Citizen’s Group Brings Action That USDA Violated Federal Law in Granting Loan Guarantees
By Paul Goeringer, Senior Faculty Specialist, UME, Agricultural & Resource Economics
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In late 2022, a citizens’ group brought suit against U.S. Department of Agriculture (USDA), Farm Service Agency (FSA), Farm Credit Mid-America, and two poultry growers (Dan Nguyen and Trang Nguyen) for claims that the loan guarantees USDA gave on Farm Credit loans to the two growers violated federal law. The citizens’ group argues that the loan guarantees violated the federal law enabling FSA to grant loan guarantees and that FSA failed to do an adequate environmental review to comply with federal law. This action is Concerned Citizens of West Tennessee v. USDA.
Background
A citizens’ group is bringing a lawsuit against the USDA, challenging the environmental review and authorization of a loan guarantee to two poultry operations contracting with Tyson Foods. The two operations received loans from Farm Credit Mid-America. Mid-America worked with the borrowers to receive FSA loan guarantees for 90 percent of both operations. The loan guarantees were provided under the Farm Ownership Program.
The citizens’ group argues in the complaint about three issues. First, FSA failed to comply with the legislation creating the loan guarantee program limits eligible applicants to “owner-operators of not larger than [a] family farm.” The second issue is that FSA loaned more than the maximum allowed under the program. The third issue is that FSA failed to comply with the National Environmental Policy Act (NEPA) when approving the loan guarantees.
Issues Raised in the Complaint
Focusing on the first issue raised by the citizens’ group is an interesting argument. The group argues that the integrator (in this case Tyson Foods) will control the day-to-day operation of the poultry farm. Looking at the statute, federal law requires that the borrower “be or will become owner-operators of not larger than family farms” (§ 1922(a)(1)). The regulations define broadly define a family farm to be:
Family farm is a business operation that:
(1) Produces agricultural commodities for sale in sufficient quantities so that it is recognized as a farm rather than a rural residence;
(2) Has both physical labor and management provided as follows:
(i) The majority of day-to-day, operational decisions, and all strategic management decisions are made by:
(A) The borrower, with input and assistance allowed from persons who are either related to the borrower by blood or marriage, or are a relative, for an individual borrower; or
(B) The members responsible for operating the farm, in the case of an entity.
(ii) A substantial amount of labor to operate the farm is provided by:
(A) The borrower, with input and assistance allowed from persons who are either related to the borrower by blood or marriage, or are a relative, for an individual borrower; or
(B) The members responsible for operating the farm, in the case of an entity.
(3) May use full-time hired labor in amounts only to supplement family labor.
(4) May use reasonable amounts of temporary labor for seasonal peak workload periods or intermittently for labor intensive activities. (7. C.F.R. § 761.2).
The group contends that Tyson owns the chickens and the feed and controls how the houses are built so that Tyson, not the Nguyens, controls the operations. Therefore, the farm does not meet the statutory requirements to qualify for the loan guarantees because of Tyson's control.
The next argument focuses on the requirement that the borrowers “be unable to obtain sufficient credit elsewhere to finance their actual needs at reasonable rates and terms, taking into consideration prevailing private and cooperative rates and terms in the community in or near which the applicant resides for loans for similar purposes and periods of time” (§ 1922(a)(1)). The group argues that the Nguyens could receive credit through Farm Credit of MidAmerica without the FSA loan guarantees. Because the Nguyens could receive credit, FSA should not have granted the loan guarantees. This argument fails to consider that Farm Credit may not have loaned the money without the loan guarantees. The borrowers were new poultry growers who may have only been considered for loans with FSA granting the loan guarantees.
The final loan guarantee related argument is related to the fact that at the time the Nguyens applied for a loan guarantee, the maximum amount a borrower could receive was $1,776,000, which each Nguyen received or $3,552,000 total. The citizens’ group argues that the two poultry operations should be viewed as one operation and only entitled to a maximum loan guarantee of $1,776,000. Therefore, FSA violated the program rules by granting more. The issue with this argument is that each Nguyen bought farmland. The properties are across the road from each other. Upon purchasing the farmland, Dan Nguyen transferred his property to an LLC owned by Dan, and Trang Nguyen transferred his farmland into an LLC owned by Trang. Here it appears to be not one borrower but two borrowers applying for separate loans and loan guarantees on separate farmland.
The final arguments point to the FSA violating NEPA by failing to do a proper environmental review of the two proposed poultry farms before granting the loan guarantees. The citizens’ group argues that FSA was unable to provide public notice, to consider and disclose direct effects, to consider and disclose indirect and cumulative effects, to consider reasonable alternatives, to evaluate or disclose mitigation measures, and failed to prepare an environmental impact statement.
The NEPA claims are where the complaint becomes confusing because the loan guarantee applications need to be given dates. As I have previously discussed on this site, in September 2020, the Trump administration’s final rule regarding NEPA revisions went into effect. Those changes included exemptions from NEPA review for loan guarantees, including FSA’s program. Based on some of the dates listed in the complaint, it appears this loan guarantee is potentially exempt from NEPA review, and these arguments could be moot. We will have to wait to see how FSA, the lender, and the borrowers respond to these arguments. The other interesting issue is whether the citizens’ group has standing to bring this challenge, which is very similar to one raised by an environmental group in Maryland. In that case, the appeals court found the group did not have standing. That could also be an issue here.
It will be interesting to see how the parties respond to all the issues raised by the citizens’ group. I will watch this case as it moves through the court system.
References
Concerned Citizens of West Tennessee v. USDA, No. 1:22-cv-01275 (W.D. Tenn. December 12, 2022).