25W432H.htm

UNITED STATES DEPARTMENT OF AGRICULTURE

OFFICE OF THE SECRETARY

NATIONAL APPEALS DIVISION

In the Matter of

XXXXX

Appellant

and

NATURAL RESOURCES CONSERVATION AGENCY

Agency

Case Number 2025W000432

APPEAL DETERMINATION

The Natural Resources Conservation Service (NRCS or Agency) announced the availability of grant funding for the Partnerships for Climate-Smart Commodities (PCSC) and XXXXX (Appellant) submitted a proposal for funding. After being awarded funding and enrolling 84 farms into a regenerative farming certification program, the Agency terminated Appellant’s PCSC grant because the award no longer effectuated Agency priorities. Specifically, the Agency identified what it believed was a new priority that a minimum of 65% of federal funds must go to producers and determined that Appellant did not meet that requirement.

The Appellant argued that the Agency did not have authority to terminate grants based on a change in Agency policy, but only for a grantee’s failure to deliver on the original priorities at the time the award was executed. The Appellant also argued that the Agency failed to provide a reasoned and reasonable explanation and failed to conduct an individualized review that considered reliance interests as required by law and therefore the termination was arbitrary and capricious. The Appellant further asserted that the Agency did not appropriately calculate whether 65% of federal funds went to producers and that it met the requirement. Lastly, the Appellant argued that it was acting in good faith to comply with requirements and requests equitable relief.

I held a prehearing conference on July 7, 2025, and the Appellant elected to have a video-teleconference hearing on July 28, 2025. The Agency submitted additional information on July 31, 2025, and a written closing statement on September 6, 2025. The Appellant submitted a written closing statement on September 12, 2025. On September 12, 2025, I extended the date for the record to close to September 19, 2025, and requested further information from the Agency. The Agency responded to my request for further information on September 19, 2025, and I closed the case record on that date. The government shutdown from October 1, 2025, through November 12, 2025, delayed all NAD proceedings, and all deadlines were extended accordingly. Based on the evidence and arguments submitted by the parties, and the applicable program regulations, I conclude that the Agency erred when it terminated Appellant’s PCSC grant. I have also created a record from which the NAD Director can decide whether equitable relief is appropriate, if sought in response to an FSA request for Director Review.

PROGRAM BACKGROUND

According to the Partnerships for Climate-Smart Commodities National Funding Opportunity (NFO) the purpose of PCSC was to support the production and marketing of climate-smart commodities through a set of pilot projects that provide voluntary incentives through partners to producers and landowners, including early adopters, to:

a. implement climate-smart production practices, activities, and systems on working lands,

b. measure/quantify, monitor and verify the carbon and greenhouse gas (GHG) benefits

associated with those practices, and

c. develop markets and promote the resulting climate-smart commodities.

All projects were required to be tied to the development of markets and promotion of climate-smart commodities. For the purposes of PCSC, a “climate-smart commodity” is an

agricultural commodity that is produced using agricultural (farming, ranching, or forestry)

practices that reduce greenhouse gas emissions or sequester carbon. See NFO, page 3; AR page 157. Project evaluation criteria included sufficient incentives to encourage producer participation, as well as, generation of verifiable greenhouse gas reductions and carbon. See NFO, page 3; AR page 157.

The authority for PCSC is the Commodity Credit Corporation Charter Act (Title 15 of the United States Code (15 U.S.C.) Section (§) 714 et seq.) which includes that the Commodity Credit Corporation (CCC) is authorized to use its powers to increase the domestic consumption of agricultural commodities (other than tobacco) by expanding or aiding in the expansion of domestic markets or by developing or aiding in the development of new and additional markets, marketing facilities, and uses for such commodities.”

PCSC terms and conditions include the requirements in Part 200 of Title Two of the Code of Federal Regulations (2 C.F.R. Part 200). Two C.F.R. § 200.340 specifies that a Federal award may be terminated in part or in its entirety as follows:

(1) By the Federal agency or pass-through entity if the recipient or subrecipient fails to comply with the terms and conditions of the Federal award;

(2) By the Federal agency or pass-through entity with the consent of the recipient or subrecipient, in which case the two parties must agree upon the termination conditions. These conditions include the effective date and, in the case of partial termination, the portion to be terminated;

(3) By the recipient or subrecipient upon sending the Federal agency or pass-through entity a written notification of the reasons for such termination, the effective date, and, in the case of partial termination, the portion to be terminated. However, if the Federal agency or pass-through entity determines that the remaining portion of the Federal award will not accomplish the purposes for which the Federal award was made, the Federal agency or pass-through entity may terminate the Federal award in its entirety; or

(4) By the Federal agency or pass-through entity pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.

Two C.F.R. § 200.340 further states that “[t]he Federal agency or pass-through entity must clearly and unambiguously specify all termination provisions in the terms and conditions of the Federal award.” USDA’s General Terms and Conditions for Grant and Cooperative Agreements states that, “Allowable project costs will be determined in accordance with the authorizing statute, the purpose of the award, and, to the extent applicable, to the type of organizations receiving the award, regardless of tier.” See U.S. Department of Agriculture Farm Production and Conservation, General Terms and Conditions for Grants and Cooperative Agreements page

1; AR page 219. The General Terms and Conditions specifically list the termination provisions of 2 C.F.R. § 200.340.[1] See U.S. Department of Agriculture Farm Production and Conservation, General Terms and Conditions for Grants and Cooperative Agreements page 18, AR page 236.

STATEMENT OF THE ISSUES

The issue in this appeal is whether the Agency, on April 22, 2025, correctly applied the applicable rules and regulations when it terminated Appellant’s PCSC grant. The specific questions I must address are:

1. Did the Agency err when it terminated Appellant’s PCSC grant?

2. What evidence and arguments does Appellant present for possible equitable relief consideration from the NAD Director?

FINDINGS OF FACT (FOF)

1. Appellant was established in 2014 as a 501(c)(3) organization whose mission has four key components: 1) To identify and promote agricultural systems that have a positive impact on the environment, society and animals (wild and farmed); 2) To educate consumers about the environmental, social and animal outcomes of their food purchasing decisions; 3) To establish and promote trusted farm certification programs that help reconnect the consumer and food producer by encouraging—and rewarding—positive farm management changes; and 4) To support independent farmers who are committed to sustainable livestock production. The Appellant provides certification to farms which include certified animal welfare, certified grassfed, certified non-GMO, certified regenerative, and certified organic. At the time the Appellant applied for a PCSC grant, it had worked with over 6,000 farmers and was backed by globally recognized accreditation certifiers. AR page 34; Hearing Audio (HA) 34:40-38:44.

2. In 2022, the Agency published a National Funding Opportunity (NFO) for PCSC. In the NFO the Agency announced that approximately $1 billion in funding would be made available to support the production and marketing of climate-smart commodities through a set of pilot projects that provide voluntary incentives through partners to producers and land owners to:

· Implement climate-smart production practices, activities, and systems on working lands,

· Measure/quantify, monitor and verify the carbon and greenhouse gas (GHG) benefits associated with those practices, and

· Develop markets and promote the resulting climate-smart commodities

The NFO required that all projects be tied to the development of markets and promotion of climate-smart commodities and defined “climate-smart commodity” as “an agricultural commodity that is produced using agricultural (farming, ranching, or forestry) practices that reduce greenhouse gas emissions or sequester carbon.” Applicants requesting funding over $5 million were required to submit funding proposals via Grant.gov by May 6, 2022, and applicants requesting funding under $5 million were required to submit funding proposals by June 10, 2022. AR pages 155-158.

