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United States v. United Dairies, L.L.P.

United States District Court, D. Minnesota

May 23, 2019

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; Thomas F. DeVincke, Esq., and Patrick B. Steinhoff, Esq., Malkerson Gunn Martin LLP, counsel for Plaintiffs Kenneth Kraemer and Kraemer Farms, LLC.

          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

         Plaintiff-relators Kenneth Kraemer (“Kraemer”) and Kraemer Farms, LLC (collectively, “Plaintiffs”) initiated this qui tam action on behalf of the United States of America (the “Government”), against Defendants United Dairies L.L.P. (“United”), a Minnesota limited Liability partnership; Union Dairy, L.L.P. (“Union”), a Minnesota limited liability partnership; Westland Dairy, LLP (“Westland”), a Minnesota limited liability partnership; Alpha Foods, L.L.P. (“Alpha”), a Minnesota limited liability partnership; Nicholas Ridgeway (“Ridgeway”); Craig Achen (“Achen”); Steven Landwehr (“S. Landwehr”); Thomas Landwehr (“T. Landwehr”); Mathew Landwehr (“M. Landwehr”);[1] Robert Hennen (“Hennen”); Silverstreak Dairies, LLC (“Silverstreak”), a Minnesota limited liability company; Greg Marthaler (“Marthaler”); Marthaler Properties Family LLLP (“Marthaler Farms”), a Minnesota limited liability limited partnership, d/b/a Marthaler Farms; and Dairyridge, Inc. (“Dairyridge”), a South Dakota corporation (collectively “Defendants”). (Compl.)

         Plaintiffs' qui tam Complaint was filed under seal on September 15, 2016. (Id.) The Complaint was unsealed on August 4, 2017 and served on Defendants between August 24 and September 5, 2017. (See Doc. Nos. 18, 25, and 26.) Kraemer asserts two causes of action under the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1), and a third cause of action for Unjust Enrichment, on behalf of the Government.[2] (Compl. ¶¶ 72-81.) Kraemer and Kraemer Farms, L.L.C. initially alleged four additional causes of action (the “Kraemer Counts”): (1) retaliation under the FCA, 31 U.S.C. § 3730(h) against Defendants United, Union, Ridgeway, Achen, S. Landwehr, T. Landwehr, M. Landwehr, and Hennen (id. ¶¶ 82-87); (2) breach of contract against United, and the same individuals listed in Kraemer Count One (id. ¶¶ 88-96); (3) declaratory judgment against the same defendants for the breach of contract alleged in Kraemer Count Two, (id. ¶¶ 97-103); and (4) breach of contract against Union (id. ¶¶ 104-08).

         Only the first Kraemer Count remains. The Court dismissed Count IV with prejudice on March 26, 2018. (Doc. No. 66.) The Court found Counts II and III subject to mandatory arbitration and dismissed them without prejudice on July 6, 2018. (Doc. No. 69 (“Order”).) Counts II and III were subsequently resolved through arbitration on August 30, 2018. (Doc. No. 95 (“Leistico Decl.”) ¶ 5, Ex. 1.)

         This matter is before the Court on Plaintiffs' motion for partial summary judgment (Doc. No. 86), and Defendants' motion for summary judgment (Doc. No. 92).[3] For the reasons set forth below, the Court denies Plaintiffs' motion, and grants in part and denies in part Defendants' motion. Specifically, the Court dismisses Defendant Silverstreak as a party, but denies Defendants' motion in all other respects.

         BACKGROUND

         Kraemer was a partner in Defendants Union and United, Minnesota partnerships involved in dairy farming operations. (Doc. No. 37 (“R. Hennen Decl.”) ¶ 3, Ex. 1 at 1, §§ 1.3, 2.1; R. Hennen Decl. ¶ 4, Ex. 2 at 1, §§ 1.3, 2.1.) The partnerships also grow corn or contract with other growers to produce corn crops. (See Compl. ¶¶ 32, 57.) The partnerships and other defendants obtain insurance from the federal government to protect against crop losses. (See Id. ¶¶ 1-3.)

