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United States ex rel. Kraemer v. United Dairies, L.L.P.

United States District Court, D. Minnesota

July 6, 2018

United States of America, ex rel. Kenneth Kraemer, and Kenneth Kraemer and Kraemer Farms, LLC, a Minnesota limited liability company, Plaintiffs,
v.
United Dairies L.L.P., a Minnesota limited Liability partnership; Union Dairy, L.L.P., a Minnesota limited liability partnership; Westland Dairy, LLP, a Minnesota limited liability partnership; Alpha Foods, L.L.P., a Minnesota limited liability partnership; Nicholas Ridgeway; Craig Achen; Steven Landwehr; Thomas Landwehr; Matthew Landwehr; Robert Hennen; Silverstreak Dairies, LLC, a Minnesota limited liability company; Greg Marthaler; Marthaler Properties Family LLLP, a Minnesota limited liability limited partnership, d/b/a Marthaler Farms; and Dairyridge, Inc., a South Dakota corporation, Defendants.

          Chad A. Blumenfield and Pamela A. Marentette, Assistant United States Attorneys, United States Attorney's Office, counsel for Plaintiff United States of America, ex rel. Kenneth Kraemer.

          Matthew Albin Anderson, Esq., Law Office of Matthew A. Anderson; and Julie N. Nagorski, Esq., and Dwight G. Rabuse, Esq., DeWitt Mackall Crounse & Moore, S.C., counsel for Plaintiffs Kenneth Kraemer and Kraemer Farms, LLC.

          Anna K. B. Finstrom, Esq., Gary R. Leistico, Esq., and Alexander T. Mastellar, Esq., Rinke Noonan, counsel for Defendants.

          MEMORANDUM OPINION AND ORDER

          DONOVAN W. FRANK UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         This matter is before the Court on Defendants' motion to dismiss or stay certain counts in Plaintiffs' Complaint based on an arbitration agreement entered into by Plaintiff Kenneth Kraemer and multiple defendants. (Doc. No. 34.) In conjunction with this motion, Defendant Silverstreak Dairies, LLC also moves for summary judgment dismissal of all claims against it pursuant to Federal Rule of Civil Procedure 56. (See id.) Finally, Plaintiffs have moved this Court to stay a pending arbitration proceeding. (Doc. No. 43.) For the reasons set forth below, the Court grants the motion to dismiss Kraemer Counts Two and Three as these counts are subject to mandatory arbitration. The Court denies the remaining motions in all respects.

         BACKGROUND

         I. Factual Background

         A. Plaintiffs' Allegations and the Qui Tam Lawsuit

         Plaintiff Kenneth Kraemer (“Kraemer”) is a partner in Defendants Union Dairy, L.L.P. (“Union”) and United Dairies, L.L.P. (“United”), Minnesota partnerships involved in dairy farming operations. (Doc. No. 37 (“R. Hennen Decl.”) ¶ 3, Ex. 1 (“Union Agreement”) at 1, §§ 1.3, 2.1; R. Hennen Decl. ¶ 4, Ex. 2 (“United Agreement”) at 1, §§ 1.3, 2.1.) The partnerships also grow corn or contract with other growers to produce corn crops. (See Doc. No. 1 (“Compl.) ¶¶ 32, 57.) Farmers may obtain crop insurance from the federal government to protect against crop losses, and applicants for federal crop insurance must certify what type of corn has been planted to receive crop insurance payments. (See Id. ¶¶ 1-5.)

         In the fall of 2013, United, through one of its partners, claimed revenue losses made up of grain corn to United's crops and obtained crop insurance proceeds from the federal government. (Id. ¶¶ 34, 36.) United made similar claims for losses in 2014 and 2015, obtaining crop insurance proceeds in both years. (Id. ¶¶ 41, 43, 48, 50.) In the fall of 2014, Kraemer began to suspect that United may have been falsely certifying the type of crop it planted in obtaining insurance. (See Id. ¶¶ 52, 53.) Specifically, Kraemer suspected that United was falsely certifying that crops planted as silage-specific forage corn were grain corn fit for human consumption and receiving insurance payments on that basis. (See generally Id. ¶¶ 26, 28-50.) According to Plaintiffs, a United States Department of Agriculture Federal Crop Insurance Corporation handbook interpreting the requirements of the Federal Crop Insurance Act, 7 U.S.C. § 1501, and related regulations provides that “a variety of corn that is adapted for use as silage only is not insurable as grain and must be insured as silage.” (See Id. ¶ 26.) Plaintiffs allege similar crop insurance fraud by other entities, including Defendants Union; Westland Dairy, LLP; Alpha Foods, L.L.P.; Marthaler Farms; Dairyridge, Inc.; and Silverstreak Dairies, LLC. (Id. ¶¶ 28-71.)

