United States District Court, D. New Mexico
JAMES M. DAY, Petitioner,
NATURAL RESOURCES CONSERVATION SERVICE, Respondent.
MEMORANDUM OPINION AND ORDER
matter is before the Court on Petitioner-Appellant James M.
Day's Appellate Brief in Chief filed on June 30, 2016
pursuant to the judicial review provisions of the
Administrative Procedure Act (“APA”), 5 U.S.C.
§§ 701-706. See ECF No. 16
(“Pet'r's Op. Br.”) The dispute between
Day and the Natural Resources Conservation Service
(“NRCS” or “Agency”) centers on
whether NRCS properly terminated Day's Conservation
Stewardship Program (“CSP”) contract and required
Day to repay $160, 000 in program benefits that he received
under the contract. See Joint Status Report, ECF No.
11. Having reviewed the Administrative Record and considered
the parties' arguments in the petition and briefs, the
Court finds that NRCS acted in accordance with the law in
determining that Day was required to refund all CSP payments
made to him, and therefore affirms the Agency's decision.
The Court additionally affirms the National Appeals Division
Director's Determination that Day is not entitled to
Court summarizes the factual and procedural history of this
case, describes the relevant standard of review under the
APA, and then performs its analysis.
a rancher in New Mexico and a franchisee owner of rent-to-own
stores. See Administrative Record at AR-000119. He
had a general sense of his business affairs such as income
and losses, but not a detailed accounting-level knowledge of
such information. Id. at AR-000059. Day therefore
relied on an accountant to manage his taxes and financial
affairs and to calculate his Adjusted Gross Income
(“AGI”) and to prepare and amend his tax returns.
Id.; id. at AR-000119. With his
accountant's help, Day routinely amended his tax returns
to carry back losses from one tax year to a prior tax year.
Id. at AR-000059.
and 2007, Day's franchise business was not performing
well, so he sold several of his stores back to the
franchisor. Id. This sale to the franchisor
resulted in a large capital gain for Day in 2007.
September 2009, NRCS contacted Day and encouraged Day to
enroll in the CSP program. Id. “The purpose of
CSP is to encourage producers to address priority resource
concerns and improve and conserve the quality and condition
of natural resources in a comprehensive manner by …
[u]ndertaking additional conservation activities; and 
[i]mproving, maintaining, and managing existing conservation
activities.” 7 C.F.R. § 1470.1; See
AR-000119 (citing 7 C.F.R. § 1470.1(b) and (d) (2010)).
“NRCS provides financial and technical assistance to
eligible producers to conserve and enhance soil, water, air,
and related natural resources on their land.”
Conservation Stewardship Program, 81 FR 12573-01, 2016 WL
892497. CSP encourages land stewards like Day “to
improve their conservation performance by installing and
adopting additional activities and improving, maintaining,
and managing existing activities on eligible land.”
applicant applying for CSP funds was required to have an
average adjusted gross nonfarm income under $1 million for
the three tax years preceding the most current tax year,
otherwise the applicant would be ineligible to receive CSP
funds. See 7 C.F.R. § 1400.500(d). In October
2009, Day completed an AGI Statement for the 2010 program
year for which he was applying. See AR-000060. Day
was required to complete the AGI Statement to verify that he
was eligible to participate in the CSP program. Id.
at AR-000120. On the AGI Statement, Day indicated that his
nonfarm AGI was $1 million or less for tax years 2006, 2007,
completed the AGI Statement while participating in an
interview with an NRCS representative. Id. He told
the representative that he might have a problem with the AGI
limitation for 2007 based on the sale of his franchise
stores. Id. Without describing the sale, Day told
the NRCS representative that in 2007 he had a large, one-time
asset sale with a resulting capital gain. Id. at
AR-000060. Day asked the representative whether capital gains
are included in the calculation of AGI, but the
representative said that she did not know. Id. Day
said that he would have to check with his accountant to
answer that question. Id.
on information from his accountant, Day believed that his
losses after 2007 would be carried back through amended tax
returns, thereby reducing his AGI for 2007. Id. Day
believed that the anticipated reduction of his tax liability
for 2007 would allow him to comply with the nonfarm AGI limit
for the CSP. Id. So Day informed the representative
that his current business losses would offset the capital
gain from 2007 and that he thought he would be
“okay” under the AGI requirements. Id.
The representative encouraged him to complete the AGI
paperwork if he thought he would be okay, and Day signed the
document without discussing it with his accountant.
Id. By signing the AGI certification, Day
acknowledged he had read the definitions on the second page
of the form, which included the definitions for
“nonfarm income”; certified that the information
in the certification was true and correct; and certified that
the income certifications were consistent with tax returns
filed in with the IRS. Id. at AR-000181.
different agency, the Farm Services Agency
(“FSA”) initially determines a participant's
compliance with the CSP AGI limitations through a
self-certification such as the one Day completed.