3. The NFO included a statement that all project funds were required to be used in accordance with 2 C.F.R. Part 200 and the General Terms and Conditions available at: https://www.fpacbc.usda.gov/about/grants-and-agreements/award-terms-and-conditions/index.html. The NFO also stated that reporting guidelines were available at the General Terms and Conditions website. The General Terms and Conditions as of August 2021 included a section titled “termination” that stated:

In accordance with 2 CFR 200.340, the recipient understands this agreement may be terminated in whole or in part as follows:

a. By the Federal awarding agency or pass-through entity, if a recipient fails to comply with the terms and conditions of a Federal award;

b. By the Federal awarding agency or pass-through entity, to the greatest extent authorized by law, if an award no longer effectuates the program goals or agency priorities;

c. By the Federal awarding agency or pass-through entity with the consent of the recipient, in which case the two parties must agree upon the termination conditions, including the effective date and, in the case of partial termination, the portion to be terminated; or

d. By the recipient upon sending to the Federal awarding agency or pass-through entity written notification setting forth the reasons for such termination, the effective date, and, in the case of partial termination, the portion to be terminated. However, if the Federal awarding agency or pass-through entity determines in the case of partial termination that the reduced or modified portion of the Federal award or subaward will not accomplish the purposes for which the Federal award was made, the Federal awarding agency or pass-through entity may terminate the Federal award in its entirety.

e. If the Federal award is terminated for the recipient's material failure to comply with the U.S. Constitution, Federal statutes, regulations, or terms and conditions of the Federal award, the termination decision will be reported to the OMB-designated integrity and performance system accessible through SAM (currently FAPIIS) in accordance with 2 CFR § 200.341.

AR pages 185, 187, 236.

4. The Appellant submitted an application for a PCSC grant with Appellant as lead applicant and five other project partners. The Appellant provided a statement titled “Compelling Need for the Project” in its application which stated:

There is rapidly growing interest amongst small and underserved producers to implement Climate-Smart agricultural practices on their farms, as the evidence for the environmental benefits of these practices continues to grow, and the demand from consumers for products using verifiable CSAF [Climate-Smart Agriculture and Forestry] practices also increases. . . . The proposed project brings together the expertise of three established nonprofit organizations to create a program that offers a uniquely designed set of services to meet these specific needs. . . XXXXX (AGW) has extensive experience with creating and managing certification programs for farmers that emphasize CSAF practices, and recently developed a new certification specifically intended to increase accessibility for farmers to this type of certification. This new program, Certified Regenerative by AGW, was developed over three years in response to farmer, consumer, and market demand for a meaningful, verified regenerative claim that worked collaboratively with the farmer to create a farm-specific plan for improvement, and allowed the consumer to find products that used the type of climate smart practices they were seeking. A pilot test of this new certification was recently completed with 50 farms, and the certification opens to the public in June 2022, and has an existing waiting list of participants. . .

AR pages 31-32.

5. The Appellant’s application for PCSC included a list of climate-smart practices encouraged or required for the Certified Regenerative program Appellant would use for the grant which includes cover cropping, minimum till to no-till, planting of buffer zones, strategies to reduce irrigation, reducing emissions, and other practices which were consistent with NRCS designated climate-smart practices. The Appellant planned to enroll 100 farms to participate in the project over 3 years. The application includes financial assistance to producers in the form of subsidized certification and direct financial incentive payments. The application indicated subsidized certification includes a market value of $1,250 per farm for the initial year and $800 per farm for subsequent years.[2] Incentive payments would range from $5,000 - $25,000 per farm. AR pages 36-39; see Appellant’s Exhibit H.

6. In December 2022, the Appellant received notification of a tentative award from NRCS for a PCSC grant. Following a negotiation period, the Appellant signed and executed the grant agreement with NRCS on August 25, 2023. The grant agreement was for $4,334,349 in funding, including $289,984 in funding coming from non-federal sources. Appellant’s Exhibit A, page 4; Appellant’s Exhibit G; AR pages 13-14.

7. On September 26, 2023, the Agency issued a memorandum to the Appellant that no additional cultural resources or environmental review was needed for a list of practices identified within the grant award. This environmental review memorandum allowed the Appellant to proceed with work on the grant. From September of 2023 until January of 2025, Appellant signed up 84 farms for its certified regenerative certification who were in various stages of completing requirements for the certification. Two farmers had received an initial incentive payment as of the date of the hearing in this appeal with others scheduled to receive an incentive payment in 2025. Under the terms of the grant the Appellant received reimbursement for its costs as they incurred.[3] Appellant’s Exhibit A, page 4; Appellant’s Exhibit H; Hearing Audio (HA) 39:13-40:30.

8. On January 22, 2025, the Appellant received guidance from that Agency that the administration had placed a temporary suspension on all actions related to grants including PCSC grants. The Appellant then received subsequent guidance that work could continue on active awards and that payments or claims may continue to be processed under existing awards. From January 27, 2025, until February 5, 2025 the Appellant received information or became aware of information regarding a freeze for all federal grants with exceptions that would not apply to Appellant, the rescission of guidance on freezing all grants, guidance that all reimbursements would not be processed, the issuance of a temporary restraining order requiring the administration to stop pausing grants, and then notification that claims for expenses processed prior to January 20, 2025, could be processed and that other guidance would be issued on claims after January 20, 2025. The Appellant requested but did not receive in a timely manner any further information or agency guidance on reimbursement for costs incurred from January 20 forward. While awaiting guidance, the Appellant submitted reimbursement requests via email in accordance with the original terms of the grant. Appellant’s Exhibit A, page 5

9. On March 13, 2025, the Secretary of Agriculture signed Secretary’s Memorandum 1078-003 titled “Directive on Conservation and Natural Resources Priorities.” The memo states, “[i]t is the policy of the U.S. Department of Agriculture to establish a return to American principles and realign the Department’s focus towards its original objectives of maximizing and promoting American agriculture, ensuring a safe, nutritious, and secure food supply; enhancing rural prosperity; and managing our National Forests.” Under the heading of “purpose” the memo further states that “[t]he Department’s priorities include ensuring its grants, cooperative agreements, and other similar arrangements, including mutual interest agreements (collectively “awards”), do not support programs or organizations that promote or take part in climate change or environmental justice initiatives. It is vital that the Department assess both whether all award payments are free from fraud, abuse, and duplication, and whether they are in the best interests of the United States.” Agency Exhibit 8.

10. Secretary’s Memorandum 1078-003 directed all USDA agencies and staff offices that issue awards to conduct an internal review of all active awards. The memo states that “[s]uch review shall be limited to ensuring that the Department does not fund programs or organizations that promote or take part in climate change or environmental justice initiatives that are either contrary to law or the to the Department’s policy objectives, as well as ensuring that all awards are free from fraud, abuse, and duplication.” Agency Exhibit 8.

11. On April 4, 2025, the Appellant sent an email to Agency’s Chief of Staff requesting a meeting because PCSC grants were subject to a reimbursement pause which significantly impacted the 77 farmers participating in the grant. The Appellant indicated that farmers did not have access to necessary equipment at a critical planting time and were having to delay planting and implementation of conservation practices due to lack of funds. After some attempts to arrange a meeting the Appellant sent several written questions to the Agency on April 18, 2025, and the Agency responded on April 21, 2025, that it would be publishing a document answering frequently asked questions and holding information sessions soon. Appellant’s Exhibit B

12. The Agency provided an undated copy of a Decision Memorandum to USDA’s Deputy Under Secretary for Farm Production and Conservation whose subject is “The Evaluation of Partnerships for Climate-Smart Commodities Agreements.” The memorandum states the issue under consideration for the Deputy Secretary’s decision is, “USDA leadership will need to consider options regarding the evaluation of USDA’s PCSC projects. This effort could be terminated or realigned with the Trump Administration’s priorities. Over 30,000 farms are currently involved in 136 projects, which are supported by over 800 organizations with matching external funds of over $1 billion. However, of the 136 projects only 37 projects provide 60% or more of funding for total producer incentives, and only 47 provide 50% or more. 89 of the 136 projects provide less than 50% of the funding for total producer incentives.” AR pages 280-281.

13. The decision memorandum provides two options for action:

Option 1: Pay out everything due, terminate all Partnerships grant agreements, and instruct grant recipients to terminate producer contracts.

Option 2: Pay out everything due, terminate all Partnerships grant that provide less than 60% or more of funding for total producer incentives, and any agreements that exceed 60% of funding for total producer incentives but do not align with Farmer First agenda.

AR pages 280-281.

14. On the decision memorandum provided by the Agency all instances where the figure 60% was typed are crossed out and the figure 65% is written over it. This includes the factual reference to 37 projects providing 60% or more of funding for total producer incentives. The Agency could not provide information regarding who prepared the memo, when it was prepared, or any information or research that was reviewed in preparing the memo. Nothing on the memo indicates that the Deputy Under Secretary for Farm Production and Conservation ever reviewed the memo as the only markings on the memo are from someone with initials different than the Deputy Under Secretary. The Agency stated that, “Senior NRCS Leadership examined the PCSC agreements and structure and developed the decision memo.” The Agency also indicated that the research, drafting, and decisions regarding the memo took place between March 19 and April 14, 2025. AR pages 280-281, Agency Exhibit 9.

