The North Dakota Agricultural Mediation Service
Total Page:16
File Type:pdf, Size:1020Kb
View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by UND Scholarly Commons (University of North Dakota) North Dakota Law Review Volume 70 Number 2 Article 8 1994 The North Dakota Agricultural Mediation Service Roger L. Johnson Follow this and additional works at: https://commons.und.edu/ndlr Part of the Law Commons Recommended Citation Johnson, Roger L. (1994) "The North Dakota Agricultural Mediation Service," North Dakota Law Review: Vol. 70 : No. 2 , Article 8. Available at: https://commons.und.edu/ndlr/vol70/iss2/8 This Article is brought to you for free and open access by the School of Law at UND Scholarly Commons. It has been accepted for inclusion in North Dakota Law Review by an authorized editor of UND Scholarly Commons. For more information, please contact [email protected]. THE NORTH DAKOTA AGRICULTURAL MEDIATION SERVICE L. ROGER JOHNSON* I. INTRODUCTION The North Dakota Agricultural Mediation Service (AMS) was borne out of the farm financial crisis of the early and mid-1980s.' This period was characterized by a leveling off and lowering of government support prices for farm commodities, record high real interest rates for farm bor- rowers, 2 narrowed and frequently negative debt servicing ability for highly leveraged farmers,3 and rapidly declining farm real estate values.4 Highly leveraged and younger farmers were generally the early vic- tims of this traumatic period.5 Lower profit margins resulted in smaller contributions (often negative) to their financial net worth, and declining asset values rapidly converted remaining equity in the farm business to large negative values. For the first time since the 1930s, agricultural creditors were faced with large numbers of nonviable and marginally collateralized agricultural loans. The creditors were faced with loans that could not be repaid by projected farm earnings, and loans that could not be repaid by voluntary or involuntary sale of the collateral securing these loans.6 Farmers, farm supply dealers, and creditors were all faced with large financial losses.7 In the early 1980s, more than one-half of the nation's agricultural debt was held by two creditors:8 Farniers Home Administration (FmHA),9 and Farm Credit System (FCS). 10 Approximately 40% of FmHA's farm borrowers had become delinquent on their loans by the * Administrator of the North Dakota Agricultural Mediation Service since January, 1989; Vice- Chair of the National Coalition of Agriculture Mediation Programs and active farmer and rancher near Turtle Lake, North Dakota; 1975, Bachelor of Science, Agrcultura Economics and Speech, North Dakota State University, Fargo, North Dakota. The author subsequently did two years of graduate work in AicuItural Economics before returning to the family farm. The author wishes to hank Jet Collins, Administrative Assistant of the North Dakota Agricultural Mediation Service, for her able assistance and attention to detail in the typing and preparation of this paper. 1. NEIL E. HARL, THE FARM DEBT CRISIS OF THE 1980s at xvii. 2. Id. at 12. 3. Id. at 34. 4. Id. at 39. 5. Id. at 41. 6. Harl, supra note 1, at 109. 7. Id. at 211. 8. James T. Massey, Farmers Home Administration and Farm Credit System Update A-2-1 (1993) (paper presented at the American Agricultural Law Association Fourteenth Annual Education Conference, November 11, 1993, San Francisco, California). 9. Farmer's Home Administration is an agency of the United States Department of Agriculture (hereinafter USDA) and is known as the "lender of last resort." 10. HARL, supra note 1, at 102. Farm Credit System is "the cooperative network of thirty-seven banks providing credit to farmers and farm cooperatives." Id. 296 NORTH DAKOTA LAW REVIEW [Vol. 70:295 early 1980s." In 1983, a major class action lawsuit, Coleman v. Block,12 was filed in North Dakota, which led to several injunctions that virtually precluded FmHA foreclosures from 1983 until 1987."3 The Coleman action sought to force the FmHA to offer its borrowers certain loan serv- icing actions, including rescheduling, reamortization, deferral of debt repayments, and the opportunity for borrowers to appeal agency deci- sions.14 The Coleman action served as the impetus for many of the statu- tory changes subsequently embodied in the 1987 Agricultural Credit Act. II. NORTH DAKOTA RESPONDS Former Commissioner of Agriculture Kent Jones established the Farm Credit Counseling program (FCC) in the spring of 1984 with funds received from the State Industrial Commission.' 5 This program was begun to help farmers obtain operating money for the 1984 crop year. It was intended to be only a temporary program. During its first year of operation, between eighty and ninety farm credit counselors were hired on contract. They served as counselors to and advocates for farmers who requested assistance. Because of the program's success during that year, the 1985 legislature officially established the FCC program and funded it through the North Dakota Department of Agriculture. 