Id. at AR-000060. FSA does not initially review the
information on an AGI certification provided by a
participant, but FSA may audit a participant's compliance
with the AGI limits. Id. This audit may occur well
after the parties execute the CSP contract. Id. NRCS
relies on FSA to determine a participant's compliance
with the AGI limit. Id.
early 2010 Day and NRCS entered into the CSP contract
covering over 9, 000 acres of Day's land. Id.
The CSP contract included the average nonfarm AGI limitation,
stating that a participant whose average adjusted gross
nonfarm income exceeded $1 million would not receive any
benefit from the contract. Id. at AR-000148. The CSP
contract required Day to construct and install game ladders
for water storage tanks and drinkers, annually map the salt
and mineral blocks around the drinkers, develop a rotation
plan for the mineral blocks, and to annually change and
recycle the used oil from his tractor. Id. at
AR-000119. In exchange for these activities NRCS would pay
Day $40, 000 per year from 2010 through 2014, for a total of
$200, 000. Id. at AR-00061. Day incurred no
out-of-pocket expenses for constructing and installing the
game ladders or mapping the salt and mineral blocks, although
he did incur unspecified out-of-pocket expenses for driving
to Clovis, New Mexico to have the used tractor oil recycled.
Id. It is undisputed that before NRCS terminated the
contract, Day fully complied with his end of the contract,
and thus NRCS paid him $40, 000 annually from 2010 through
2013, for a total of $160, 000. Id. at AR-000119 -
2012, FSA asked Day to provide additional income information
for the 2010 tax year. Id. at AR-000120. FSA made
this inquiry because in April 2012, Day's accountant sent
a letter to FSA indicating that Day could be over the
applicable AGI limited based on his tax returns. Id.
at AR-000061. More specifically, the accountant's letter
indicated that Day's average nonfarm AGI for the 2010
program year was $2, 799, 283 based on a nonfarm AGI of $1,
742, 115 in 2006, $8, 661, 764 in 2007 and a loss of $2, 006,
031 in 2008. Id. at AR-000062. Day received no
response from FSA or NRCS about his accountant's April
2012 letter. Id.
and 2013 Day and an NRCS continued to certify that Day
completed the required conservation practices for those years
and that the practices met the CSP's requirements.
Id. NRCS paid Day $40, 000 each of those years.
2014, FSA audited Day's compliance with the AGI
limitations for program year 2010. Id. at AR-000120.
The FSA reviewed Day's tax returns and other information
Day provided and determined that Day's nonfarm income
exceeded the $1 million nonfarm AGI limitation for
conversation programs. Id. at AR-000120 - 000121. In
a March 2014 letter to Day, FSA told Day that he was
ineligible for 2010 program payments and that he was required
to refund any CSP payments he had received for the 2010
program year. Id. at AR-000121. FSA notified NRCS
that Day's income exceeded the AGI limit. Id.
response, NRCS terminated the CSP contract between it and
Day. Id. The NRCS' May 2014 letter to Day
referenced FSA's finding that Day did not meet income
eligibility requirements at the time of the contract
obligation. Id. at AR-000005; AR-000062. The letter
informed Day that he was obligated to repay to NRCS $160, 000
in previous payments he received under the CSP contract and
$16, 000 in liquidated damages. Id. at AR-000005.
The Agency terminated the CSP contract pursuant to 7 C.F.R.
§ 1470.6(a)(4), which says a program participant must be
compliant with the AGI provisions. Id. at AR-000275.
The Agency said that under 7 C.F.R. § 1470.36(b) and
(c)(4) it had no latitude to reduce the refund demand of
$160, 000. Id. The letter also advised Day that he
might be eligible for equitable relief under the NRCS'
relief authority at 7 C.F.R. § 635. Day's lawyer
responded to the Agency's decision by letter on June 17,
2014. Id. at AR-000212.
September 2014 the NRCS and Day engaged in mediation.
Id. at AR-000121. NRCS agreed to waive the $16, 000
in liquidated damages. Id. Otherwise NRCS'
position concerning refund of the $160, 000 from Day remained
November 2014, Day's lawyer mailed to NRCS a letter
containing an analysis of the case and a proposed solution.
Id. at AR-000063. The letter stated that Day's
accountant confirmed that because of the 2007 sale of
Day's store, Day's average adjusted nonfarm income
exceeded the AGI limit for 2010. Id. at AR-000014.
The letter asserted that Day “acted in good
faith” at the time he completed the application.
Id. Reasoning that 7 C.F.R. §
1470.27 gave NRCS discretion to reduce its refund
amount, the letter proposed that NRCS reduce its refund
demand to $40, 000 Id. at AR-000014 - 000015.