         The United States Department of Agriculture (“USDA”) administers crop insurance policies through its Federal Crop Insurance Corporation (“FCIC”) and its Risk Management Agency (“RMA”).[4] (See Compl. ¶¶ 2-3.) The RMA serves as a reinsurer to private insurance companies.[5] (Doc. No. 89 (“Steinhoff Decl.”) ¶ 7, Ex. C (“Voy Dep.”) at 12; Compl. ¶ 2) The RMA writes the terms, establishes the rates and coverages, and develops the policies and procedures that govern the crop insurance policies; however, the policies are sold and administered by authorized private insurance companies.[6] (Voy Dep. at 12-14; Compl. ¶¶ 2-3.) The RMA makes administrative and operating payments to the private insurance companies for the cost of administering the policies. (Voy Dep. at 14.) The RMA also pays premium subsidies to the private insurance companies on behalf of the policy holder. (Id.) Losses are a shared risk between the RMA and the private companies. (Id. at 14, 27.)

         Insurance coverage is available for both grain corn and silage corn; however, the policies are different. (Id. at 22; see also Voy Dep., Ex. 1 (“Policy”) at ¶5(b)(1) (“[T]he crop insured will be all corn that is [] [p]lanted for harvest either as grain or as silage.”).) Silage is corn that is often fed to livestock. (See Id. at 23; see also Policy at 1 (defining silage as “[a] product that results from severing the plant from the land and chopping it for the purpose of livestock feed”).) Grain is corn that is typically processed with a combine and sold on the market to other end-users.[7] (See Voy Dep. at 24, 37.)

         The coverage, premium, and actuarial tables for grain and silage insurance are different because there are different risks associated with each type. (Id. at 24, 36-37.) For example, revenue protection is a coverage that is only available for grain corn. (Id. at 38.) Revenue protection insures both the yield and the price of a crop so that a specific revenue is guaranteed even if the market price drops. (Id.) Revenue protection is not available for silage corn because it generally is not sold. (Id. at 37.) Insurance coverage for silage is based only on yield, determined by a grower's average production history. (Id. at 38.)

         To be eligible to participate in crop insurance, a grower must submit an application, annual acreage report, and production history report. (Compl. ¶ 4.) The annual acreage report includes the: (1) amount of acreage of the crop in the county (insurable and not insurable) in which the grower has a share and the date the insured crop was planted; (2) grower's share at the time coverage beings; (3) practice; (4) type; and (5) the land identifier for the crop acreage. See 7 C.F.R. § 457.8, Model Policy § 6(c)(1)-(5)). The Acreage Reporting Form includes a statement above the signature block whereby the grower certifies the truthfulness of the reporting and acknowledges that “failure to report completely and accurately” may result in criminal or civil penalties under the FCA. (See Steinhoff Decl. ¶¶ 18-20, Exs. N-P (“Acreage Reporting Forms”).)

         Each year, a grower also completes a USDA document called “Form 578.” (Steinhoff Decl. ¶ 11, Ex. G (“Triplett Dep.”) at 23; Voy Dep. at 45.) After planting crops, the grower completes Form 578 and files it at a Farm Services Agency (“FSA”) office. Form 578 requires a grower to identify the type of crop planted in each field. (See Steinhoff Decl. ¶¶ 15-17, Exs. K-M (“Form 578s”).) For corn crops, Form 578 includes a column to indicate intended use[8] as either “GR” (for grain), or “FG” (for forage).[9] (Id.) Form 578 also includes a statement above the signature block which requires the grower certify that the information in the form is true. (Id.)

         While the FSA developed Form 578 primarily for use in other farm programs, insurance companies and the RMA use it to cross-check and verify information reported on the Acreage Reporting Form. (Triplett Dep. at 22-24). Accordingly, growers are required to provide insurance agents with copies of Form 578 on the date of or prior to filling out the Acreage Reporting Form. (Id.)

