A federal judge in Texas entered an injunction in Strickland v. USDA prohibiting the USDA from providing increased payments or additional relief to those meeting its definition of a “socially disadvantaged farmer or rancher” in its ERP 2022 program.  [Read Opinion and Order here.]  While the injunction applies only to ERP 2022, the Court’s discussion of the Plaintiffs’ likelihood of success on the merits could seemingly apply to other programs for which the “socially disadvantaged” categorization is used.

Photo by Robert Wiedemann

Background

Plaintiffs are Texas farmers who sued the USDA alleging the USDA’s administration of several disaster programs was unconstitutional.  Plaintiffs challenged a total of eight USDA programs, of which only one, ERP 2022, remains active. Plaintiffs based their claims essentially on two different arguments.

First, the Plaintiffs argued the USDA’s payment methodology that provides additional funds to those producers meeting the definition of a “socially disadvantaged producer” violates the Equal Protection Clause.  A “socially disadvantaged farmer or rancher” is defined as including:  (1) American Indians or Alaskan Natives; (2) Asians or Asian-Americans; (3) blacks or African-Americans; (4) Hispanics or Hispanic-Americans; (5) Native Hawaiians or other Pacific Islanders; and (6) women.  [Read Complaint here.]  The USDA admitted the disaster programs at issue benefit minority and female producers because doing so “reflects the agency’s interest and goal of remedying the persistent effects of past discrimination…”

Second, Plaintiffs argued the USDA’s use of “progressive factoring” was arbitrary and capricious. Progressive factoring is a method that ensures limited funding is distributed in a manner benefiting the majority of producers, rather than a few.  This results in increasing payments to most participants by decreasing larger potential payments, which increases the proportion of funding to smaller producers. For example, under the prior “flat-rate” model, all producers would have received a flat percentage of loss payment which was a 75% payment rate for white male farmers under ERP 2022.  Under progressive factoring, however, “farmers losing more recover less, while farmers losing less recover more.  So a farmer claiming losses of up to $2,000 may recover 100 percent of that loss, while a farmer claiming losses over $10,000 may recover only 10 percent of that loss.”

Additionally, under progressive factoring, USDA exempted refunds of insurance premiums, which were provided to “underserved” producers, who are beginning, limited resource, socially disadvantaged, or veterans.  In other words, for “underserved” producers, their share of the crop insurance fee and premium was added to their  ERP 2022 payment.

Plaintiffs moved for a preliminary injunction to prevent the USDA from continuing to make payments in this manner.  [Read Motion here.]  The USDA responded claiming Plaintiffs suffered no irreparable injury, and the programs are either race and gender neutral or otherwise justified.  [Read Response here.]

Preliminary Injunction Standard

To obtain a preliminary injunction, the Plaintiffs must show: (1) substantial likelihood of success on the merits; (2) a substantial threat of irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs damage the proposed injunction may cause Defendants; and (4) granting the injunction is not against the public interest.

District Court Opinion and Order

Federal district judge, Matthew Kacsmaryk, granted the injunction in part.  [Read Opinion and Order here.]

Progressive Factoring

First, the Court addressed the arguments related to progressive factoring.

Arbitrary and Capricious Claim

The Court first looked at whether progressive factoring was arbitrary and capricious.  To satisfy this review, the USDA must “articulate a satisfactory explanation for the action including rational connection between the facts found and the choice made.”  In other words, the Court determines whether the agency action was reasonable.

Plaintiffs raised their arbitrary and capricious claim only with regard to the USDA’s use of progressive factoring, not its use of the “socially disadvantaged” category.  Plaintiffs argued because progressive factoring was a change from prior flat-rate relief models, the USDA needed to explain in detail how this change accounted for serious reliance interests on the prior model.  This, Plaintiffs argued, USDA failed to do.

The Court disagreed.  Plaintiffs’ claimed reliance on the flat-rate model was not based on USDA’s statutory interpretation, but instead on “a means of remuneration subject to agency discretion.”   Further, given the ad hoc nature of the programs at issue, the Plaintiffs’ claims that they need to rely on the flat-rate model payments for budgeting were unpersuasive.  It is up to the discretion of the USDA to determine how to allocate the resources appropriated by Congress, and it does so differently with regard to each program.  Because of this, the Plaintiffs did not show the necessary reliance interest.

