James J. Zych, Appellant,

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2016).

STATE OF MINNESOTA
IN COURT OF APPEALS
A16-2082

James J. Zych,
Appellant,

vs.

Timothy Haugen, et al.,
Respondents.

Filed July 31, 2017
Affirmed
Larkin, Judge

Big Stone County District Court
File No. 06-CV-15-237

David C. McLaughlin, Fluegel, Anderson, McLaughlin & Brutlag, Chartered, Ortonville,
Minnesota (for appellant)

Joel T. Wiegert, Jacalyn N. Chinander, Meagher & Geer, P.L.L.P., Minneapolis, Minnesota
(for respondents)

Considered and decided by Larkin, Presiding Judge; Jesson, Judge; and Toussaint,
Judge.*

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.
2
U N P U B L I S H E D O P I N I O N
LARKIN, Judge
Appellant challenges the district court’s dismissal of his negligence claim aga inst
respondents insurance agency and agent, arguing that the district court did not comply with
Minn. R. Civ. P. 12.03 and erred in concluding that appellant’s claim is preempted under
the Federal Crop Insurance Act (FCIA). We affirm.
FACTS
In November 2015, appellant James J. Zych sued respondents Timothy Haugen and
Haugen Insurance Agency Inc., asserting negligence, slander, and defamation claims. 1
Appellant alleged that respondents acted as an agent for Rural Community Insurance
Services (RCIS) in the sale of a 2009 “Mult i-Peril Crop Insurance Policy” to appellant,
which covered appellant’s corn and soybean crops. Appellant alleged that as RCIS’s agent,
respondents were responsible for providing RCIS a “Notice of Loss” when a crop loss
occurred.
According to appellant’ s complaint, he informed respondents that a hail event
occurred in July 2009 and a frost event occurred in Octobe r 2009. Respondents told
appellant that “a farmer cannot turn in a Notice of Loss if the farmer intended to harvest
the field,” that respondents “would not turn in a Notice of Loss unless there is evidence of
damage,” and that “the harvest is the ultimate determining factor of damage.” Respondents
filed a Notice of Loss with RCIS on behalf of appellant in December 2009. Because

