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BONNIE BRAE FRUIT FARMS, INC. v. RAIN AND HAIL LLC et al

ATTENTION: It is possible that this information may no longer be current and therefore may be inaccurate. The index contains both open and closed cases and is not a complete list of cases in which an ACE Insurance Group company is involved. This information is provided to give interested persons an idea of the issues disputed in the indexed cases. For a full understanding of a case, one should read the rest of the court file, including the response. For the most up-to-date and complete information on a case, visit www.pacer.gov or contact the clerk of the relevant court.

Case Number: 
1:13-cv-00687 Search Pacer
Opposing Party: 
Bonnie Brae Fruit Farms, Inc.
Court Type: 
Federal
US District Court: 
Middle District of Pennsylvania
Date Filed: 
Mar 14 2013

"AND NOW comes Plaintiff, Bonnie Brae Fruit Farms, Inc. ("Bonnie Brae"), by and through its attorneys, Persun & Heim, P.C., and pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. §10, files this Motion to vacate the Award of Arbitrator dated December 19, 2012, in the matter of the American Arbitration Association ("AAA") arbitration between the above-captioned parties, Case No. 14 430 Y 00605 12, and either correct the award or remand the matter to the AAA for further arbitration proceedings and an award in keeping with the Opinion and Order of this Honorable Court, and in support thereof avers as follows:

1. Bonnie Brae renewed its contract for crop insurance for crop year 2011 with Rain and Hail LLC ("R&H") and ACE Property and Casualty Insurance Company ("ACE"), which was accepted by R&H and ACE by the issuance of Policy MP-0031526, comprised of the Common Crop Insurance Policy and the Apple Crop Insurance Provisions, under the Fresh Fruit Option. (Ex. 1, Award of Arbitrator ("Award"), para. 1)

2. The Common Crop Insurance Policy is a federal regulation published at 7 C.F.R. §457.8. The Apple Crop Insurance Provisions is a federal regulation published at 7 C.F.R. §457.158. (Ex. 1, Award, paras. 11 and 15)

3. The above regulations were promulgated by the Federal Crop Insurance Corporation ("FCIC"), an agency within the United States Department of Agriculture ("USDA"), which administers the Federal Crop Insurance Program under the Federal Crop Insurance Act ("Act"). 7 U.S.C. §1501, et seg. The Risk Management Agency ("RMA"), also an agency within USDA, supervises FCIC and has authority over the delivery of all insurance programs authorized by the Act. (Ex. 1, Award, paras. 6, 7, 8 and 9)

4. ACE is an Approved Insurance Provider (AIP) within the meaning of the Act. R&H sells and services federally reinsured multiple peril crop insurance pursuant to the Act, the regulations promulgated by FCIC, and the standard

5. The Common Crop Insurance Policy provides that the provisions of the policy may not be waived or varied in any way by R&H/ACE, its agent, or any employee of USDA unless the policy specifically authorizes a waiver or modification by written agreement. (Ex. 1, Award, para. 14; Ex. 2, Common Crop Insurance Policy ("Common Crop"), First unnumbered introductory para.)

6. Employees of FCIC and RMA are employees of USDA. (Ex. 1, Award, paras. 6 and 8)

7. The Common Crop Insurance Policy provides that R&H/ACE may only revise the contract after the contract change date to correct clear errors. (Ex. 2, Common Crop, para. 4)

8. The contract change date under the Apple Crop Insurance Provisions for crop year 2011 was August 31, 2010. (Ex. 3, Apple Crop Insurance Provisions ("Apple Crop"), para. 4)

9. The Common Crop Insurance Policy provides that if there is a conflict between the Act, the regulations, and the procedures as issued by FCIC/RMA, the order of priority is: (1) the Act; (2) the regulations; and (3) the procedures as issued by FCIC/RMA, with (1) controlling (2), etc. (Ex. 2, Common Crop, Third unnumbered introductory para.)