         The type of insurance coverage available for corn depends on the county where the corn is grown. (Voy Dep. at 18.) The RMA designates counties as: (1) grain only; (2) silage only; (3) or both grain and silage.[10] (Id.). If a grower lives in a county designated as silage only but wishes to grow corn as grain and obtain the requisite coverage, the grower may request written permission from the RMA to grant an exception. (Id. at 19.) In counties where both grain and silage are insurable, a grower must report the acreage of each type on the Acreage Reporting Form to determine which coverage applies to which crops.[11] (Id. at 53; Policy at ¶ 5(c)(1); see also 7 C.F.R. § 457.113 (“[A]ll insurable acreage will be insured as the type or types reported by you on or before the acreage reporting date.”).) The 2014 FCIC Crop Insurance Handbook states:[12]

For corn, grain and silage counties are counties for which the actuarial documents provide grain and silage types. Both types are insurable. Insureds must report insurance acreage by unit and by type (grain or silage) according to the intended method of harvest.

(Voy Dep., Ex. 3 (“Crop Ins. Handbook”) ¶ 5 at 411.) In the event of damage or loss, the Policy specifies:

If you will harvest any acreage in a manner other than as you reported it for coverage (e.g., you reported planting it to harvest as grain but will harvest the acreage for silage, or you reported planting it to harvest as silage but will harvest the acreage for grain), you must notify us before harvest begins.

(Policy at ¶ 10(c).)

         The Crop Ins. Handbook also states, “a variety of corn adapted for use as silage only is not insurable as grain and must be insured as silage.” (Crop Ins. Handbook ¶ 5.) The Policy similarly specifies that coverage is not available for “a variety of corn adapted for silage use only when reported for insurance as grain.”[13] (Policy ¶ 5(b)(2)(ii).) Neither the Crop Ins. Handbook nor the Policy define which varieties of corn adapted for silage use are not insurable as grain. (See Crop Ins. Handbook; See also Policy.)

         There are several varieties of corn adapted for silage use, including brown mid rib (“BMR”). (Leistico Decl. ¶ 11, Ex. 7 (“Plehn Dep.”) at 47.) BMR is a silage-hybrid that has a recessive mutation which increases digestibility when it is processed as silage. (See Plehn Report at 4; Leistico Decl. ¶ 19, Ex. 15 (“Miller Report”) at 4.) It also produces a standard ear of yellow corn that can be processed and sold as grain. (Miller Report at 4; Plehn Dep. at 116-117.)

         In the fall of 2013, United, through one of its partners, claimed revenue losses for BMR seeds planted as grain corn and obtained crop insurance proceeds from the federal government. (Compl. ¶¶ 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 crops as grain corn when they were actually silage corn and receiving insurance payments on that basis. (See generally Id. ¶¶ 26, 28- 50.) Plaintiffs allege similar crop insurance fraud by other entities and their partners, including Union, Westland, Alpha Foods, Marthaler Farms, Dairyridge, and Silverstreak. (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 ¶¶ 5, 6, Exs. C & D.) On September 15, 2016, Plaintiffs filed a qui tam complaint under seal against United, United's partners, and other defendants in this court. (See Compl.) The Complaint was unsealed on August 4, 2017 and served on Defendants between August 24 and September 5, 2017. (See Doc. Nos. 18, 25, and 26.)

         Several Defendants seek dismissal from this action for a variety of reasons: (1) Defendants Westland, Union, Alpha, Marthaler Farms, Dairyridge, T. Landwehr and Marthaler because any claim they made was not false, and, in the alternative, no false claim was made knowingly, and none was submitted as a claim for payment to the government; (2) Defendants Ridgeway, Achen, Hennen, S. Landwehr, and M. Landwehr because they were not involved with certifications or procurement of crop insurance; (3) Defendant United because it is a management entity that does not own crops or crop insurance; (4) Defendant Dairyridge because Plaintiffs failed to plead fraud with particularity; and (5) Defendants Silverstreak and Hennen because they did not certify BMR or any similar nonconventional varieties as grain corn during the relevant years. (Doc. No. 94 (“Defs.' Memo.”) at 45-46, 55.)