15. On April 14, 2025, USDA published a press release titled, “USDA Cancels Biden Era Climate Slush Fund, Reprioritizes Existing Funding to Farmers.” The press release indicates that the Secretary announced cancellation of the Partnerships for Climate-Smart Commodities (PCSC) following a “line by line review” which showed that the “majority of these projects had sky-high administration fees which in many instances provided less than half of the federal funding directly to farmers.” The press release indicates that PCSC would be reformed and overhauled into the Advanced Markets for Producer (AMP) initiative and new agreements would be based on three Farmer First policy priorities:

- A minimum of 65% of federal funds must go to producers;

- Grant recipients must have enrolled at least one producer as of 12/31/2024; and

- Grant recipients must have made a payment to at least one producer as of 12/31/2024.

AR pages 282-284.

16. On April 14, 2025, the Agency sent an email to the Appellant with an attached letter informing the Appellant that PCSC grants were being reformed and overhauled as the Advancing Markets for Producers (AMP) initiative with the three Farmer First priorities from its press release (see FOF 15). The letter further informed the Appellant that based on NRCS’ review that the Appellant failed to meet the first priority and therefore the Appellant’s grant would be terminated pursuant to 2 C.F.R. § 200.340(a)(4). Lastly, the letter indicated that Appellant would be provided the opportunity to resubmit a proposal that would be evaluated using the Farmer First policy priorities. AR page 5, Appellant’s Exhibit F.

17. On April 22, 2025, the Agency sent a second letter to the Appellant informing it that the Agency was terminating the Appellant’s grant and informing Appellant that final reports and final payment requests were due within 120 days. The letter also indicated that the Appellant would be provided with further instructions if it wished to submit a proposal under AMP. AR page 4.

18. On May 15, 2025, the Agency sent the Appellant a letter inviting it to schedule a one-on-one virtual meeting with an AMP point of contact to discuss submission of a new proposal. The letter states that Appellant would be required to submit a new proposal prior to June 20, 2025, to qualify for an AMP grant. Appellant’s Exhibit C.

19. On May 19, 2025, USDA published a news release which stated that the Secretary had released “the first set of policy proposals under the newly launched Make Agriculture Great Again Initiative” which were “a comprehensive set of policy solutions aimed at improving the viability and longevity of smaller-scale family farms for generations to come.” The release indicates that the “Small Family Farms Policy Agenda provides actionable solutions to a variety of challenges faced by small family farmers” and lists 10 “actionable solutions.” Agency Exhibit 4.

20. The Agency provided a 14-page document titled “Farmers First” which is the publication of actionable solutions referred to in the May 19, 2025, press release. The document states that the “first policy pillar of the Make Agriculture Great Again Agency focuses on the prosperity of the small family farms, which are the heart of our communities and nations.” Though the document does not use the term “actionable solutions” it lists 10 main points similar to the actionable solutions listed in the press release. Each of the main points in turn has “actions” that USDA is taking, presumably to accomplish the main point. “Providing Small Family Farms With Greater Access to Markets and Infrastructure” is listed as the fifth point and underneath this point it states:

Federal Programs like the Farm Storage and Facility Loan program (FSFL) and the Local Agriculture Market Program (LAMP) provide grants and resources aimed at improving infrastructure and market access for small producers. USDA’s Rural Development mission area has multiple grant and loan opportunities like the Rural Energy for America Program (REAP) and the Value-Added Producer Grant (VAPG) which allow small family farmers to make their operations more energy efficient and add value to their products.

Listed as actions under the main point of Providing Small Farms With Greater Access to Markets and Infrastructure is:

Actions: USDA has reformed and overhauled the Biden-era Partnerships for Climate Smart Commodities initiative into the Advancing Markets for Producers (AMP) initiative, ensuring that a minimum of 65% of federal funds must go to producers instead of special interests. Under President Trump, USDA will ensure that all funded programs dedicated to farmers are actually received by farmers.

USDA will work to improve and strengthen the state and federal food inspection agreements to expand access to processing capacity. By strengthening these state-federal partnerships, we will bolster the U.S. food system’s resilience and security.

USDA will also prioritize local farmers in institutional and public food procurement policies, coupled with an effort to educate small farmers on the policies, with an emphasis on USDA nutrition programs such as Section 32, The Emergency Food Assistance Program, SNAP Healthy Incentives, Senior Farmers’ Market Nutrition Program, WIC Farmers’ Market Nutrition Program, and the Patrick Leahy Farm to School Program.

Agency Exhibit 5.

21. The Appellant met with an Agency representative regarding the AMP grant program and the representative sent the Appellant further guidance regarding documents to be submitted if the Appellant wished to apply for AMP on June 2, 2025. The Appellant’s Executive Director testified that the AMP program requirements were not realistic for the Appellant to meet. As an example, Appellant’s Executive Director understood that an additional environmental review would be required, which would require a continued pause of funding which would exceed more than eight months. The Appellant’s Executive Director also indicated that instructions for the AMP grant were not clear and that the Agency did not give clear guidance on what the 65% of funds going to producer included. Appellant’s Exhibit E; HA 20:22-22:43; 32:59-33:57.

22. The Agency provided an exhibit which shows that it calculated that Appellant did not meet the required 65% of funds going to producers by using the amount of producer incentives listed in the Appellant’s budget narrative. The Appellant’s budget narrative shows producer incentives of $1,245,000, which the Agency calculated as 30.78% ($1,245,000 /$4,044,365) going to producers. Agency Exhibit 2.

23. PCSC implementation included reporting requirements which are captured in a Data Dictionary prepared by the Agency. The Data Dictionary is 86 pages and includes reporting requirements and data descriptions. Among the items to be reported are “Cost of on farm TA” which is described as the “total cost of any field- or practice-specific technical assistance provided by the project (by recipient or partners) to any producers.” The Data Dictionary also required the Appellant to report the products or supplies provided to enrolled producers, and the types of incentive provided to producers which could include cash payment, equipment loan, inputs and supplies, land rental, and tuition or fees for training. AR pages 53-55 ,71, 77, 100.

24. The Appellant provided a calculation of funds going to producers in which it included personnel, travel, and other costs as services provided to producers to show more than 65% of the grant funds were going to producers. The Appellant’s calculations of funds to producers is as follows:

Budget Category	Service / Position (FTE)[4]	Amount[5]	Description
Personnel	Market Services Coordinator (0.6)	$99,000	Marketing and communications support services for certified businesses and products.
Personnel	Regenerative Program Coordinator (0.6)	$135,000	Liaison between farms and certification.
Personnel	Executive Director (0.33)	$41,198	Overseeing partnerships and general direction of the project.
Personnel	Lead Auditor (0.4)	$78,000	Responsible for auditing regenerative and climate-smart practices.
Personnel	Auditor (0.4)	$60,000	Responsible for auditing regenerative and climate-smart practices.
Personnel	Outreach Specialist (0.3)	$46,800	Responsible for reaching out to new producers and businesses seeking regenerative sourcing.
Personnel	Director of Communications and Outreach (0.3)	$67,500	Responsible for managing PR and communications.
Personnel	Communications Coordinator (0.2)	$31,200	Responsible for coordinating and delivering PR and communications.
Personnel	Director of Compliance (0.5)	$129,413	Helps to refine program technical resources to ensure successful compliance with regenerative standards.
Travel	Auditing Travel	$93,675	Travel for regenerative audits confirming climate-smart practices.
Travel	Travel	$20,484	Travel to promote farmers products and recruit participants.
Contractual	Contract to auditors	$33,000	Conduct farm audits.
Contractual	Plan reviewers	$10,000	Review climate-smart plans.
Contractual	Videos promoting farmers/ practices/products	$26,121	Create promotional videos highlighting participating producers.
Contractual	Collateral promoting farms/practices	$8,160	Printing of materials for outreach and promotion.
Subaward - RAFI[6]	Technical Assistance (TA) Provider	$168,609	Technical assistance on climate-smart practices and development of certification plan.
Subaward - RAFI	TA Farm visits	$27,453	Provider visits to 100 participating farms.
Subaward - RAFI	Producer incentives	$1,245,000
Advertising and Marketing		$6,825	Advertising expenses to recruit participants promote program and market.
Subaward - SHI[7]	Soil Scientist	$208,636	Responsible for the development of soil health targets and oversite of soil sampling.
	Soil Sampling Specialist	$84,211	Assist with soil sampling.
	Soil sampling travel	$18,328	Travel for soil sampling and project meetings.
	Soil sample shipments	$1,806
	Soil test labs	$39,063	Soil laboratory analysis
Total		$2,680,242

Appellant’s Exhibit J, AR pages 18-30.