10. On August 25,2010, FCIC/RMA published a Final Rule amending the Apple Crop Insurance Provisions for crop year 2011 and successive crop years, which Final Rule was published prior to August 31, 2010, the contract change date for crop year 2011. (Ex. 1, Award, paras. 20, 21 and 22)

11. FCIC/RMA modified the definition of "Fresh apple production" in Section 1 of the Apple Crop Insurance Provisions to state as follows:
(1) Apples:
(i) That are sold, or could be sold, for human consumption without undergoing any change in the basic form, such as peeling, juicing, crushing, etc.;
(ii) From acreage that is designated as fresh apples on the acreage report;
(iii) That follow the recommended cultural practices generally in use for fresh apple acreage in the area in a manner generally recognized by agricultural experts; and
(iv) From acreage that you certify, and, if requested by us provide verifiable records to support, that at least 50 percent of the production from acreage reported as fresh apple acreage from each unit, was sold as fresh apples in one or more of the four most recent crop years.
(2) Acreage with production not meeting all the requirements above must be designated on the acreage report as processing apple production. (Ex. 1, Award, para. 23)

12. The revised definition of fresh apple production above, by its terms, did not make reference in (l)(iv) in any way to having the verifiable records confirm the price at which the apples were sold or the final disposition of the apples to the end user.

13. The term "verifiable records" is not defined in the Apple Crop Insurance Provisions, and is defined in the Common Crop Insurance Policy, for all purposes and without limitation, as having the same meaning as that term is defined in 7 C.F.R., Part 400, subpart G, which incorporated regulatory definition makes no mention of price or final disposition of the apples and refers only to contemporaneous records of acreage and production provided by the insured. (Ex. 1, Award, para. 26; Ex. 2, Common Crop., para. 1; Ex. 3, Apple Crop; 7 C.F.R. § 400.52 (q))1

14. The FCIC/RMA Crop Insurance Handbook, also in place at the tim  Bonnie Brae entered into the contract of crop insurance, contains no requirement for price or final disposition of the apples in the sections relating to what constitutes acceptable, verifiable records. (Ex. 4, Stipulation of Uncontested Facts ("Stipulation"), para. 10; Ex. 5, Crop Insurance Handbook ("CIH"), Sections 14 D (l)(b)andl6J(2))

15. After the contract change date, FCIC/RMA issued a Memorandum dated December 22, 2010, addressing verifiable record requirements to qualify for fresh apple production. That Memorandum added, for the first time, the criterion that a verifiable record must reflect the value received by the grower was commensurate or consistent with the value of fresh apple production. The Memorandum confirmed, however, that records from a fresh fruit packing house would be considered acceptable verifiable records provided they reflect a price consistent with that generally received for fresh apples. (Ex. 1, Award, para. 25)

16. After the contract change date, on September 11, 2012, R&H/ACE requested a Final Agency Determination from FCIC/RMA under the terms of the Common Crop Insurance Policy, which provides that any interpretation of a specific policy provision or procedure will be binding in arbitration and in any

17. In its request for Final Agency Determination, R&H/ACE requested that the term "sold" as used in the definition of "fresh apple production" in the Apple Crop Insurance Provisions did not mean delivery or transfer of apples, and that an apple producer's delivery of apples to a packing house does not constitute the sale of the subject apples. R&H/ACE further requested that the term "sold" would not apply until the producer receives full payment for the apples delivered, even if the apples remain in storage at the packing house for some period of time. Finally, R&H/ACE requested that verifiable records submitted by the producer must indicate the ultimate disposition of the apples, whether as fresh or for processing purposes, and the price for which the subject apples were "sold" to the end user. (Ex. 6, R&H/ACE Request for Final Agency Determination ("Request for FAD")

