Client v. FSA: National Appeals Division Upholds Payment for Indiana Pork Producer in FSA Dispute

Early 2024 delivered a significant victory for a Janzen Schroeder Ag Law client, a pork producer who was facing a bureaucratic nightmare stemming from the pandemic. After multiple rounds of federal administrative appeals and several in-person hearings, an Indiana pork producer secured a win from the USDA’s National Appeals Division (NAD), allowing the farm to retain over half a million dollars in federal pandemic aid that FSA later tried to claw back due to a change in technical wording for a program.

During the COVID pandemic, markets plummeted and the supply chain buckled. Hog farmers were some of the hardest hit. In response, the federal government enacted the Spot Market Hog Pandemic Program (SMHPP). The purpose of the SMHPP was to assist producers who sold hogs through a negotiated sale from April 16, 2020, through September 1, 2020, the period in which these producers faced the greatest reduction in market prices due to the COVID-19 pandemic.

Our client is a family farm “farrow-to-finish operation,” with approximately 1,500 sows and 20,000 pigs on the farm year-round. The pandemic caused devastating financial hardship to the farm, so when the SMHPP was announced, the farm discussed the Program with the local FSA office. Our client submitted the requested information to the FSA on December 15, 2021, the day after the Program was announced. The FSA county committee approved the farm’s application on December 16, 2021 for $540,000 in SMHPP compensation based on the 10,764 hogs claimed by the farm.

Five days later, the FSA halted the program amid mass confusion about what sales were eligible. The FSA national office directed state offices to conduct spot checks of already-approved producers to ensure those sales were eligible. Over the next months, the farm’s local FSA office asked our client for additional information, which our client promptly provided. The county FSA office sought help from the national office to understand whether the sales to a local packer were eligible. It was not until April 27, 2022, that the county office notified our client that their sales were ineligible based on LMR Codes (Livestock Mandatory Reporting). Of course, the original application material did not base eligibility on LMR Codes. The county committee’s reliance on the LMR codes came about as a result of a second federal regulation published by FSA in March 2022 and a new Fact Sheet from April 2022. FSA published the second regulation to revise and clarify the original December 2021 regulation in response to stakeholder concerns and additional USDA analysis.

Based on the April 27, 2022 letter, the FSA ruled it would seek repayment of the SMHPP payment from December 2021. Normally, under the “Finality Rule,” the government cannot claw back benefits paid to a producer after 90 days. But here, the FSA claimed the hog farm had provided inaccurate or incomplete records as part of its application.

The hog farm hired us to appeal the FSA’s decision. We first appealed to the Indiana State Committee. The State Committee sought guidance from the FSA’s national office on the “Finality Rule.” The national office indicated the rule did not apply because the hog farm supposedly knew or had reason to know the SMHPP payment was erroneous by January 6, 2022, when the county office emailed the farm and asked for additional verification records. After receiving the State Committee’s unfavorable decision, we appealed again to a federal NAD administrative law judge.

The NAD judge held an in-person hearing but again ruled against us, again holding the farm knew or had reason to know its December 2021 application was inaccurate (based on a March 2022 regulation). Persevering, we asked for a Director’s Review of the NAD judge’s decision.

Finally, the Director’s Review confirmed what we believed all along: our client was in the right and had not done anything wrong. There was no basis to conclude the farm knew or should have known the SMHPP payment was made in error. Instead, even the FSA was confused about the Program. The Director noted the many actions FSA felt it needed to take to clarify what hog sales were eligible under the SMHPP program. First, it suspended all decisions and payments on applications in December 2021 because it recognized there was confusion about SMHPP. It then issued a revised regulation and made changes to its Handbook in April 2022 that introduced sale eligibility based on LMR codes. Finally, FSA revised the Fact Sheet it distributed to program participants to also include use of the LMR codes for determining eligibility. The FSA had to rely on expert opinion from the Agricultural Marketing Services to determine whether the farm’s sales were eligible.

Since the regulatory revisions and FSA rescission letter did not occur until more than 90 days after the payment was made, the Director reversed the FSA’s decision and held that no exception to the Finality Rule existed, so the FSA was barred from seeking repayment of the amount of overpaid SMHPP program benefits.

We were proud to represent this Indiana family farm in its quest to retain the crucial benefits paid to keep hog farms afloat during the darkest days of the pandemic. These funds went to pay employees, veterinarians, mortgages, and other day-to-day expenses. The federal administrative appeal process can be long and burdensome, but in this case, we are happy to report that persistence finally paid off on appeal. A full copy of the decision was published by the NAD.