In the
United States Court of Appeals
For the Seventh Circuit

No. 01-1910

Donald and Patsy Israel, Richard and Shirley
Quinton, all d/b/a Israel and Quinton Farms,

Plaintiffs-Appellants,

v.

United States Department of Agriculture,
Farm Service Agency,

Defendant-Appellee.

Appeal from the United States District Court
for the Western District of Wisconsin.
No. 00 C 223--Barbara B. Crabb, Chief Judge.

Argued October 23, 2001--Decided March 8, 2002



  Before Harlington Wood, Jr., Cudahy, and
Kanne Circuit Judges.

  Kanne, Circuit Judge. In 1989,
plaintiffs restructured an existing loan
with the Farm Service Agency ("FSA")/1
and signed a ten-year agreement as part
of that restructuring. The agreement
required plaintiffs to pay the FSA a
percentage of appreciation that accrued
to their property if certain triggering
events transpired ("recapture"). In 1999,
the FSA determined that expiration of the
agreement was one of the triggering
events and sought recapture. Plaintiffs
sought administrative review of the FSA’s
determination and argued that only three
events triggered recapture: full payment
on the loan, cessation of farming, or
transfer of the title of their property.
The National Appeals Division of the
Department of Agriculture found that the
terms of the agreement allowed recapture
at the expiration of the agreement.
Plaintiffs appealed that decision to the
Director of the National Appeals Division
for the Department of Agriculture, who
affirmed. Plaintiffs then sought judicial
review of the agency’s determinations and
argued that they were arbitrary and
capricious, contrary to law, and
unsupported by substantial evidence. The
district court affirmed, and plaintiffs
appealed. We affirm.

I.   History

A.   Shared Appreciation Agreement

  Plaintiffs, Donald and Patsy Israel and
Richard and Shirley Quinton, own a
farming partnership called Israel and
Quinton Farms. In the fall of 1989,
plaintiffs were indebted to the FSA in
the amount of $239,478.91. After
negotiating with the FSA, the FSA reduced
("wrote down") plaintiffs’ loan by
$100,357.34. Plaintiffs were thus left
with a restructured debt of $139,121.57,
which was secured by a preexisting real
estate mortgage.

  On September 15, 1989, as consideration
for their write down, plaintiffs signed a
ten-year Shared Appreciation Agreement
("Agreement") with the FSA, which was
secured by a separate mortgage on
plaintiffs’ real property. The Agreement
provided:

As a condition to, and in consideration
of [FSA] writing down the above amounts
and restructuring the loan, borrower
agrees to pay [FSA] an amount according
to one of the following payment
schedules:

. . .

2. Fifty (50) percent of any positive
appreciation in the market value of the
property securing the loan above as
described in the security instruments
between the date of this Agreement and
either the expiration date of the
Agreement or the date Borrower pays the
loan in full, ceases farming or transfers
title of the security, if such event
occurs after four years but before the
expiration date of this Agreement.

The amount of recapture by [FSA] will be
based on the difference between the value
of the security at the time of disposal
or cessation by Borrower of Farming and
the value of the security at the time
this Agreement is entered into. If the
borrower violates the terms of the
agreement [FSA] will liquidate after the
borrower has been notified of the right
to appeal. [emphasis added]

  In April 1994, plaintiffs advised the
FSA that they might arrange private
financing to replace their FSA loan. The
FSA told plaintiffs that this would cause
the Agreement to "kick in," and that
plaintiffs would then owe the FSA
approximately $23,000.00 under the terms
of the Agreement./2 Plaintiffs never
obtained private financing and, thus, did
not trigger the Agreement by "pay[ing]
the loan in full." On January 26, 1998,
the FSA sent plaintiffs a letter and
advised them that the payoff amount
remaining on their loan was $118,910.20.
The letter did not reference the
Agreement.

  In letters to plaintiffs dated April 24,
1997, November 6, 1997, and October 5,
1998, the FSA wrote:

Our records indicate that on September
15, 1989, the Farm Service Agency (FSA)
wrote down $100,357.34 of your debt. As a
consideration for this write down you
were required to sign a Shared
Appreciation Agreement (copy attached).

Essentially what this document says is
that if the value of your real estate
increases after the date of the write
down, you will be responsible for
repaying some or all of the debt FSA
wrote down. If any repayment is due it
will become due when any one of the
following events happens.