DISCUSSION

NAD regulations at 7 C.F.R. Part 11 govern this appeal. Fifteen U.S.C. § 714 and 2 C.F.R. Part 200, Subpart D govern the issues on appeal. The Notice of Funding Opportunity (NFO) Partnerships for Climate-Smart Commodities – Building Markets and Investing in America’s Climate-Smart Farmers, Ranchers & Forest Owners to Strengthen U.S. Rural and Agricultural Communities provides additional guidance. The laws governing equitable relief are found at 7 U.S.C. §§ 6998(d), 7996(b)-(c).

When appealing an adverse decision to NAD, an appellant has the burden of proving by a preponderance of the evidence that an agency’s adverse decision was erroneous. 7 C.F.R. § 11.8. The preponderance of the evidence “standard requires Appellants to offer evidence leading the Administrative Judge to believe that the facts they allege are more probable than not in order to decide in their favor.” NAD Case No. 2016W000229 (Dir. Rev. April 11, 2017). An agency’s adverse decision is erroneous when it is inconsistent with the laws and regulations of the agency or the generally applicable interpretations of those laws and regulations. 7 C.F.R. § 11.10(b).

1. Did the Agency Err When it Terminated Appellant’s PCSC grant?

Yes, the Agency erred when it terminated Appellant’s PCSC grant.

A Federal agency is permitted to terminate a Federal award pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities. 2 C.F.R. § 200.340(a)(4). The Federal agency or pass through entity must clearly and unambiguously specify all termination provisions in the terms and conditions of the Federal award. 2 C.F.R. § 200.340(b).

“The APA's [Administrative Procedure Act] arbitrary-and-capricious standard requires that agency action be reasonable and reasonably explained.” California v. U.S. Department of Education 132 F.4^th 92 (2025) quoting FCC v. Prometheus Radio Project, 592 U.S. 414, 423, 141 S.Ct. 1150, 209 L.Ed.2d 287 (2021). This means that the agency's reasons “must be set forth with such clarity as to be understandable.” California v. U.S. Department of Education 132 F.4^th 92 (2025) quoting SEC v. Chenery Corp. (Chenery II), 332 U.S. 194, 196, 67 S.Ct. 1760, 91 L.Ed. 1995 (1947). When an agency changes course, “... it must be cognizant that longstanding policies may have engendered serious reliance interests that must be taken into account.” Metropolitan Transportation Authority v. Duffy, 2025 WL 1513369, -- F.Supp.3d-- (2025) quoting Regents of the Univ. of Cal., 591 U.S. at 30, 140 S.Ct. 1891. It would be arbitrary or capricious to ignore such matters.” Metropolitan Transportation Authority v. Duffy, 2025 WL 1513369, -- F.Supp.3d-- (2025) quoting F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515, 129 S.Ct. 1800, 173 L.Ed.2d 738 (2009).

The Administrative Procedure Act (APA) is Applicable

As a preliminary matter, review of the Agency’s decision to terminate the Appellant’s grant is available under the APA. As stated in Urban Sustainability Directors Network v. United States Department of Agriculture[8], “regardless of whether ‘grant funding’ decisions may be committed to agency discretion, grant termination decisions are not fully discretionary but are subject to the limits set in applicable regulations, so the grant terminations at issue are reviewable under the APA.” Urban Sustainability Directors Network v. United States Department of Agriculture, 2025 WL 2374528, at 21. The Agency invoked 2 C.F.R. § 200.340 in its decision to terminate Appellant’s grant and the Agency’s General Terms and Conditions for Grants and Cooperative Agreements specifically incorporate 2 C.F.R. Part 200. AR pages 219-220. Therefore, the Agency does not dispute that its decision is subject to applicable regulations. However, the Agency appears to argue that the decision to terminate Appellant’s grant was “based on general policy priorities of USDA” and therefore it believes that this appeal involves a general challenge to agency operations which is beyond review by NAD. Agency Written Closing Statement, pages 3-4. Nothing in the APA nor in NAD’s jurisdictional limitations prohibits me from reviewing whether the Agency’s decision was arbitrary and capricious in addition to whether it was contrary to regulation. While I must refrain from substituting my own judgement for that of the Agency, I must nonetheless determine whether the Agency considered the relevant factors in making its decision. See NAD Case 2017E000763 (Dir. Rev., August 2, 2018) (citing Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 30-31, 43 (1983).[9]

2 C.F.R. § 200.340 Background

Prior to 2020, the termination provisions for Federal grants were contained in 2 C.F.R. § 200.339. See Federal Register, Vol. 78, No. 248, 78590-78691, December 26, 2013. The Office of Management and Budget (OMB) published updated guidance in 2020. Federal Register, Vol. 85, No 157, 49506-49582, August 13, 2020. This guidance moved termination provisions to Section 200.340 and updated the language of 2 C.F.R. § 200.340 to “strengthen the ability of the Federal awarding agency to terminate Federal awards, to the greatest extent authorized by law, when the Federal award no longer effectuates the program goals or Federal awarding priorities.” Federal Register, Vol. 85, No 157, 49507, August 13, 2020. OMB specifically addressed comments received regarding the revision of Section 200.340 in 2020 regarding concern over arbitrary Federal award termination and OMB provided the following response: “The largest number of commenters expressed a concern that the proposed language will provide Federal agencies too much leverage to arbitrarily terminate awards without sufficient cause. Several commenters requested OMB reinstate the language, for cause, to address this issue. Some commenters requested additional clarity and examples. OMB deliberated upon these requests and decided as written agencies are not able to terminate grants arbitrarily and that it was not appropriate to include examples in 2 CFR for this section.” Federal Register, Vol. 85, No 157, 49506-49582, August 13, 2020. In 2024, OMB proposed removing Section 200.340(a)(2) permitting the termination of an award “if the award no longer effectuates the program goals or agency priorities, but after receiving comments instead decided to modify the language.” See Federal Register Vol. 89, No. 78, 30089, April 22, 2024. In explaining the revision to Section 200.340(a)(2), OMB stated:

Provided that the language is included in the terms and condition of the award, the revised termination provision at section 200.340 continues to allow Federal agencies and

pass-through entities with authority to terminate an award in the circumstances described in paragraph (a)(2) in the prior version of the guidance. The prior version of section 200.340(b) and the proposed version both directed Federal agencies and pass-through entities to clearly and unambiguously specify all termination provisions in the terms and

conditions of the award. As such, OMB finds the final version of the guidance provides greater clarity on the policy for termination of awards by the Federal agency or pass-through entity by underscoring the need for agencies and pass-through entities to clearly and unambiguously communicate termination conditions in the terms and conditions of the award.

See Federal Register Vol. 89, No. 78, 30089, April 22, 2024.

The following table summarizes the changes to termination provisions from 2013-2024:

2013

2020

2024

200.340 (a) The Federal award may be terminated in whole or in part as follows:

By the Federal awarding agency or pass-through entity for cause

By the Federal awarding agency or pass-through entity, to the greatest extent authorized by law, if an award no longer effectuates program goals or agency priorities

By the Federal agency or pass-through entity pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.[10]

200.340 (b)

N/A

A Federal awarding agency should clearly and unambiguously specify termination provisions applicable to each Federal award, in applicable regulations or in the award, consistent with this section.

The Federal agency or pass-through entity must clearly and unambiguously specify all termination provisions in the terms and conditions of the Federal award.

