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

Background

Kenneth Kraemer and Kraemer Farms, LLC brought a qui tam action under the False Claims Act on behalf of the United States. The complaint alleged that several dairy partnerships, companies, and individuals falsely certified or reported corn as grain corn when they intended to harvest at least some of it as silage, allowing them to obtain crop-insurance payments they otherwise would not have received. The complaint also asserted a False Claims Act retaliation claim and an unjust-enrichment claim.

The dispute concerned federal crop insurance administered through the Federal Crop Insurance Corporation and the Risk Management Agency, with policies sold and administered by private insurance companies. The policies and related materials distinguished between grain and silage coverage. The court focused in part on brown midrib, or BMR, corn, which can be harvested as silage and can also produce grain. The parties disputed whether BMR was adapted for silage use only and whether it could properly be insured as grain.

Only the retaliation claim remained among the original claims brought by Kraemer and Kraemer Farms after the court dismissed one contract claim with prejudice and dismissed two other contract-related claims without prejudice because they were subject to mandatory arbitration. The matter before the court involved the plaintiffs’ motion for partial summary judgment and the defendants’ motion for summary judgment.

False Claims Act and Summary Judgment

The False Claims Act generally requires proof that a defendant presented a materially false claim for payment to the Government, that the claim was false or fraudulent, and that the defendant knew it was false or fraudulent. The statute defines “knowing” to include actual knowledge, deliberate ignorance, or reckless disregard of the truth or falsity; it does not require specific intent to defraud.

The court held that the relevant policy language and reporting forms linked insurance coverage to the grower’s intended method of harvest. It therefore concluded that when defendants insured all their corn as grain while intending to harvest at least some of it as silage, they submitted false claims. But the court could not decide as a matter of law whether the defendants knowingly submitted those claims.

The record included evidence that some defendants relied on Farm Service Agency personnel and authorized private insurance agents when completing forms and obtaining coverage. The record also showed disputes about industry custom and practice, the meaning of the reporting forms, the lack of official guidance defining corn adapted for silage use only, and whether BMR could properly be insured as grain. The court found that a jury could determine whether the defendants’ interpretation and reliance were objectively reasonable. Because genuine disputes of material fact remained, the court denied the plaintiffs’ motion for partial summary judgment.

Defendants’ Motion

The court denied the defendants’ request for summary judgment concerning Westland, Union, Alpha, Dairyridge, Marthaler Farms, Marthaler, and Thomas Landwehr because the court could not decide as a matter of law whether they knowingly violated the False Claims Act. It also denied the request concerning United Dairies, Nicholas Ridgeway, Craig Achen, Robert Hennen, Steven Landwehr, and Mathew Landwehr. The court explained that United Dairies and its partners could potentially be liable if they knowingly conspired to present, or cause to be presented, false or fraudulent claims for payment.

The court rejected Dairyridge’s argument that the complaint failed to plead fraud with the required particularity. Although one paragraph was insufficient when viewed alone, the complaint as a whole identified the alleged wrongdoing sufficiently for Dairyridge to respond.

The court granted the defendants’ motion for summary judgment to the extent that all causes of action against Silverstreak Dairies, LLC were dismissed with prejudice. The evidence showed that Silverstreak did not certify BMR or similar nonconventional varieties as grain corn during the relevant years, and the plaintiffs did not identify specific facts creating a genuine issue for trial as to Silverstreak’s liability.

Unjust Enrichment, Retaliation, and Fees

The court denied the defendants’ motion concerning unjust enrichment. Because it could not determine whether the defendants violated the False Claims Act, it also could not determine as a matter of law whether they were entitled to the crop-insurance benefits they received.

The court declined to dismiss the False Claims Act retaliation claim. It held that arbitration of the contract claims did not bar the separate retaliation claim. It also rejected the argument that retaliation protection was limited to employees, explaining that the statute covers an employee, contractor, or agent and that Kraemer, as a partner in United, could potentially qualify as an agent if the defendants were liable under the Act.

The court found the defendants’ request for attorney fees and expenses premature. Under the False Claims Act, such an award could be considered if the defendants prevailed and the plaintiffs’ claims were clearly frivolous, clearly vexatious, or brought primarily for harassment. The court found that the defendants had not prevailed because liability under the Act could not yet be decided as a matter of law.

Disposition

Judge Donovan W. Frank denied the plaintiffs’ motion for partial summary judgment. He granted the defendants’ motion for summary judgment to the extent that all causes of action against Silverstreak Dairies, LLC were dismissed with prejudice, and denied the defendants’ motion in all other respects.