         Troubled by the possibility that the partnership might have received insurance proceeds through fraud, Kraemer met with United's managing partner on September 11, 2014 to explain his concerns. (See Id. ¶ 52.) The managing partner told Kraemer that he would look into the matter, but no corrective action was taken. (Id. ¶¶ 52-55.) Kraemer conducted an investigation into the possible fraud against the government and retained his own counsel to remedy the alleged wrongdoing. (Id. ¶¶ 55-56.)

         According to Kraemer, in October 2014, the other United partners began to retaliate against him by providing themselves compensation for management activities without compensating Kraemer, disproportionately paying distributions, and excluding Kraemer from partnership management. (Id. ¶¶ 54, 83-85.) Kraemer and the other United partners subsequently began communicating with each other exclusively through their respective counsel. (See id. ¶¶ 54-56.) On July 29, 2016 and August 2, 2016, counsel for Kraemer sent a letter to counsel for United, relaying Kraemer's allegations regarding the crop insurance fraud and the other partners' retaliatory conduct. (Doc. No. 48 (“Rabuse Aff.”) ¶¶ 5, 6, Exs. C & D.) On September 15, 2016, Kraemer and Kraemer Farms, LLC, as plaintiffs and relator, filed a qui tam complaint under seal against United, United's partners, and other defendants in this court. (See Compl.)

         B. The United Dairies Partnership Agreement

         The Partnership Agreement of United Dairies, L.L.P. (the “United Agreement”), effective April 18, 2005 among Craig Achen, James Ridgeway, Robert Hennen, Ken Kraemer, Jon Reichman, Ronald Reichman, Theodore Reichman, and Thomas Landwehr, states:

Any claim, dispute or other matter in question arising in connection with the Partnership, this Agreement or any breach thereof, or in connection with the dissolution of the Partnership shall be resolved exclusively by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and in the State of Minnesota, unless the parties agree otherwise. The foregoing agreement to arbitrate shall be specifically enforceable under applicable law in any court having jurisdiction thereof.

(United Agreement at 1, § 16.1.) It further provides:

Any arbitration conducted hereunder shall include, by consolidation or joinder, all parties and other persons substantially involved in a common question of fact or law whose presence is required if complete relief is to be accorded in arbitration. Provided, however, that if any third party or parties, whose joinder is required under this paragraph, refuses to join or is/are unable to be joined in the arbitration, then the arbitration provisions of this Agreement shall be waived and shall not apply to the resolution of the dispute which requires such joinder. In all other cases, the arbitration provision shall apply.

(Id. § 16.2.) Kraemer was also a signatory to the Partnership Agreement of Union Dairy, L.L.P. (the “Union Agreement”) containing identical arbitration provisions. (See Union Agreement at 1, §§ 16.1, 16.2.)

         Through the execution of an Ownership Interest Purchase Agreement effective January 1, 2015 (the “January 2015 Agreement”), a number of partners within United Dairies reorganized their ownership interests in various entities. (See R. Hennen Decl.

         ¶ 5, Ex. 3 & ¶ 10.) Specifically, the January 2015 Agreement was entered into between United Dairies, L.L.P.; United Dairies Holdings, L.L.P.; Allied Dairy, LLP; United, Inc.; Craig Achen; Nick Ridgeway; Robert Hennen; Thomas Landwehr; Steven Landwehr; and Mathew Landwehr. (R. Hennen Decl. ¶ 5, Ex. 3 at 1.) Robert Hennen stated, “[a]lthough we invited Ken Kraemer to participate in the reorganization and for a long time hoped that he would, he ultimately refused to take part in the 2015 agreement.” (Id. ¶ 10.) He asserted, “while the rest of us are now governed by [the January 2015 Agreement], Ken Kraemer's partnership interests in Union and United continue to be governed by [the original Union and United Agreements].” (Id. ¶ 11.)

         C. Allegations Against and Discovery Pertaining to Silverstreak Dairies

         As noted above, Silverstreak Dairies, LLC (“Silverstreak”) is one of multiple defendant entities in this matter. (See Compl. ¶¶ 16, 68-71.) Plaintiffs allege that Silverstreak's wrongful actions mirror United's. (Id. ¶ 68.) Specifically, Plaintiffs allege the following with respect to Silverstreak:

69. [Robert] Hennen actively promotes the BMR silage-corn product.
70. [Robert] Hennen and his entity, Silverstreak, own approximately 1, 900 tillable acres and use them to grow silage-specific BMR ...

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