Category: Ag Law

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/

In September of 2022, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, more commonly known as “FinCEN,” issued the Beneficial Ownership Information Reporting Rule^[i] (“Reporting Rule”) under the bipartisan Corporate Transparency Act^[ii], requiring disclosure of the identity of beneficial owners of small business entities. This new rule is intended to prevent the operation of shell companies by criminal actors such as terrorism financiers, drug traffickers, human traffickers, money launderers, and the like. The Treasury Department estimates that criminal actors generate $300 billion in illicit proceeds through shell companies every year. 

It is important to note that agricultural business entities are not exempt from this Reporting Rule which requires disclosure beginning on January 1, 2024. If your farm, ranch, or agricultural operation is set up as a legal business entity (such as an LLC, LLP, business trust, corporation, etc.) created through your state corporation commission, secretary of state, or other similar office, your operation is likely subject to the new Reporting Rule. There are 23 specific entity types exempt from the Reporting Rule, largely composed of publicly traded entities, financial institutions, insurance companies, tax-exempt entities, and large operating companies, but there are no specific exemptions for agricultural entities. 

There are several online tools available to help you determine if your operation is a reporting entity as defined by the rule. If you determine that your operation is subject to the Reporting Rule, you must identify and report the beneficial owners of your farming and ranching business. A beneficial owner is any individual who exercises substantial control over the entity or who owns or controls 25% or more ownership interest in the entity. Those exercising substantial control include those who are senior officers, those with authority to appoint or terminate senior officers, important decision-makers, and those who otherwise uniquely exercise substantial control over the entity through contracts, relationships, or other agreements or arrangements. The rule provides limited exceptions for minor children, agents, employees, inheritors and creditors. Entities must report the beneficial owners’ name(s), date(s) of birth, address(es), and government-issued identification(s) such as a U.S. passport or driver’s license.

Entities required to report created on or after January 1, 2024 have 30 days from the entity’s creation to complete the online reporting requirements. Entities created prior to January 1, 2024 will have until January 1, 2025 to complete their reporting. Once an entity is required to report, any changes in beneficial ownership must also be reported within 30 days of any such change. For instance, if a new member or partner joins the entity and/or otherwise becomes a beneficial owner as defined by the rule, that must also be reported within 30 days of the effective change.

How does this practically affect farmers and ranchers? The Reporting Rule does not affect an entity’s operations, rather, its purpose is to identify those with a vested interest in the entity. The most important thing to remember is to timely comply with the filing requirements and then continue with your normal operations. The rule aims to hinder financial criminals from benefiting from their ill-gotten gains and was not implemented as a means to exercise control or oversight over your legally-run business entity.

To learn more about whether your agricultural operation is subject to the Reporting Rule and who and how you must report, visit www.fincen.gov/boi-faqs and FinCEN’s Small Entity Compliance Guide.^[iii]

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^[i] 31 CFR 1010.380

^[ii] 31 USC 5336 §6403

^[iii] (Tidgren, AALA Annual Agricultural Law Educational Symposium, 2023)

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Friedel, Jennifer. “The New Small Business Reporting Rule and Your Farm.” Southern Ag Today 3(51.5). December 22, 2023. Permalink

As a lawyer at the National Agricultural Law Center, I don’t represent clients.  While I- and my colleagues- give presentations about legal issues across the country, we’re prohibited from giving legal advice specific to one person’s situation.  But there are many cases where that’s exactly what people ask for- an attorney who can represent their legal interests for the issues they’re facing.  When I get that question, here are some suggestions I give:

• The legal issue you’re facing is going to influence the lawyer you’re looking for.  For many things, such as real estate, contract work, zoning changes, or basic business planning, a local attorney who may not always work with farmers may still be the best person for the job.  They’ll be convenient and knowledgeable about the administrative and court systems in your area.  However, for some issues, like crop insurance claim denials, NRCS determinations or ag bankruptcy, it might be better to work with an attorney who is more familiar with the tiny details and pitfalls that make up that area of practice. 
• In order to practice law, attorneys have to be a member of either their state bar or bar association.  Many of these have a function on their website allowing people to search for members.  Some search only by geography, so you can find lawyers close to you.  Others also allow searching by practice areas, which will help narrow your search to firms that work with real estate or contracts law, for example.  Further, some state bars have a referral service that can connect you with an attorney who practices in your area of need, while also requiring the attorney to charge a lower-cost initial consultation fee. The NALC has created a resource with links to these websites for each state. 
• You can also search for professional organizations in the relevant area of law.  Many state bar associations have “sections,” joined by attorneys with similar practice interests. The NALC resource can also help you identify active sections.  Additionally, there are nationwide organizations that have similar goals, some with a searchable membership directory.  For example, I’m a member of the American Agricultural Law Association, which focuses on areas of law that intersect with agriculture, and a membership list is available here.  
• If finances are a significant concern, there are a few options available.  It’s important to note, however, that these organizations are frequently overwhelmed with requests and sometimes limit their acceptance to certain legal issues, financial status or other criteria.  With that being said, many areas have Legal Aid offices that provide legal services to low-income families.  Search for your county or city name and “Legal Aid” to find one near you.  Additionally, some law schools have clinics where students work with licensed attorneys to help a limited number of individuals in certain situations, such as bankruptcy, immigration, or business formation and development.  Search for the name of the law school nearest you plus the word “clinics” to find out if that might be an option.  Finally, the American Bar Association has a service called Free Legal Answers where pro bono attorneys provide legal advice in certain subject areas.   

