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Van Curen v. Federal Crop Insurance Corp.

United States District Court, N.D. California

April 21, 2014

VAN CUREN, Plaintiff,

Page 1201

For John Van Curen, as Trustee and Plan Administrator of the Chapter 11 Estate of Michael Hat, f/k/a Michael Hat Farming Company, Plaintiff: David Clarke Sugar, LEAD ATTORNEY, Merle Cooper Meyers, Meyers Law Group, PC, San Francisco, CA.

For Federal Crop Insurance Corporation, Risk Management Agency, Defendants: Jonathan Unruh Lee, LEAD ATTORNEY, United States Attorneys Office, Northern District of California, San Francisco, CA.

Page 1202



Chapter 11 Bankruptcy Trustee John Van Curen (" Trustee" or " Plaintiff" ) brought suit against the Federal Crop Insurance Corporation and Risk Management Agency (collectively, " Defendants" ) to compel payment of crop insurance proceeds for the benefit of Debtor Michael Hat, formerly doing business as Michael Hat Farming Company's (" Debtor's" ) bankruptcy estate. See generally Compl. (dkt. 1). Trustee filed a Motion for Partial Summary Judgment (" P. MSJ" ), (dkt. 28), asking the Court to order Defendants to

Page 1203

implement the administrative decision of the U.S. Department of Agriculture's National Appeals Division. Defendants, in turn, filed a Motion to Dismiss or in the Alternative for Summary Judgment (" Def. MSJ" ), (dkt. 29), arguing that the National Appeals Division never had jurisdiction to decide the dispute because Trustee's claims are time-barred under the Federal Crop Insurance Act, 7 U.S.C. § 1508(j), and the subject crop insurance policies. Because Plaintiff Trustee's claims are time-barred, the Court GRANTS Defendants' Motion and DENIES Plaintiff's Motion.


The facts in this case are virtually undisputed. Debtor grew grapes primarily in California's Central Valley and sold them to wine and juice manufacturers. See Van Curen v. Great Am. Ins. Co. (In re Hat), 363 B.R. 123, 129 (Bankr. E.D. Cal. 2007). Debtor filed for Chapter 11 bankruptcy relief on July 20, 2001. Compl. ¶ 8; see In re Michael Hat, also known as Michael Hat Farming Company, No. 04-32497 (Bankr. E.D. Cal. filed July 20, 2001). During the initial stages of Debtor's bankruptcy, until April 2003, Debtor continued operating his farming business as " debtor-in-possession." See In re Hat, 363 B.R. at 130.

Starting around 1999, Debtor purchased crop insurance for his grape crops when available. See id. at 131. While operating as debtor-in-possession, Debtor purchased substantial crop insurance coverage from American Growers Insurance Company (" AGIC" ) for the 2002 crop year. Van Curen Decl. Exhibit A (dkt. 28-2) at 7. He increased existing coverage on some 33 grape units, and purchased new coverage on 11 additional units. Id. AGIC, a private insurer, issued the policies, and the Federal Crop Insurance Corporation (" FCIC" ), a creation of the U.S. Department of Agriculture, acted as reinsurer pursuant to a Standard Reinsurance Agreement between AGIC and FCIC. See id. at 3-4; see also Van Curen Decl. Exhibit J (dkt. 28-14) (Common Crop Insurance Policy); Burnett Decl. Exhibit 1 (dkt. 36-1) (Standard Reinsurance Agreement).

Most relevant to this action, the crop insurance policies contained the following provisions:

20. Arbitration.
(a) If you and [AGIC] fail to agree on any factual determination, the disagreement will be resolved in accordance with the rules of the American Arbitration Association. Failure to agree with any factual determination made by FCIC must be resolved through the FCIC appeal provisions published at 7 CFR part 11. . . .

25. Legal Action Against [AGIC]

(a) You may not bring legal action against [AGIC] unless you have complied with all of the policy provisions.
(b) If you do take legal action against [AGIC], you must do so within 12 months of the date of denial of the claim. Suit must be brought in accordance with the provisions of 7 U.S.C. 1508(j). . . .

Van Curen Decl. Exhibit J at 12-13.

Many of Debtor's insured crops suffered substantial damage during the 2002 crop year. Van Curen Decl. Exhibit A at 3-4. In late 2002, Debtor filed several insurance claims with AGIC under the various policies. Id. AGIC adjusters inspected Debtor's vineyards, processed and approved the claims, and sent Debtor $8,354,368 in indemnity payments. Id. at 4. Debtor cashed some of AGIC's indemnity checks, in the amount of $1,804,701, but never cashed the others. Id. After issuing

Page 1204

checks to Debtor, in early 2003, AGIC began a " High Dollar Loss Review" of Debtor's claims, as required by the Reinsurance Agreement for claims over $100,000. Id.

As AGIC conducted its High Dollar Review, the insurer itself was experiencing severe financial difficulties. In November 2002, the Nebraska Department of Insurance issued an order of supervision over AGIC, and in December 2002, placed AGIC into rehabilitation. Burnett Decl. (dkt. 36) ¶ 8. The Nebraska Department of Insurance and the U.S. Department of Agriculture's Risk Management Agency [1] (" RMA" ) entered into a Memorandum of Understanding with regard to AGIC's financial troubles. See Van Curen Decl. Exhibit F (dkt. 28-10). The Memorandum essentially promised that RMA, acting on behalf of the Federal Crop Insurance Corporation (" FCIC" ), would guarantee AGIC's insurance policies in the event of an AGIC liquidation. See id. (" RMA will ensure that all claims for [AGIC] policies that are reinsured by FCIC are paid in full." ). RMA began day-to-day oversight of AGIC in January 2003 to ensure orderly claims processing and to transfer existing policies to new private insurers in an apparent effort to wind down AGIC's operations. Burnett Decl. ¶ ¶ 11-16.

Meanwhile, in April 2003, the bankruptcy court appointed Trustee to take over control and management of Debtor's bankruptcy estate. Van Curen Decl. Exhibit A at 4. Debtor could no longer operate his business as debtor-in-possession, and Trustee began the process of liquidating Debtor's business and paying his creditors. Id. Trustee accordingly took over responsibility for Debtor's pending 2002 AGIC crop insurance claims. Id.

In July 2003, AGIC concluded its High Dollar Review of Debtor's insurance claims. By letter dated August 7, 2003, AGIC issued its final determination to Trustee. Van Curen Decl. Exhibit D (dkt. 28-8). AGIC found that Debtor had been substantially overpaid on his claims, and that Debtor's estate owed AGIC ...

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