18. Final Agency Determination 172 ("FAD-172"), issued by FCIC/RMA November 13, 2012, did not address in any manner R&H's/ACE's request that the verifiable records must indicate the ultimate disposition of the apples, whether fresh or for processing purposes. On the contrary, FAD-172 stated only that if th  fresh fruit packer pays the grower a price commensurate with fresh apples, the apples are considered as fresh apple production, and sales records that show price paid to the grower and quantity purchased are used to determine when the apples are sold and whether the apples qualify as fresh or processing. (Ex. 7, FAD-172)

19. To the extent that the FCIC/RMA Memorandum regarding verifiable records or the FCIC/RMA FAD-172 purport to broaden the definition of "verifiable records" beyond the clear terms of the Common Crop Insurance Policy or the Apple Crop Insurance Provisions, both of which are federal regulations, or the regulatory definition of "verifiable records" contained and incorporated therein, the Common Crop Insurance Policy would dictate that the regulations take priority over the FCIC/RMA procedures, and therefore the purported changes to add a price or final disposition of the fruit requirement would amount to an impermissible change in the contract terms after the contract change date.

20. Bonnie Brae sustained damage to its apple crop during crop year 2011 and filed a claim with R&H/ACE. (Ex. 1, Award, para. 27; Ex. 4, Stipulation, para. 19)

21. R&H/ACE adjusted Bonnie Brae's claim for crop year 2011 and correctly determined the amount of Bonnie Brae's apple production and the amount of damage to the apples, which constituted a total loss under the terms of the Apple Crop Insurance Provisions. (Ex. 4, Stipulation, para. 20)

22. Under the terms of the Crop Insurance Policy, Bonnie Brae's contractual liability indemnity payment for a total loss would be $1,514,919.00. (Ex. 4, Stipulation, para. 25)

23. R&H7ACE requested that Bonnie Brae provide verifiable records that at least 50% of the production from the acreage reported as fresh apple acreage from each unit was sold as fresh apples in one or more of the four most recent crop years, and Bonnie Brae designated crop year 2010 as the verifiable record year. (Ex. 1, Award, para. 27)

24. For crop year 2010, Bonnie Brae's production history showed 273,216.9 bushels of fresh apple production and Bonnie Brae provided records of sale of 175,581 bushels of apples to Rice Fruit Company ("Rice"), a fresh fruit packing house, from Bonnie Brae's insured acres for the applicable farm units. (Ex. 1, Award, paras. 38 and 42 (the Award is incorrect in citing sale of 182,862.2 bushels, as that number included bushels sold from uninsured acres); Ex. 8, Plaintiffs Proposed Findings of Fact and Conclusions of Law ("F OF/COL"), paras. 7 and 9)

25. The verifiable records produced by Bonnie Brae for crop year 2010 demonstrated that more than 50% (i.e. 64.3%) of the production from acreage reported as fresh apple acreage from each unit was sold as fresh apples in one or more of the. four most recent crop years (i.e. 2010), satisfying Section (l)(iv) of the definition of fresh apple production in the Apple Crop Insurance Provisions.

26. The price received by Bonnie Brae from Rice was $11.85 gross and $5.55 net per bushel, which was consistent with the fresh fruit market. (Ex. 1, Award, para. 42; Ex. 8, FOF, para. 9)

27. Rice is a grower's agent under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. §499 b(2); 7 C.F.R. § 46.2 (bb), (dd).

28. Under PACA, once the fresh fruit packer accepts the fresh fruit from the grower, title passes to the packer, and as to the grower the sale is complete and the fresh fruit cannot thereafter be rejected by the packer. This is true even if there is an open price term as defined in the Uniform Commercial Code. (Ex. 8, COL para. 4)