         Defendant United and its partners, Ridgeway, Achen, S. Landwehr, T. Landwehr, M. Landwehr, and Hennen, also seek dismissal of Kraemer Count I, retaliation damages under the FCA, because it was already litigated and disposed of in arbitration and, in the alternative, because FCA retaliation damages are only available in an employment-type relationship. (Id. at 48-49.)

         All Defendants seek dismissal of the claim for unjust enrichment because there is no evidence of wrongdoing and they were entitled to the money received for crop insurance payments. (Id. at 47.) Finally, Defendants seek an award for attorney fees and expenses because they allege that Plaintiffs' claims are vexatious and brought primarily for purposes of harassment. (Id. at 55; Doc. No. 23 at 19 ¶¶ 1-5.)

         Plaintiffs move on behalf of the Government only with respect to their first and second causes of action and only against Defendants United, Union, Westland, T. Landwehr, Marthaler, and Marthaler Farms. Plaintiffs contend that there are no disputed issues of material fact concerning whether these Defendants are liable to the United States under the FCA. (Doc. No. 88 (“Plaintiffs' Memo.”) at 2.)

         DISCUSSION

         I. The False Claims Act

         Under the FCA's qui tam provisions, relators-private citizens acting as whistleblowers-may sue on behalf of the Government to recover damages for submission to the Government of materially false claims for payment. 31 U.S.C. §§ 3729, 3730; see, e.g., U.S. ex rel. Donegan v. Anesthesia Assocs. of Kan. City, PC, 833 F.3d 874, 876 (8th Cir. 2016). “The FCA attaches liability, not to the underlying fraudulent activity, but to the claim for payment.” U.S. ex rel. Onnen v. Sioux Falls Indep. Sch. Dist. No. 49-5, 688 F.3d 410, 414 (8th Cir. 2012) (quoting U.S. ex rel. Costner v. URS Consultants, Inc., 153 F.3d 667, 677 (8th Cir. 1998)). As such, a viable FCA claim generally requires a relator to establish that the defendant presented a claim for payment to the Government, that the claim was false or fraudulent, and that the defendant knew the claim was false or fraudulent. U.S. ex rel. Simpson v. Bayer Healthcare (In re Baycol Prods. Litig.), 732 F.3d 869, 875 (8th Cir. 2013). In addition, an FCA violation requires proof that a false or fraudulent claim or statement was material to the Government's decision to pay a claim. Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S.Ct. 1989, 2001 (2016); U.S. ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791, 797 (8th Cir. 2011).

         Before turning to the motions filed by the parties, the Court briefly addresses the FCA's knowledge requirement, which the parties dispute. Under the FCA, a defendant must knowingly present a materially false claim. In re Baycol, 732 F.3d at 875. The FCA defines “knowing” as having “actual knowledge” or acting “in deliberate ignorance of” or “reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b)(1)(A). It does not require “proof of specific intent to defraud.” Id. § 3729(b)(1)(B).

         As in this case, an FCA claim may arise when a defendant certifies compliance with statutory, regulatory, or contractual requirements but allegedly does not comply with such requirements. See, e.g., Escobar, 136 S.Ct. at 1995-96; Donegan, 833 F.3d at 876-77; U.S. ex rel. Ketroser v. Mayo Found., 729 F.3d 825, 827 (8th Cir. 2013). A defendant does not knowingly present a false claim when: (1) the requirement at issue is “ambiguous”; (2) the defendant acted pursuant to an “objectively reasonable” interpretation of the requirement; and (3) no formal government guidance warned the defendant away from its interpretation of the requirement. Donegan, 833 F.3d at 878-79; see also U.S. ex rel. Purcell v. MWI Corp., 807 F.3d 281, 287-91 (D.C. Cir. 2015) (applying the interpretation of “reckless disregard” established in Safeco Ins. Co. of Am. v. Burr, ...


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