The Agency’s Decision to Terminate Appellant’s Grant was Arbitrary and Capricious under the APA

The Appellant argued that the Agency’s decision was arbitrary and capricious because the Agency failed to offer a reasoned and reasonable explanation and the Agency’s decision was not the result of an individualized review that considered reliance interests as required by law. Appellant’s Written Closing Statement, pages 4-5. The Agency argued that the decision to terminate Appellant’s grant was based on general policy priorities and that the funding for PCSC comes from CCC funds, which the Secretary of Agriculture has discretion to spend, therefore, such discretion to spend those funds may be suspended at any time. Agency Written Closing Statement, page 4.

As noted above, the Agency’s contention that its decision to terminate Appellant’s grant was based on general policy priorities and comes from CCC funds does not preclude me from reviewing whether the decision was arbitrary and capricious.

In California v. U.S. Department of Education (132 F.4^th 92,98 (2025)), the First Circuit, U.S. Court of Appeals, when reviewing the termination of grants by the Department of Education, set out the standard for a review of an arbitrary and capricious claim:

The APA's arbitrary-and-capricious standard requires that agency action be reasonable and reasonably explained.” FCC v. Prometheus Radio Project, 592 U.S. 414, 423, 141 S.Ct. 1150, 209 L.Ed.2d 287 (2021). This means that the agency's reasons “must be set forth with such clarity as to be understandable.” SEC v. Chenery Corp. (Chenery II), 332 U.S. 194, 196, 67 S.Ct. 1760, 91 L.Ed. 1995 (1947). And although judicial review of agency action is “narrow” in scope, we must still determine if the agency “examine[d] the relevant data and articulate[d] a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’ ” Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)(quotation marks and citation omitted).

In State of Maryland v. Corporation for National and Community Service (2025 WL 1585051), the U.S. District Court for the District of Maryland when reviewing terminations of grants by AmeriCorps further explained that:

Generally, an agency decision is arbitrary and capricious if ‘the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.’ ” Sierra Club, 899 F.3d at 293 (quoting Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983)). Of course, “agencies are free to change their existing policies as long as they provide a reasoned explanation for the change,’ ‘display awareness that they are changing position,’ and consider ‘serious reliance interests.” FDA v. Wages & White Lion Invs., L.L.C., ––– U.S. ––––, 145 S. Ct. 898, 917, ––– L.Ed.2d –––– (2025) (cleaned up) (quoting Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 221–22, 136 S.Ct. 2117, 195 L.Ed.2d 382 (2016)).

The U.S. District Court for the Southern District of New York further explained the standard for reliance interests, when it reviewed the termination of a cooperative agreement by Department of Transportation in Metropolitan Transportation Authority v. Duffy (2025 WL 1533369).

When an agency changes course, ... it must be cognizant that longstanding policies may have engendered serious reliance interests that must be taken into account.” Regents of the Univ. of Cal., 591 U.S. at 30, 140 S.Ct. 1891 (quotation omitted). “It would be arbitrary or capricious to ignore such matters.” F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515, 129 S.Ct. 1800, 173 L.Ed.2d 738 (2009). The Supreme Court has stated that the agency is “required to assess whether there were reliance interests, determine whether they were significant, and weigh any such interests against competing policy concerns.” Regents of the Univ. of Cal., 591 U.S. at 33, 140 S.Ct. 1891. Therefore, the agency must “provide a more detailed justification than what would suffice for a new policy created on a blank slate” in circumstances where “its prior policy has engendered serious reliance interests.” Fox Television, 556 U.S. at 515, 129 S.Ct. 1800. The agency need not, however, “demonstrate to a court's satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better.” Id. (emphases omitted).

In this case, the Agency admits that it terminated all PCSC grants for grantees who it calculated did not provide 65% of federal funds directly to producers without any other analysis. Agency Written Closing Statement, page 4. The Agency asserts that the mere existence of an Agency priority justifies the termination of Appellant’s grant. Agency Written Closing Statement, page 4. The decision memorandum provided by the Agency lacks any analysis to show how 65% was developed as a “priority”. FOFs 12, 13, 14. The “issue” identified in the decision memorandum was whether the effort “could be terminated or realigned with the Trump Administration’s priorities,” but it does not mention what those priorities are or how terminating grants accomplishes those priorities. FOFs 12, 13, 14. Prior to the termination, the only “priorities” announced were eliminating programs or organizations that promote or take part in climate change or environmental justice initiatives FOFs 9, 10. USDA didn’t explain how the 65% requirement connected to any policy or priority it was attempting to accomplish by terminating the PCSC grants until approximately a month after it terminated Appellant’s grant when it published a news release and the Farmer First publication. FOFs 19, 20. Further, when the Agency did announce these priories, it listed ensuring a minimum of 65% of federal funds going to producers as an “action” under the bullet point of “providing small family farms with greater access to markets and infrastructure.” FOF 20. Nothing in the Agency’s decision memorandum, policy documents, or arguments in this appeal explains or supports how ensuring 65% of federal funds going to producers supports the “goal” of greater access to markets and infrastructure. FOF 20, Agency Exhibit 5, Agency’s Written Closing Statement. The Agency’s decision paper had two options: 1) terminate 100% of the PCSC grants; or 2) terminate 60% of the PCSC grants. FOF 20. There is no explanation at all what priority these two choices support. FOF 20. Changing all the instances of the number “60” to “65” on the decision paper, including changing a calculation of 60% without changing the underlying data, shows that the Agency arbitrarily chose 65% over either 60%, 100%, or any other percent without any analysis. FOF 20. As the court in Urban Sustainability stated regarding the termination of another PCSC grant, the termination letter failed to provide an explanation for which such a priority was adapted. Nothing the Agency has provided in this case either preceding the termination or after the termination provides such an explanation; therefore, the Agency’s termination of Appellant’s PCSC was arbitrary and capricious and in error.

Nothing in the adverse decision (see FOF 17) refers to the “priorities” expressed in the Farmer’s First document produced by the Agency a month later (see FOF 20), and I am not permitted to insert a rationale even if one otherwise exists. See NAD Case 2017S000439 (Dir. Rev., May 14, 2018) (citing SEC v. Chenery Corp., 332 U.S. 194). Further, even if I were to accept that the Agency’s “Farmers First” “policy” adequately explained the Agency’s rationale, the Agency admits it did not consider reliance interests in making its decision. See Agency Written Closing Statement, page 4. In Pacito v. Trump, the United States District Court for the Western District of Washington, found that the Department of State made no factual findings before terminating cooperative agreements which the court found “marks the Funding Termination as arbitrary and capricious because it constitutes a shift in agency policy without any reasoned explanation.” 772 F. Supp 3d 1204 (2025). The court further explained in Pacito v. Trump that “the Agency Defendants may change their ’view of what is in the public interest,’ but they ‘must supply a reasoned analysis indicating that prior policies and standards are being deliberately changed, not casually ignored[.]’” (Quoting Nw. Envtl. Def. Ctr., 477 F.3d at 687 and Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970)).

In this case the only factual finding in the Agency’s decision memo was that “of the 136 projects, only 37 projects provided 60% or more of funding for total producer incentives.” FOF 12. The Agency, however, ignored this factual finding and arbitrarily changed the percentage required for funds to go to producers to 65%. FOF 14. The Agency also asserts that it did not individually consider the merits of terminating Appellant’s PCSC grant but simply relied on its new priorities to terminate the grant. Agency Written Closing Statement, page 4. Since the Agency neither made any findings regarding the Appellant nor provided any analysis why Appellant’s grant was required to be terminated, there is no reasoned explanation, and the termination is arbitrary and capricious and in error.

The Appellant argued that termination would have long-lasting impacts beyond the immediate loss of funding, which cut its 2025 budget by 48%. Appellant’s Written Closing Statement, page 9. The Appellant indicated that producers would be harmed by the termination such as a

producer who was planning to buy a no-till seed drill for the 2025 season and ultimately had to forego planting and another producer who was counting on certification to access a key market, which was negatively impacted by delays due to unavailability of funding. Appellant’s Written Closing Statement, pages 9, 10. Appellant further asserted that a large number of enrolled farms lost the time invested in the certification process, and all were faced with the prospect of having to forego certification or purchase it on the open market, which would cost between $2050 - $4050 and that all enrolled farms had selected practices and planned for their implementation and added market value, relying upon the Agency to their detriment. Appellant’s Written Closing Statement, pages 9-10. The Appellant argued that as a result of the termination that it has suffered many of the same harms cited by other federal grantees, including those in the Urban Sustainability Directors Network, et al v. United States Department of Agriculture et al., including economic harm and reputational injury, the diversion of resources from other programs, and damage to relationships with farmers Appellant’s Written Closing Statement, page 10. I agree with the Appellant and find that the Agency has not properly taken into effect reliance interests and therefore the Agency’s decision is arbitrary and capricious under the APA and in error.

