Larry D. Davies v. Mike Johanns , 477 F.3d 968 ( 2007 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 06-1403
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Larry D. Davies; Ruth A. Davies, *
*
Appellees, *
* Appeal from the United States
v. * District Court for the
* Western District of Missouri.
Mike Johanns, in his capacity as *
Secretary of the United States *
Department of Agriculture; United *
States Department of Agriculture, *
*
Appellants. *
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Submitted: October 20, 2006
Filed: February 14, 2007
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Before WOLLMAN, RILEY, and GRUENDER, Circuit Judges.
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WOLLMAN, Circuit Judge.
The Davieses are farmers who entered into a ten-year Shared Appreciation
Agreement (SAA) with the Farmers Home Administration (FmHA), pursuant to which
the FmHA agreed to write down a portion of their debt in exchange for a percentage
of the appreciation in the value of their property during the term of the agreement.
Upon the expiration of the agreement, the Farm Service Agency (FSA)1 sought to
1
The Farmers Home Administration is now the Farm Service Agency.
recapture a portion of the appreciation. The Davieses contested the manner in which
the FSA assessed the amount that their property had appreciated and, after pursuing
administrative remedies, filed this action against the Secretary of Agriculture
(Secretary) for declaratory and injunctive relief. The district court set aside the
Secretary’s decision and remanded the case for further proceedings. We reverse.
I.
The Agricultural Credit Act of 1987, Pub. L. No. 100-233, 101 Stat. 1679
(1988), as codified at 7 U.S.C. § 2001 (2006), allows farmers and ranchers to
restructure their debts on various agricultural loans. The statute provides for a write-
down of secured debt to reflect the value of the land securing the loan. 7 U.S.C. §
2001(a)-(d). In exchange for the write-down, the Secretary of Agriculture may require
farmers to enter into a SAA, which allows the Secretary to recapture a portion of the
appreciation in the value of the property securing the loan over the term of the
agreement. 7 U.S.C. § 2001(e). Because the amount that the Secretary may recapture
is based on the property’s appreciation in value, the Secretary must make two
appraisals of the property’s value: one at the commencement of the SAA term and
another at its conclusion. The value of the appreciation is the difference between the
two.
In 1991, the year in which the Davieses’ property was first appraised, farm
appraisals were conducted pursuant to 7 C.F.R. § 1809 (1991), which states that there
are two types of value that may be considered in calculating a “Recommended Market
Value” (the appraised value of the property): agricultural value and market value. 7
C.F.R. § 1809.2. The agricultural value of the farm is the “amount a typical purchaser
would, under usual conditions, be willing to pay and be justified in paying for the
farm, as improved, for customary agricultural uses, including farm-home advantages,
with the expectation of receiving typical net earnings from the farm.” 7 C.F.R. §
1809.2(a). Agricultural value “is based upon agricultural assets only” and “depends
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in a large measure on the earning ability of the farm.” Id. Market value is the
“amount a typical purchaser would be willing to pay and justified in paying for the
property considering agricultural uses and nonagricultural assets the property may
have.” 7 C.F.R. § 1809.2(b).
The regulations under 7 C.F.R. § 1809 further provide that farm appraisals will
be based on a three-way approach to value. These three approaches are 1) market
data, which relies upon “sale prices of comparable properties;” 2) capitalization,
which is “the amount that a prudent investor likely would pay for the property based
on its future earnings and advantages;” and 3) summation, which looks to the value
of the land and essential buildings. 7 C.F.R. § 1809.4(a)-(c). The appraiser is to
consider the results of each of these approaches, assess their strengths and
weaknesses, and make appropriate adjustments before arriving at a final
Recommended Market Value. 7 C.F.R. § 1809.4(d). Generally, “the value indicated
by the market data approach is the most reliable indicator of value.” Id.
During the course of the Davieses’ SAA term, new appraisal regulations were
established, including 7 C.F.R. §1951.914(c)(1) (2002), which provides that property
subject to appraisal under a SAA is to be appraised at its “highest and best use” and
that the appraisal shall be conducted in accordance with 7 C.F.R. § 761.7. Under §
761.7, real estate appraisals must comply with the Uniform Standards of Professional
Appraisal Practice (USPAP). 7 C.F.R. § 761.7(c)(1) (2002). USPAP, as the name
implies, sets forth uniform standards and practices to which appraisers must adhere.
USPAP also requires, where applicable, consideration of three different approaches
to value: sales comparison, cost, and income. USPAP, Standards Rule 1-4.
The Davieses’ land consists of 510 acres, divided into four parcels. In 1992,
the FmHa wrote down the Davieses’ debt from $379,175.42 to $199,469.91. The
Davieses, in return, entered into a SAA, pursuant to which the Secretary would be
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entitled to 50% of the appreciation in the value of their land during the term of the
agreement. Based upon a 1991 appraisal, the Secretary determined that the value of
the property was $331,200. The SAA term expired in 2002, and the Davieses’
property was appraised again and valued at $630,500. The Secretary determined that
the Davieses owed $148,150 (half the value of the appreciation, minus half the value
of some capital improvements).