1.   Ten Years has passed.

2.   You pay the rescheduled loan in full.

3.   You ceased farming.

4. You transferred title to the
property.

  On June 30, 1999, the FSA wrote
plaintiffs a letter that stated, "[t]he
purpose of this letter is to inform you
that the Shared Appreciation Agreement .
. . you entered into as a result of
receiving a ’debt write down’ will expire
on September 14, 1999, which is 10 years
after the date you signed it. . . . We
have determined the amount of shared
appreciation due is $96,500." The FSA
calculated the amount due by using the
following equation:

     $345,000 (current appraisal of
plaintiffs’ real property)
minus $152,000 (1989 appraisal of
plaintiffs’ real property)

     $193,000 (net appreciation)

   times             .50 (Agreement percent
share)

   equals   $   96,500 (appreciation
demanded)

B.   Administrative Proceedings

  Plaintiffs protested to the FSA,
contending that under the terms of the
Agreement they should not be required to
pay shared appreciation. On September 9,
1999, the FSA refused to reconsider its
determination and affirmed its decision
to require payment of $96,500 in shared
appreciation. The FSA noted that it was
"bound by the Code of Federal
Regulations," which provides that "shared
appreciation is due at the end of the
term of the Shared Appreciation
Agreement."

  On October 7, 1999, plaintiffs appealed
to the National Appeals Division of the
Department of Agriculture. Plaintiffs
claimed, inter alia, that the Agreement
did not allow for recapture upon the
expiration of the Agreement. Plaintiffs
argued that because the formula for
calculating recapture did not explicitly
mention the Agreement’s expiration, such
expiration should not be considered a
triggering event. Under their view of the
Agreement, recapture occurred "only where
the borrower pays the loan in full,
ceases farming, or transfers title of the
security during the term of the
Agreement."

  On December 9, 1999, Hearing Officer
Benner conducted an evidentiary hearing
on the matter. During that hearing,
plaintiffs testified that when they
signed the Agreement, they did not
believe that expiration of the Agreement
constituted a triggering event.
Plaintiffs also stated that conversations
in 1988 with Michael Drewiske and in the
1990s with Karolyn Corbett, both FSA
employees, led them to believe that the
expiration of the Agreement was not a
triggering event.

  On January 3, 2000, Hearing Officer
Benner, relying in part on 7 C.F.R.
Sections 1951.914 and 1922.201, held that
the FSA’s decision to demand $96,500 in
shared appreciation was not erroneous.
Benner wrote:

The Appellant’s Shared Appreciation
Agreement (SAA) expired on September 14,
1999. . . . Therefore, the Agency
decision to calculate shared appreciation
due is correct according to regulations.

The Appellants argue that the agreement
"expired" on September 14, 1999, meaning
that no shared appreciation is due. They
also argue that they were told that this
was the case at the time of signature.
However, the agreement and the regulation
clearly state that shared appreciation is
due at the expiration of the agreement.

  On or about February 4, 2000, plaintiffs
appealed Hearing Officer Benner’s
decision to the Director of the National
Appeals Division of the Department of
Agriculture. In a decision dated March
17, 2000, Director Norman Cooper upheld
Hearing Officer Benner’s decision and
concluded that "[a]ppellants failed to
prove by a preponderance of evidence that
the Agency decision was erroneous."
Director Cooper stated:

The Hearing Officer’s decision is
supported by substantial evidence as
follows:

1. The Appellants received a $100,357.34
write-down of Agency debt and entered
into [the Agreement] on September 15,
1989. The [Agreement] expired on
September 14, 1999.

2. The market value of the Appellants’
property was determined to be $152,000 at
the time the [Agreement] was executed. As
of May 20, 1999, the property was
determined to have a market value of
$345,000. The property valuation was
conducted by a Certified General
Appraiser and was performed in accordance
with the Uniform Standards of
Professional Appraisal Practice (USPAP).

3. The Agency considered the current
market value of the Appellant’s property
($345,000), the market value upon
execution of the [Agreement] ($152,000),
and determined that the amount of
recapture was 50 percent of the
appreciated market value ($193,000) or
$96,500.

4. The Appellants agreed to pay 50
percent of any positive appreciation in
value of the property during the term of
the [Agreement] (September 15, 1989, to
September 14, 1999).

5. On September 9, 1999, the Agency
affirmed its decision to require payment
of $96,500 in appreciation under the
Terms of the [Agreement].

Director Cooper concluded:

Regulations at 7 C.F.R. sec. 1951.914(b)
and the [Agreement] specify that the
Agency can recapture a portion of the
written-off debt by taking a share of any
positive appreciation in the value of the
real property. The Agency must collect 50
percent of any positive appreciation in
the market value of the security between
the date the [Agreement] was executed and
the date it expires. . . .

