Farming Co-op Can Give Insurance Rebates After Merger

CINCINNATI (CN) – The U.S. Department of Agriculture improperly rescinded an Ohio farming cooperative’s ability to offer insurance rebates to its members after a merger that doubled its membership, the Sixth Circuit ruled Monday.

Sunrise Cooperative Inc. owns one-third of Lund and Smith Insurance Services LLC, or L&S, and had paid rebates, or “patronage,” to members who chose to use L&S as their crop insurance provider.

A 2008 change in federal law prohibited these types of “patronage rebates,” but Sunrise was able to continue making payments to its members under the statute’s grandfather clause.

The Agriculture Department’s Risk Management Agency, or RMA, however, told Sunrise it could no longer offer the rebates after a 2016 merger with Trupointe Cooperative Inc., who was not included in the grandfather clause.

A district court ruling in the RMA’s favor found that the 2008 farm bill “prohibits large, abrupt increases in the amount of premium-rebating that can occur when, as in this case, a non-grandfathered entity merges with a grandfathered entity.”

Sunrise argued before the Sixth Circuit in March that it remained the same entity following the merger, and was therefore able to continue to give rebates to all of its members.

Chief Judge R. Guy Cole Jr. agreed Monday, and wrote in his opinion that both the RMA and the district court improperly interpreted the term “entity” as it is used in the statute, which he defined “in everyday speech” as an organization “that has an identity separate from those of its members.”

“This is not a case where Congress’s intent is unclear,” Cole wrote. “To the contrary, these definitions share a common thread: an ‘entity’ is an organization separate from – indeed, ‘considered apart from’ – its constituent members. Yet the RMA has defined ‘entity’ precisely by reference to changes in the size of its membership. The RMA’s ‘functional’ reading of ‘entity,’ under which it considers, ‘in a practical sense,’ an increase in membership ‘and the attendant increase in premium-rebating that comes with the expanded membership’ contravenes the ordinary meaning of ‘entity.’” (Emphasis in original.)

The RMA argued that the statute’s purpose of reducing patronage supports its interpretation of the term “entity,” but Judge Cole disagreed.

“Even if we dived into the legislative history,” he wrote, “the RMA reads more into it than it can bear. As the managers of the 2008 bill saw it, the bill’s purpose was to ‘‘grandfather in’ entities that have previously been approved’ to pay patronage. Permitting Sunrise, an entity ‘that ha[d] previously been approved’ to pay patronage, to continue to pay patronage is consistent with this purpose.”

Judge Cole also skewered the RMA’s claim that the merger was not a part of “ordinary business growth” permitted under the grandfather clause.

“This argument,” he wrote, “just begs the question of why a merger, which is hardly unordinary, is not itself a form of ‘ordinary business growth.’ And nothing in the legislative history evinces any purpose to turn eligibility to pay patronage on such hair-splitting distinctions as whether a member is acquired through a merger or through ‘ordinary business growth.’”

U.S. Circuit Judges Helene White and John Bush, who also sat on the panel, concurred with Chief Judge Cole’s opinion.

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