1 The district court dismissed appellant’s slander and defamation claims pursuant to a
stipulation of the parties.
3
appellant’s corn crop was too wet to harvest at the time, appellant elected to wait and let
the corn crop dry in the field. In March 2010, RCIS examined appellant’s corn field and
denied his claim on the grounds that appellant “did not utilize good farming practices by
selecting a variety that may not mature in time” and “did not provide [RCIS a] Notice of
Loss when he in fact provided notice to [respondents] and others.”
Appellant submitted a claim to RCIS for more than $700,000, and the matter went
to arbitration . A ppellant and RCIS settled the claim for $250,000, and the settlement
excluded appellant’s claims against respondents.
In the underlying action against respondents, a ppellant alleged that respondents ’
“negligent handling of the claims by failing to file a Notice of Loss with RCIS and
provid[ing] misleading and inaccurate information to [appellant] was the direct and
proximate cause of the [appellant’s] loss or his claim” and that appellant suffered damages
in excess of $50,000. Respondents answered with an affirmative defense : appellant’s
lawsuit was “barred by the Federal Crop Insurance Act.”
In June 2016, respondents moved for judgment on the pleadings under Minn. R.
Civ. P. 12.03, arguing that appellant failed to (1) “submit the [negligence] claim to
mandatory arbitration within one year of the date his 2009 crop -loss claim was denied as
required by the terms of hi s crop insurance policy” and (2) “obtain a determination fr om
the [Federal Crop Insurance Corporation (FCIC)] that [respondents] failed to comply with
the terms of his policy or procedures required under [the] federal crop insurance program”
and “that such failure resulted in his receiving a payment in an amount that is less than the
amount he was entitled.”
4
The district court granted respondents’ motion for judgment on the pleadings and
dismissed appellant’s complaint. The district court found that the insurance contract in
question was governed by 7 C.F.R. § 400.352 (2017), which generally prevents state and
local governmental entities from levying judgments for damages and costs against
“companies, [and] employees of companies including agents and loss adjusters . . . arising
out of actions or inactions on the part of such individuals and entities authorized or required
under the Federal Crop Insurance Act .” The district court reasoned that appellant’s
negligence claim involved the alleged negligence of an agent and age ncy who were
proceeding under the FCIA and that the claim was therefore federally preempted. This
appeal follows.
D E C I S I O N
In reviewing a motion for judgment on the pleadings under Minn. R. Civ. P. 12.03,
an appellate court accepts the factual allegations in the complaint as true and construes
those allegations in the light most favorable to the nonmoving party. Hoffman v. N. States
Power Co., 764 N.W.2d 34, 45 (Minn. 2009). “[J]udgment on the pleadings is proper
where the defendant relies on an affirmative defense or counterclaim which does not raise
material issues of fact.” Zutz v. Nelson , 788 N.W.2d 58, 61 (Minn. 2010) (quotation
omitted).
If, on a motion for judgment on the pleadings
matters outside the pleadings are presented to and not excluded
by the court, the motion sha ll be treated as one for summary
judgment and disposed of as provided in Rule 56, and all
parties shall be given reasonable opportunity to present all
material made pertinent to such a motion by Rule 56.
5
Minn. R. Civ. P. 12.03.
In determining whether a district court properly granted judgment on the pleadings,
this court reviews de novo whether the complaint sets forth a legall y sufficient claim for
relief. Zutz, 788 N.W.2d at 61.
I.
Appellant contends that the district court erred in entering judgment on the
pleadings because it “considered information submitted by Respondents outside of the
Complaint.”2 Appellant argues that respondents’ attachment of documents to their
memorandum of law in support o f their rule 12 motion converted th e motion to one for
