Watson v. Perdue

District Court, District of Columbia·Decided September 17, 2019·No. Civil Action No. 2019-1633·Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

WAYNE WATSON, et al., Plaintiffs,

v. Case No. 1:19-cv-01633 (TNM)

SONNY PERDUE, Secretary, U.S. Department of Agriculture, et al.,

Defendants.

MEMORANDUM OPINION

For generations, an African American family has farmed cotton and soybeans in the Mississippi River Delta near Mound Bayou, Mississippi. In the 1980s and 90s, the Watsons pledged their farmland as security for various loans from the U.S. Department of Agriculture’s Farm Service Agency, including a Farm Ownership Loan. That Farm Ownership Loan is delinquent, and the Agency has started foreclosure proceedings against the Watsons’ farmland. Wayne Watson and his siblings seek a preliminary injunction to enjoin the foreclosure. They claim that they have made payments toward the Farm Ownership Loan but the Agency has misapplied those payments to debts it should have forgiven after their parents’ successful discrimination claim under the Pigford Consent Decree. The Agency argues that it properly credited the Watsons’ accounts with Pigford debt relief, and in any event, the allegedly misapplied payments are not enough to bring the Farm Ownership Loan current. For the reasons below, the Court will deny the Watsons’ Motion for Preliminary Injunction.

I.

Between 1988 and 1995, Annie and James Watson, Jr. received Operating, Emergency, and Farm Ownership Loans from the Agency. See Miller Decl. ¶ 1, ECF No. 18-1. The

Operating Loan program, Emergency Loan program, and Farm Ownership Loan program are separate, distinct loan programs. See Monitor Update No. 10 at 2, ECF No. 12-6. 1 These distinctions turn out to be critical to the Watsons’ entitlement to relief.

As of 1995, the Watsons were behind on their loan payments. Miller Decl. ¶ 1–2. So, in October of that year, they signed an agreement with the Agency to restructure their debt. Id. ¶ 2; see also Shared Appreciation Agreement (“SAA”), ECF No. 18-4. The Agency agreed to write down nearly $260,000 of the Watsons’ debt. SAA at 2. The write-down extinguished all the Watsons’ outstanding Operating and Emergency Loans and reduced their obligation on the Farm Ownership Loan by about $16,000. See Miller Decl. ¶ 1; see also Loan Analysis at 18, ECF No. 18-3. After the write-down, the Watsons were left with a balance on their Farm Ownership Loan of just under $140,000. Miller Decl. ¶¶ 1–2; see also SAA at 1; Loan Analysis at 1–2, 18. 2 In exchange for the write-down, the Watsons entered into a Shared Appreciation Agreement (the “Agreement”). See SAA at 1–2. A Shared Appreciation Agreement is an agreement between the Agency and a borrower that requires the borrower who has received debt write-down on a loan secured by real estate to repay the Agency some or all the write-down received. See Miller Decl. ¶ 3. How much the borrower owes is based on a percentage of any increase in the value of the real estate securing a Shared Appreciation Agreement at a future date. See id.; SAA at 2. The Watsons used their farmland as security. SAA at 1, 3. The Agreement had a ten-year term, and the Watsons agreed to pay the Agency a “recapture amount”

1 All citations are to the page numbers generated by the Court’s CM/ECF system.

2 The Agency re-amortized the remaining Farm Ownership Loan balance over 34 years at 5% interest with a 5-year partial deferral of annual payments. Miller Decl. ¶ 2. The Watsons owed $6,008 per year for the first five years and $9,001 per year from that point. Id. As part of the re-amortization, the Agency designated the Farm Ownership Loan as loan 41-32; before, it was loan 41-29. See Suppl. Miller Decl. ¶¶ 1–2, ECF No. 21-1; see also Farm Ownership Loan at 1–6, ECF No. 18-2.

equal to 50 percent of any positive appreciation in the market value of their farmland, upon maturation. Id. at 2; Miller Decl. ¶ 24. In sum, as of 1995, the Watsons had an outstanding Farm Ownership Loan with the Agency and a recapture liability that matured in 2005.