29. Under the contract between Bonnie Brae and Rice, which was admitted as an exhibit, an initial advance is paid upon acceptance of the apples, further payments are made as Rice sells the fruit, and a final payment is made at the end of the marketing season. Rice acquires complete control over the disposition of the fruit following acceptance, and Bonnie Brae gives blanket authority to Rice to market and distribute the fruit using its discretion as to the best methods, depending on market conditions and the quality of the fruit available. Upon acceptance of the fresh apples, Rice either packs the apples in fresh fruit containers for retail or wholesale or stores the apples in controlled atmosphere conditions for purposes of maintaining them as fresh quality for sale as fresh fruit.  (Ex. 8, FOF, para. 8; Ex. 9, Plaintiffs Supplemental Post-Hearing Submission ("Post-Hearing"); Ex. 10, Rice Receiving Policies and Grower Contract ("Rice Contract")

30. The pack out records from Rice, produced as part of the verifiable records for crop year 2010 by Bonnie Brae, showed that Rice in turn sold some of the apples for processing purposes to another entity after months in storage and after a determination by Rice that, for whatever reason, the apples were not able to be packed out for fresh retail or wholesale purposes. (Ex. 1, Award, para. 43)

31. The crop insurance policy ceases at the time of harvest, and R&H/ACE provides no insurance coverage for insured fruit once it is off the tree and in storage, because of the possibility of damage or degradation due to comingling, bruising, disease or infestation. (Ex. 2, Common Crop, para. 11 (b)(2))

32. The position taken by R&H/ACE at the arbitration hearing and by FCIC/RMA in FAD-172 that looks to the final disposition of the fruit and the price obtained by the sale of apples by the packer for processing purposes is directly contrary to the clear language of the Common Crop Insurance Policy that coverage ceases at harvest, and would provide no insurance to the grower/insured for damage to or degradation of the fruit in the packing house.

33. R&FI/ACE denied Bonnie Brae's claim under the fresh fruit option and proceeded to adjust and pay Bonnie Brae's claim in the amount of $228,226 by designating the production as processing. (Ex. 4, Stipulation para. 25) R&H/ACE made this determination by eliminating all bushels of apples sold by Rice for processing purposes from the count against the 50% criterion of Bonnie Brae's fresh apple sales in relation to total fresh production, and determining that on that basis Bonnie Brae did not meet the 50% criterion. (Ex. 1, Award, paras. 43 through 51)

34. At the arbitration hearing, Bonnie Brae took the position that its crop year 2010 verifiable records completely demonstrated that it met the requirements of the Apple Crop Insurance Provisions as they existed at the time it entered into the contract of crop insurance. Bonnie Brae further took the position that as between the grower and the packer, the issuance by FCIC/RMA of FAD-172 does not alter the effect of PACA on the sales transaction of a perishable commodity in interstate commerce which, like FCIC and RMA, is regulated under the auspices of USDA. Bonnie Brae further took the position that FAD-172 is limited in its scope to the definition of "sold" as that term is used in the definition of fresh apple production under the Apple Crop Insurance Provisions, that FAD-172 creates no requirement to demonstrate the ultimate disposition of the fruit for an acceptable verifiable record, and that under the terms of FAD-172 Bonnie Brae's sales records showed the quantity purchased by the packer and the price paid by the packer to the grower. Finally, Bonnie Brae took the position that to the extent that FAD-172 creates additional contract terms not in existence at the time of its entering into the crop insurance contract, the determination by FCIC/RMA would constitute an attempted contract change after the contract change date, and neither RMA nor FCIC is permitted to make changes to the contract after the contract change date by the very terms of the policy and regulations. (Ex. 8, COL, paras. 4 through 7; Ex. 9, Post-Hearing)

35. In the Award of Arbitrator, the arbitrator concluded that with the issuance of FAD-172 he was compelled to adopt FAD-172 and to apply it to the accepted evidence. Applying FAD-172, the arbitrator subtracted the bushels of apples sold by Rice for processing purposes from Bonnie Brae's fresh apple production and determined that, therefore, Bonnie Brae did not meet the 50% criterion. (Ex. 1, Award, para. 57, Reasoned Opinion)

36. The arbitrator applied his holding to the means of calculation of fresh apple production for purposes of adjusting any crop year 2012 claim submitted by Bonnie Brae to R&H/ACE. (Ex. 1, Award, Reasoned Opinion)

37. The arbitrator did not acknowledge that FAD-172, in fact, does not require that verifiable records demonstrate the ultimate disposition of the fruit and,
that even applying FAD-172 would operate to create additional terms outside the scope and content of the contract for crop insurance as executed by Bonnie Brae, and therefore constitute an impermissible contract change after the contract change date.