summary judgment and that he “should have been permitted to develop [the] record in
order to bring this matter to a conclusion.”
Appellant and respondents both submitted documents outside of the pleadings in the
district court. However, the district court expressly stated that its analysis was “made under
Rule 12 on the face of the pleadings” and did not rely on any documents outside of the
complaint in granting respondents’ motion for judgment on th e pleadings. Moreover, in
addressing appellant’s argument that “he specifically reserved his claim against
[respondents] in settling his claim against RCIS,” the district court noted that consideration
of that argument would require review of a document appellant submitted that “would take

2 Appellant also contends that the district court erred in entering judgment on the pleadings
because “it did not accept all statements in th e Complaint as being true.” Because this
court reviews de novo whether the complaint sets forth a legally sufficient claim for relief,
this alleged error is immaterial.
6
the Court’s inquiry out of the realm of Rule 12 and into the realm of Rule 56 Summary
Judgment.”
In sum, the record refutes appellant’s contention that the district court erroneously
considered matters outside of the pleadings.
II.
Appellant contends that the district court erred by ruling that appellant’s negligence
claim against respondents is preempted under 7 C.F.R. § 400.352. Appellant argues that
his “cause of action against Respondents for negligence is not inconsistent with the purpose
of the FCIA, and therefore, it is not preempted by the FCIA or the FCIC’s regulations.”
Article VI of the U.S. Constitution provides that “the Laws of the United States . . .
shall be the supreme Law of the Land; and the judges in every State shall be bound thereby,
any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”
Under the Supremacy Clause, federal law, including federa l regulations promulgated
pursuant to an agency’s statutory authority, preempts state law if Congress intends that it
do so. Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 152-54, 102 S. Ct.
3014, 3022-23 (1982); Hous. & Redev. Auth. of Duluth v. Lee, 852 N.W.2d 683, 687 (Minn.
2014). Federal law can displace state law in three ways: (1) pursuant to express
preemption language (express preemption), (2) implicitly through comprehensive federal
regulation in a certain area (field preemption ), or (3) through an actual conflict with state
law (conflict preemption). Cal. Fed. Sav. & Loan Ass’n v. Guerra, 479 U.S. 272, 280-81,
107 S. Ct. 683, 689 (1987); Lee, 852 N.W.2d at 687.
7
Congress created the FCIA to “improve[] the economic stability o f agriculture
through a sound system of crop insurance and provid[e] the means for the research and
experience helpful in devising and establishing such insurance.” 7 U.S.C. § 1502(a)
(2012). To carry out the purposes of that act, Congress established th e FCIC within the
U.S. Department of Agriculture. 7 U.S.C. § 1503 (201 2). The FCIC “may insure, or
provide reinsurance for insurers of, producers of agricultural commodities grown in the
United States under 1 or more plans of insurance determined by the [FCIC] to be adapted
to the agricultural commodity concerne d.” 7 U.S.C. § 1508(a)(1) (2012 ). The FCIC is
empowered to “issue regulations, necessary in the conduct of its business, as determined
by the Board.” 7 U.S.C. § 1506( l) (2012). The FCIC issues final agency determinations
(FADs) through the U.S. Department of Agriculture’s Risk Management Agency (RMA)
that interpret the FCIA and FCIC regulations, which are “binding on all participants in the
Federal crop insurance program.” 7 C.F.R. §§ 400.765, .768(f) (2016).
The FCIA expressly preempts inconsistent state law:
State and local laws or rules shall not apply to cont racts,
agreements, or regulations of the [FCIC] or the parties thereto
to the extent that such contracts, agreements, or regulations
provide that such laws or rules shall not apply, or to the extent
that such laws or rules are inconsistent with such contra cts,
agreements, or regulations.

