Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-06-03889/USCOURTS-ca8-06-03889-0/pdf.json

Nature of Suit Code: 891
Nature of Suit: Agricultural Acts
Cause of Action: 

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1

The Honorable Robert W. Pratt, Chief Judge, United States District Court for

the Southern District of Iowa.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 06-3889

___________

John Ballanger, Jr., *

*

Appellant, *

* Appeal from the United States

v. * District Court for the 

* Southern District of Iowa.

Mike Johanns, Secretary, Department *

of Agriculture, *

*

Appellee. *

___________

Submitted: April 13, 2007

Filed: August 1, 2007

___________

Before MELLOY, BOWMAN, and GRUENDER, Circuit Judges.

___________

MELLOY, Circuit Judge.

Plaintiff John Ballanger, Jr. (“Ballanger”), sought judicial review of a ruling by

the United States Department of Agriculture (“USDA”) in which the USDA found

Ballanger converted wetlands for agricultural use in violation of 16 U.S.C. §§ 3801,

3821-24, and thereby became ineligible to receive certain USDA benefits. The matter

was fully briefed, argued, and submitted to the district court,1

 and the district court

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refused to disturb the agency’s decision. Ballanger appeals, and we affirm the

judgment of the district court. 

I. Background

Ballanger lives in Iowa and owns farmland in Schuyler County, Missouri.

When Ballanger purchased the Schuyler County farmland, he was told by the seller

that it did not contain any wetlands. In 1996, Ballanger used a bulldozer and brush

cutting equipment to clear woody vegetation and other plants from approximately five

acres of land for conversion to row crop planting. The present case centers on a

dispute as to whether Ballanger’s actions in clearing the land constituted the

conversion of a wetland.

In spring 2002, the Schuyler County Farm Service Agency (“the County FSA”)

sought a determination from the Natural Resources Conservation Service (“the

Conservation Service”) that, for the crop year 2000, Ballanger’s farm complied with

highly erodible land conservation and wetland conservation provisions of the Food

Security Act of 1985, codified in part at 16 U.S.C. § 3821. This section provides,

generally, that the conversion of wetlands for use in the production of agricultural

commodities or the production of agricultural commodities on converted wetlands

makes the person taking such actions ineligible for certain USDA benefits. Id. The

term “converted wetland” is defined, in relevant part, as:

wetland that has been drained, dredged, filled, leveled, or otherwise

manipulated (including any activity that results in impairing or reducing

the flow, circulation, or reach of water) for the purpose or to have the

effect of making the production of an agricultural commodity possible

. . . .

16 U.S.C. § 3801(a)(6)(A).

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After two visits to Ballanger’s Schuyler County farm in April 2002 and August

2002, the Conservation Service concluded that 5.1 acres of his land qualified as

converted wetlands. Ballanger was informed of this decision and appealed it to the

Conservation Service. As part of that appeal process, the Conservation Service visited

his farm a third time in December 2003. After this third visit, the Conservation

Service concluded that 4.5 of the 5.1 acres qualified as converted wetlands. This land

had, among other characteristics, hydric soil, hydrophytic vegetation, wetland

drainage patterns, and oxidized root channels in the upper twelve inches of soil, which

are all characteristics of wetlands. See, e.g., 16 U.S.C. § 3801 (a)(18) (defining the

term “wetland” with reference to hydric soils and with reference to saturation levels

“at a frequency and duration sufficient to support a prevalence of . . . vegetation

typically adapted for life in saturated soil conditions . . .”).

Ballanger appealed to the County FSA. Before the County FSA, Ballanger

stated that he neither applied for a good faith determination that might have excused

his actions nor pursued mitigation of the wetland conversion because he believed such

actions would have been an admission or acquiescence in the wetlands determination

of the Conservation Service. The County FSA affirmed the Conservation Service’s

determination that the Schuyler County farm contained 4.5 acres of converted

wetlands. Based on the finding that the wetlands were converted to row crop use in

1996, Ballanger was declared ineligible for USDA payments as of crop year 1996.

Ballanger had received USDA payments from 2000-2002, and he was ordered to

repay the amounts he received, plus interest, for a total amount of $40,316.24.

Ballanger then appealed the County FSA ruling to the USDA’s National

Appeals Division. The National Appeals Division affirmed, as did a USDA Deputy

Director upon Ballanger’s subsequent request for a director’s review of the

determination of the National Appeals Division. Through all the stages of appellate

review, Ballanger argued generally that he did not believe the land at issue was a

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wetland and that he did not believe his removal of vegetation effected any change in

any wetland function of the land.

