Author: Chad Marzen

The False Claims Act, enacted in 1863, is intended to safeguard honesty and fair dealing with federal governmental programs.^[1] Given that private crop insurers sell and service multi-peril crop insurance policies that are reinsured by the federal government,^[2] the federal crop insurance program comes within the scope and ambit of the False Claims Act as well.  Under the False Claims Act, liability can be imposed upon any person “who knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”^[3] The False Claims Act statute provides a provision for relators to file qui tam lawsuits on behalf of the United States government to recover damages in cases in which materially false or fraudulent claims were paid by the United States government.^[4]

The case of United States ex. rel. Kraemer v. United Dairies, L.L.P. presented a qui tam relator filing a False Claims Act claim against a dairy farm, its partners and agents after payment of a federal crop insurance claim.^[5] The claim involved the “coarse grain” insurance provisions.^[6] While corn may be planted for use as either grain or silage, the insurance coverage for grain differs for both.^[7] The Risk Management Agency’s Crop Insurance Handbook requires insured to “report insurable acreage by unit and by type (grain or silage) according to the intended method of harvest; however, a variety of corn adapted for use as silage only is not insurable as grain and must be insured as silage.”^[8] The dairy farm in the case insured all of the brown mid rib corn^[9] it planted as grain, although it harvested a substantial percentage of the grain as silage.^[10] The decision to insure the brown mid rib corn as grain was completed on the advice of the dairy farm’s insurance agents.^[11]

The United States District Court for the District of Minnesota held that although the dairy farm submitted materially false claims, the relator failed to prove the “knowledge” element required for False Claims Act claims.^[12]

On appeal. the United States Court of Appeals for the Eighth Circuit focused heavily on the relator’s argument that the dairy farm fraudulent submitted false Acreage Reporting Forms with their crop insurance applications in order to obtain crop insurance proceeds.^[13] The definition of a “claim” under the False Claims Act is “any request or demand … for money or property.”^[14] The Eighth Circuit Court of Appeals in Kraemer observed that an insurance application is not the same thing as a claim under the False Claims Act.^[15] In addition, the Eighth Circuit Court of Appeals noted that although the dairy farm insured the corn crop as grain when some or all of the crop is intended to be harvested as silage, this purported misrepresentation was not “material” for purposes of the False Claims Act since no insurance claim form was presented into evidence for the trial court.^[16] As the court noted, “If an insurance claim was filed, the appraisal became part of a thorough audit by the AIP. Each Defendant passed every audit and the claim was paid.”^[17]

The Kraemer case is thus an excellent illustration of the interaction between the federal crop insurance program and the False Claims Act, especially the limitations of the False Claims Act in crop insurance cases.

Nothing in this article is intended to create an attorney-client relationship and does not constitute legal advice.

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^[1] See The False Claims Act, U.S. Department of Justice (Apr. 4, 2023), available at: https://www.justice.gov/civil/false-claims-act

^[2] See About the Risk Management Agency, United States Department of Agriculture Risk Management Agency (2023), available at: https://www.rma.usda.gov/About-RMA/

^[3] See 31 U.S.C. § 3729(a)(1)(A) (2023).

^[4] See 31 U.S.C. § 3730(b) (2023).

^[5] See United States ex. rel. Kraemer v. United Dairies, L.L.P., 82 F.4th 595 (8th Cir. 2023)

^[6] See United States ex. rel. Kraemer v. United Dairies, L.L.P., 82 F.4th at 599; see also 7 C.F.R. § 457.113 (2023).

^[7] See United States ex. rel. Kraemer v. United Dairies, L.L.P., 82 F.4th at 599.

^[8] Id.

^[9] Id. Brown mid rib corn (“BMR”) is “a seed variety developed and marketed as highly digestible when chopped as silage, which significantly increases the milk output of dairy cows. However, BMR also produces quality grain yields, so BMR can be combined for grain if it is not chopped for silage.”

^[10] Id.

^[11] Id.

^[12] See United States ex. rel. Kraemer v. United Dairies, L.L.P., Civ. No. 16-3092, 2022 WL 959771 at *2 (D. Minn. Mar. 30, 2022).

^[13] See United States ex. rel. Kraemer v. United Dairies, L.L.P., 82 F.4th at 602.