Finally, don’t discount the benefits of asking your friends and neighbors if they have an attorney they work with.  If that doesn’t work, every town in the country (at least that I’ve been to!) has a small restaurant where farmers meet in the mornings, visit and exchange local “news.” Stop by, have a cup of coffee and talk with them for a bit about who they recommend.  Be sure to try the pie!

As hemp growers finish harvesting the 2023 crop, they should plan for 2024. In 2024, the USDA will fully enforce the Domestic Hemp Production Program rules, requiring all hemp to be tested by DEA-registered facilities beginning January 1, 2024. Initially set for 2023, this rule was postponed due to a lack of testing capacity. The USDA’s Agricultural Marketing Service (AMS) has compiled a directory of DEA-registered testing facilities for controlled substances, including hemp testing. This directory aids growers in locating nearby DEA-registered facilities for compliance.  Labs fluctuate, but in general, the number of testing facilities has increased since the 2018 Farm Bill/inception of hemp production in America.

Federal regulations outline hemp testing requirements within state and tribal production plans. These rules necessitate samples taken by sampling agents within 30 days of expected harvest to test total delta-9 THC concentration, which should be below 0.3% on a dry weight basis. A 95% confidence level ensures that no more than 1% of plants exceed the permissible THC levels (greater than 0.3% delta-9 THC on a dry weight basis).

Thinking about this for the future, how does the current testing infrastructure track with reported planted acres?  Looking at the 2022 Farm Service Agency’s (FSA) reported acreage, there is no statistical relationship between the number of hemp acres and the proximity of a county to a DEA-registered testing facility on the AMS directory. However, with the new requirement for all hemp to be tested in registered facilities, we will likely see a shift in future county hemp production to correlate more closely with testing facility proximity.

Without a correlation between hemp acres and testing facility location at the county level, we turned to evaluate the relationship between reportage acreage and access to DEA-registered testing facilities by state.  The map highlights reported hemp acres planted in 2022 by state and the number of hemp testing sites by state. Those states with considerable hemp acreage and less testing infrastructure are shown as light green in color (Montana, South Dakota, Missouri, Oklahoma, Kansas), and states with adequate testing infrastructure for the state’s sizeable hemp acreage as dark sea green (Texas, Colorado, Kentucky, and North Carolina). As the industry begins to mature, we expect planted hemp acres to be more correlated to the location of registered testing facilities.

The numerical values on each state on the map are the calculated ratio of 2022 reported hemp acres planted /divided by the number of testing facilities in the state. For example, in Texas there are 133 acres of hemp planted per testing facility. Note that the states without a ratio label represent states that do not have any testing facilities despite having hemp acres planted in 2022.

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This work is supported by the Agriculture and Food Research Initiative (AFRI) program, grant no. 2021-68006-33894/project accession no. 1025097, from the U.S. Department of Agriculture, National Institute of Food and Agriculture.  Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and should not be construed to represent any official USDA or U.S. Government determination or policy.

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Goeringer, Paul and Elizabeth Thilmany. “Do We Have Enough DEA-Registered Labs to Implement Hemp Program?” Southern Ag Today 3(45.5). November 10, 2023. Permalink

Last week, the United States Supreme Court denied a Petition for Certiorari filed by the State of North Carolina and the North Carolina Farm Bureau Federation seeking review of a decision striking down a portion of the state’s Property Protection Act, often called an “ag gag” law.

The law, passed in 2015, punishes “any person who intentionally gains access to the nonpublic areas of another’s premises and engages in an act that exceeds the person’s authority to enter.”  Activities that “exceed” authority include (1) capturing, removing, or photographing employer data, records, or documents in order to breach the person’s duty of loyalty to the employer, (2) capturing images or sound occurring on the premises in order to breach the duty of loyalty to the employer, (3) placing an unintended camera or electronic surveillance device on the employer’s property to record images or data, and (4) committing an act that substantially interferes with the ownership or possession of real property.

The lawsuit was initially filed by People for the Ethical Treatment of Animals, the Animal Legal Defense Fund, and other animal rights groups who claim the law violates their First Amendment rights.  Earlier this year, the United States Court of Appeals for the Fourth Circuit held that the Property Protection Act was unconstitutional as applied to “newsgathering activities.”  As there will be no Supreme Court review, that decision will stand. 

These “ag gag” laws have faced litigation around the country in an attempt to prohibit trespassing and falsifying information to gain access to agricultural facilities to conduct undercover surveillance.  To date, 11 states have passed some version of an “ag gag” statute.  The US Court of Appeals for the Eighth Circuit is considering whether to uphold a lower court decision striking down an Iowa law making it a crime to record video or audio on a “trespassed property.”  Portions or all of “ag gag” statutes have also been stricken as unconstitutional in Idaho, Kansas, Utah, and Wyoming.  The only statute to be challenged and fully upheld was Arkansas’ statute after a Motion to Dismiss was granted in the lawsuit challenging its constitutionality.

For a compilation of all “ag gag” statutes and legal challenges, click here.  To listen to a discussion of these statutes and legal challenges, click here.

United States Supreme Court Petition Information:  Stein v. PETA, 22-1150; North Carolina Farm Bureau Federation, Inc. v. PETA, 22-1148.

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Lashmet, Tiffany. “US Supreme Court Will Not Hear North Carolina “Ag Gag” Appeal.” Southern Ag Today 3(44.5). November 3, 2023. Permalink

Photo by Jaxon Matthew Willis (Highpoint, NC): https://www.pexels.com/photo/aerial-photography-of-green-trees-and-body-of-water-13591082/