Barnhill v. Veneman

Marvin Taylor Barnhill, Jerry Hamill, John Branham, Clark Jenkins,
Tom Clements, David Grant, Tim Phelps, Tommy Flythe, Jim Ferguson,
Glen Hawkins, Billy Bain, Glen Moore, R.L. Smith, H. Steven Allen,
and other North Carolina and Virginia Peanut Farmers similarly situated;
Florida Peanut Farmers and others similarly situated; Terry E. Beasley,
Wallace A. Berry and other South Carolina Peanut Farmers similarly
situated; Texas Peanut Farmers in the Southwest Growing Region;
Georgia Peanut Farmers; and Charles E. Smith, Jr.,

Ann Veneman, Secretary of Agriculture for the United States;
Ross J. Davidson, Administrator for Risk Management Agency;
Risk Management Agency; U.S. Department of Agriculture; United States
of America; Federal Crop Insurance Corporation; Mike More, RMA
Regional Manager, Valdosta, Georgia; Ron Berryhill, RMA Regional
Office Director, Oklahoma City, Oklahoma,

On Petition for Writ of Certiorari to the United States
Court of Appeals for the Fourth Circuit.

Does the government's reliance on legislation enacted by Congress which retroactively targets for elimination—and was designed to avoid----the government's bargained-for obligation to insure the petitioners' destroyed peanut crop at the market rate of $0.31 per quota pound violate the core principles of United States v. Winstar Corp. et al., 518 U.S. 839(1996), Perry v. United States, 294 U.S. 330(1935) and Lynch v. United States, 292 U.S. 571(1934)?

Question Presented For Review....................................................................................................... i

Table of Contents.............................................................................................................................ii

Table of Authorities..........................................................................................................................iii

Citations of Opinions and Orders....................................................................................................

Basis for Jurisdiction in this Court...................................................................................................

Constitutional and Statutory Provisions Involved.............................................................................

Statement of the Case....................................................................................................................

Argument Supporting Allowance of the Writ...................................................................................

Conclusion...................................................................................................................................

Appendix.................................................................................................................................... post

The published opinion of the United States Court of Appeals for the Fourth Circuit in In re Peanut Crop Ins. Litigation, MDL-1634; Barnhill et al. v. Veneman et al., Docket Nos. 07-1145 and 07-1146, 524 F.3d 458(4 th Cir. 2008), decided May 8, 2008, reversing the United States District Court for the Eastern District of North Carolina at Greenville which certified the petitioners' class action and granted their summary judgment motion on their claim that the government had breached its contract with them to insure their peanut crop losses, is set forth in the Appendix hereto(App. 1-40).

The unpublished and unreported opinion of the United States District Court for the Eastern District of North Carolina at Greenville in Barnhill et al. v. Davidson et al, Docket No. 4:02-cv-00159-H94, filed July 22, 2004, granting the petitioners' summary judgment motion on their claim that the government had breached its contract with them to insure their peanut crop losses, is set forth in the Appendix hereto(App. 41-88).

The unpublished order of the United States District Court for the Eastern District of North Carolina at Greenville in In re Peanut Crop Insurance Litigation, MDL-1634, filed December 20, 2006, certifying the class action, adopting a damages formula and appointing class counsel, is set forth in the Appendix hereto(App. 89-94).

The unpublished order of the United States District Court for the Eastern District of North Carolina at Greenville in In re Peanut Crop Insurance Litigation, MDL-1634, filed December 20, 2006, entering a final judgment on liability and damages in favor of the petitioners as class members and against the respondents, is set forth in the Appendix hereto(App. 95).

The unpublished order of the United States Court of Appeals for the Fourth Circuit in In re Peanut Crop Ins. Litigation, MDL-1634; Barnhill et al. v. Veneman et al., Docket Nos. 07-1145 and 07-1146, denying the petitioners' timely filed combined petition for panel rehearing and for rehearing en banc, is set forth in the Appendix hereto(App. 96-97).

The decision of the United States Court of Appeals for the Fourth Circuit reversing the United States District Court for the Eastern District of North Carolina at Greenville which certified the petitioners' class action and granted their summary judgment motion on their claim that the government had breached its contract with them to insure their peanut crop losses, was entered on May 8, 2008; its further order denying the petitioners' timely filed combined petition for panel rehearing and for rehearing en banc was filed and decided on July 8, 2008(App.1;96).

This petition for writ of certiorari is filed within ninety (90) days of July 8, 2008. 28 U.S.C. § 2101(c). The jurisdiction of this Court is invoked pursuant to the provisions of 28 U.S.C. § 1254(1).