The Agency provided no reasoned analysis, made limited factual findings, arbitrarily changed the factual findings it made, and did not consider reliance interests when it terminated Appellant’s grant; therefore, the Agency’s decision is arbitrary and capricious and in error.

2 C.F.R. § 200.340 Arguments by the Parties

The Agency argued that it properly terminated Appellant’s PCSC grant because 2 C.F.R. § 200.340 specifically permits the Secretary to terminate an award if the award no longer effectuates the program goals or agency priorities. Agency Written Closing Statement, page 3.

The Agency points out that the purpose of changes to 2 C.F.R. 200.340 made in 2020 were to “strengthen the ability of the Federal awarding agency to terminate Federal awards, to the greatest extent authorized by law, when the Federal award no longer effectuates the program goals or Federal awarding agency priorities.” Agency Written Closing Statement, page 3; see Federal Register, Vol. 85, No 157, 49507, August 13, 2020. The Appellant argued that the Agency does not have the authority to terminate grants based on policy changes after the award of the grant and may only terminate awards when they fail to effectuate agency priorities announced at the time of the award. Appellant’s Written Closing Statement, page 2. In support of its argument, the Appellant points to OMB’s 2020 language that

The intent of this change is to ensure that Federal awarding agencies prioritize ongoing support to Federal awards that meet program goals. For instance, following the issuance of a Federal award, if additional evidence reveals that a specific award objective is ineffective at achieving program goals, it may be in the government’s interest to terminate the Federal award. Further, additional evidence may cause the Federal awarding agency to significantly question the feasibility of the intended objective of the award, such that it may be in the interest of the government to terminate the Federal award.

Appellant’s Written Closing Statement, page 2; see Federal Register, Vol. 85, No 157, 49507, August 13, 2020. The Appellant argued that there is no “additional evidence” in this case that shows any program goal was unmet which would justify termination. Written Closing Statement, page 2.

The Agency did not Establish a Program Goal or Agency Priority Which Permits it to Invoke 2 CF.R. § 200.340(a)(4).

Though the Appellant did not specifically argue that the Agency’s requirement that a minimum of 65% of federal funds must go to producers was not a program goal or Agency priority within the meaning of those terms in 2 C.F.R. § 200.340, I find it necessary to examine the issue of whether the Agency’s requirement that a minimum of 65% of federal funds go to producers is in fact a “program goal or Agency priority.”[11]

Neither program goals nor agency “priorities” are defined in 2 C.F.R. Part 200. Section 200.301 of 2 C.F.R. Part 200 states the following regarding performance measurement:

The Federal agency must measure the recipient's performance to show achievement of program goals and objectives, share lessons learned, improve program outcomes, and foster the adoption of promising practices. The Federal agency should establish program goals and objectives during program planning and design (see § 200.202). The Federal agency should clearly communicate the specific program goals and objectives in the Federal award, including how the Federal agency will measure the achievement of the goals and objectives, the expected timeline, and information on how the recipient must report the achievement of program goals and objectives. The Federal agency should also clearly communicate in the Federal award any expected outcomes (such as outputs, service performance, or public impacts of any of these), indicators, targets, baseline data, or data collections that the recipient is responsible for measuring and reporting. The Federal agency must ensure all requirements for measuring performance align with the Federal agency's strategic goals, strategic objectives, or performance goals relevant to a program (see OMB Circular A-11, Preparation, Submission, and Execution of the Budget Part 6). 2 C.F.R. § 200.301 (emphasis added).

Further, 2 C.F.R. Part 200 defines “cost objective” and “performance goal” as follows:

Cost objective means a program, function, activity, award, organizational subdivision, contract, or work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, and capital projects. A cost objective may be a major function of the recipient or subrecipient, a particular service or project, a Federal award, or an indirect cost activity, as described in subpart E. 2 C.F.R. 200.1 (definition of cost objective).

Performance goal means a measurable target level of performance expressed as a tangible, measurable objective, against which actual achievement can be compared, including a goal expressed as a quantitative standard, value, or rate. In some instances (for example, discretionary research awards), this may be limited to the requirement to submit technical performance reports (to be evaluated in accordance with agency policy). 2 C.F.R. 200.1 (definition of performance goal).

The PCSC data dictionary included reporting requirements which required the Appellant to report all costs for technical assistance provided to producers and products or supplies provided to producers which included equipment loan, inputs and supplies, land rental, and tuition for fees for training. FOF 23.

Neither party provided definitions of “program goal or Agency priorities” and in the absence of such definitions NAD applies the ordinary meaning of such words.[12] “Goal” is defined in the dictionary as “the end toward which effort is directed.”[13] “Program goals” appears not to be further defined other than in the academic setting where it stands for “broad statements that extend and operationalize the mission statement” or “statements that clearly define what the organization wants to achieve.”[14] Taken altogether, the definitions in 2 C.F.R. Part 200 along with the ordinary meaning of goals and program goals indicate that program goals, as opposed to “performance goals” are an end state aim and not simply a measurement or level of performance. I therefore find that the Agency’s “Farmer First policy priority” that a minimum of 65% of funds must go to producers is not a program goal and is instead a performance goal or performance measurement. This finding is reinforced by the fact that the Appellant was required by the PCSC Data Dictionary to report all types of assistance provided to producers and not just funds directly provided. FOF 23. In other words, the amount of support provided to producers was initially conceived as a performance measure, which was to be reported by the Appellant to the Agency. FOF 23. Since the requirement that 65% of funds must go to producers is not a “program goal”, the Agency’s decision to terminate Appellant’s PCSC grant is not authorized by 2 C.F.R. § 200.340 unless the requirement is an Agency priority.

The requirement that a minimum of 65% of funds must go to producers was not an “Agency priority” at the time the Agency cancelled Appellant’s PCSC grant. At the time the Appellant’s PCSC grant was terminated, the only related policy or priority announced by the Agency was Secretary’s Memorandum 1078-003 which directed review of awards related to climate change or environmental justice. FOFs 9, 10. Secretary’s Memorandum 1078-003 specifically restricts the review of awards to “ensuring the Department does not fund programs or organizations that promote or take part in climate change or environmental justice.” FOF 9. Nothing in the Agency’s decision memorandum or its adverse decision mentions either climate change or environmental justice, and the Agency has not argued that these “priorities” led to termination of Appellant’s PCSC grant. The decision memorandum provided by the Agency lacks any analysis or connection to any “priorities”. FOFs 12, 13, 14. The “issue” identified in the decision memorandum was whether the effort “could be terminated or realigned with the Trump Administration’s priorities,” but it does not mention what those priorities are or how terminating grants accomplishes those priorities. FOFs 12, 13, 14. USDA announced the requirement that a minimum of 65% of funds go to producers in a press release on April 14, 2024, which stated this was part of “Farmer First policy priorities” but did not publish any document which further indicated what “Farmer First” policies or priorities meant. FOF 15, 20. The only published policy in existence at the time was Secretary’s Memo 1078-003 which specifically limited the review of grants to “ensuring the Department does not fund programs or organizations that promote or take part in climate change.” FOF 9. It was not until approximately a month after it terminated Appellant’s grant when it published the Farmers First document, which then referred to the 65% requirement as an “action” which supported “providing small farms with greater access to markets and infrastructure.” FOFs 19, 20.

Priority is defined as “something given or meriting attention before competing alternatives.”[15] In this case the Agency’s decision memorandum shows that the Agency chose a random percent of federal funds that had to go directly to producers without explanation, for a priority which had not yet been announced and in contravention of the purpose of the review stated in Secretary’s Memorandum 1078-003. FOFs 9, 10, 12, 13, 14. The random selection of a percent of funds to go directly to producers does not meet the definition of “priority” and therefore is not an “Agency priority”. Instead, as indicated above, the selection of 65% of funds to go directly to producers is a performance goal or performance measurement. Since the Agency neither established a program goal nor Agency priority prior to terminating Appellant’s PCSC grant, they cannot invoke 2 C.F.R. § 200.340(b), and the decision to terminate Appellant’s PCSC grant is in error.