Notwithstanding the Appellants’ arguments
on review that the [Agreement] is
ambiguous and regulations are irrelevant,
the terms of the [Agreement] are clear
and published regulations, by law, are a
proper basis for the Hearing Officer’s
determination. . . .

Substantial evidence supports the Hearing
Officer’s determination that the Agency
did not err in establishing the amount of
recapture due under the [Agreement] and
requiring payment of such.

C.   Judicial Review

  On April 17, 2000, plaintiffs filed suit
in the Western District of Wisconsin
pursuant to the Administrative Procedure
Act, 5 U.S.C. sec.sec. 701-706. On
appeal, plaintiffs relied on the lack of
a specific reference to the expiration of
the Agreement in the formula for
calculating recapture to support their
contention that the Agreement’s
expiration was not a triggering event.
The plaintiffs also relied on their
conversations with Drewiske and Corbett
to support this reading of the Agreement.
In the alternative, plaintiffs argued
that the FSA should be estopped from
collecting $96,500 because plaintiffs
relied to their detriment on statements
made by FSA officers Drewiske and
Corbett.

  On March 2, 2001, the district court
affirmed the agency’s determinations. The
district court noted that "[t]he language
of the [A]greement requires recovery of
appreciation ’between the date of this
Agreement and either the expiration date
of the Agreement or the date Borrower
pays the loan in full, ceases farming or
transfers title of the security.’" The
district court noted that the use of the
disjunctive "or" strongly supported the
position that the Agreement allowed
recapture at the expiration of the
Agreement, in this case on September 14,
1999. The district court rejected
plaintiffs’ argument that any
conversation with Drewiske or Corbett
should control over the plain language of
the Agreement. The district court stated
that Hearing Officer Benner and Director
Cooper were presented with the same
evidence and found for the FSA. Further,
the district court noted that it was "not
the role of the [district] court to re-
weigh the evidence that was presented to
the agency; rather, the court must
consider whether the [Agency’s] decision
was based on a consideration of the
relevant factors and whether there has
been a clear error of judgment." The dis
trict court then held that it could not
conclude "that there was a clear error of
judgment in the agency’s interpretation
of the" Agreement.

  The district court also rejected
plaintiffs’ estoppel argument. First, the
district court noted the doctrine of
sovereign immunity would likely bar the
use of estoppel in the present case. Even
if the FSA was not immune, the district
court found that plaintiffs did not
satisfy an essential element of an
estoppel claim because they had failed to
demonstrate any affirmative misconduct by
the FSA. Thus, the district court upheld
the agency’s determinations that
expiration of the Agreement was a
triggering event and that plaintiffs owed
the FSA $96,500 under the terms of the
Agreement. On April 17, 2001, plaintiffs
appealed and asserted that the agency’s
determinations were arbitrary and
capricious and were not supported by
substantial evidence.

II.   Analysis
A.   Standard of Review

  The agency’s legal determinations will
be affirmed as long as they are not
arbitrary or capricious, and are in
accordance with the law. See Sierra
Resources, Inc. v. Herman, 213 F.3d 989,
992 (7th Cir. 2000). The arbitrary and
capricious standard is highly
deferential, and even if we disagree with
an agency’s action, we must uphold the
action if the agency considered all of
the relevant factors and we can discern a
rational basis for the agency’s choice.
See Sierra Club v. Marita, 46 F.3d 606,
619 (7th Cir. 1995). The agency’s
decision is not arbitrary or capricious
as long as "the agency’s path may be
reasonably discerned." Mt. Sinai Hospital
Med. Center v. Shalala, 196 F.3d 703, 708
(7th Cir. 1999). We will review the
agency’s factual findings under the
substantial evidence standard. See id. at
709. Under this deferential standard of
review, we review the entire record to
see whether it contains "such relevant
evidence as a reasonable mind might
accept as adequate to support a
conclusion." Aegerter v. City of
Delafield, Wis., 174 F.3d 886, 889 (7th
Cir. 1999).

B.   Review of Agency Determination

  Plaintiffs contend that the agency’s
determinations were erroneous because
expiration of the Agreement was not a
triggering event under the Agreement. To
determine what events triggered recapture
under the Agreement, we must examine the
language of the Agreement itself. First,
we must determine whether the relevant
clause of the Agreement is ambiguous. See
Funeral Fin. Sys. v. United States, 234
F.3d 1015, 1018 (7th Cir. 2000). If that
clause is not open to any other
reasonable interpretation, and is
therefore unambiguous, then the language
of the Agreement must dictate the
disposition of this dispute. See id.