Constitutional, Statutory and Rule Provisions
Implicated by This Petition.

Section 1310(c) of the 2002 Farm Bill (enacted May 13, 2002, repealing
the authority for price supports for quota peanuts found in
7 U.S.C. § 7271):

The petitioners (“the Farmers”or “the petitioners”) are members of a class who have grown and harvested peanuts in several south and southwestern States for many years and who have applied for and received from the respondents (“the government” or “the FCIC”) so-called multiple peril crop insurance for their peanuts for several years prior to the 2002 crop year and for the 2002 crop year itself.

In the wake of the Great Depression and climate anomalies in the South and Midwest in the 1930's, private insurance companies deemed all-risk crop insurance too great a commercial hazard for their undertaking. Federal Crop Inc. Corp. v. Merrill, 332 U.S. 380, 383 n.1(1947). Stepping into this vacuum “as a pioneer” in offering crop insurance, Congress enacted the Agricultural Adjustment Act of 1938, now codified at 7 U.S.C. § 1281(2000), which terminated the free market production and sale of agricultural commodities within the United States, including peanuts, and created the Federal Crop Insurance Corporation (“the FCIC”), a wholly owned government enterprise within the Department of Agriculture, to carry out the purposes of the Act, i.e., “to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance ....” 7 U.S.C. § 1502(a). Id . at 381.

In 1941, Congress amended the 1938 Act to regulate the production of peanuts in order to avoid severe fluctuations in price caused by rapid changes in market demand and the year-long lag in response to that demand caused by crop-growing cycles. It did so primarily by implementing quotas set by the Secretary of Agriculture (“the Secretary”). Under the 1941 Act, the Secretary would annually proclaim the “national marketing quota,” i.e., the total amount of peanuts which would be made available for marketing the following year, a figure which reflected the average amount of peanuts harvested during the prior five years, adjusted for trends in production and demand.

This national acreage allotment was then divided proportionately among peanut-producing states based on their average relative peanut production for the five years immediately preceding the proclamation year. Each state acreage allotment was subsequently apportioned among the individual farmers in that state. The farms which obtained allotments were farms on which peanuts were grown in any of the three years immediately preceding the year for which the allotment was determined. The state allotments were apportioned on the basis of the tillable land available for the production of peanuts and the past acreage of peanuts grown on the farm. The actual amount of peanuts produced on this acreage allotment equaled the marketing quota for that particular farm. See generally Members of Peanut Quota Holders Ass'n v. U.S., 421 F.3rd 1323, 1326(Fed.Cir. 2005).

By 1949, the government's regulation of the peanut market began to include price supports and by 1977 technological improvements had substantially increased the yield of peanuts per acre producing an oversupply which prompted Congress to revamp the peanut program by instituting poundage quotas based upon the weight of the peanuts produced by each farm. These new poundage quotas applied only to peanuts for domestic consumption and which did not exceed the poundage quota for a particular farm, i.e., so-called “quota peanuts.” The 1977 Act also recognized “additional peanuts” which were any peanuts in excess of a farm's poundage quota but not in excess of the actual production of the acreage allotment. Id. at 1327. This different treatment of a farm's peanut crop discouraged overproduction because the price support provided by the government for these “additional peanuts” was substantially lower than for “quota peanuts.” Id.

Public dissatisfaction with price supports led Congress in 1996 to end direct payments to peanut farmers and to offer instead marketing assistance loans with rates set by the U.S. Department of Agriculture(USDA). The farmers executed non-recourse notes so that if the revenue from the sale of peanuts did not cover the full amount of their loan, the USDA made up the difference. If their revenues covered the loan amount, the farmers paid the loan in full. The 1996 Act set the loan rate for quota peanuts at $610.00 per ton or $0.31 per pound; and the loan rate set by the Secretary in 1997 for non-quota peanuts was $132.00 per ton.

While this system of government support for peanut farmers was evolving, the government's longstanding “pilot program” for providing multi-peril crop insurance to farmers was crystallizing so that by 1980, Congress enacted a comprehensive federal crop insurance act aimed at discouraging reliance on ad hoc disaster relief and providing farmers a “primary source of risk management.” See H.R. Rep. 96-430(1979). It expanded the sale of multi-peril crop insurance to all major commodities nationwide while providing a large premium subsidy to each eligible farmer. The Act further directed the FCIC to provide reinsurance to the maximum extent possible to those insurance companies willing to shoulder a portion of the crop insurance risk. See 7 U.S.C. § 1508(e).

