Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01190/USCOURTS-caed-2_07-cv-01190-2/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 05:551 Administrative Procedure Act

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1

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

DENNIS W. BALL, an individual,

NO. CIV. S-07-1190 LKK/DAD

Plaintiff,

v.

 O R D E R

MIKE JOHANNS, et al,

Defendants.

 /

The plaintiff has brought suit under the Administrative

Procedures Act, 5 U.S.C. § 706, for review of a determination by

the National Appeals Division of the United States Department of

Agriculture. The plaintiff seeks a reversal of the determination

that he owes defendant Farm Service Agency of the United States

Department of Agriculture a sum of money resultant from a loan

guarantee. 

The defendant moves to dismiss for failure to state a claim.

For the reasons described herein, the court denies the motion.

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1

The allegations are derived from the plaintiff’s complaint

and the exhibits attached thereto. 

2

I. ALLEGATIONS1

The plaintiff is a managing general partner of Indian Springs

Vineyards. On May 21, 2003, he received a loan from Mid Valley

Bank, now PremierWest Bank (“Premier”), for the operation of Indian

Springs. Premier sought a loan guarantee from the Farm Service

Agency (“FSA”) of the Department of Agriculture. The plaintiff

signed the application for the guarantee, which included his

acknowledgment that “any amounts paid by FSA on account of the

liabilities of the guaranteed loan borrower will constitute a

Federal debt owing to the FSA by the guaranteed loan borrower.” On

June 16, 2003, FSA issued a loan guarantee to Premier for up to

ninety percent of the loan made to the plaintiff. 

The plaintiff subsequently defaulted on his loan to Premier.

On June 15, 2004, Indian Springs filed for bankruptcy and Chapter

11 reorganization. On February 15, 2005, Premier entered into a

settlement agreement with Indian Springs and the plaintiff. The

agreement stipulated that a payment of $2,175,000 be made to

Premier and that the properties owned by Indian Springs be

transferred to a third-party purchaser. Premier accepted this as

“full satisfaction of [the plaintiff’s] indebtedness,” agreed to

“release all claims including liens against” the plaintiff, and

agreed to “waive[], release[], acquit[], remise[], and forever

discharge[] . . . [the plaintiff] . . . from any and all suits,

legal proceedings, causes of action, attorneys fees, expenses,

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2

Arguably, this conduct was in violation of the settlement,

thus providing plaintiff with a cause of action versus the bank.

Even if such a cause of action exists, it would not appear to

undermine the instant suit.

3

As of the date of this order, the administrative record has

not yet been filed with this court.

3

interests, losses, penalties, damages, punitive damages, special

damages and/or liabilities of all types.” The plaintiff agreed to

release Premier and FSA from the same. On March 10, 2005, the

Bankruptcy Court approved the settlement agreement. 

On April 26, 2005, escrow closed and the agreed-upon payment

was made to Premier. On May 18, 2005, Premier submitted a loss

claim to FSA, for losses sustained by Premier’s loan to the

plaintiff.2

 In response, on August 26, 2005, FSA issued a check in

the amount of $411,452.51 to Premier. FSA then informed the

plaintiff, on September 23, 2005, that he had incurred a federal

debt in that amount, plus interest.

On November 3, 2005, the plaintiff appealed, to the National

Appeals Division of the United States Department of Agriculture,

FSA’s determination that he had incurred this debt.3 On January 17,

2006, the Appeals Division issued a determination upholding FSA’s

decision that the plaintiff had incurred the federal debt. After

a review of this decision, on August 28, 2006, the Appeals Division

again affirmed the FSA’s determination. The plaintiff requested

Appeals Division director review of that decision, and on November

21, 2006, the decision was affirmed. This affirmance, the plaintiff

alleges, constituted final agency action on the matter.

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4

The plaintiff has brought suit under the Administrative

Procedures Act, 5 U.S.C. § 706, alleging that the Department of

Agriculture’s action was arbitrary, capricious, an abuse of

discretion, and not based on substantial evidence. The plaintiff

seeks a declaratory judgment that no federal debt exits and seeks

injunctive relief barring collection of the debt.

II. STANDARD FOR DISMISSAL PURSUANT TO 

FEDERAL RULE OF CIVIL PROCEDURE 12(B)(6)

On a motion to dismiss, the allegations of the complaint must

be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322 (1972).

The court is bound to give the plaintiff the benefit of every

reasonable inference to be drawn from the "well-pleaded"

allegations of the complaint. See Retail Clerks Intern. Ass'n,

Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963).

Thus, the plaintiff need not necessarily plead a particular fact

if that fact is a reasonable inference from facts properly alleged.