^[14] See 31 U.S.C. § 3729(b)(2)(A) (2023).

^[15] Id. at 603.

^[16] Id. at 604.

^[17] Id.

Marzan, Chad, and Paul Georinger. “Federal Crop Insurance and the False Claims Act.” Southern Ag Today 3(52.5). December 29, 2023. Permalink

Photo by Sora Shimazaki: https://www.pexels.com/photo/close-up-photo-of-wooden-gavel-5668473/

What happens when a property owner removes a fence along its property line and allegedly damages the trees of the other property owner as well as their crops? The Minnesota Court of Appeals case of Moon v. Schultz illustrates how a court can properly examine the issue of damages in such cases.^[i]

In Moon v. Schultz, a property owner in Chippewa County, Minnesota replaced a fence along a neighbor’s property line.^[ii] However, during the replacement of the fence, the property owner entered upon the other party’s property and cut down several elm trees.^[iii] In addition, trees fell onto the neighbor’s adjacent soybean field, allegedly damaging the growing crops.^[iv]

During a bench trial, the trial court ruled in favor of the neighbor who lost several elm trees and allegedly suffered crop damage.^[v] The neighbor testified during the trial that he felt that the trees had special value but did not testify as to any loss of property value as a result of the loss of the trees.^[vi] In addition, an owner of a nursery and landscaping business testified on behalf of the neighbor that the loss of 19 elm trees could be replaced for a cost between $9,500 and $12,500.^[vii] The property owner moved to disqualify the expert, but the trial court denied the motion.^[viii]

On the crop loss claim, the neighbor testified that two acres of soybean crops were damaged and utilizing yields and price information from his crop insurance, calculated damages in the amount of $1,182.04.^[ix]

The trial court ruled in favor of the neighbor and awarded $9,500 for the fallen elm trees, $1,182.04 for the soybean crop loss, and found treble damages^[x] applicable under Minnesota law (for a total amount of $32,046.12).^[xi]The property owner appealed.^[xii]

The Minnesota Court of Appeals reversed the trial court, finding the district court should not have awarded any damages in the case.^[xiii] On the tree loss claim, the Court noted^[xiv] that prior caselaw in Minnesota holds that the measure of damages for loss of trees is generally the difference in the value of land before and after the trees are removed.^[xv] There is an exception to this rule for cases in which the trees have substantial value for shade or other ornamental purposes, have aesthetic value, or are used as a sound barrier or traffic screen.^[xvi] The Minnesota Court of Appeals held that no evidence was presented by the neighbor that the trees had substantial value for shade or ornamental purposes, had aesthetic value, or were utilized as a sound barrier or traffic screen.^[xvii] The Court also noted testimony in the case that the elm trees were “bushy,” “weed-like” trees, and if anything, may possibly have a “negative” value.^[xviii] Thus, the proper measure of damages is loss of property value, and since the neighbor did not allege any loss in property value, the neighbor did not incur any recoverable damages for the loss of the elm trees.^[xix]

The Minnesota Court of Appeals also held the trial court’s awarding of crop damages and treble damages to be in error.^[xx] The Court mentioned that the proper “measure of damages for destruction or injury to growing crops is the value of the crops as they were standing at the time and place of their destruction.”^[xxi] In rejecting the neighbor’s crop damage claim, the Court of Appeals found that the trial court did not engage in any legal analysis to arrive at its calculation of damages.^[xxii]

Overall, Moon v. Schultz exemplifies the importance of a plaintiff in establishing proper damages in a fallen tree case.

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^[i] See Moon v. Schultz, No. A22-0903, 2023 WL 193682 (Minn. Ct. App. Jan. 17, 2023).

^[ii] Id. at *1.

^[iii] Id.

^[iv] Id.

^[v] Id.

^[vi] Id.

^[vii] Id.

^[viii] Id.

^[ix] Id.

^[x] “Treble damages” are damages awarded by a court when that court awards triple damages. The statute that was applied by the trial court was the following: “Whoever shall carry away, use or destroy wood, timber, lumber, hay, grass, or other personal property of another person without lawful authority, shall be liable to the owner thereof for treble the amount of damages assessed therefor in an action to recover such damages. If upon trial, the defendant proves having probable cause to believe that such property was the defendant’s own, or was owned by the person for whom the defendant acted, judgment shall be given for the actual damages only, and for costs.” See Minn. Stat. Ann. § 548.05 (2023).

