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Lake Cascade Airpark, LLC v. Northwest Farm Credit Services

United States District Court, D. Idaho

April 16, 2015

LAKE CASCADE AIRPARK, LLC, an Idaho limited liability company; DONALD MILLER and CANDACE W. MILLER, husband and wife, Plaintiff,
v.
NORTHWEST FARM CREDIT SERVICES, FLCA, a federally chartered Instrumentality of the United States of America, Defendant.

MEMORANDUM DECISION AND ORDER INTRODUCTION

B. LYNN WINMILL, Chief District Judge.

The Court has before it a motion for summary judgment filed by defendant Northwest Farm Credit Services, and a motion for partial summary judgment filed by plaintiffs. The motions were argued on March 3, 2015, and taken under advisement. For the reasons explained below, the Court will (1) grant plaintiffs' motion for partial summary judgment and strike FCS's defense that the plaintiffs are not entitled to the right of first refusal because they could have avoided foreclosure; and (2) grant in part FCS's motion for summary judgment, dismissing the Millers from the case and dismissing Count V of the complaint. The remainder of FCS's motion is denied.

FACTUAL BACKGROUND

Plaintiff Donald and Candice Miller formed Lake Cascade Airpark LLC with David and Karen Buich to develop an airpark near the Cascade Reservoir in Idaho. They obtained two loans from defendant Northwest Farm Credit Services ("FCS"), secured by a mortgage on real property. One loan was for $2.45 million and the other was for $500, 000 in the form of a line of credit.

The Millers and Buiches agreed between themselves to split the monthly payments so that each would pay about $9, 000. They made their payments for two years, until the Buiches went through a divorce in 2010 and stopped paying their share. Over the next two years the Millers negotiated with FCS, but FCS eventually foreclosed in 2012 and acquired the real property. FCS obtained a deficiency judgment against the Millers, Buiches, and Lake Cascade Airpark in the amount of $2, 135, 580.16. Shortly thereafter, FCS settled with the Buiches for $25, 000 and pursued the Millers for the remainder of the deficiency judgment.

Those proceedings are not in dispute here. What is disputed is whether FCS had the right, after acquiring the property, to lease it to a third party without giving the Millers the right of first refusal to the same lease arrangement.

ANALYSIS

The Millers allege that their loan agreement gives them a right of first refusal. It is undisputed that the Farm Credit Act of 1971, as amended by the Agricultural Act of 1987, 12 U.S.C. § 2001, et seq., governs the loans at issue here and grants to the borrower a first right of refusal to any lease or sale of the land foreclosed upon and acquired by the lender. See 12 U.S.C. §2219a(c)(1). It is also undisputed that there is no private right of action under the Act, and that "Congress intended administrative review to be the exclusive remedy." Harper v. Federal Land Bank of Spokane, 878 F.2d 1172, 1176 (9th Cir. 1989).

Thus, the Millers clearly had a statutory right of first refusal that could be enforced only administratively - the issue is whether they also had a contractual right of first refusal that could be enforced here.

The answer to that issue depends on the following language that appears in the Loan Applications:[1]

Customer Rights - If the customer is a farmer [or] rancher... with a loan as defined under the Farm Credit Act of 1971..., this loan is subject to the rights as set forth therein, including but not limited to the following:
Interest Rate Review (Section 2199) - If you have questions about the interest rate charged for your loan, you have the right upon request to: (1) a review of the loan to determine that the proper interest rate has been assigned; (2) a written explanation of the interest rate charged; and (3) a written explanation of how your credit status may be improved to receive a lower rate.
Restructure Application and Notice of Action on Application (Section 2201-2202c) - FCS may not commence loan foreclosure unless at least 45 days before such commencement, FCS has provided the customer with a copy of the distressed loan restructuring policy and forms on which the customer may submit a request for distressed loan restructuring. FCS shall provide prompt written notice of action taken on loan and restructure applications, including notice of a right to a credit review committee hearing if the loan or restructure application is denied or if the loan application is reduced. A copy of the Distressed Loan Restructuring Policy is available upon request.
Miscellaneous (Section 2202d, e) - FCS may not foreclose on any loan because of the customer's failure to post additional collateral if the customer has made all accrued payments of principal, interest and penalties. FCS may not require a reduction in outstanding principal balance which exceeds the regularly scheduled principal installment except in limited circumstances. If the customer pays all accrued payments, including penalties, FCS may not enforce acceleration of the loan based solely on the customer's untimely payments. FCS may not require a customer who has pledged agricultural property to waive any state mediation rights.
Right of First Refusal (Section 2219a) - When FCS first elects to sell or lease agricultural real property it has acquired and of which the customer was the prior record owner, FCS must first notify the customer of the customer's right to purchase or lease the property for a price or rental rate equal to its appraised fair market value or appraised fair rental value, as appropriate.

See Exhibits A & D to Complaint (Dkt. No. 1). FCS argues that this contractual language is not part of the contract but is simply notice that the Farm Credit Act governs the loans. In support of this argument, FCS cites Burgmeier v. Farm Credit Bank of St. Paul, 499 N.W.2d 43 (Minn.App.Ct. 1993). In that case, the mortgage stated that it was "subject to" the Farm Credit Act. The court held that "[t]his language alone is insufficient to create rights or obligations in the parties and cannot support a breach of contract action." Id. at 47; see also Production Credit Ass'n v. Van Iperen, 396 N.W.2d 35, 38 (Minn.App.1986) (holding that language in loan agreement "governed by the Farm Credit Act of 1971 and its regulations" did not create a cause of action for breach based upon violations of the Act).

The Millers respond by citing State ex.rel . Farm Credit Bank of Spokane v. Dist.Court of Third Judicial Dist., 881 P.2d 594, (Mont.Sup.Ct. 1994). In that case, the loan agreement contained the following language:

This mortgage and the note secured hereby are executed and delivered under and in accordance with the Farm Credit Act of 1971 and any Acts amendatory or supplementary thereto and the regulations of the Farm Credit Administration, and are subject to the terms, ...

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