United States District Court, D. Minnesota
United States of America, ex rel. Kenneth Kraemer, and Kenneth Kraemer and Kraemer Farms, LLC, a Minnesota limited liability company, Plaintiffs,
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.
A. Blumenfield and Pamela A. Marentette, Assistant United
States Attorneys, United States Attorney's Office,
counsel for Plaintiff United States of America, ex rel.
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.
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
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.
Plaintiffs' Allegations and the Qui Tam
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.)
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.)
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.
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.
The United Dairies Partnership Agreement
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
(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.)
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. ¶
Allegations Against and Discovery Pertaining to Silverstreak
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
70. [Robert] Hennen and his entity, Silverstreak, own
approximately 1, 900 tillable acres and use them to grow
silage-specific BMR ...