With regard to ERP 2022, the program the Plaintiffs claim was arbitrary and capricious, given the ad hoc nature of the payments depending entirely on Congressional funding, the Plaintiffs cannot have reasonably relied on past programs’ allocation methods.  Thus, the Court held progressive factoring policy “easily satisfies arbitrary-and-capricious review under the Administrative Procedures Act.”

Major Questions Doctrine 

Next, the Court held progressive factoring did not implicate the major questions doctrine (MQD).

The MQD applies only in “extraordinary cases” involving decisions of “vast economic and political significance” or assertions of “extravagant statutory power of the national economic” or “highly consequential power beyond what Congress could reasonably be understood to have granted.”  It is relevant “only when agency action involves a novel or unprecedented interpretation of regulatory authority involving ancillary statutory provisions.”

The Court offered two reasons why the MQD does not apply here.  First, the Plaintiffs did not even address the scale of ERP 2022’s relief to women and minorities.  Meanwhile, the USDA claimed the total amount of ERP payments to women and minorities was significantly lower than prior years and does not qualify as extraordinary.  Second, the USDA’s “socially disadvantaged” category “is neither novel nor unprecedented” as it has been used by the UDSA for roughly 20 years.

Therefore, none of the Plaintiffs’ challenged programs implicate the MQD.

Socially Disadvantaged Producer Classification 

Next, the Court turned to the Plaintiffs’ challenge to the “socially disadvantaged” classification.

Likelihood of Success on the Merits

The Court initially noted that Supreme Court precedent “bears little tolerance” for dividing people based on race. Race-based classifications are presumptively unconstitutional.  To overcome that presumption, the USDA must meet the “daunting two-step examination” of strict scrutiny.  First, the USDA must show treating races differently is done to further a compelling government interest.  Second, it must show its use of race is narrowly tailored (meaning necessary) to achieve the compelling government interest.

• The USDA discriminated on race.

First, the Court held the USDA discriminated based on race.  With regard to ERP 2022, for example, the Court held the formula’s treatment of socially advantaged farmers differently was race based.  So was the UDSA’s refund of insurance premiums to socially disadvantaged producers.  By applying the progressive factoring rules in ERP 2022, the USDA harmed farmers claiming large losses, then exempted certain races from the adverse consequences, and then additionally refunded insurance premiums for certain races.  This constitutes racial discrimination.

• The USDA had no compelling interest. 

Second, the Court held USDA had no compelling interest to racially discriminate. The Court noted there are only two compelling interests that permit race-based government action.  One of those is remedying identified instances of past discrimination that violated the Constitution or statute. This interest requires three components: (1) it cannot be a generalized assertion there was past discrimination in an entire industry; (2) there must be evidence of intentional prior discrimination; and (3) the government must have had a hand in the prior discrimination. “Importantly, alleviating the effects of societal discrimination is not a compelling interest.”

The Court noted the USDA relied on one study to claim it had a strong basis to remedy discrimination that stunted the success of socially disadvantaged producers. This study, the Court reasoned, did not point to discriminatory actions taken by the USDA and was not published until 2024 even though ERP 2022 was published in October 2023.  The Court reasoned USDA could not have used the 2024 study to craft the 2023 regulations.  The Court also cited to several cases where other courts have found USDA failed to show evidence of intentional discrimination at least in the last decade.

Based on this, the Court held USDA could not carry its burden of showing a compelling interest for its racially discriminatory programs.

• The USDA’s relief was not narrowly tailored.

Third, even if the USDA could prove a compelling interest, the ERP 2022 did not narrowly tailor its relief.  The USDA needed to show no race-neutral alternatives would have achieved the compelling interest.   The Court held it failed to do so.

First, the Court noted the USDA could have addressed its concern of targeting farmers who were more likely to lack financial reserves and capital and who run vulnerable and smaller operations in a race-neutral manner.  The Court pointed to the “underserved” classifications focused on new farmers and low income farmers–both addressing this issue in a race-neutral manner.