It is not Necessary to Decide Whether 2 C.F.R. (section) 200.340(a)(4) Requires that Termination of Grants be Based on Program Goals or Agency Priorities in Place at the Time of the Award

I note that neither party cited any case which supports their interpretations of section 200.340(a)(4). In Urban Sustainability though, the court refused to issue a preliminary injunction because the plaintiffs fell short of demonstrating a likelihood of success on their claim that defendants acted contrary to regulations. Urban Sustainability Directors Network, et al, v. United States Department of Agriculture, et al., 2025WL 2374528, August 14, 2025. In explaining this determination, the court stated:

Plaintiffs further do not provide any support for the implied assertion that defendants cannot terminate grants due to shifting priorities. Although the language of § 200.340(a)(4)—particularly, the phrase “no longer”—might suggest that the goals and priorities that are not being fulfilled are ones that were established at the beginning of the grant, the language is also broad enough to contemplate termination based on shifting goals or priorities. Moreover, as defendants point out, Defs.’ Opp'n at 25, the comments in the Guidance for Federal Financial Assistance are consistent with the latter interpretation. See Guidance for Federal Financial Assistance, 89 Fed. Reg. 30,046, 30,089 (Apr. 22, 2024). In the process of adopting the most recent version of the rules, some commenters expressed concern about the provision allowing agencies to “terminat[e] high-performing projects based on shifting agency priorities” and proposed its removal, while others believed the text was important to allow for “unilateral

termination based on changes in program goals or agency priorities.” Id. OMB did not explicitly credit either of these concerns but retained the rule, suggesting that the possibility of terminating “projects based on shifting agency priorities” did not justify a change. Id.

Urban Sustainability Directors Network, et al, v. United States Department of Agriculture, et al., 2025WL 2374528, page 29, August 14, 2025

Given that the court in Urban Sustainability granted a preliminary injunction against the Agency preventing them from terminating Appellant’s PCSC grant on other grounds and that the court did not hear the case on the merits, I would be inclined to more carefully examine the question of whether the Agency may only terminate awards when they fail to effectuate agency priorities announced at the time of the award, but because I have found the Agency did not issue a program goal or Agency priority prior to terminating the Appellant’s grant it is not necessary in this case.

The Appellant did not Meet the Requirement that 65% of Federal Funds Go Directly to Producers

The Appellant argued that certain expenditures should be included as funds provided to producers to meet the Agency’s requirement of 65% of funds going to producers. FOF 24. Though the Agency could not explain how it arrived at the conclusion that 65% (as opposed to some other percent) of funds must go directly (as opposed to indirectly or in the form of benefits rather than funds), it argued that it had the discretion to select the measure and did so by selecting a measure that only counts incentives of funds paid directly to the producer. FOF 23, HA 51:00-57:22; 1:29:22-1:30:30. As noted above, the Data Dictionary for PCSC included requirements for the Appellant to report data on benefits provided to producers which included costs for technical assistance provided to producers and products or supplies provided to producers which included equipment loan, inputs and supplies, land rental, and tuition for fees for training. FOF 23. While this would conceivably include costs like soil lab tests for producers, and other costs, the Appellant has provided no regulatory or other legal authority which supports including salaries normally considered overhead costs as funds going to producers. Therefore, the Appellant has not met the burden of proof to show that 65% of the grant funds were being provided to producers, either directly or indirectly.

In summary, the Agency’s termination of Appellant’s PCSC grant was arbitrary and capricious because the Agency did not provide a reasoned and reasonable explanation and did not consider reliance interests. Further the Agency erred because at the time it terminated Appellant’s PCSC grant it had announced no “program goal” or “Agency priority” which allows it to invoke 2 C.F.R. § 200.340(a)(4). The arbitrary selection that 65% of funds go directly to producers is neither a “program goal” nor “Agency priority” and is instead a measure of performance which the Agency may not rely on to terminate the grant because this measure of performance was not established in the grant in accordance with 2 C.F.R. § 200.301. Since the Agency did not announce a program goal or Agency priority, it is unnecessary to determine whether such a goal or priority would have needed to be included in the terms of the grant. Therefore, I find that the Agency’s termination of Appellant’s PCSC grant was in error both because it was not in accordance with 2 C.F.R. § 200.340(a)(4) and because it was arbitrary and capricious under the APA.

2. What evidence and arguments does Appellant present for possible equitable relief consideration from the NAD Director?

The NAD Director may grant equitable relief in cases involving covered programs administered by the Secretary of Agriculture. 7 U.S.C. § 6998(d); 7 C.F.R. § 11.9(e). A covered program includes a conservation program administered by the Secretary of Agriculture. 7 U.S.C. § 7996(a)(2)(A)(ii). I have found no instances where NAD has determined that grant programs like PCSC were conservation programs for the purpose of equitable relief, but programs like the Environmental Quality Incentives Program (EQIP) and the Conservation Stewardship Program (CSP), which provide funds directly to producers for similar practices have regularly been determined to be covered programs. See NAD Cases 2025W000361 (Dir. Rev., November 19, 2025) 2025S000123 (Dir. Rev., August 13, 2025). As noted above, the purpose of PCSC was to support the production and marketing of commodities that are produced using agricultural (farming, ranching, or forestry) practices that reduce greenhouse gas emissions or sequester carbon. See NFO, page 3; AR page 157. Equitable relief may be appropriate if the participant, despite failing to fully comply with the requirements of the program, either relied to its detriment on the action or advice of an authorized Agency representative (commonly referred to as the Agency misaction or misinformation provision) or made a good faith effort to fully comply with the requirements of the program (commonly referred to as the good faith effort provision). See 7 U.S.C. § 7996(b)(1) and (2).

The Appellant argued that equitable relief is appropriate because it “worked constructively and productively with the Agency from the point of award selection forward, executing our project as agreed with the support of the Agency and in partnership with farmers and subawards. We acted in good faith to deliver our executed agreement and fully complied with the requirements of the covered program. . . We made a good faith effort to comply with the new requirements of AMP, but these requirements made compliant modification unfeasible. Thus, according to the Agency, our agreement ‘no longer supported USDA priorities’ through no fault of our own, yet there was no viable remedy available.” Appellant’s Written Closing Statement, page 7.

The Appellant alleges that it did not apply for the AMP program because “there was ultimately insufficient time and information for [Appellant] to take advantage of AMP. . . As the application deadline approached, many of our questions remained unanswered and the promised FAQ document had not been provided.” Appellant’s Written Closing Statement, page 8. The Appellant indicated there were several issues with applying for the AMP program including a new requirement for the prime awardee to administer incentives, rather than the sub awardee; the recission of the Agency environmental approval, likely adding a time and resource prohibitive additional review; additional administrative requirements; a lack of clarity in the amendment process due to the Agency not publishing new metrics to be required; retroactive budgetary requirements which were not possible to meet; and a possible shortened time frame which Appellant would be unable to meet. Appellant’s Written Closing Statement, pages 8-9.

The Appellant argued that termination would have long-lasting impacts beyond the immediate loss of funding, which cut its 2025 budget by 48%. Appellant’s Written Closing Statement, pages 9-10. The Appellant indicated that producers would be harmed by the termination such as a

The Appellant requests that if their grant is terminated that it be awarded relief in the form of compensation for enrolled farmers equal to the incentives they would have been paid, relief for lost funding, administrative impact, legal expenses, and damage to reputation in the amount of $3,293,322. Appellant’s Written Closing Statement, page 11; Appellant’s Exhibit J, page 5.

The Agency argued that equitable relief is not appropriate because the Appellant did not offer sufficient evidence to demonstrate good faith efforts to comply with program requirements and/or detrimental reliance on Agency actions or advice. Agency Written Closing Statement, page 5. The Agency also argued that equitable relief is not available because PCSC is not a covered program. Agency Written Closing Statement, page 5. The Agency argued that the costs Appellant requested as equitable relief are lost opportunity costs which are not allowable. Agency Written Closing Statement, page 5.