6 It was perceived as a highly successful, innovative program with significant public and political support. The 1985 legislature also saw the need for a program to help farmers keep their home base, or home quarter, when the farming operation itself was severely impaired. To meet this need, it established the state Farm 11. Massey, supra note 8, at A-2-3. 12. 562 F. Supp. 1353 (D.N.D. 1983), vacated as moot, 864 F.2d 604 (8th Cir. 1988). 13. Coleman v. Block, 562 F. Supp. 1353 (1983), vacated as moot, 804 F.2d 604 (8th Cir. 1988). The Coleman action was initially filed by now North Dakota Commissioner of Agriculture Sarah Vogel. Id. at 1354. Coleman sought to stop the FmHA from "starving out" farmers whose cases were on appeal. Id. at 1355. The agency would starve out farmers by accelerating loans and refusing to release normal farm income back to them even though they had an issue on appeal. Id. Appeals could take a considerable amount of time, and during that time, farmers were denied money for necessary farm operating and family living expenses. Id. Vogel argued that farmers were being denied due process because they were essentially "starved out" of farming while issues on appea were being decided, rendering moot the outcomes of the appeals. Id. at 1364. Colernan also sought to force the FmHA to allow farmer borrowers to apply for loan deferrals, which were provided for by law but which were not contained in agency procedure. Id. at 1357. A loan deferral does not release borrowers from any obligation to repay their debt or accrued interest, but simply pushes payments back while farmers work to increase their farm's production capacity, pay down other debts, or otherwise manage their farms to increase their ability to service debt after the deferral period expires. Coleman led to a June 1987 injunction in which 75,000-85,000 loan liquidation proceedings were halted. Massey, supra note 8, at A-2-7. 14. Massey, supra note 8, at A-2-7. 15. Industrial Commission of North Dakota, March 16, 1984, State Capitol, Bismarck, North Dakota, at 1. Fifty-five thousand dollars of undivided profits from the Bank of North Dakota were used to fund the program. Id. 16. Farm Credit Counseling Act, ch. 88, 1985 N.D. Laws 208 (codified at N.D. CENT. CODE §§ 4-01-19.2, 4-01-19.3 (1985)). 1994] AGRICULTURAL MEDIATION SERVICE 297 Credit Review Board (CRB)"7 . The CRB had the power to hire negotia- tors to negotiate with creditors on behalf of farmers to save the farmers' homes. A special fund, the Home Quarter Fund,i" was created at the Bank of North Dakota (BND) to finance this effort. Concurrently with these two programs, the North Dakota State Uni- versity Extension Service established a Farm Financial Analyst program19 to teach farmers how to prepare basic financial documents. The farm financial analysts taught groups of farmers the basics of financial docu- mentation and later provided one-on-one assistance to farmers as they completed their own financial forms. 20 Subsequent legislation in the 1987 session allowed for the continua- tion of both the FCC and CRB programs, provided that the CRB estab- lished policy for the FCC and its employees and that the Commissioner of Agriculture administered the program. 1 The Legislature in the 1989 legislative session changed the name of the FCC to the North Dakota Agricultural Mediation Service (AMS), authorized the AMS to receive and expend federal funds, provided that fees could be charged for services, provided that all records were to be closed, and provided for formal mediation between the farmer and his or her creditors. 2 III. THE FEDERAL RESPONSE North Dakota was not alone in experiencing high levels of farm financial stress during the early and mid-1980s. Other states, including many in the Midwest, were experiencing similar symptoms of the farm financial crisis and developed their own means, often widely divergent from the North Dakota approach, for dealing with the problem. 3 In 1987, Congress passed the Agricultural Credit Act (ACA).24 The ACA was of crucial importance to agricultural loan mediation because it 17. Farm Credit Review Board Act, ch. 137, 1985 N.D. Laws 306 (codified at N.D. CENT. CODE § 6-09.10 (Supp. 1993)). 18. Id. 19. Farm Credit Review Board Act, Hearings on S.B. 2159 Before the House Committee on Agriculture (1987). 20. This program was ultimately terminated after two years of operation. 21. Credit Review Board Act, ch. 131, 1987 N.D. Laws 306, 307 (codified at N.D. CEr. CODE § 6-09.10-03 (1987)). FCC credit counselors and CRB negotiators were frequently the same persons reporting to two different agencies.