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A&A Farms, LLC v. Rural Community Insurance Services

United States District Court, D. Kansas

July 22, 2015

A&A FARMS, LLC, Plaintiff,
v.
RURAL COMMUNITY INSURANCE SERVICES, Defendant.

MEMORANDUM AND ORDER

ERIC F. MELGREN, District Judge.

Plaintiff A&A Farms has filed a Motion for Judicial Review (Doc. 1-1), seeking to overturn an arbitration award of $94, 301 in favor of Defendant Rural Community Insurance Services (RCIS) for an overpayment of crop insurance indemnity. This matter comes before the Court on A&A Farms' Motion for Remand (Doc. 10) and RCIS' Motion to Dismiss (Doc. 4). First, the Court finds that A&A Farms and RCIS meet the requirements for federal diversity jurisdiction, and the Motion for Remand is denied. Secondly, RCIS seeks to dismiss the motion for judicial review for failure to state a claim (Doc. 4). A&A Farms alleges partiality on the part of the arbitrator. RCIS maintains that there has not been enough alleged in the motion to meet the "evident partiality" standard for overturning an arbitration decision. The Court agrees that A&A Farms failed to meet the pleading standard required to withstand a Federal Rules of Civil Procedure 12(b)(6) motion, and the Motion to Dismiss is granted.

I. Factual and Procedural Background

A&A Farms leased ground in Stevens County, Kansas, from Galen Brecheisen in order to cultivate the land beginning in 2012. RCIS, a Minnesota company, insured the plaintiff's crops beginning in 2012. The policy signed by A&A Farms required that if a dispute arose, arbitration would have to be carried out before any other legal actions could be taken.[1] At that time, A&A Farms was approved as a new producer in Stevens County. As a new producer, A&A Farms was entitled to a production guarantee of 100 percent of the estimated county yield. Without the new producer designation, it would have only been entitled to 65 percent production guarantee.

During an audit conducted by the Office of Inspector General in 2012, the Risk Management Agency[2] was instructed to review all policies identifying the policyholder as a new producer. The agency told RCIS to verify the policies that met its review requirements. One of these was A&A Farms' policy. RCIS complied and determined that A&A Farms did not qualify as a new producer. A handwritten note with Brecheisen's name and information along with the initials "SBI" had been added to the insurance application. RCIS testified that this meant that Brecheisen had a "Substantial Beneficial Interest" in the insurance policy.[3]

Brecheisen was to be paid a portion of A&A Farms' crops as his rent, and while this is allowed, the way the paperwork was filed listed Brecheisen as a having a crop share rather than the intended cash lease. The owner of A&A Farms drafted the paragraph and wrote out the provisions for the payment of the lease without consulting RCIS or an attorney about whether these provisions said what he intended them to say. RCIS determined that A&A Farms' lease agreement created a substantial beneficial interest under FCIC regulations. Due to this interest, RCIS policy required that Brecheisen's years of agriculture experience in the area be attributed to A&A Farms and negated its new producer status, even though A&A Farms was new to the area.

In 2014, RCIS sent a letter to A&A Farms notifying it of its change in status and of the overpaid indemnity from 2012. RCIS also informed A&A Farms that $94, 301 in overpaid indemnity was owed back. In the letter informing A&A Farms of the new status, RCIS also reminded A&A Farms of the need to submit to arbitration to resolve a dispute. Only after arbitration had been completed could A&A Farms request judicial review of the award in court.

In September 2014, an arbitrator decided in favor of RCIS and awarded it $94, 301. The arbitrator held that it was the responsibility of A&A Farms for "accuracy and verification of all information contained in the reporting forms" including the existence of a substantial beneficial interest.[4] This meant it was the responsibility of A&A Farms to make sure that the lease was correct when it was signed. The arbitrator concluded that A&A Farms did not qualify as a new producer for 2012.[5] A&A Farms moved in state court for judicial review of the arbitration for relief from the decision (Doc. 1-1). RCIS removed the suit to federal court and filed a Motion to Dismiss (Doc. 4), which is now before the Court. A&A Farms then filed a Motion for Remand to state court (Doc. 10), which is also before the Court.

II. Legal Standard

There are two matters that must be dealt with: (1) A&A Farms' Motion for Remand and (2) RCIS' Motion to Dismiss for failure to state a claim.

A. Federal Jurisdiction and Remand

If an action originally filed in state court could have been heard in federal court, it can be removed to federal court.[6] The federal court must have a statutory or constitutional authority to hear the case in order to satisfy its limited jurisdiction.[7] A federal court must remand the action "if any time before final judgment it appears that the district court lacks subject matter jurisdiction."[8] Subject matter jurisdiction is established through (1) diversity jurisdiction or (2) federal-question jurisdiction.[9] Diversity jurisdiction requires that the amount in controversy exceed $75, 000 and that each defendant is a resident of a different state than each plaintiff.[10] If at any time, the court lacks subject matter jurisdiction, the court must remand the case in its entirety to the state court.

B. Motion to Dismiss for Failure to State a Claim

Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move for dismissal of any claim where the plaintiff has failed to state a claim upon which relief can be granted.[11] Upon such motion, the court must decide "whether the complaint contains enough facts to state a claim to relief that is plausible on its face.'"[12] A claim is facially plausible if the plaintiff pleads facts sufficient for the court to reasonably infer that the defendant is liable for the alleged misconduct.[13] The plausibility standard reflects the requirement in Rule 8 that pleadings provide defendants with fair notice of the nature of claims as well as the grounds on which each claim rests.[14] Under Rule 12(b)(6), the court must accept as true all factual allegations in the complaint, but need not afford such a presumption to legal conclusions.[15] Viewing the complaint in this manner, the court must decide whether the plaintiff's allegations give rise to more than ...


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