Whether the facts of this case warrant a grant of equitable relief is beyond my authority as an Administrative Judge to decide. In accordance with 7 U.S.C. §§ 6998(d) and 7996(a)(2) the NAD Director has the authority to grant equitable relief to the same extent such authority is provided the Secretary of Agriculture. I will not determine the matter, but I have developed a record to enable the Director to make a determination as to whether equitable relief should be granted. If Appellant wishes to be considered for equitable relief, the Appellant can ask for relief as part of a response to NRCS’ request for Director review of this Appeal Determination, if NRCS requests Director review. However, if NRCS does not request Director review of this Appeal Determination, then the Appellant does not need to request relief, because the Appellant has prevailed, and NRCS is required to adhere to this decision.

DETERMINATION

Seven C.F.R. § 11.8(e) provides that the Appellant bears the burden of proving that the Agency’s adverse decision was erroneous by a preponderance of the evidence. In this case, Appellant met this burden to show the Agency erred when it terminated Appellant’s PCSC grant.

This is a final determination of the Department of Agriculture unless a party timely files a request for review.

Dated and distributed this 3rd day of December 2025.

signed/

JAMES. J. GIBSON

Administrative Judge

National Appeals Division

NOTICE OF RIGHT TO REQUEST DIRECTOR REVIEW AND/OR COPY OF AUDIO RECORD

DIRECTOR REVIEW REQUEST GUIDANCE

Any party that believes the determination is wrong may request that the Director of the National Appeals Division (NAD) review the determination. A suggested format is attached, but any request is acceptable if it has all the information in the “Instructions for Request for Review” listed below.

An appellant or third party who believes that this determination is wrong must file a request for Director review within 30 calendar days after receipt of this determination. An appellant or third party may seek equitable relief as part of a Director review request or response. A request must be in writing and be signed by the appellant or third party. A request must also follow the “Instructions for Request for Review” listed below.

The agency may also file a request for Director review if it believes this determination is wrong. The agency must file its request within 15 business days after receipt of this determination. The head of the agency or someone acting in that capacity must sign the request. The agency must also follow the “Instructions for Request for Review” listed below.

Parties may file written responses to a request for Director review within 5 business days of receipt of a copy of the request for review.

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Determinations are transmitted multiple ways: email, secure electronic platform such as Box, and/or hard copy U.S. mail.

“Receipt” occurs at the time sent by email; when accessed by a party in a secure electronic platform such as Box; or when received via U.S. mail, whichever is earlier.

A request or response is considered “filed” on the date and time NAD actually receives the document if sent electronically via Box upload or fax, or on the postmark date if sent by U.S. mail or commercial delivery service. The time for filing a Director review expires at 5:00 p.m., using the local time of the applicable regional office, on the last day of which such filing may be made.

Requests Filed by Appellant/Third Party More Than 30 Days After Email Date

NAD presumes that a party receives the determination when emailed. NAD will also send a copy of the determination to Appellants, Third Parties, and Interested Parties via U.S. mail. For parties who do not provide an email address, NAD presumes that it usually takes seven days for a determination to reach a party by U.S. mail. NAD may accept Director review requests filed more than 30 days after the presumed receipt date if the party shows good cause or receipt of the determination was delayed for reasons beyond the party’s control.

INSTRUCTIONS FOR REQUESTS FOR REVIEW

A request for review must:

· be personally signed and dated by Appellant, Third Party or head of the Agency;

· specifically request a review;

· give the case number for the Appeal Determination (the case number is on the top right-hand side of the first page of the Determination);

· note the date the requester received the Appeal Determination and if the receipt date is different from the date NAD emailed the Appeal Determination, an explanation for the different receipt date;

· say why the determination is wrong;

· confirm that the requester has also sent a copy of the request and additional information, if any, to the other party at the same time that the request was sent to NAD; and

NAD prefers and strongly encourages electronic request filing via Box upload, or Fax to 855-438-8035.

Alternatively, requests may be filed via U.S. mail or commercial delivery service to:

National Appeals Division

Western Regional Office

13922 Denver West Parkway, Suite 100-NAD

Lakewood, CO 80401

Phone: 1-800-541-0483

(303) 236-2862

Fax: 1-855-438-8035

TDD: 1-800-497-0253

COPY OF AUDIO RECORD REQUEST

Audio recordings of any pre-hearing/hearing proceedings are available for free download on Box by all parties who participate in the case. If a party cannot access Box, a party may obtain a free copy of the audio record by making a written request to the appropriate NAD Regional Office.

REQUEST FOR DIRECTOR REVIEW

I/We, _(print_name(s)), am/are the Appellant(s)/Third Party/Agency head in the above-referenced appeal and I/we request a Director Review of the appeal determination in this case.

The case number is: .

I/We received the appeal determination on .

NOTE: If the receipt date is not the same date as the date NAD emailed you the appeal determination, please explain the reason you are asserting a different receipt date.

The specific reasons why I/we believe the appeal determination is wrong are: (The requester may attach additional sheets and documents, if desired.)

A copy of this request, along with any attachments, was mailed to the other parties on

I swear that all statements in this filing are true to the best of my knowledge and belief.

Appellant(s)/Third Party/Agency head signature(s) Date

[1] The General Terms and Conditions include the version of 2 C.F.R. § 200.340 from 2020. See discussion below.

[2] Total value of certification would be $125,000 (100 x $1,250) for the initial year and $160,000 for subsequent years (100 x ($800 x 2)).

[3] This determination addresses whether the Agency’s termination of Appellant’s PCSC grant was in error and not whether any reimbursements already made or to be made were appropriate.

[4] FTE is an abbreviation for “full-time equivalent” and the decimal listed indicates the percent of work dedicated to the duties related to the PCSC grant by the position.

[5] The amounts reflect the total amount of salary for three years. The numbers provided by the Appellant in Appellant’s Exhibit J match the numbers found in the budget narrative submitted for the grant except for the Executive Director amount which was as $42,000 per year in the budget narrative, but only as $41,198 in Appellant’s Exhibit J.

[6] RAFI is the XXXXX, which is one of the Appellant’s partners.

[7] SHI is XXXXX, which is one of the Appellant’s partners.

[8] One of the Appellant’s in Urban Sustainability was appealing the termination of a PCSC grant. This Appellant also requested a NAD appeal which was assigned to me as NAD Case 2025W000428. NAD Case 2025W000428 was dismissed on November 20, 2025.

[9] In NAD Case 2017E000763 the NAD Director also stated the review standard as “I review the agency’s decision to determine whether it was arbitrary, capricious, or an abuse of discretion. 5 U.S.C. § 706(2)(A). In making such a determination, I assess ‘whether the decision was based on a consideration of relevant factors and whether there has been a clear error of judgement.” (citing Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971)). The NAD Director issued an additional determination after remand from a Federal court which did not change NAD standard of review for Agency decisions. NAD Case 2017E000763 (Dir. Rev., June 30, 2022).

[10] This provision was moved from 2 C.F.R. 200.340(a)(2) to 2 C.F.R. 200.340(a)(4).

[11] The Agency terminated all the PCSC grants which did not meet the requirement that 65% of funds going directly to producers. I was assigned several cases involving the termination of PCSC grants and have held hearings in this case and in NAD Case 2025W000434. The Appellant in NAD Case 2025W000434 argued that the Agency could not terminate its grant because the requirement that a minimum of 65% of federal funds must go to producer was a “performance measurement” which must be established during program planning and design in accordance with 2 C.F.R. § 200.301 or a “specific condition” which may only be imposed under certain circumstances in accordance with 2 C.F.R. § 200.208. Though I did not consider the testimony in NAD Case 2025W000434 in this case, the legal theory is applicable.

[12] Words that are not terms of art and that are not statutorily defined are customarily given their ordinary meanings, often derived from the dictionary. Thus, in the absence of a statutory definition, “we construe a statutory term in accordance with its ordinary or natural meaning.” FDIC v. Meyer, 510 U.S. 471, 476 (1994).

[13] See https://www.merriam-webster.com/dictionary/goal

[14] See https://uoeee.asu.edu/program-goals and https://cere.olemiss.edu/lets-get-s-m-a-r-t-steps-to-create-program-objectives/.

[15] See https://www.merriam-webster.com/dictionary/priority.