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August 28, 1997

JAMES BASTEK, RUSSELL KOWAL, CHRISTOPHER PAWELSKI and MICHAEL PILLMEIER, on behalf of themselves and all others similarly situated, Plaintiffs, against FEDERAL CROP INSURANCE CORPORATION, and DAN GLICKMAN, solely in his capacity as Secretary of Agriculture, Defendants.

The opinion of the court was delivered by: PARKER


 Plaintiffs bring this action challenging the application of the indemnity provision of the Federal Crop Insurance Act ("the Act"), 7 U.S.C. § 1501 et seq. The Federal Crop Insurance Corporation ("FCIC") and Agriculture Secretary Dan Glickman (collectively "the Government") move to dismiss, pursuant to Fed. R. Civ. P. 12(c), on the basis that plaintiffs have failed to exhaust their administrative remedies.


 Plaintiffs, who are onion farmers in Orange County, New York, obtained "catastrophic risk protection" from the FCIC as is provided for by the Act. Due to severe weather conditions, plaintiffs lost significant portions (fifty percent or more) of their 1996 crops and sought indemnity for those losses from the FCIC. Plaintiffs were compensated for their crop losses at the coverage level set forth in the Act, which states that "catastrophic risk protection shall offer a producer coverage for a 50 percent loss in yield, on an individual yield or area yield basis, indemnified at 60 percent of the expected market price, or a comparable coverage (as determined by the Corporation) . . . ." 7 U.S.C. § 1508(b)(2)(A)(i).

 Plaintiffs assert that the § 1508(b)(2)(A)(i) indemnification calculation was improperly modified by deduction of what they term a "salvage value," which is the value of onions from plaintiffs' 1996 crops which were actually brought to market. The Government rejects the notion that the FCIC improperly injected "salvage value" into the calculation, but, rather, asserts that a deduction for the value of onions actually brought to market is provided for under the "comparable coverage" provision of § 1508(b)(2)(A)(i).

 In addition to objecting to the FCIC's use of "salvage value," plaintiffs assert that the FCIC employed an "unrealistically low market value" in calculating indemnity under the Act. The market price used in calculating the money owed plaintiffs was $ 6.85/cwt for red onions and $ 4.85/cwt for yellow onions.

 On November 1, 1996, plaintiffs' attorney wrote to Secretary Glickman and Kenneth D. Ackerman, Manager of the FCIC and Acting Administrator of the Department of Agriculture's Risk Management Agency ("RMA") challenging generally both the computation of market price and the use of a salvage value. Ackerman responded by a December 11, 1996 letter ("Ackerman letter"), in which he explained RMA's position with respect to these two issues. Then, on December 23, 1996, in response to a claim submitted, Larry N. Atkinson, Director of the RMA, wrote to plaintiff Christopher Pawelski denying his claim and outlining the process for reconsideration and/or appeal. Specifically, Atkinson explained that Pawelski could: (1) seek reconsideration by the Risk Management Agency within thirty days; (2) appeal to the regional director; or (3) request mediation or another form of alternative dispute resolution. By January 22, 1997 letters, Atkinson communicated essentially the same information to plaintiffs Russell Kowal and James Bastek. None of the plaintiffs pursued these options, but instead filed this lawsuit.


 Contending that plaintiffs have failed to exhaust their administrative remedies, the Government moves, pursuant to Fed. R. Civ. P. 12(c), to dismiss for lack of subject matter jurisdiction. The gravamen of the Government's argument is that it is immune from suit absent consent and that consent under the Act, as modified by the Agriculture Reorganization Act, 7 U.S.C. § 6901 et seq., is premised upon exhaustion. See Federal Deposit Insurance Corp. v. Meyer, 510 U.S. 471, 475, 114 S. Ct. 996, 127 L. Ed. 2d 308 (1994). The relevant portion of the Reorganization Act provides that "notwithstanding any other provision of law, a person shall exhaust all administrative appeal procedures established by the Secretary or required by law before the person may bring an action in a court of competent jurisdiction. . . ." 7 U.S.C. § 6912(e).

 Plaintiffs make two arguments in opposition to defendants' motion. First, plaintiffs contend that because "final agency action" has occurred, defendants are subject to suit. Second, they contend that the exhaustion requirement should be waived. Plaintiffs' first argument seems somewhat misplaced, as the Government's assertion of immunity is premised not on finality, but rather on the broader principle of exhaustion.

 When conducting an exhaustion analysis, it is necessary to consider the purposes of exhaustion. See Pavano v. Shalala, 95 F.3d 147, 151 (2d Cir. 1996). Exhaustion is, of course, the rule, while waiver of exhaustion is the exception. See Abbey v. Sullivan, 978 F.2d 37, 44 (2d Cir. 1992). However, when one of the purposes is not furthered, exhaustion is normally not required. "Exhaustion is required because it serves the twin purposes of protecting administrative agency authority and promoting judicial efficiency." McCarthy v. Madigan, 503 U.S. 140, 145, 117 L. Ed. 2d 291, 112 S. Ct. 1081 (1992). In order to protect agency authority, it is necessary to

allow [an] agency to apply its special expertise . . . [as well as allow] an agency [] to have an opportunity to correct its own mistakes with respect to the programs it administers before it is haled into federal court. Correlatively, exhaustion principles apply with special force when frequent and deliberate flouting of administrative processes could weaken an agency's effectiveness by encouraging disregard of its procedures.

 Id. at 145 (citation and quotation marks omitted). Additionally, exhaustion promotes judicial efficiency by allowing for the possibility that a controversy will be mooted by agency review and by "producing a useful record for subsequent judicial ...

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