Following exhaustion of these successive layers of administrative review,

Ballanger challenged the USDA’s final action in district court. Before the district

court, Ballanger raised the following specific arguments. First, he argued that it was

improper for the Conservation Service to rely on data obtained on a visit to his land

that occurred outside the growing season. Second, he argued that the Conservation

Service failed to follow the wetland determination methodology in effect at the time

of the purported conversion. Third, he argued that the Conservation Service must

consider whether the removal of vegetation had only a minimal effect on wetland

functions before making a wetland violation determination. The district court found

that, although Ballanger had taken his case through the required levels of

administrative review, he had not raised these three specific issues with the agency.

The district court held that, in the context of a wetlands determination, it is not

sufficient merely to exhaust administrative remedies. Rather, a litigant must

specifically raise before the agency those issues he seeks to litigate in court.

Therefore, the district court refused to consider Ballanger’s three, unexhausted issues.

Ballanger also raised an argument that he had specifically presented in his

administrative appeals, namely, whether the removal of woody vegetation in and of

itself qualifies as the “manipulat[ion]” of a wetland as defined in 16 U.S.C. §

3801(a)(6)(A), or whether there must be a showing that the removal of woody

vegetation impacted the flow of water. The district court considered and addressed

this issue, finding that §§ 3801 & 3821and the USDA regulations interpreting those

sections define manipulation of a wetland to encompass the removal of woody

vegetation for conversion of land to agricultural use, without the need for a separate

showing of impact upon wetland function. See 7 C.F.R. § 12.2(a). Based on these

conclusions, the district court affirmed the administrative rulings.

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II. Discussion

A. Issue Exhaustion

The first question presented for our review is whether, to properly exhaust

administrative remedies related to a wetlands violation determination by the USDA,

a landowner must specifically raise before the agency all of the issues he or she

attempts to raise in federal court, i.e., must the landowner merely exhaust his

administrative remedies or must he exhaust his remedies specifically as to each issue?

The controlling Supreme Court precedent on this issue is Sims v. Apfel, 530

U.S. 103 (2000). Sims explains that the need for “issue exhaustion” is, first and

foremost, a question of statutory construction and that agencies generally have the

power to pass regulations requiring issue exhaustion. Id. at 107-08. Where the

relevant statutes and regulations do not clearly require issue exhaustion, however, a

court-imposed issue exhaustion requirement may be appropriate. Id. at 108. The

basis for a court-imposed issue exhaustion requirement is an analogy between the

agency-court relationship and the trial court-appellate court relationship: where the

agency proceeding is adversarial, the analogy holds, parties are held responsible for

raising issues in a manner similar to litigants in court, and issue exhaustion is

required; where the agency proceeding is not adversarial, the analogy doesn’t hold,

and issue exhaustion is not required. Id. at 108-111.

In Sims, the Court stated that a party’s failure to develop an issue before an

agency cannot be fairly attributed to the party opposing the agency’s action if the

nature of the agency proceeding was not adversarial and if the agency itself was

responsible for identifying issues and creating a record. Id. at 109-10. This is in

contrast to the adversarial model of trial courts where each party must develop the

factual bases for its specific claims and raise those specific issues it wishes to preserve

for appeal.

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Sims involved a social security proceeding in which an administrative law

judge served an investigative role and had an independent duty to develop the record.

Id. 110-111 (“Social Security proceedings are inquisitorial rather than adversarial. It

is the ALJ's duty to investigate the facts and develop the arguments both for and

against granting benefits, and the Council's review is similarly broad.”) (internal

citation omitted). As a result, the Court held in Sims that issue exhaustion was not

required in the particular setting of a social security appeal. Id. at 111.

Relevant to the present case, no statute or regulation regarding wetlands

violations specifically requires issue exhaustion. Accordingly, as in Sims, it is

necessary to examine the nature of the agency proceedings. The regulations that

describe the hearings and review process before the USDA strongly suggest that the

review process is adversarial and that issue exhaustion should be required.

The regulations governing the administrative appeal procedure in this case are

found at 7 C.F.R. § 11.2-11.13. These regulations provide that “the National Appeals

Division . . . is independent from all other agencies and offices of the [USDA],

including [USDA] officials at the state and local level.” 7 C.F.R. § 11.2. The

regulations provide for informal review or mediation prior to the filing of a formal

appeal, id. § 11.5, and, after the filing of an appeal, prohibit ex parte communications

between officers or employees of the National Appeals Division and persons having

interests in the appeal. Id. § 11.7. The regulations also provide that an appellant or

the agency may request a subpoena for the production of witnesses and evidence, id.

§ 11.8(a)(2), and describe a proceeding that is, in many respects, similar to a trial:

Any party shall have the opportunity to present oral and documentary

evidence, oral testimony of witnesses, and arguments in support of the

party's position; controvert evidence relied on by any other party; and

question all witnesses. When appropriate, agency witnesses requested by

the appellant will be made available at the hearing. Any evidence may

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be received by the Hearing Officer without regard to whether that

evidence could be admitted in judicial proceedings.

