United States of America, ex rel. v. United Dairies, L.L.P.

Background

Kenneth Kraemer was a partner in United Dairies, L.L.P. and Union Dairy, L.L.P. The complaint alleged that United and other defendants falsely certified silage-specific forage corn as grain corn, obtained federal crop-insurance proceeds, and engaged in similar conduct involving other entities. Kraemer also alleged that United partners retaliated against him after he raised concerns about possible fraud, including by providing themselves compensation, disproportionately paying distributions, and excluding him from partnership management.

Kraemer asserted two claims under the False Claims Act and an unjust-enrichment claim on behalf of the United States. Kraemer and Kraemer Farms, LLC also asserted a False Claims Act retaliation claim and contract-related claims. The pending motions concerned Counts Two and Three, which alleged breach of the United partnership agreement and sought a declaration concerning that alleged breach; Silverstreak Dairies’ request for summary judgment on all claims against it; and Plaintiffs’ request to pause a separate American Arbitration Association proceeding concerning Kraemer’s expulsion from partnerships. The court had previously dismissed Count Four with prejudice after the parties stipulated to its dismissal, so that count was not at issue in this order.

Arbitration ruling

The United partnership agreement required arbitration of “[a]ny claim, dispute or other matter in question arising in connection with the Partnership, this Agreement or any breach thereof.” The court found that the agreement was covered by the Federal Arbitration Act, that its arbitration clause was valid and enforceable, and that Counts Two and Three fell within the clause’s broad scope.

Plaintiffs argued that the agreement’s joinder provision prevented arbitration because other entities and Kraemer Farms, LLC were necessary parties that had not signed the agreement. The joinder provision stated that arbitration would be waived if parties substantially involved in a common question of fact or law, whose presence was required for complete relief, could not be joined. The court concluded that Plaintiffs had not shown that the provision applied. Defendants had represented that the existing partners would consent to arbitration, and the court found it unclear why Kraemer Farms, LLC was required because Counts Two and Three sought damages specific to Kraemer.

The court therefore granted Defendants’ motions to dismiss with respect to Counts Two and Three. Those counts were dismissed without prejudice because they were subject to mandatory arbitration. The court denied Defendants’ motions in all other respects.

Silverstreak’s summary-judgment motion

Silverstreak argued that the evidence showed it had not certified BMR corn as grain during the relevant years and therefore was entitled to judgment as a matter of law. Plaintiffs disputed that conclusion and argued that the evidence and incomplete discovery did not resolve whether Silverstreak had obtained crop-insurance payments through false representations.

The court concluded that summary judgment would be premature. The submitted declarations did not establish that material issues concerning Silverstreak’s potential liability were undisputed. The court identified 18 acres certified as grain on a 2015 form, contrary to one declaration’s statement that no corn was reported as grain that year. It also found that Ann Hennen’s credibility was important to Silverstreak’s position and that the record was incomplete concerning possible false certifications involving types of corn other than BMR corn.

The court dismissed Silverstreak’s summary-judgment motion without prejudice. This was a disposition of the motion, not a final determination of the claims against Silverstreak.

Request to pause the arbitration

The court denied Plaintiffs’ motion to stay, or pause, the pending arbitration. It concluded that it lacked independent authority to order a stay because the arbitration did not arise in this court. The court added that, even if it had such authority, it would decline to stay the arbitration. In its view, the Federal Arbitration Act required enforcement of the parties’ arbitration agreement even if arbitration and the federal case proceeded in parallel. The court also noted that the arbitrator had already determined that the arbitration should proceed.

Disposition

Defendants’ motions to dismiss were granted in part and denied in part. They were granted as to Counts Two and Three, which were dismissed without prejudice and sent to mandatory arbitration, and denied in all other respects. Silverstreak’s motion for summary judgment was denied without prejudice. Plaintiffs’ motion to stay arbitration was denied.