Peanut farmers in seven states whose crops were devastated by the 2002 drought are entitled to only a little more than half the $30 million in insurance payments ordered by a lower court, a federal appeals panel ruled.

A three-judge panel of the Richmond-based 4th U.S. Circuit Court of Appeals agreed with federal officials who claimed the 2002 Farm Bill, which eliminated the peanut quota system, allowed the farmers to collect only 17.75 cents per pound. A judgment approved in December 2006 by U.S. District Judge Malcolm Howard of Greenville, N.C., awarded them 31 cents per pound.

"Although we have great sympathy for the hard-working peanut farmers of this country, our obligation is to rule on the basis of the factual underpinnings and the applicable legal principles," Judge Robert King wrote in the appeals court's unanimous opinion, which vacated Howard's ruling and returned the case to the lower court.

The case involves about 3,870 farmers in Virginia, North Carolina, South Carolina, Texas, Georgia, Alabama and Florida. They sued the U.S. Department of Agriculture after their federal crop insurance payments for the 2002 losses were slashed by nearly half.

Dan Boyce, lawyer for the farmers, said his clients "are shocked that they are being treated this way" by the government. He said they will appeal Thursday's ruling either to the full appeals court or the U.S. Supreme Court.

U.S. Department of Justice spokesman Charles Miller said lawyers had just received the ruling and that it was premature to comment.

The dispute centered on whether the farmers were indemnified at the 31-cent "quota rate" or the lower "non-quota rate" under terms of the government-backed Multiple Peril Crop Insurance Policy. The appeals court determined the 17.75-cent rate was the correct one because the quota system had been eliminated.

"Put succinctly, under the 2002 Farm Bill, all peanuts were 'non-quota peanuts,'" King wrote.

King was joined in the opinion by Judge J. Harvie Wilkinson III and visiting U.S. District Judge Henry F. Floyd of South Carolina.