^[xi]  See Moon v. Schultz, 2003 WL 193682 at *2.

^[xii] Id.

^[xiii] Id. at *4.

^[xiv] Id. at *2.

^[xv] See Baillon v. Carl Bolander & Sons Co., 235 N.W.2d 613, 614 (Minn. 1975). 

^[xvi] See Moon v. Schultz, 2003 WL 193682 at *2.

^[xvii] Id. 

^[xviii] Id. at *3.

^[xix] Id. 

^[xx] Id. at *3-4.

^[xxi] Id. at *3.

^[xxii] Id.

Photo by Mike Bird: https://www.pexels.com/photo/uprooted-tree-cut-in-pieces-5351109/

When one thinks of crops, insurance, and risk, one may think of traditional crop insurance. The case of Three Rivers Hydroponics, LLC v. Florists’ Mutual Insurance Company,^[1] decided by the United States District Court of the Western District of Pennsylvania in 2021, illustrates a “business package” insurance policy application to a fast-growing area of agriculture: hydroponic agriculture.^[2]

            In the Three Rivers Hydroponics case, the insured was engaged in the business of growing organic basil through a hydroponic ozone system.^[3] The ozone system treated and disinfected water utilized for crop production.^[4] On June 30, 2014, the ozone system caught fire, and the crop soon failed thereafter.^[5] Eventually, the insured lost its business.^[6]

            The insured’s business package insurance policy in the case included an Equipment Breakdown Boiler and Machinery Coverage endorsement, in which the insurer agreed to pay for a loss caused by an “Accident” to “covered equipment.”^[7] An “Accident” was defined in the policy as a “mechanical breakdown.”^[8] Thus, the insured could only recover under the policy if the ozone system had a mechanical breakdown.

            The insured contended that the ozone system failed due to an issue with the ORP controller.^[9] Two engineering experts of the Defendant concluded that only the ozone generator sustained damage in the fire and that complete replacement of the system was unnecessary.^[10] The insurer issued a payment for replacement of the ozone generator but denied the claim for mechanical breakdown.^[11]

            The insured filed a breach of contract claim as well as bad faith claim against the insurer.^[12] In examining these claims, the Court noted that whether mechanical breakdown of the ozone system occurred is a “highly technical” matter.^[13] However, the insured did not produce any expert testimony of an engineer who opined on whether a mechanical breakdown of the system occurred.^[14] Thus, the Court found that the insured did not meet its burden to produce admissible evidence to establish a prima facie case that coverage existed and granted summary judgment to the insurer on the insured’s breach of contract claim.^[15] In addition, the Court also granted summary judgment to the insurer on the insured’s bad faith claim as the Court found that the insurer “conducted a substantial, thorough, and timely investigation” as a matter of law.^[16]

            The Three Rivers Hydroponics case exemplifies a sometimes overlooked area in agricultural law – the significance of expert testimony in cases involving more technical matters.

Nothing in this article is intended to create an attorney-client relationship and does not constitute legal advice.

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^[1] See Three Rivers Hydroponics, LLC v. Florists’ Mutual Insurance Company, No. 2:15-cv-00809, 2021 WL 6133304 (W.D. Pa. Dec. 29, 2021).

^[2] See Hydroponics, United States Department of Agriculture National Agriculture Library (2022), available at: https://www.nal.usda.gov/farms-and-agricultural-production-systems/hydroponics

^[3] See Three Rivers Hydroponics, LLC V. Florists’ Mutual Insurance Company, 2021 WL 6133304 at *1.

^[4] Id.

^[5] Id.

^[6] Id.

^[7] Id. at *2.

^[8] Id. at *2.

^[9] Id. at *3.

^[10] Id. at *3-7.

^[11] Id. at *7.

^[12] Id. at *1.

^[13] Id. at *10.

^[14] Id. at *10.

^[15] Id. at *15.

^[16] Id. at *16.

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Marzen, Chad. “Hydroponic Agriculture and Insurance Coverage.” Southern Ag Today 3(1.5). January 6, 2023. Permalink