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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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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)

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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. 

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,

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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. 

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

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Agriculture initially guaranteed 70% of the loan but later

increased the guarantee to 75% of the loan.

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).

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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).

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.

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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

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“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).

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.

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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.

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

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§ 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.

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

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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.

$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

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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.

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

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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.

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