See id.; see also Wheeldin v. Wheeler, 373 U.S. 647, 648 (1963)

(inferring fact from allegations of complaint).

In general, the complaint is construed favorably to the

pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). The

court may not dismiss the complaint if there is a reasonably

founded hope that the plaintiff may show a set of facts consistent

with the allegations. Bell Atlantic Corp. v. Twombly, 127 S.Ct.

1955, 1967-69 (2007). In spite of the deference the court is bound

to pay to the plaintiff's allegations, however, it is not proper

for the court to assume that "the [plaintiff] can prove facts which

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5

[he or she] has not alleged, or that the defendants have violated

the . . . laws in ways that have not been alleged." Associated

General Contractors of California, Inc. v. California State Council

of Carpenters, 459 U.S. 519, 526 (1983).

III. ANALYSIS 

In his complaint, the plaintiff has alleged that the defendant

acted in violation of the Administrative Procedures Act when it

determined that he had incurred a federal debt. The defendant moves

to dismiss the plaintiff’s causes of action on the grounds that the

defendant’s determination was not barred by the settlement

agreement between the plaintiff, Indian Springs, and Premier. As

explained below, the defendant’s motion must be denied. 

A. Stating a Claim Under the Administrative Procedures Act

In order to state a claim under 5 U.S.C. section 706, the

plaintiff must allege that the agency’s decision was flawed in the

manner prohibited under the statute and he must also allege the

facts that support such a conclusion. See Ness Inv. Corp. v. United

States Dep’t of Agric., Forest Service, 512 F.2d 706, 717 (9th Cir.

1975); Bell Atlantic, 127 S. Ct. at 1967-69. Here, the plaintiff

has met this requirement for his two claims that allege violations

of section 706. He has alleged that the defendant’s final agency

action was “arbitrary, capricious, an abuse of discretion or not

otherwise in accordance with the law, and unwarranted by the facts”

and that it was “not based on substantial evidence.” He has pled

the factual allegations that form the basis of this claim,

including incorporating by reference the specific facts that

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4

These facts are described in section I, supra. 

5

The plaintiff asserts that this argument is waived because

it was not raised in the administrative proceedings. Because the

administrative record has not been filed with the court, the court

declines to rule on the issue of whether the defendant waived this

argument. However, because the court concludes that the defendant’s

position is without merit, see infra, the question of waiver is

moot.

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support his allegation that the defendant acted in violation of

section 706 by concluding that the plaintiff had incurred an

enforceable federal debt.4 Therefore, on its face, the plaintiff

has sufficiently stated a claim upon which relief may be granted.

B. Effect of the Settlement Agreement on Plaintiff’s Claims

The defendant moves to dismiss the complaint on the grounds

that, as a matter of law, the defendant’s action was not prohibited

under the settlement agreement between the plaintiff and Premier.

In its motion, the defendant argues that it was not a party to the

settlement agreement between Premier, Indian Springs, and the

plaintiff, and therefore did not release the plaintiff from any

debts owed to it. The defendant also argues that the settlement

agreement precluded that plaintiff from bringing any action against

the FSA based on state law.5 As a consequence, the defendant

argues, the plaintiff cannot state a claim challenging the

enforcement of the debt that FSA alleges the plaintiff owes it.

The defendant, however, appears to misapprehend the nature of

the plaintiff’s claims. Plaintiff does not allege that FSA was a

party to the settlement agreement and that FSA itself released the

plaintiff from debts he owed to it. Rather, the plaintiff alleges

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6

Neither PremierWest Bank nor any other party to the

settlement agreement, aside from the plaintiff, is a party to the

present action. Therefore, the court refrains from interpreting the

settlement agreement as a matter of law, but simply considers

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that, on April 26, 2005, he ceased to owe a debt to Premier.

Therefore, the plaintiff in his complaint asserts that the

Department of Agriculture violated the Administrative Procedures

Act in its determination that the plaintiff owed a federal debt,

because, the plaintiff alleges, this debt had been previously been

satisfied in accordance with the settlement agreement. This appears

to be a cognizable legal basis for the plaintiff’s APA claims.

California law applies to the terms of the plaintiff’s

settlement agreement. California law requires that contracts be

interpreted to give effect of the intent of the parties. Cal. Civ.

Code § 1636. The parties’ intent should be ascertained by the

language of the contract itself, when the language is “clear and

explicit.” Id. §§ 1638, 1639. All of the provisions of the contract

should be read together to determine the intent of the parties. Id.

§ 1641. If possible, the interpretation should be one that renders

the contract “lawful, operative, definite, [and] reasonable.” Id.

§ 1643.