When farmers continued to resist participating in this program and resorted instead to ad hoc disaster relief for their damaged or destroyed crops, Congress in 1994 enacted the Federal Crop Insurance Reform Act. See 7 U.S.C. § 1508. The Act continued to rely on private insurance companies to offer crop insurance for farmers and directed the FCIC as a reinsurer to provide “free” catastrophic coverage nationwide and additional or “buy-up” coverage with significantly increased premium subsidies and coverage limits. It established the Risk Management Agency (“RMA”), an independent office within the USDA responsible for supervising the FCIC and its enforcement of programs authorized by the Federal Crop Insurance Act, 7 U.S.C. §§ 1501 et seq.

With this statutory history as background, the petitioners, all of whom have grown and harvested peanuts for many crop years prior to 2002 and for the 2002 crop year itself, applied for and received multi-peril crop insurance from the FCIC for the upcoming 2002 crop year, as they had repeatedly done in prior years. In fact, the contract of crop insurance between the Farmers and the FCIC has been the same since 1996 and by its own terms continued in force for each succeeding crop year unless cancelled or terminated by the Farmers.

Each crop year extends from the Fall/Winter of the preceding year through harvest during the Summer of the subject crop year. As in prior crop years, the Farmers in the Fall and Winter of 2001 entered into numerous contracts with third parties to purchase seed and other materials for planting peanuts during April and May of the 2002 crop year; and they also pursued other financing necessary for their undertaking, using the FCIC's ongoing multi-peril crop insurance coverage of $0.31 per quota pound of peanuts as collateral for these operating loans.

The Farmers pursued these preparations for the 2002 crop year under an established, six-year protocol set out by the insurance contract drafted by the FCIC which made clear that as time passed from the Fall of 2001 through the Spring of 2002, the obligations and rights of the parties thereunder —as well as the terms of the insurance contract itself---became more crystallized and eventually immutable by the time the Farmers began planting their peanuts in April of 2002.

That is, the insurance policy provides that the last date for the government to make any changes in the insurance policy for the 2002 crop year is November 30, 2001, and those policy changes include inter alia the price election and the amount of insurance(Court of Appeals Joint Appendix 42;45; 56;204;207-209). Consistent therewith, the government on November 30, 2001, established the price election and the amount of insurance for the 2002 crop year of quota peanuts at $610.00 per ton or $0.31 per pound with non-quota peanuts priced at $0.16 per pound, the same as in previous years(J.A. 204;215;225;235).

On December 14, 2001, the government announced that the national marketing quota for peanuts was the same as the previous year, i.e., the market price for quota peanuts was $610.00 per ton or $0.31 per pound and non-quota peanuts would be priced at $0.16 per pound, “unchanged from the 2001 level”(J.A.75;204;226;235). The government's announcement also contained the following proviso:

(J.A.75)(emphasis supplied). However, the government's announcement never indicated that the insurance coverage available to the Farmers for their peanuts in the event of their destruction would change.

This price election was repeated by the government in an announcement on January 15, 2002 (J.A.77). Furthermore, on February 15, 2002, the government announced that

February 28, 2002, and March 15, 2002, the dates for cancelling or terminating the policy, were reached with neither party cancelling or terminating the contract (J.A. 204;210-212;235). These same dates marked the last time the Farmers could change their crop insurance for the 2002 crop year and the last time the government could provide additional price elections for quota and non-quota peanuts; and those dates passed with the Farmers keeping their insurance intact and the government making no additional price elections(J.A.204;213-214;217-218;235).

Insurance coverage under the policy for this crop of peanuts began on April 11, 2002, when the Farmers began planting their peanuts(J.A.204;219-220;223-224;235).On May 13, 2002, after the Farmers had planted most of their peanut crop , Congress enacted the Farm Security and Rural Investment Act of 2002, 7 U.S.C. § § 7951-7960 (“the 2002 Farm Bill”), which eliminated the quota peanut program altogether and, for the 2002 crop year, retroactively reduced the price election and indemnities attendant to both quota and non-quota peanuts to $.1775 per pound.

When drought, an adverse weather condition covered under the insurance policy, caused the destruction of most of the Farmers' peanut crops during the Summer of 2002, the government relied upon the 2002 Farm Bill to pay insurance benefits to the Farmers based upon the new indemnity rate of only $0.1775 per pound of peanuts rather than the bargained-for contract rate of $0.31 per pound.

Alleging these facts and claiming that the government's unilateral modification of its bargained-for duty to insure the Farmers' 2002 crop of peanuts at the market rate of $0.31 per pound for quota peanuts had caused them financial losses, bankruptcy and the loss of their farms, the Farmers brought this civil action on November 19, 2002, against the government in the federal district court for the Eastern District of North Carolina(App. 41). The gist of their claims was that the government's unlawful retroactive modification of its duties as insurer under the 2002 crop insurance policy constituted a breach of contract because this crucial change in insurance coverage was not made before the contract's stipulated change date, its cancellation or termination date, its closing date or its initial planting date and was therefore a belated and unlawful unilateral modification of the crop insurance policy unsupported by new consideration.