7 U.S.C. § 1506(l).
Moreover, 7 C.F.R. § 400.352(a) provides that “[n]o State or local governmental
body . . . shall have the authority to . . . issue policies or decisions that directly or indirectly
affect or govern agr eements, contracts, or actions authorized by this part unless such
8
authority is specifically authorized by this part or by the [FCIC].” 7 C.F.R. § 400.352(b)
provides a “non -inclusive list” of examples of actions that state or local governmental
entities may not take against the FCIC or any party that is acting pursuant to the FCIA and
regulations under that act. Such entities may not
[l]evy fines, judgments, punitive damages,
compensatory damages, or judgments for attorney fees or other
costs against co mpanies, employees of companies including
agents and loss adjustors, or Federal employees arising out of
actions or inactions on the part of such individuals and entities
authorized or required under the Federal Crop Insurance Act,
the regulations, any con tract or agreement authorized by the
Federal Crop Insurance Act or by regulations, or procedures
issued by the Corporation.

7 C.F.R. § 400.352(b)(4) (emphasis added).

The regulation provides an exception for certain damages imposed against an
insurance company:
(Nothing herein precludes such damages being imposed
against the company if a determination is obtained from FCIC
that the company, its employee, agent or loss adjuster failed to
comply with the terms of the policy or procedures issued by
FCIC an d such failure resulted in the insured receiving a
payment in an amount that is less than the amount to which the
insured was entitled)[.]

Id.

When the words of a regulation are clear and unambiguous, we apply them as
written. Indep. Sch. Dist. No. 12 v. Minn. D ep’t of Educ. , 788 N.W.2d 907, 912 (Minn.
2010). We do not go beyond the regulation’s language unless the language is ambiguous,
that is, subject to more than one reasonable interpretation. In re Reichmann Land & Cattle,
LLP, 867 N.W.2d 502, 506 (Minn. 2015); Indep. Sch. Dist. No. 12, 788 N.W.2d at 912.
9
Appellant does not dispute that his crop insurance policy with RCIS is governed by
the FCIA and FCIC regulations. The clear language of 7 C.F.R. § 400.352(a) expressly
preempts state and local government actions that directly or indirectly affect or govern
agreements, contracts, or actions authorized by the FCIA or regulations regarding that act
unless the authority for the state and local governmental entities to take such actions is
“specifically authorized” by the FCIA, regulations regarding the act, or by the FCIC. And
the clear language of 7 C.F.R. § 400. 352(b)(4) broadly prohibits state and local
governmental entities from levying fines, judgments, da mages, or other costs against
“employees of companies including agents” arising out of actions regarding the FCIA,
regulations regarding that act, any contract or agreement authorized by the FCIA, or
procedures issued by the FCIC.
Appellant’s negligence claim against respondents is a r equest for the district court
to levy a judgment for damages, costs, and disbursements against respondents, agents of
an insurance company, for their actions and inactions regarding a crop insurance policy
governed by the FCIA. That claim is preempted und er the plain language of 7 C.F.R.
§ 400.352(a), (b)(4).
7 C.F.R. § 400.352 does not expressly provide any exceptions to its general
prohibition on state judgments against agents of insurance companies stemming from their
actions or inactions regarding t he FCIA. The only ex ception contained in 7 C.F.R.
§ 400.352 allows damages to be “imposed against the company” if the party seeking
damages obtains a determination from the FCIC (1) “that the company, its employee, agent
or loss adjuster failed to comply with the terms of the policy or procedures issued by FCIC”
10
and (2) “such failure resulted in the insured receiving a paymen t in an amount that is less
than the amount to whi ch the insured was entitled.” 7 C.F.R. § 400.352(b)(4) (emphasis
added). In FAD -251 dated December 17, 2015, the RMA interpreted 7 C.F.R.
§ 400.352(b)(4) as follows:
[A]ny claim, including a claim for extra-contractual damages,
that arises under or is related to a Federal crop insurance policy
issued pursuant to the Federal Crop Insurance Act (Act) may
only be awarded if a determination is obtained from FCIC in
accordance with section 20(i) of the Common Crop Insurance
Policy Basic Provisions and §400.352.