The Davieses filed an appeal with the National Appeals Division of the
Department of Agriculture (NAD), contesting the method by which the 2002 appraisal
of their property was conducted. They contended that the regulations used to appraise
their property at the beginning of the SAA term were different from those used at the
end of the term and that this resulted in an improper comparison for purposes of
calculating the appreciation over the term of the agreement. The hearing officer
affirmed the Secretary’s decision, concluding, inter alia, that the Davieses had failed
to establish that the regulatory change had any effect on the Recommended Market
Value calculated for the property. The director of the NAD affirmed the hearing
officer’s determination. The Davieses then filed this action for declaratory and
injunctive relief. As recounted above, the district court set aside the Secretary’s
decision and remanded the case for further proceedings.
II.
We have jurisdiction over “final decisions of the district courts.” Acton v. City
of Columbia, 436 F.3d 969, 973 (8th Cir. 2006) (quoting 28 U.S.C. § 1291). This
finality requirement “is to be given a practical rather than a technical construction,”
Gillespie v. United States Steel Corp., 379 U.S. 148, 152 (1964) (quoting Cohen v.
Beneficial Indus. Loan Corp., 337 U.S. 541, 546 (1949)) (internal quotation marks
omitted), and we have recognized that “there may be factors unique to the world of
administrative law” that warrant a somewhat less restrictive application of the final
judgment rule. Borntrager v. Cent. States, Southeast and Southwest Areas Pension
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Fund, 425 F.3d 1087, 1092 (8th Cir. 2005). If, for example, an order remanding a
case for further administrative proceedings will likely escape appellate review unless
subject to immediate appeal, the order may be considered final for purposes of 28
U.S.C. § 1291. Hanauer v. Reich, 82 F.3d 1304, 1306-07 (4th Cir. 1996). Moreover,
an order remanding a case to an administrative agency may be considered final for
jurisdictional purposes when there is little left remaining to be done with the case
except some ministerial proceedings. See Pauly v. United States Dep’t of Agric., 348
F.3d 1143, 1148 (9th Cir. 2003) (per curiam) (concluding that a partial remand order
requiring the recalculation of recapture, an essentially ministerial proceeding, may be
considered a final order for the purposes of appellate jurisdiction). In light of the
foregoing considerations, we conclude that the district court’s order may be
considered final for purposes of appellate jurisdiction. Although the order may not
be final in the strictest sense of the word because of the need for further administrative
proceedings, those proceedings would be principally concerned with the reappraisal
of the Davieses’ property under the regulations in effect in 1991. Moreover, the
Secretary’s ability to seek appellate review of the district court’s order would be
extinguished if the Davieses prevailed on remand or did not seek further review.
Finally, we observe that judicial economy would be ill-served by postponing
consideration of the potentially dispositive and fully briefed and argued issue raised
in this appeal. Cf. Pauly, 348 F.3d at 1148 (treating district court’s order as
“practically final” where postponement of briefed, argued, and potentially dispositive
issue would not promote judicial economy). In these circumstances, the order is final
for practical purposes and we may therefore consider this appeal.2
2
The Davieses also raised claims concerning the amortization of their repayment
obligation and homestead protection, which the district court did not address because
of its determinations regarding the calculation of appreciation. The possibility that
these issues could again come before the district court does not alter our conclusion
that the district court’s remand order is final in a practical sense. In any case, the fact
remains that the Secretary’s ability to seek appellate review of the district court’s
order may be extinguished after remand.
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The Davieses contend that any measure of the appreciation in the value of their
property requires that the standards used to conduct the appraisals at the beginning of
the SAA term must be the same as those employed at the end of the SAA term.3 The
Davieses argue that because the 1991 appraisals were conducted pursuant to 7 C.F.R.
§ 1809 and the 2002 appraisals were made with reference to 7 C.F.R.
§§1951.914(c)(1) and 761.7(c)(1), different formulas were used and thus could not
serve as the basis for a proper comparison. Specifically, they contend that under the
1991 regulations the appraisals were to be made solely with reference to agricultural
value as described in 7 C.F.R. § 1809.2(a),which the Davieses argue is based
primarily on the income stream derived from farming.4 They argue that the 7 C.F.R.
§ 1951.914(c)(1) requirement that property be appraised in light of its highest and best
use establishes a standard much different than the standards enunciated in 7 C.F.R. §
1809. (a) because the value derived from the highest and best use is not limited to
agricultural production. Should the highest and best use of the property be
nonagricultural, for example, income from farming would not be a material
consideration.