The Farmers also claimed that the government's change in the contract to their detriment long after they had begun performing in reliance upon its terms denied them due process of law, violated the principle that such a substantive change in policy be published in the Federal Register, and unlawfully impaired contracts they made with third parties predicated on the bargained-for crop insurance coverage of $0.31 per pound for quota peanuts.

As relief, the Farmers sought certification of their suit as a class action; preliminary and permanent injunctive relief enjoining the government from seeking to enforce its attempt to scale back its insurance coverage for the 2002 crop year from $0.31 to $0.1775 per pound for quota peanuts; and damages in the form of a common fund for all the members of the class based upon the class losses at the rate of $0.31 per pound(App. 41-42).

On July 22, 2004, Senior District Judge Malcolm J. Howard issued a decision certifying the suit as a class action under Fed. R. Civ. P. 23(b)(1)(B) with the class consisting of those district-wide farmers who had insurance coverage on peanuts under the 2002 multi-peril crop policies, who had losses for the 2002 crop year, who settled those losses for $0.1775 per pound and who had been assigned farm poundage quotas for the 2001 crop year(App. 49-60).

Addressing the parties' cross motions for summary judgment, the district judge granted summary judgment for the Farmers on their breach of contract claim against the government(App. 67-72). He rejected the government's argument that because the Farm Service Agency(“the FSA”), an arm of the USDA, had failed to assign poundage quotas for any of the individual farms for the 2002 crop year, as technically required by 7 U.S.C. § 1358-1(a)(2)(2001), those farms could not have had any peanuts eligible to be quota peanuts and the Farmers therefore could not have had insurance at the election level for quota peanuts, i.e., $0.31 per pound, or their coverage for lost peanuts defaulted to coverage at the non-quota price election price of $0.16 per pound(App. 68-70).

Applying law which governs contracts between private individuals generally, the district judge reasoned that if the FSA's assignment of a farm poundage quota was a condition of exchange which must be met before the Farmers could receive insurance coverage at the quota price election, the government's own agencies themselves had prevented or hindered this event from taking place and it was therefore excused as a contract condition within the meaning of Restatement (First) of Contracts § 295(App. 70-72). As the district judge observed, on May 3, 2002, the FSA instructed its county offices not to allocate the current year peanut quota to individual farms and pointed to the [2002 Farm Bill], which had not yet been passed , as the reason(App. 71).

(App. 72). Furthermore, the court found that the terms of the contract “nowhere indicate that the peanut farmers were to bear the risk of regulatory change” by the government(App. 87).

Finally, Judge Howard determined from his reading of the 2002 Farm Bill that it was not an enactment of broad and general public purpose but rather one “obviously and specifically targeted [to] the the contractual obligations under the peanut farmers' pre-existing crop insurance policies for the 2002 crop year”(App. 77-78). As such, the government could not defend against the Farmers' enforcement of this insurance contract based upon the sovereign act or unmistakability doctrines as enunciated most recently by this Court in United States v. Winstar Corp. et al., 518 U.S. 839 (1996) (App. 76-80).

In the wake of this ruling, farmers in other federal jurisdictions with similar claims asked the Multi-District Litigation Panel to transfer their cases to the district court for coordinated pretrial proceedings(App. 19). It did so and the district judge ultimately certified ten additional district-wide classes in the MDL cases for inclusion in this suit(App. 19-20;89-94). Damages were thereafter calculated using the amount of the lost amount of quota peanuts of each farm for the 2002 crop year multiplied by the difference between the 2002 rate for non-quota peanuts ($0.1775) and the $0.31 quota rate that had been announced by the government prior to the 2002 Farm Bill(App. 20). A final judgment entered in favor of all the Farmers in the aggregate amount of $30.1 million(App. 20;95).

The government appealed and the court of appeals reversed the lower court's entry of summary judgment in favor of the petitioners and remanded the matter to the district court for further proceedings(App. 1-40). The court determined from the language of the insurance contract itself and its method of insuring the peanut crop that before the government would be obligated to insure the Farmers' 2002 peanut crop at the $0.31 rate for quota peanuts, it had to assign poundage quotas for each of the individual farms for the 2002 crop year(App. 23-25;28). Since it had not done so, the Farmers were not entitled to indemnity based upon this $0.31 quota rate(App. 25;28). Nor could they demonstrate any injury resulting from the enactment of the 2002 Farm Bill which increased the market price for non-quota peanuts from $0.16 to $0.1775(App. 26-28).