(Emphasis added.)

The FCIC noted that “[t]o the extent that State courts award extra -contractual
damages without first obtaining a determination from FCIC, such awards are not in
accordance with 7 C.F.R. § 400.352 and FCIC regulations.”
Respondents argue that damages against an agent are possible so long as there is
compliance with the determination requirement under 7 C.F.R. § 400.352(b)(4), as
interpreted in FAD -251. This argument assumes that t he words “any” and “extra -
contractual” damages extend the reach of the exception in 7 C.F.R. § 400.352(b)(4) beyond
damages against “the company.” The implication is that 7 C.F.R. § 400.352(b)(4) does not
completely preempt an award of damages or judgment against an agent . Under this
interpretation, appellant could only obtain damages against respondents based on the crop
insurance policy if he obtains a determination from the FCIC regarding respondents’
alleged failure to comply with the terms of the policy. Appellant concedes that he did not
obtain such a determination from the FCIC. Thus, even assuming that FAD-251 expanded
11
the exception, appellant’s negligence claim is preempted under 7 C.F.R. § 400.352 (a),
(b)(4).
Appellant argues that this court “should not rely on the FAD -251 urged by the
Respondents because it was issued six years after Appellant purchased crop insurance from
RCIS through Respondents.” However, if this court were unwilling to apply FAD-251 as
construed above, it would be left with the plain language of 7 C.F.R. § 400.352 (a), (b)(4)
which provides no exceptions to the general rule that a s tate governmental body cannot
levy judgments for damages against an agent of an insurance company for actions or
inactions under the FCIA.
Appellant also argues that an FCIC determination is unnecessary because “RCIS
has already admitted,” in deposition s of RCIS representatives, “that it is Respondents’
responsibility as agents to provide the Notice of Loss to RCIS in order for RCIS to
determine the extent of the crop loss and whether the loss was caused by a covered event.”
RCIS’s “admission” does not satisfy the plain language of 7 C.F.R. § 400.352(b)(4), which
requires a determination “from FCIC.” Such a determination did not occur.
We note that the FCIC has stated that one of the goals of the federal crop insurance
program is “to ensure that all producers are treated alike and none receive special benefits
or treatment because of the crop they produce, the insurance provider that insures them, or
who hears their disputes.” General Administrative Regulations, Catastrophic R isk
Protection Endorsement; Group Risk Plan of Insurance Regulations for the 2004 and
Succeeding Crop Years; and the Common Crop Insurance Regulations , Basic Provisions,
69 Fed. Reg. 48,652, 48,715 (Aug. 10, 2004) . Consistent with that goal of uniformity, a
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party must obtain a determination from the FCIC before that party may seek damages
regarding a policy covered by the FCIA. The FCIC’s regulations simply do not authorize
a party to an FCIC -covered insurance policy to make that determination instead of the
FCIC.
Appellant makes severa l assertions that his lawsuit is nonetheless actionable. For
example, appellant asserts that “[b]ecause [he] is not seeking damages from RCIS, the
requirement to first obtain a determination from the FCIC regarding wrongdo ing and
damage does not apply in this case.” Appellant also asserts that “[t]he agent is responsible
for his negligent actions and should not be afforded the same protections as R CIS.”
Appellant further asserts that FAD-251 does not apply to actions for damages against
agents of insurance companies becau se “[i]t was not the Agencies of the Government’s
intent . . . to provide agents with insurance protection for their negligent actions.”
Appellant notes that “[w]hether a claim is preempted is a question of congressional
intent that is . . . a legal question of statutory construction,” relying on Morales v. Trans
World Airlines, Inc., 504 U.S. 374, 383, 112 S. Ct. 2031, 2036 (1992). Morales states that
in such an inquiry, a court “begin[s] with the language employed by Congress and the
assumption that the ordinary meaning of that language accurately expresses the legislative
purpose.” 504 U.S. at 383, 112 S. Ct. at 2036 (quotations omitted). Here, we need not
look beyond the ordinary meaning of the language used in 7 C.F.R. § 400.352 (a), (b)(4)
which clearly expresses an intent to preempt a lawsuit such as appellant’s.
Appellant argues that “[t]he FCIA does not completely preempt state law remedies
against crop insurers or their agents” and only “preempts state law that is inconsistent with
13
the purpose of the FCIA.” (Emphasis omitted.) Appellant asserts that his negligence claim
against respondents “is not inconsistent with the purpose of the FCIA, and therefore, it is
not preempted by the FCIA or the FCIC’s regulations.” Appellant relies on several federal
court of appeals and district court cases in support of this proposition. These federal cases
addressed whether FCIA and FCIC regulations completely preempt state -based causes of
action against agents who sell federally reinsured crop insurance. Rio Grande
Underwriters, Inc. v. Pitts Farms, Inc., 276 F.3d 683, 687 (5th Cir. 2001); Meyer v. Conlon,
162 F.3d 1264, 1270 (10th Cir. 1998); Williams Farm of Homestead, Inc. v. Rain & Hail
Ins. Servs., Inc., 121 F.3d 630, 63 4-35 (11th Cir. 1997); Agre v. Rain & Hail LLC , 196
F. Supp. 2d 905, 911-12 (D. Minn. 2002). In each case, the court held that the FCIA and
FCIC regulations d id not completely preempt such state -based actions. Rio Grande
Underwriters, Inc. , 276 F.3d at 687; Meyer, 162 F.3d at 1270; Williams Farm s of
Homestead, Inc., 121 F.3d at 634-35; Agre, 196 F. Supp. 2d at 911-12.
The federal cases on which appellant relies are inapposite because in this case ,
respondents do not contend that the FCIA and FCIC regulations completely preempt state-
based actions against agents who sell federally reinsured crop insurance. Instead, they
argue that the FCIA and FCIC regulations “put strict limits on state action” and that
appellant did not comply with the procedural prerequisi tes applicable to his claim under
the regulations. In sum , the federal cases appellant cites do not support his assertion that
his negligence claim is not preempted.
Appellant alternatively argues that “[e]ven if the Court concludes that the
preemption language in 7 C.F.R. § 400.352(b)(4) applies to Respondents, RCIS waived the
14
protections afforded to Respondents under the regulation by virtue of the Settlement
Agreement.” This assertion fails because appellant does not cite authority for the
proposition that RCIS can waive application of a federal regulation, especially in a dispute
regarding an insurance policy that “is reinsured by the [FCIC] under the provision s of the
[FCIA],” and which expressly states that “[a]ll provisions of the policy and rights and
responsibilities of the parties are specifically subject to the [FCIA]” and that “[t]he
provisions of the policy may not be waived or varied in any way by [RCIS or its] insurance
agent . . . unless the policy specifically authorizes a waiver or modifi cation by written
agreement.” 7 C.F.R. § 457.8 (2017).
In conclusion, b ecause appellant’s negligence claim against respondents is
preempted under 7 C.F.R. § 400.352(a), (b)(4) we affirm the district court’s rule 12.03
dismissal of appellant’s complaint without addressing the parties’ arguments regarding
whether appellant was required to arbitrate his dispute with respondents.
Affirmed.