November 6, 2014, NRCS rejected Day's interpretations of
this and other regulations, upheld the termination of his CSP
contract, and demanded refund of $160, 000 it paid to Day
under the contract. Id. at AR-000016. The Agency
explained that it lacked authority to waive its demand for
full repayment of the contract payments because those
payments were improperly given to Day in the first place.
November 10, 2014, Day appealed the Agency's decision to
the National Appeals Division (“NAD”) of the
United States Department of Agriculture. Id. at
AR-000010. In February 2015, an Administrative Judge found
that Day did not intentionally, fraudulently, or negligently
misstate his nonfarm AGI on the 2010 AGI statement.
Id. at AR-000062. The Administrative Judge
characterized Day's misstatements as
“erroneous.” Id. The Administrative
Judge made additional findings that Day did not breach the
CSP contract other than being ineligible to participate in
the CSP because of the AGI limitation issue, and that Day
otherwise performed his end of the contract to perform the
conservation improvement activities. Id. at
AR-000064. Nevertheless, the Administrative Judge affirmed
the Agency's decision to terminate Day's CSP
contract, reasoning that Day was never eligible to
participate in the CSP program in the first place because his
nonfarm AGI exceeded $1 million for the 2010 program year.
Id. at AR-000064 - AR-000065. Specifically, the
Administrative Judge explained that AGI eligibility is
determined once based on the year in which the Agency
approved the CSP contract, which was 2010. Id. The
AGI determination then applies for the entire term of the
contract. Id. at AR-00065 (citing 7 C.F.R. §
Administrative Judge made the following three additional
conclusions of law. First, Day was required to refund all CSP
payments made to him because Day erroneously represented that
he satisfied the CSP's nonfarm AGI limit, and that under
the governing regulations a participant who erroneously
represents any facts affecting a CSP determination is not
entitled to contract payments and must refund all payments
received. Id. at AR-000066. Second, the Agency
properly denied Day's request of the Agency to waive or
reduce the full refund demand of $160, 000. Id. at
AR-000067. The Administrative Judge reasoned that Day's
erroneous representation of fact concerning his AGI
eligibility for 2010 program necessitated refund of all
payments under the relevant regulations, and that the
applicable regulations, the Agency's Conservation Program
Manual, and the CSP contract itself permitted no exceptions
to this requirement. Id. Third, the Administrative
Judge rejected Day's assertion that the Agency failed to
consider his request for equitable relief. Id. at
AR-000068. Although Day did submit a responsive letter to the
Agency's termination letter within the appropriate 30-day
period to appeal, the Administrative Judge concluded that the
letter only asked for the Agency to reconsider its position
and requested a full waiver of liquidated damages; the letter
did not request equitable relief. Id. The
Administrative Judge additionally developed a factual record
to enable a reviewing tribunal to decide whether to grant or
deny equitable relief.
March 11, 2015 Day appealed the Administrative Judge's
decision to the Director of the National Appeals Division.
Id. at AR-000077. Day also made a direct request to
the Director for equitable relief. Id. On November
4, 2015, the Director affirmed the Administrative Judge's
decision on the merits in all respects and denied Day's
direct request for equitable relief. Id. at
AR-000118 - 000128.
having gone through two layers of administrative review, on
November 16, 2015, Day sought judicial review of the
Director's determination in this Court under the APA and
7 U.S.C. § 6999 (“[a] final determination of the
Division shall be reviewable and enforceable by any United
States district court of competent jurisdiction
….”) Day initially filed a complaint requesting
review of an erroneous decision by the Agency. See
Pet'r's Compl., ECF No. 1. The complaint alleged a
violation of due process and alternatively requested the
Court to set aside the Agency's actions and deem its
conclusions as arbitrary, capricious, and an abuse of
discretion, or otherwise not in accordance with law and
unsupported by substantive evidence. See Id.
¶¶ 7-8, at 2. In response, the Agency correctly
pointed out that challenges to federal agency actions are not
subject to the use of normal civil trial procedures because
reviews of agency actions in district court must be processed
as appeals. See Resp't's Resp. to Compl.,
ECF. No. 6 (citing Olenhouse v. Commodity Credit
Corp., 42 F.3d 1560, 1580 (10th Cir.1994)). Day
therefore filed this Brief in Chief as an appeal from the
Director Review Determination issued by NAD. See
Pet'r's Op. Br. at 4.
the Agency is correct that reviews of agency action must be
treated as appeals, the Court will interpret Day's
complaint as a “Petition for Agency Review” and
his Brief in Chief as being a memorandum in support of that
petition. In his Statement of Issues for review by this
Court, Day articulates his points of appeal as
1. Did the NRCS act in an arbitrary, capricious fashion, or
otherwise abuse its discretion when it determined that it did
not have the authority to decide whether to reduce its refund
2. Was the Director's decision to deny equitable relief
based on a finding for which there was no ...