Id. § 11.8(c)(5)(ii). In addition, the regulations expressly place the burden of proof

on the appellant to prove “that the adverse decision of the agency was erroneous by

a preponderance of the evidence.” Id. § 11.8(e).

These characteristics show that the party contesting the agency action, rather

than the agency adjudicator, has the duty to develop the record in a process that is

adversarial in nature. This is distinct from the inquisitorial nature of the social

security proceedings under scrutiny in Sims where the administrative law judge is

charged with the duty of developing the record.

We note also that the Court in Sims indicated that issue exhaustion is not, in

general, disfavored, and courts should not be overly eager to characterize proceedings

as non-adversarial. See Sims, 503 U.S. at 109 (“As we further explained in LA

Tucker Truck Lines, [344 U.S. 33, 36-37 (1952)] courts require administrative issue

exhaustion ‘as a general rule’ because it is usually ‘appropriate under [an agency’s]

practice’ for ‘contestants in an adversary proceeding’ before it to develop fully all

issues there.”). By requiring issue exhaustion at the administrative level, where

litigants may introduce evidence and fully develop the record, parties to subsequent

court proceedings will not “be ‘surprised on appeal by final decision there of issues

upon which they have had no opportunity to introduce evidence.’” Etchu-Njang v.

Gonzales, 403 F.3d 577, 583 (8th Cir. 2005) (quoting Hormel v. Helvering, 312 US.

552, 556 (1941)). Also, “because agency decisions often are discretionary or require

expertise, the doctrine of issue exhaustion serves the salutary purpose of giving the

agency an opportunity to address the disputed issue in the first instance.” Id.

Finally, and perhaps most importantly, the Eighth Circuit has already applied

a rule of issue exhaustion in a case involving a wetlands determination. Downer v.

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USDA, 97 F.3d 999, 1005 (8th Cir. 1996). Downer preceded Sims and the court in

Downer did not discuss this issue at length. One of two alternate holdings in Downer,

however, is clear: a general exhaustion of remedies is insufficient in the context of a

wetlands determination, and specific issue exhaustion is required:

Downer states that the wetlands “were obviously created by excavating

and/or diking the land to collect and retain water for purposes such as

water for livestock.” Downer cites nothing in the record to support his

assertion that the wetlands are artificial. In fact, Downer affirmatively

states that there is no evidence on the issue in the record before the

agency. His brief states: the “USDA utterly failed to consider or

determine whether natural wetlands existed in these areas prior to, or in

the absence of, the artificial dugouts. There is no evidence in the record

to address this issue.”

This statement dooms Downer's argument for two reasons. First, it is an

admission that he failed to present the point before the agency. We need

not consider arguments the parties failed to raise before the agency. See

Texarkana Metro. Area Manpower Consortium v. Donovan, 721 F.2d

1162, 1164 (8th Cir.1983).

Second, Downer has admitted that he failed to carry his burden of proof.

Downer, 97 F.3d at 1005 (emphasis added). Prior to Sims, then, the Eight Circuit had

held that issue exhaustion is required in circumstances like those of the present case.

Sims subsequently stated a general rule that in no way detracts from Downer.

Therefore, we conclude that issue exhaustion is required, and we need not address the

arguments that Ballanger failed to specifically present to the agency. 

B. Manipulation of a Wetland

Ballanger did present to the agency the issue of whether the removal of woody

vegetation from a wetland is, in and of itself, a “manipulat[ion]” of a wetland for

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purposes of 16 U.S.C. § 3801(a)(6)(A) or whether the USDA was required to prove

that any such removal of vegetation actually impacted or reduced water flow.

Accordingly, we must address this issue.

The relevant statute provides:

The term “converted wetland” means wetland that has been drained,

dredged, filled, leveled, or otherwise manipulated (including any activity

that results in impairing or reducing the flow, circulation, or reach of

water) for the purpose or to have the effect of making the production of

an agricultural commodity possible . . . .

16 U.S.C. § 3801(a)(6)(A). The USDA’s regulation addressing this same definition

differs slightly from the statutory language, defining a converted wetland as:

wetland that has been drained, dredged, filled, leveled, or otherwise

manipulated (including the removal of woody vegetation or any activity

that results in impairing or reducing the flow and circulation of water)

for the purpose of or to have the effect of making possible the production

of an agricultural commodity without further application of the

manipulations described herein . . . .