38. The regulations promulgated by FCIC/RMA, in the nature of the Common Crop Insurance Policy, purporting to make any final agency determination regarding a policy or provision binding in arbitration or subsequent judicial review is beyond the scope of the statutory authority granted to FCIC/RMA under the Act.

39. The attempt by FCIC/RMA in FAD-172 to preempt the application of PACA to a commercial transaction in interstate commerce involving perishable commodities is also beyond the scope of any statutory authority granted to FCIC/RMA under the Act, and conflicts directly with the statutes and regulations promulgated by the parent agency, USD A, regarding the applicability of PACA to such a sale.

40. The Award of Arbitrator, based upon the stated compulsion to apply FAD-172 as binding is therefore incorrect and beyond the authority of the arbitrator under the FAA.

41. The arbitrator incorrectly applied FAD-172 in the Award of Arbitrator.

42. The arbitrator failed to consider that application of FAD-172 created new terms which would create an impermissible change in the contract after the contract change date. An arbitrator in a subsequent arbitration proceeding involving identical issues, when considering the contract change date argument, adopted the position of Plaintiff and issued an award in favor of the grower despite the issuance by FCIC/RMA of FAD-172 (Ex. 11, Award of Arbitrator in Suncrest Orchards v. R&H and ACE ("Suncrest Award"), Conclusions of Law, paras. 1 through 6)

43. Applying FAD-172, creating terms which were not in the policy, the regulations, the handbook, any FCIC/RMA memo, or other source available at the time Bonnie Brae entered into the contract of crop insurance, resulted in an Award of Arbitrator that conflicted with the express terms of the agreement, imposed additional requirements not expressly provided for in the agreement, and was not rationally supported or derived from the agreement.

44. The crop insurance contract is a contract of adhesion, and particularly where terms are not defined in the policy all ambiguities are to be resolved against the insurer as drafter of the contract.

45. The arbitrator exceeded his powers and so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not
made as a result of the Award of Arbitrator and as is required under the FAA.

46. Because the Award of Arbitrator does not conform to the FAA standards, this Court is authorized to vacate or correct the Award of Arbitrator and find in favor of Bonnie Brae in the amount of $1,286,693.00, representing the contracted liability indemnity amount for a total loss less the amount paid for processing production, as stipulated to by the parties, and direct that the calculations during the adjustment of the crop year 2012 claim be made based upon Bonnie Brae's satisfaction of the fresh apple production requirements from crop year 2010 verifiable records.

47. Alternatively, this Court is authorized to vacate the Award of Arbitrator and remand the matter for further arbitration proceedings under the AAA in keeping with the Opinion and Order of this Court.

WHEREFORE, Bonnie Brae respectfully requests that this Honorable Court vacate the Award of Arbitrator and correct the Award of Arbitrator to issue an award in favor of Bonnie Brae and against R&H/ACE in the amount of $1,286,693.00, together with interest as calculated under the Common Crop Insurance Policy and attorneys fees as permitted under the Common Cro
Insurance Policy on judicial review, and direct that the crop year 2012 claim be adjusted in accordance with this Court's ruling, or, in the alternative, vacate the Award of Arbitrator and remand the matter for further arbitration proceedings under the AAA in keeping with the Opinion and Order of this Honorable Court that Bonnie Brae satisfied the fresh apple production requirement under its policy of crop insurance for crop years 2011 and 2012 based on acceptable crop year 2010 verifiable records."

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.

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