of his refinancing options. He alleged his local FmHA official told him in January 1984 that FmHA would foreclose his property unless he liquidated voluntarily. The district court found the involved FmHA administrators in contempt. It reasoned that giving the farmer limited options of selling his land or facing foreclosure essentially constituted a demand in direct contravention of the Coleman injunction. The court rejected FmHA's argument that “voluntary conveyance” was a term of art applicable only to a debtor's direct conveyance to the FmHA and not a conveyance to third parties. However, the court determined that the Illinois farmer had failed to carry his burden for proving causation for damages. The court cited how he had both offered significant portions of his land for sale before meeting with FmHA officials and had failed to take advantage of existing opportunities to reclaim his land. On September 11, 1989, the Eighth Circuit upheld the district court’s findings. Hartman v. Lyng, 884 F.2d 1103 (8th Cir. 1989).

The second was brought by married poultry farmers from Maine. On January 4, 1989, the district court granted their contempt motion and awarded damages finding that the FmHA officials in demanding voluntary conveyance had failed to give the couple adequate and meaningful notice of the loan deferral program. It further found the Secretary of Agriculture to be in contempt under respondeat superior. Additionally, in demanding the voluntary conveyance, FmHA had “clearly committed the tort of duress” and the poultry farmers were awarded $50,000 in damages. In reaching this decision, the court had considered actions prior to Coleman’s preliminary injunction. While not enough for a violation on their own, they were relevant for contextualizing the actions at issue. On January 30, 1992, the Eighth Circuit upheld this order but reversed the damages award. They reasoned that the farmers failed to show their losses were definitively caused by the defendants’ deficient notice and not any other circumstances. Additionally, they reversed the emotional distress damages, arguing the issue was better suited for a tort action to properly assess causation and appropriate compensation. However, the court expressed doubts as to the success of any damages claim due to sovereign immunity. McBride v. Coleman, 955 F.2d 571 (8th Cir. 1992). On October 5, 1992, the U.S. Supreme Court denied certiorari. McBride v. Madigan, 506 U.S. 819, 113 S. Ct. 65, 121 L. Ed. 2d 32 (1992).

The third and final proceeding was brought by five farmers, two from North Carolina, two from Montana, and one from Indiana. They all sought contempt due to FmHA officials demanding voluntary conveyance of their property without the notice required by the Coleman injunction. However, this time the district court held the action was mooted by the Agricultural Credit Act of 1987. On February 23, 1993, the Eighth Circuit upheld the dismissal but for a different reason than the lower court. It reasoned that compensatory civil contempt actions are mooted if the underlying injunction is vacated due to it being issued erroneously. The Coleman injunction was only abated by subsequent legislation, it was not issued in error. However, the defendants at issue were protected by sovereign immunity as nothing in the challenged statute suggested waiver of the immunity. Coleman v. Espy, 986 F.2d 1184 (8th Cir. 1993). On October 13, 1993, the U.S. Supreme Court denied certiorari. Dye v. Espy, 510 U.S. 913, 114 S. Ct. 301, 126 L. Ed. 2d 249 (1993).