7 C.F.R. § 12.2(a) (emphasis added).

The district court determined that the above-quoted parenthetical language from

the statute, “including any activity that results in impairing or reducing the flow,

circulation, or reach of water,” is merely illustrative of the type of activity that might

qualify as manipulation of wetland. We agree. By using the term “including” it

seems that Congress did not intend to impose a separate or additional requirement that

the agency prove an impairment or reduction in “the flow, circulation, or reach of

water,” 16 U.S.C. § 3801(a)(6)(A), before making a finding that land qualifies as a

“converted wetland.” See Fed. Land Bank of St. Paul v. Bismark Lumber Co., 314

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U.S. 95, 100 (1941) (“[T]he term ‘including’ is not one of all-embracing definition,

but connotes simply an illustrative application of the general principal.”).

Ballanger disagrees with this interpretation and argues that the insertion of the

italicized language in the regulation represents an impermissible expansion of the

statute and an unreasonable interpretation of the statutory language. Although

Ballanger’s argument that the regulation expands upon the statute is a reasonable

argument and a plausible reading of the statute, we believe that he relies too heavily

on the statute’s illustrative parenthetical to the exclusion of the rest of its text. The

district court refused to adopt Ballanger’s view of the statute. Instead, the district

court properly noted that, without the illustrative parenthetical, the statute defines a

converted wetland in functional terms with reference to the effect of making possible

the cultivation of crops on the land: “‘converted wetland’ means wetland that has been

drained . . . or otherwise manipulated . . . for the purpose . . . of making the production

of an agricultural commodity possible.” Gunn v. USDA, 118 F.3d 1233, 1238 (8th

Cir. 1997) (quoting 16 U.S.C. § 3801(a)(6)(A)). Read in this manner, the

parenthetical in the statute should not be treated as an additional requirement. 

Further, read in this manner, the statute is susceptible to the interpretation

espoused by the agency, namely, that the removal of woody vegetation from a wetland

for the purpose of making the production of a crop possible can be deemed

manipulation of the wetland without separate proof of an impact on or reduction in

water flow. Whether we, as a matter of first impression, would have interpreted the

statute in the same manner as the agency is of no consequence. We must defer to the

agency’s interpretation of the statute it is charged with enforcing unless that

interpretation is contrary to the statute’s unambiguous meaning. Fults v. Sanders, 442

F.3d 1088, 1090 (8th Cir. 2006). Similarly, we must defer to the agency’s

interpretation of its own regulation. See Thomas Jefferson Univ. v. Shalala, 512 U.S.

504, 512 (1994) (“Our task is not to decide which among several competing

interpretations best serves the regulatory purpose. Rather, the agency’s interpretation

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must be given ‘controlling weight unless it is plainly erroneous or inconsistent with

the regulation.’”) (internal citation omitted). And, our overall review of the

challenged agency action is deferential, such that we may only disturb agency actions

that are, inter alia, “arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law.” 5 U.S.C. § 706 (2)(A). Viewed in this light, we cannot say the

present regulation is contrary to unambiguous statutory language, that the agency’s

interpretation of its own regulation is plainly erroneous or inconsistent with the

regulation, or that application of the regulation in this case was arbitrary or capricious.

Finally, we note that Ballanger cites a proposed regulation, 67 Fed. Reg. 19699,

19701 (2002), in support of his position that the removal of woody vegetation should

not be deemed a manipulation of a wetland without a showing that water flow is

impaired. The proposed regulation appears to have been intended to exempt certain

actions that might otherwise be deemed the manipulation of a wetland if such actions

were taken to restore or improve the natural, “prairie wetland” function of previously

degraded wetlands. For example, the proposed regulation stated, “[the] USDA

determined that such action, when conducted under specified conditions identified in

the proposed rule, will not have a significant impact on wildlife and fish habitat, will

enhance the ‘prairie wetland’ function by returning these areas to a more natural seral

stage, and will not otherwise implicate the [wetland conservation] provisions.” Id.

The proposed regulation further provided that any such exemption would be carefully

monitored and controlled, providing that if “cropping is allowed to resume, cropping

history will be verified using official USDA records, or in cases where records are not

available, photographic evidence or other documentation.” Id. Finally, the regulation

made clear that it would “apply to the removal of vegetation and stumps in wetlands

that have already been significantly degraded, and are farmed, hayed, or grazed.” Id.

Ballanger argues this proposed regulation would have excluded the removal of

“scattered” woody vegetation from the definition of wetland “conversion.” Because

this proposed regulation did not become a final rule, we decline Ballanger’s invitation

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to treat it as an expression of the agency’s interpretation of the statute. Even if we

were to consider the proposed regulation, however, it is undisputed that, in this case,

Ballanger removed woody vegetation and subsequently farmed land that had not been

shown to be otherwise degraded. Ballanger does not attempt to argue that he took

actions in order to place the land in a more natural, properly functioning wetland state.

The agency action in this case is entitled to our deference and we will not

disturb the finding of a wetlands violation.

The judgment of the district court is affirmed.

______________________________

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