In addition, the court of appeals could not hold the government responsible for its two announcements of December 14, 2001, and January 15, 2002, to the Farmers that the 2002 national poundage quotas for peanuts would remain the same as 2001 because these announcements were accompanied by warnings that pending legislation could change the national poundage quotas and that these values “ would be either altered or rescinded”(App. 28)(emphasis supplied). As the court concluded,

Turning to the district judge's determination that the FSA's assignment of a farm poundage quota was excused as a condition of the Farmers receiving insurance coverage at the quota price election because the government had prevented or hindered it from taking place, the court found the lower court in error(App. 29-33). It concluded that the FSA's assignment of a farm poundage quota was not a condition of the government's duty to indemnify the Farmers' peanut crop losses; instead the only condition to this duty was a covered loss by the Farmers and the farm poundage allocations “simply play a role in the computation of the indemnification to be paid to the Farmers for their covered losses”(App. 31-32)(emphasis in original). As the court put it, although not a “condition” of the government's performance under the contract, it was “an essential precursor to the Farmers being indemnified at the 31 cent quota rate”(App. 32).

Since there was no breach of contract by the government, the court of appeals found it unnecessary to address either the sovereign acts or unmistakability doctrines(App.33;40). Finally, it determined that the Farmers could not recover on a theory of promissory estoppel because there were no promises made by the government upon which they reasonably should have relied(App. 33-34). As it observed, the peanut quota program has a history of successive amendments of coverage by the government and its express “warnings of forthcoming alterations or revisions to the peanut quota program, received by the Farmers in late 2001 and early 2002, substantially undermine their reliance contentions”(App. 34-35).

On July 8, 2008, the court of appeals denied the petitioner's timely filed combined petition for panel rehearing or for rehearing en banc (App. 96-97).

Allowing the Government To Go Back On Its Promise To Insure The Petitioners' Destroyed Peanut Crop At the Market Rate of $0.31 Per Quota Pound Subverts The Core Principles of United States v. Winstar Corp. et al. , 518 U.S. 839(1996), Perry v. United States, 294 U.S. 330(1935) and Lynch v. United States , 292 U.S. 571(1934), and Denies the Petitioners Due Process of Law.

In Sinking Fund Cases , 99 U.S. 700, 720-721(1879), this Court held that the government cannot deprive a party with which it contracts “of the fruits actually reduced to possession of contracts lawfully made....It cannot undo what has already been done, and it cannot unmake contracts that have already been made.” Id. (emphasis supplied). In both Lynch v. United States, 292 U.S. 571(1934) and Perry v. United States, 294 U.S. 330 (1935), the Court expanded the principle of Sinking Fund Cases to hold that when contracting with private parties, the government must be bound by the same contract rules which bind those private parties.

Lynch involved life insurance policies issued to veterans by the government during World War I under the War Risk Insurance Act of 1917. When it discovered that these policies would eventually cost the government a billion dollars, Congress terminated them in the Economy Act of 1933 which provided that “all laws granting or pertaining to yearly renewable term insurance are hereby repealed.” 292 U.S. at 572-574.

A unanimous Court rejected the government's argument that these insurance policies should not be treated as insurance contracts. Id. at 576-577. As the Lynch Court stated through Justice Brandeis, even though designed to effect a benevolent purpose, these insurance policies were nonetheless “legal obligations of the same dignity as other contracts of the United States and possess the same legal incidents.” Id. at 576. He then declared that when the “United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals;”and its attempt to modify its own obligations after the policy issued was therefore a repudiation of the contract. Id. at 579-580.

In Perry, the Court reinforced these principles. The petitioner owned a $10,000 government bond issued in 1918 which, when redeemed, required the government to pay him $10,000.00 in “gold coin of the present standard of value.” 294 U.S. at 346-347. A joint resolution of Congress in1933, however, declared such clauses to be “against public policy” and that such debts could be discharged with legal tender. Id. at 347;349. It further provided that “provisions for payment in gold ‘contained in any law authorizing obligations to be issued by or under authority of the United States' were repealed.” Id.

The Perry Court construed this language as exhibiting a clear intent by Congress in 1933 to abrogate impermissibly the government's 1918 pledge of payment in gold coin to bond purchasers. “To say that the Congress may withdraw or ignore that pledge, is to assume that the Constitution contemplates a vain promise, a pledge having no other sanction than the pleasure and convenience of the pledgor[; but] this Court has given no sanction to such a conception of the obligations of our Government.” Id. at 351. Relying on Lynch , the Court ruled that the government was bound by its promise to bondholders to pay in gold coin. Id. at 350-353.