Second, the Court found the program both over- and under-inclusive.  It was over-inclusive because it provided additional relief to farmers of preferred races without requiring any showing that they needed additional relief.  It was under-inclusive because it denied aid to farmers not of the preferred races who are in danger of financial ruin.  The Court also noted Jewish-Americans, Italian-Americans, Irish-Americans, and more groups are not a preferred race, despite there being a well-documented history of discrimination against them.

Third, the Court disagreed with USDA’s contention that the benefits to the socially disadvantaged producers do not impose harm on white male farmers who continue to receive the vast majority of agricultural funding.  The Court noted one of the Plaintiffs would have received ten times more ERP 2022 payment were he a female, which constituted a harm.

Thus, the programs fail strict scrutiny because they overtly discriminate on the basis of race, they are not based on a  compelling interest, and are not narrowly tailored.  The challenged programs are likely to violate the Fifth Amendment.

• The USDA discriminated on sex in violation of the Fifth Amendment.

Sex discrimination is, like racial discrimination, presumptively invalid.  To justify sex discrimination, the USDA must meet intermediate scrutiny, namely: (1) important governmental objectives; and (2) action substantially and directly related to those objectives.  The USDA admitted its programs discriminate based on sex, so the question is whether it can meet this intermediate scrutiny.  The Court held it cannot.

The USDA again offered only a generalized desire to remedy inequities, which is insufficient under the Fifth Amendment.  With regard to the scope of the relief, again, the Court found the approach over- and under-inclusive by including women who may not have needed extra assistance while certain producers like Plaintiffs Alan and Amy West were denied additional relief because Amy owned only 48% of the farming entity.

Thus, the challenged programs are unlikely to succeed on the merits.

Irreparable Harm

The Court held  “harm is irreparable when equal protection is at issue” because of the “stigmatic harm” racial classifications cause.  Such harms are “ongoing because the badge of inequality and stigmatization conferred by racial discrimination is a cognizable harm in and of itself.”

USDA argued Plaintiffs identified only past harm which cannot justify injunctive relief, the alleged harms are reparable because Plaintiffs can provide an exact dollar amount of damage, and Plaintiffs’ own delay in filing their claims undercuts their claim of irreparable harm.

• Plaintiffs identify current, ongoing harms.

First, the Court noted it was not the inability to obtain the monetary benefit, but the denial of equal treatment that caused the harm.  Second, because ERP 2022 is still ongoing, and because Plaintiffs have applied for prior programs and will apply for ERP 2022, redress is likely. Additionally, some Plaintiffs have pending applications before USDA for other programs like EQIP for which the “socially disadvantaged” categorization would apply absent an injunction.

• Calculable economic damages do not repair these harms.

“Economic relief will not help Plaintiffs here.”  In fact, Plaintiffs do not even seek economic relief.  Such relief would not remedy stigmatic harms, which is the “only predicate for relief” in this case.

• Plaintiffs exercised reasonable diligence in bringing the lawsuit.

The Court found the Plaintiffs’ delay in bringing suit excusable.  The most recent program went into effect in October 2023, and it took time to find council and to prepare filings. Any delays, the Court held, were due to Plaintiffs’ good faith effort to investigate facts and law.

Balance of Interests/Public Interest

The Court reasoned the public has an interest in preventing the violation of a party’s constitutional rights. If Plaintiffs’ claims succeed, the USDA’s task of making the relief equitable will be made “more manageable by promptly halting its unlawful behavior.”

Conclusion 

Because the only active program at issue is ERP 2022, the USDA is enjoined from making or increasing payments or providing additional relief under this program based on the “socially disadvantaged farmer or rancher” category.  USDA may, however, continue to apply progressive factoring on future applications, so long as it is “done independently of any race- or sex-based considerations.”

What Happens Next?

Remember, this was only a Motion for Preliminary Injunction, it was not a final merits ruling from the Court.  Thus, the case will likely proceed through normal discovery channels and, eventually, make its way back to the Court either on dispositive motions and/or a trial.