  The relevant provision of the Agreement
provides that plaintiffs agreed to pay
the FSA:

2. Fifty (50) percent of any positive
appreciation in the market value of the
property securing the loan above as
described in the security instruments
between the date of this Agreement and
either the expiration date of the
Agreement or the date Borrower pays the
loan in full, ceases farming or transfers
title of the security, if such event
occurs after four years but before the
expiration date of this Agreement.

("recapture provision") (emphasis added).
Thus, in plaintiffs’ case, the Agreement
provides for 50% recapture of
appreciation on whichever of the
following dates occurs first: the
Agreement’s expiration on September 14,
1999, the date plaintiffs pay the loan in
full, the date the plaintiffs cease
farming, or the date that the plaintiffs
transfer title of their property. Both
parties agree that plaintiffs did not pay
their loan in full, cease farming, or
transfer the title of their property.
Therefore, the Agreement’s expiration on
September 14, 1999 was the first
triggering event under the recapture
provision.

  Plaintiffs contend, however, that the
Agreement does not provide a formula for
recapture at the expiration date of the
Agreement, and therefore, the Agreement’s
expiration should not constitute a
triggering event. The formula provision
states that the amount of recapture "will
be based on the difference between the
value of the security at the time of
disposal or cessation by Borrower of
farming and the value of the security at
the time [the] Agreement is entered
into." Plaintiffs’ argument is
unpersuasive.

  Director Cooper found that the plain
language of recapture provision provides
for recapture at the expiration date of
the Agreement, and we agree. The
recapture provision clearly states that
recapture is allowed at "the expiration
date of the Agreement." We reject
plaintiffs’ contention that the formula
provision negates the clear language of
the recapture provision solely because
the formula provision does not mention
the expiration date of the Agreement
explicitly, as does the recapture
provision. Because the plain language of
the Agreement provides for recapture at
"the expiration date of the Agreement,"
we cannot conclude that the agency’s
determinations were "arbitrary,
capricious, an abuse of discretion, or
otherwise not in accordance with law" or
"unsupported by substantial evidence." 5
U.S.C. sec.sec. 706(2)(A), (E).

  The agency’s determinations are also
strongly supported by the language of the
relevant statute. Plaintiffs’ loan was
secured by a real estate mortgage that
stated that the Agreement was entered
into pursuant to 7 U.S.C. sec. 2001.
Section 2001(e)(4) states that
"[r]ecapture shall take place at the end
of the term of the agreement, or sooner--
(A) on the conveyance of the real
security property; (B) on the repayment
of the loans; (C) if the borrower ceases
farming operations." Id. at sec.
2001(e)(4) (emphasis added). Thus, the
quoted language demonstrates that the FSA
did not err in concluding that recapture
is provided for at the expiration of the
Agreement.

  We have found only one other court that
has interpreted this type of agreement,
and that court reached the same
conclusion as we do now. See In re
Moncur, No. 98-03213, 1999 WL 33287727,
at *4 (Bankr. D. Idaho May 27, 1999). In
Moncur, the bankruptcy court was faced
with an identical agreement and with the
same issue. After examining the agreement
as a whole, as well as the federal
statute and regulations concerning the
agreement, the Moncur court concluded
that "[w]ithout question, the [FSA’s
loan] program contemplated a recapture
payment at the conclusion of the
[agreement] term if payment in full of
the write-down balance had not been made
during the term of the [agreement]." Id.
Therefore, the bankruptcy court construed
the agreement in favor of the FSA and
held that recapture was allowed at the
agreement’s expiration. See id./3

  Finally, plaintiffs appeal the district
court’s decision insofar as it contains a
monetary judgment against them. However,
the order of the district court only
affirmed the agency determinations and
did not result in an enforceable monetary
judgment. See Israel v. U.S. Dept. of
Agr., 135 F. Supp. 2d 945, 954 (W.D. Wis.
2001).

III.   Conclusion

  For the forgoing reasons, we AFFIRM the
judgment of the district court in favor
of the FSA.

FOOTNOTES

/1 The FSA was formerly called the Farmers Home
Administration.

/2 The Agreement would "kick in" because private
financing would result in the FSA loan being paid
off in full, one of the triggering events under
the Agreement. The FSA calculated the amount owed
as follows: the Agreement allowed the FSA to
recapture 50% of any positive appreciation that
accrued to plaintiffs’ property. The appraised
value of the property in 1994 was $198,000 and
$152,000 in 1989. Thus, the total appreciation
was $46,000, and the FSA was entitled to half of
that amount--$23,000.

/3 Plaintiffs concede that their estoppel argument
is without merit, and therefore it need not be
addressed.