Along side of this decisional law holding the government bound by its contracts, insurance and otherwise, are decisions which establish the collateral principle that when the government enters into contracts exercising one of its sovereign powers , e.g., the power to tax, to manage a federal social security system or to convey a navigational easement in a river bed, the government will be held liable for breach of contract only if its surrender of sovereign powers is expressed in unmistakable terms in the contract itself. Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 51-52(1986). United States v. Cherokee Nation of Oklahoma, 480 U.S. 700, 704;707(1987). Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148 (1982).

In United States v. Winstar Corp. et al., 518 U.S. 839(1996), the Court addressed the intersection between this sovereign act or unmistakability doctrine and the Lynch-Perry line of cases holding that the government should be bound contractually in the same way private citizens are bound. In Winstar, the government in contracts with thrift institutions in the early and mid-1980's told them that they could rely upon supervisory goodwill and certain capital credits as assets when taking over failed banks in the aftermath of the savings and loans crisis. Id. at 847-855. When Congress enacted a law in 1989 changing the rules about valuing these “assets” to their detriment, the thrifts sued the government for breach of contract. Id. at 856-857.

In rejecting the government's claim that the earlier contracts were sovereign acts which did not unmistakably limit its sovereign power thereby freeing it to pass later legislation to the thrifts' detriment, Justice Souter, writing for a plurality of the Court, reasoned that in most cases, in contracting with private parties, the government in order to be a reliable contracting partner and applying ordinary rules of contract construction, bears the risk that its subsequent legislative or regulatory acts may undermine and even prevent the performance of the contract, rendering it liable for breach of contract. Id. at 867-871. Moreover, there was nothing in the contractual arrangement between the government and the thrifts to cause this routine principle of contract interpretation and contract enforcement to be suspended. Id. at 880-885.

Because the government's retroactive change in the valuation of bank assets to the thrifts' detriment was “tainted by a governmental object of self-relief,” i.e., it was an attempt to shift the cost of meeting its legitimate public responsibilities to private parties, cf. Armstrong v. United States, 364 U.S. 40,49(1960), there was no good reason to give it the benefit of the defense of the impossibility of performance in order to avoid the obligations it voluntarily assumed. Id. at 896-897. In fact, the Winstar plurality ruled that to assert a successful impossibility defense, the government would have to show that the nonoccurrence of regulatory amendment was a basic assumption of these contracts. Id. at 905.

The premise of this requirement is that the parties will have bargained about these risks and if the risk was foreseeable, there should have been a a provision in the contract to this effect and the absence of such a provision gives rise to the inference that the risk of governmental regulation after formation of the contract was assumed by the government. Id. quoting Lloyd v. Murphy, 153 P.2d 47, 50( Cal. 1944)(Traynor, J.). While the Winstar plurality did not

Id. at 906-907. Thus absent provisions in the contract to the contrary, the risk that regulatory or statutory change would prevent or hinder performance rendering it liable for breach of contract stayed with the government and nullified any defense based upon impossibility. Id. at 908-909.

If the government wanted to reject the risk of having legislation enacted after formation of the contract which would render its performance impossible, it should have put this risk-shifting language in the contract. As the plurality noted in Winstar, “[i]t would, indeed, have been madness for the [the thrifts] to have engaged in these transactions with no more protection than the Government's reading would have given them, for the very existence of their institutions would have been in jeopardy from the moment their agreements were signed.” Id. at 910.

Three core principles therefore emerge from the Winstar-Lynch-Perry line of cases:

1. The government will be treated like any other private party when it enters into contracts, insurance and otherwise, not affecting its sovereign powers and the laws of contracts generally will define its rights;

2. In the absence of language to the contrary in the contract----and especially with heavily regulated industries----the risk that later regulatory or statutory change would occur during the life of the agreement affecting the central purposes of the contract is assumed by and stays with the government so that the contract remains enforceable despite this change in the law; and

3. When the government through Congress enacts legislation after the contract is formed which impairs or renders impossible the government's performance, the government will be liable for breach of contract unless it is shown that the change in the law was unanticipated and contrary to the basic assumptions on which the parties agreed.

The decision below nullifies each of these core principles set out by this Court in the Winstar-Lynch-Perry line of cases and warrants the grant of this petition of certiorari by the Farmers.