Here, the plaintiff alleges that by the settlement agreement

Premier had accepted full satisfaction for his debt owed to

Premier, and that the plaintiff had relinquished only those claims

that existed at the time of the agreement. Both of these positions

are supported by the language of the settlement agreement, and may

govern the interpretation of the contract under California law.6

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whether the plaintiff’s proposed interpretation of the contract is

consistent with California law, permitting him to proceed in his

complaint against the defendant.

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See Cal. Civ. Code §§ 1638, 1639. First, in the settlement

agreement, Premier agreed that the plaintiff’s payment of

$2,175,000 to Premier was full satisfaction for the plaintiff’s

debt to Premier. See Complaint Exh. A at 6 ¶ 3(a). Premier also

agreed to release all claims including liens against the plaintiff.

See Complaint Exh. A at 6 ¶ 3(b). From this the court may conclude,

absent evidence to the contrary, that upon payment of $2,175,000

to Premier, the terms of the contract clearly and explicitly state

that the plaintiff no longer had an outstanding debt with Premier.

Such a reading accords with California rules of contract

interpretation. See Cal. Civ. Code §§ 1638, 1639, 1643. 

Second, it is not contrary to law to interpret the settlement

agreement to provide that, by the terms of the agreement, the

plaintiff only released those claims which did or may then have

existed at the time of the execution of the settlement agreement.

The agreement states that the plaintiff waived his rights under

California Civil Code section 1542, and in so doing waived his

rights both to claims he knew or believed to be true at the time

of the settlement agreement, as well as those claims extant at the

time of the agreement but of which the plaintiff was unaware. See

Complaint Exh. A. at 9. This is encapsulated by the provision in

the settlement that, “it is the intention of [the plaintiff] . .

. to fully, finally and forever release all such matters and all

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claims or defenses relative thereto which do or may now exist.” See

id. (italics added). Although it is possible that this section may

be interpreted, as the defendant encourages, to provide that the

plaintiff released all claims extant at the time of the execution

of the agreement as well as all claims that would arise by

subsequent conduct by Premier or FSA, such an interpretation is not

mandated as a matter of law by the language of the agreement. 

Moreover, the plaintiff’s construction is supported by

California law. California Civil Code section 1542, referenced in

the settlement agreement, relates only to those claims that “exist

. . . at the time of executing the release.” Even if the agreement

may be interpreted so as to state that the plaintiff released

claims that would arise out of future conduct, to the extent that

Premier acted fraudulently in submitting a loss claim to FSA, a

waiver of a claim based on this type of future conduct may be

contrary to public policy. See Cal. Civ. Code § 1668; Farnham v.

Superior Court, 60 Cal. App. 4th 69, 74 (Cal. Ct. App. 1997); Baker

Pacific Corp. v. Suttles, 220 Cal. App. 3d 1148, 1153-54 (Cal. Ct.

App. 1990); Klein v. Asgrow Seed Co., 246 Cal. App. 2d 87, 100

(Cal. Ct. App. 1966). Additionally, if Premier breached the

settlement agreement, the plaintiff’s position is supported by

California law which permits claims based on the breach of an

agreement, notwithstanding a release provision in the agreement.

See Dreyfuss v. Burton, 246 Cal. App. 2d 629, 639 (Cal. Ct. App.

1966)(characterizing as “frivolous” respondent’s argument that

petitioners’ release of claims against respondent “should be

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construed as a waiver” of petitioners’ rights to legally respond

to the “breach of the terms of the very agreements wherein these

releases and mutual promises were given and made”). Finally, the

plaintiff contends that he did not intend his release to include

claims that would arise out of later fraudulent conduct by Premier.

If the language of the settlement is ambiguous as to what claims

the plaintiff intended to release, the court may consider extrinsic

evidence of his intent. Cal. Code Civ. Proc. § 1856. As explained

above, see note 5, supra, the court need not determine at this

stage of the proceedings how the settlement agreement should be

interpreted. The court is satisfied, however, that the

interpretation the plaintiff posits is not barred by law, and

therefore that his complaint should not be dismissed. 

Consequently, the plaintiff has sufficiently alleged that the

defendant’s action in concluding that he owed a debt and in seeking

to enforce it was unlawful under the Administrative Procedures Act.

The defendant has not shown that the underlying conduct that the

plaintiff alleged as the basis of his claim was per se nonviolative of the Administrative Procedures Act because it was

permitted by the settlement agreement, as interpreted by California

law. Therefore, the defendant’s motion is denied.

IV. CONCLUSION

As set forth above, the defendant’s motion is DENIED.

IT IS SO ORDERED.

DATED: October 23, 2007.

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