In 1999, James Watson, Jr., sought relief under the Pigford Consent Decree. See Pigford Claim Sheet, ECF No. 12-9. The Pigford Consent Decree arose out of a class action by African American farmers alleging the Agency had discriminatorily denied them loans, “delay[ed] the processing of their applications or approv[ed] the[ir] [applications] for insufficient amounts or with restrictive conditions.” Pigford v. Glickman, 185 F.R.D. 82, 87 (D.D.C. 1999). Relevant here, the Consent Decree allowed farmers who believed that the Agency had discriminated against them to submit claims to a court-appointed adjudicator. See Consent Decree, ECF No. 1- 5 at 2, 13–17; see also, e.g., Decision of Adjudicator, ECF No. 18-6. If the Adjudicator decided in a claimant’s favor, the claimant was entitled to the relief of all his “outstanding debt to [the U.S. Department of Agriculture] that was incurred under, or affected by, the program(s) that was/were the subject of the . . . claim(s) resolved in [his] favor.” Consent Decree at 15.

James Watson alleged the Agency had discriminated against his applications for Operating Loans starting in 1989. Pigford Claim Sheet at 3. The Adjudicator originally denied his claim. Decision of Adjudicator at 2–3. But Mr. Watson appealed, and upon reexamination, the Adjudicator determined that Mr. Watson had “established by substantial evidence that he [was] entitled to recover under the terms of the Consent Decree.” See Decision on Reexamination at 3, ECF No. 12-11. The Adjudicator directed that “as required by the Consent Decree, [Mr. Watson] . . . shall be relieved of any USDA Operating Loan debt incurred . . . between February 2, 1989 and December 31, 1996.” Id.

In the interim, the Agreement matured. The Agency calculated the recapture amount due and determined that the Watsons owed $60,819. Recapture Calculation, ECF No. 18-9. The Agency created an Equity Recapture Account (“ERA”) (No. 41-40) to track the balance of the recapture amount due. Miller Decl. ¶ 8. The Watsons made two payments toward the ERA: $8,000 in 2008 and $14,990.77 in 2011. Id. ¶ 9.

Pigford debt relief covered the remaining balance of the ERA. See id. ¶¶ 11, 24; see also ERA Ledger, ECF No. 18-23. Recall that the Adjudicator ordered the Agency to grant debt relief to James Watson’s Operating Loans incurred between 1989 and 1996, but the Agency wrote off those loans entirely under the Agreement—there was no debt left to relieve. Miller Decl. ¶ 11. So the Agency applied non-cash credits to the ERA in the amount equal to the Pigford-qualifying Operating Loans that it had written off. See id.; see also Debt Relief Summary, ECF 18-12; ERA Ledger at 1. 3 Between the Watsons’ payments and the non-cash credits, the ERA was satisfied. Miller Decl. ¶ 24.

Meanwhile, the Watsons fell behind on their Farm Ownership Loan (No. 41-32). Id. ¶ 4.

According to the Agency, the Farm Ownership Loan has been delinquent since 2000. Id. James Watson died in 2006, and Annie Watson died two years later. Id. ¶ 13. But their estates remained liable for the outstanding loans. See id. ¶ 14. Wayne, Troy, Fitzgerald, Rhonda, and Deborah Watson (collectively, the “Heirs”) are heirs to the Watsons’ estates, and Wayne Watson is also the executor of the estates. See Compl. at 1, ECF No. 1; TRO Hearing Tr. at 8–9. Starting in 2006, the Heirs have made payments toward the outstanding Farm Ownership Loan. See Wayne Watson Aff. ¶ 4, ECF No. 2-2 at 6–10.

3 The Agency originally applied $135,796.56 in non-cash credits to the ERA, but it later applied another non-cash credit of $54,587.73. Miller Decl. ¶ 11. All told, the Watsons received more than $190,000 in non-cash credits. Id.

Even so, the Agency maintains that the loan is behind about $75,000. See Miller Decl.

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