In the first place, the court of appeals refused to apply basic contract law to construe the insurance policy including each of its deadlines for finalizing its critical terms, the actual conditions of exchange, the parties' conduct and the accumulated prior experience between them resulting in a reliable protocol about the terms of this contract and how it was to be performed. By ignoring this basic contract law—and then misstating the contract which was actually formed by the parties----the court denied the Farmers their contract rights under federal common law and denied them due process of law.

From 1996 through 2002, the Secretary of Agriculture established a national poundage quota by December 15 th of the year preceding the crop year, as required by 7 U.S.C. § 1358-1(a)(3) . The national poundage quota was apportioned to the states by the following January 15 th and the FSA would thereafter assign farm poundage quotas to the individual farms. For each year between 1996 and 2002, the announced quotas for each farm remained about the same and were identical for the crop years 1999-2002, leaving the Farmers eligible to insure their quota peanuts for approximately $0.31 per pound and non-quota peanuts for $0.16 per pound. In fact, 7 U.S.C. § 1358-1(b)(1) (B) provides that “the farm poundage quota for each marketing year for each farm... shall be the same as the farm poundage quota for the farm for the immediately preceding marketing year....”(emphasis supplied). On February 15, 2002, the government announced that the national quota would remain the same and “will be allocated to eligible quota and non-quota farms”(J.A.77).

By this time, the contract's change date had passed and the established price elections had been announced. Moreover, by May 3, 2002, when the FSA instructed its county offices not to follow the law and allocate the current year peanut quota to the individual farms, the contract's cancellation and termination dates had been passed, its sales closing date had been passed, the Farmers had already planted most of their crops and the coverage dates for the insurance policy had already begun. This was a completed, enforceable contract by the time the government repudiated it on May 3, 2002, entitling the Farmers to indemnity for their crops at the rate $0.31 per pound for quota peanuts and $0.16 per pound for non-quota peanuts and the court of appeals was wrong to rule otherwise.

The FSA was obligated by statute to allocate the farm poundage quota to each farm in order to allow for the indemnification process to finalize under the policy and the FSA would have done so had not the government on May 3, 2002, before the 2002 Farm Bill was enacted, directed the FSA not to do so. As a matter of general contract law including the Restatement of Contracts which is part of the federal common law, Franconia Assocs. v. United States, 536 U.S. 129, 141-143(2002); Mobil Oil Exploration & Producing Se., Inc. v. United States, 530 U.S.604, 608(2000); Winstar, 518 U.S. at 895, the government hindered its own performance of the promises it made to the Farmers under the insurance contract and it is liable to them for the breach of contract which it caused. Restatement (First) of Contracts § 295 (“If a promisor prevents or hinders the occurrence of a condition...and the condition would have occurred...except for such prevention or hindrance, the condition is excused”and the promisor is liable on the contract.) Accord, Seaboard Lumber Co. United States, 308 F.3d 1294, 1295(2nd Cir. 2002). Powers v. Sims and Levin, 542 F.2d 1216, 1225-1226(4th Cir. 1976). Cuyahoga Metropolitan Housing Authority v. United States, 57 Fed. Cl. 751, 776(2003).

Stated another way, when supervening governmental action prohibits or renders impossible the performance of its promise, the duty of the government to perform is discharged unless the supervening event is the fault of the promisor government. See Restatement (Second) of Contracts §§ 261, comment d; 264, comment a. In this respect, § 261, comment d of the Restatement provides that an obligor is discharged from performance where it is made impractical by the occurrence or nonoccurrence of an event which was a basic assumption of the contract, unless the event is the fault of the obligor himself in which case “this Section does not apply.” This is especially true where, as Winstar makes clear, in heavily regulated industries like peanut farming, unless otherwise agreed, the risk that later regulatory or statutory change would occur during the life of the agreement affecting the central purposes of the contract is assumed by and stays with the government so that the contract remains enforceable despite any changes in the law.

The court of appeals turned all this law in its head by making the Farmers instead of the government bear all the risk of a change in the law. It ignored the fact that the government itself had caused the FSA not to follow the law and allocate the current year peanut quota to the individual farms before the 2002 Farm Bill was even enacted; and it failed to hold it responsible on its promise to indemnify the Farmers at the bargained-for rate. It confusingly diminished the FSA's failure in this regard as merely “an essential precursor to the Farmers being indemnified at the 31 cent quota rate” when it was actually a “condition” of the government's performance, the nonoccurrence of which remained its responsibility under federal common law; and it refused to impose upon the government the burden of showing how its nonperformance squared with its duty of good faith and fair dealing under the Restatement (Second) of Contracts § 205.