“When the United States enters into contract relations, its rights and duties
therein are governed generally by the law applicable to contracts between private
individuals.” Mobil Oil Exploration & Producing Southeast, Inc. v. United States,
530 U.S. 604, 607-08 (2000) (citation omitted). The Secretary does not appear to
contest the contractual nature of the SAA. Nor does he disagree with the contention
that a proper estimate of appreciation requires that the same valuation measure be used
before and at the conclusion of the SAA term. Instead, the Secretary argues that the
regulations in place in 1991 and those in effect in 2002 are consistent with one another
3
There were eight appraisals conducted in this case: each of the Davieses’ four
parcels were appraised in both 1991 and 2002.
4
They contend that only agricultural value is applicable because the regulation
states that market value (as specified in 7 C.F.R. § 1809.2(b)) will be determined only
with respect to a limited class of loans. The Secretary disagrees.
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and that this reasonable interpretation of his agency’s regulations should govern. In
addition, the Secretary argues that the actual appraisals conducted in 1991 and 2002
are consistent because they weigh the same considerations and employ the same
standards.
Although the contract in this case, the SAA, does not prescribe any particular
method for appraising the Davieses’ property, the parties agree that the same standards
and methodologies must be employed in both the earlier and subsequent appraisals in
order to arrive at a proper measure of appreciation. This is not tantamount, however,
to a requirement that the regulations underlying these appraisals be the same. For
example, even if, as the Davieses argue, the agricultural value standard established in
7 C.F.R. § 1809.2(a) is potentially inconsistent with the highest and best use standard
in 7 C.F.R. § 1951.914(c)(1) (because the latter may encompass nonagricultural uses),
no such inconsistency will necessarily materialize if the highest and best use of the
Davieses’ property remained agricultural.
For all practical purposes, both the 1991 and 2002 appraisals appear to have
employed consistent methodologies and evaluated the same considerations. First,
both sets of appraisals determined that the highest and best use of the Davieses’ land
was agricultural. Second, the appraisal forms actually used in both sets of appraisals
are almost identical, with the exception of the forms used to appraise the parcel
containing the Davieses’ residence.5 We cannot discern, and the Davieses have not
identified, however, how the differences between these two forms appraising the
Davieses’ residence would have resulted in inconsistent appraisals. Third, in both the
1991 and 2002 appraisals, the appraisers evidently considered three approaches to
5
USPAP compliance forms are included in each of the 2002 appraisals, but are
separate from the actual appraisal forms.
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value and reconciled them.6 Finally, both appraisals compared the Davieses’ property
to other farms, which included comparisons of the respective properties’ locations,
percentages of tillable and productive land, soil types, and building improvements.
Although the Davieses argue that the regulations are different, they have not
identified any specific inconsistencies between the 1991 and 2002 appraisals.7 The
district court, however, determined that there were differences between the 1991 and
2002 appraisals. It concluded that the capitalization (or income) determinations were
inconsistent because the 1991 appraisals looked to the income from farm production,
whereas the 2002 appraisals considered the rental value of the property. The
Secretary acknowledges that the 2002 appraisals’ capitalization calculations
considered rental value. The rental value of the property, however, is based on what
the farm can produce. It bears mention, too, that under 7 C.F.R. § 1809.4(b)(1), the
rental value is preferred because the rental value is not affected by differences in the
management abilities of the operator. Accordingly, because the utilization of rental
income to determine capitalization value was endorsed by the regulations in effect in
1991, the 2002 appraisals’ consideration of rental income cannot be traced to a change
in the regulations. Thus, although there may be some differences between the
capitalization calculations in the 1991 and 2002 appraisals, they do not appear to be
sufficiently material to render the two sets of appraisals inconsistent.
The district court also rejected the Secretary’s contention that, because the
highest and best use of the property is agricultural, the market data approach reflects
6
Both the 1991 and 2002 forms combine the nomenclature from 7 C.F.R. §
1809.4 and USPAP. Both sets of appraisals, for example, refer to the “capitalization
(income) approach.”
7
The Davieses did submit to the district court an independent 2002 appraisal
based on agricultural value alone. As the methodology underlying this appraisal
appears inconsistent with those employed in both the 1991 and 2002 appraisals,
however, it does not illuminate any inconsistencies between them.
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what a person would pay for the income generated by the property, reasoning that “the
use of comparable sales may be skewed if the highest and best use for surrounding
property has changed from agricultural to something else.” Davies v. Johanes, 409
F. Supp. 2d 1150, 1158 (W.D. Mo. 2006). In this case, however, the Davieses’
property was compared to property whose use was also agricultural.
In sum, we conclude that the methodology of the 1991 and 2002 appraisals did
not differ in any material respects and that the Secretary’s calculation of the recapture
owed was therefore proper. Because we have determined that the two sets of
appraisals are comparable regardless of potential differences between the regulations
in effect when they were conducted, we need not address the question whether the two
sets of regulations are consistent.
The order is reversed, and the case is remanded to the district court for further
proceedings not inconsistent with this opinion.
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