By contrast, the district judge's analysis had it exactly right. The government's own agencies prevented or hindered the FSA's assignment of a farm poundage quota to individual farms and it was therefore excused as a contract condition within the meaning of Restatement (First) of Contracts § 295(App. 70-72). Nowhere in the insurance contract do its terms indicate that the Farmers would bear the risk of a change in the contract due to a regulation or statute after key deadlines had passed, promises had been made, the contract price for quota and non-quota peanuts had been established and the crops had been planted. As the district judge rightly ruled, “it was fundamentally wrong for the government to tell the Farmers that they would have insurance coverage at $0.31 per pound for as many peanuts as the FSA declared to be quota peanuts, and then, after the Farmers had planted their crops, to tell the FSA not to declare any quota peanuts”(App. 72).

In the second place, the court of appeals' analysis of the government's liability under a theory of promissory estoppel lacks any real-time appreciation of the formation of this crop insurance contract. With the knowledge gained by participating in the program in prior years, the Farmers relied on the fact that they had full insurance coverage in the event they suffered crop losses and they took steps beginning in the Fall of 2001---- before the government announced in 2002 that there might be a new Farm Bill which “may' change the peanut quota program----to prepare for the 2002 crop year. They bought seed, planting material, and other goods in order to plant peanuts; they rented land to plant crops; they obtained credit based upon the price and guarantee provided by the policy; and they used the insurance contract itself as collateral on loans and for trading, purchasing or leasing equipment for use in the 2002 crop year. Reasonably relying upon their insurance coverage at $0.31 per quota pound of peanuts, they entered into contracts with third parties including leases, bank loans, credit, employment agreements, equipment purchases and other crop necessities.

All of these actions were reasonably undertaken by the Farmers before any announcement by the government about the possible effects of a new Farm Bill in the Spring of 2002. Yet the court of appeals resorted to these informal, precatory announcements as somehow alerting the Farmers that their insurance coverage for the destruction of their crops in the 2002 crop year would be changed. None of these government announcements communicated any fact about their insurance coverage; all they presaged was a possible change in the peanut quota program long after this contract for the 2002 crop year had not only been formed but also executed. Accordingly, it was wrong as a matter of law for the court to decide that any reliance by the Farmers on the efficacy of this program was not reasonable after these announcements were issued.

Winstar, Perry and Lynch all stand for the proposition that the government should be treated like a private party when it enters into contracts with other private parties; and that principle implies that the doctrine of promissory estoppel applies with full force to this transaction, making this insurance contract fully enforceable where serial acts and announcements by the government together with the passing of deadlines crucial to the contract's formation occurred, where the Farmers reasonably relied on the government's acts and representations and took actions like securing credit, loans, etc. and then planting crops based thereon. See Heckler v. Community Health Services , 467 U.S. 51, 59-63(1984). Restatement (Second) of Contracts § 90 (Promise Reasonably Inducing Action or Forbearance).

There can be no disagreement that the Farmers' rights under the contract are property rights deserving of protection under the due process clause of the fifth amendment to the federal constitution and that the government's unprincipled and illegal failure to insure their crops at the bargained-for rate of $0.31 for quota peanuts and $0.16 for non-quota peanuts for the 2002 crop year is a denial of due process. Bowen, supra, 477 U.S. at 52. Lynch, 292 U.S. at 579-580. See Members of Peanut Quota Holders Ass'n v. U.S., 421 F.3d 1323, 1330-1335(Fed. Cir. 2005).

Finally, the court of appeals' unprincipled disposition undermines the sound policies which the crop insurance program was intended by Congress to foster, i.e., “to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance ....” 7 U.S.C. § 1502(a); to regulate the production of peanuts in order to avoid severe fluctuations in price caused by rapid changes in market demand and the year-long lag in demand caused by crop-growing cycles; and to discourage reliance on ad hoc disaster relief while providing farmers a “primary source of risk management.” See H.R. Rep. 96-430(1979). None of these policies is furthered by a decision which attenuates contract law in order to save the government the expense of owning up to its obligation under the crop insurance contract which the Farmers paid it to provide.

The words of the federal district court in Wiley v. Glickman, 1999 U.S. Dist. LEXIS 20278 at 51-53(D.N.D.1999), addressing an analogous situation with wheat crop insurance, are apt:

For all of these reasons identified herein, a writ of certiorari should issue to review the judgment of the United States Court of Appeals for the Fourth Circuit and, ultimately, to vacate that judgment and remand the matter to the United States United States District Court for the Eastern District of North Carolina at Greenville with instructions that it reinstate its decision granting the petitioners' summary judgment motion on their claim that the government had breached its contract with them to insure their peanut crop losses; reinstate the damage award based upon that ruling; and provide the petitioners with such other relief as is fair and just in the circumstances of this case.