Mages v. Johanns
| Decision Date | 27 December 2005 |
| Docket Number | No. 03-1400.,03-1400. |
| Citation | 431 F.3d 1132 |
| Parties | Jason MAGES, Appellant, v. Mike JOHANNS, Secretary, United States Department of Agriculture,<SMALL><SUP>*</SUP></SMALL> Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Marc A. Al, argued, Minneapolis, MN, for appellant.
Lonnie F. Bryan, argued, Assistant U.S. Attorney, Minneapolis, MN, for appellee.
Before BYE, JOHN R. GIBSON and BOWMAN, Circuit Judges.
Jason Mages challenges a decision of the United States Department of Agriculture (USDA) requiring him to repay more than $470,000 in farm program benefits on the grounds he was not a "separate person" entitled to receive benefits and he engaged in a "scheme or device" to evade farm program requirements. We reverse and remand.
Jason Mages (hereinafter Jason or Mages) is a young farmer. He grew up on his parents' farm near Paynesville, Minnesota. In 1990, at age 16, Mages started his own farming operation. When he turned 18, Mages already owned his own land and farm equipment, and he cash-rented other land.1 He obtained his own insurance and financing. He made his own planting decisions and performed his own labor. For all the years between 1992 and 1999, Mages certified on applications for farm program benefits that his farming operation was separate and distinct from any other operation and that he provided "100%" of the "active personal management" of his farm. Between 1992 and 1999, Jason received $472,750.03 in farm program benefits.
Like many farmers do, Mages occasionally swapped labor or equipment with his parents.2 He also entered a verbal agreement (the crop agreement) with RODI, a farm corporation established by his parents, Ron and Diane Mages. Under the crop agreement, Mages and RODI jointly purchased crop inputs such as fertilizer, herbicides, and seed to obtain large-quantity discounts. Records were kept of the purchases, with each paying a percentage of the purchase price commensurate with their share of the products. Both Mages and RODI thereby realized a reduction in input costs they could not have obtained making those purchases separately.
The crop agreement also pertained to the sale of the crops. Mages joined his crops with those of RODI, which in turn entered into marketing contracts with other entities. When the crops were combined in this manner, the larger volume contracts allowed both Mages and RODI to realize a higher per-bushel price for their commodities than if sold separately. The contracts were in RODI's name because Mages's father had long-term relationships with the buyers, and Mages sought to take advantage of such relationships. Because the contracts were in RODI's name, scale tickets issued by grain elevators were also in RODI's name even when the crops reflected on the tickets were Mages's crops. Similar to the joint purchases of crop inputs, Mages and RODI kept records of the crop sales and periodically settled their respective income amounts under the crop agreement — sometimes through cash payments to each other and at other times through the use of offsets of amounts owed from RODI to Mages or vice versa.
In 1993, a potential wetlands violation was identified by the USDA on farmland managed by RODI. Farming operations that commit wetlands violations are ineligible for some or all farm program benefits. 7 C.F.R. § 12.4. In addition, persons "affiliated" with wetlands violators may be ineligible for some or all farm program benefits. 7 C.F.R. § 12.8. After RODI's potential wetlands violation was identified, the USDA reviewed the status of Jason Mages's farming operation to determine whether Mages was a "separate person" under 7 C.F.R. § 1400.3 for purposes of receiving farm program benefits. At that time, the USDA determined Mages was a separate person.
Ron and Diane Mages were indicted by a federal grand jury in October 1999 with a host of offenses arising, in part, from their ownership interest in RODI and another corporation identified as GMI, Inc. The indictments included allegations the Mageses defrauded creditors in their bankruptcy proceeding by concealing their interests in RODI and GMI and defrauded the USDA by receiving farm program payments despite wetlands violations committed by one or both corporations. The indictment also charged Jason Mages with two counts of engaging in a monetary transaction in criminally derived property in violation of 18 U.S.C. § 1957 on the grounds he had obtained significant funds from RODI. Ron and Diane were convicted by a jury who found they (but not Jason) were an alter ego for RODI and GMI. Jason contended he was innocent because the RODI payments he received were for his own crops marketed with RODI's crops under the crop agreement. He presented detailed evidence during the trial tracing all transactions between himself and RODI and establishing the legitimacy of the transactions. The jury acquitted Jason of all charges.
In November 1999, the Meeker County Farm Service Agency (FSA) initiated an investigation into the relationship between the farming operations of Ron and Diane Mages, RODI, Clem Jebb (a friend of Ron and Diane named by them as the president of RODI in corporate documents), Jason Mages, and his sister, Sara Mages. The Meeker County FSA Committee determined Jason Mages was not separate and distinct from RODI. After the Stearns County and Kandiyohi County FSA Committees made similar determinations, Jason Mages appealed the decisions to the Minnesota State Committee.
On October 26, 2000, the State Committee issued its decision. The State Committee made the following findings of fact:
1. Jason submitted 502 farm operating plans to FSA showing he had 100% interest in his farming operation and that he [had] no interest in any other farming operation.
2. The fact that Jason stated in the State Committee hearing that RODI had no written agreement with Jason to market his grain and in fact received no monetary compensation for marketing his grain.
3. A statement from Wayne Fridgon (sic) Crop Insurance adjuster in which Wayne say's (sic) Jason told him RODI was his farm name.
4. A statement from Victor Bruer, Crop Insurance loss adjuster in which Victor say's (sic) RODI scale tickets were presented to him as tickets from all three Mage's (sic) farming operations.
5. The fact that Jason had used RODI scale tickets to claim and receive crop insurance indemnities on his farm.
6. Testimony showing that RODI actually contracted Jason's beans. An action which made RODI liable for delivery of beans producer (sic) on Jason's farm.
7. The fact that RODI shared in the proceeds from Jason's farming operation as evidenced by checks issued to RODI from the sale of crops grown on Jason's farm.
8. The fact that court records show that from 1993 to 1999, 60-62% of the monies paid out by RODI, went to Jason Mages.
9. The fact that Jason amended a grain contract for RODI and signed the contract RODI Inc. by Jason Mages.
10. The fact that RODI claimed proceeds from the sale of his beans as taxable income for RODI.
11. RODI paid Jason's debts as evidenced by testimony from Larry Serbus, manager Klein Burger Co., Bird Island MN.
12. The fact that Clem Jeb (sic), who had been granted immunity from prosecution if he told the truth, stated that he had never talked to Jason about RODI, while Jason said he talked directly to Clem about issues dealing with RODI.
Based on these fact findings, the State Committee concluded:
Jason Mages did not meet the criteria to be considered a person separate and distinct from any other producer. Jason's farming operation does not meet the commensurate share rule. Jason is ineligible from FSA program payments from 1992 through 2000. In addition the State Committee determined that Jason had many opportunities to disclose the information concerning his relationship to RODI. His failure to do so prevented the County Committee's (sic) from making proper eligibility determinations. As a result the State Committee determined that Jason had participated in a scheme to earn payments he was not entitled to from 1992 through 2000.3
Jason appealed the State Committee's decision to the USDA's National Appeal Division (NAD). On January 23, 2001, after an informal hearing, the NAD Hearing Officer made the following findings of fact:
1. The Appellant has participated in USDA programs since 1992 as a separate person, eligible for maximum benefits under program payment limitations. From 1992 through 1999 he collected $472,750.03 in program benefits subject to payment limitations.
2. From 1992 through 1999, the Appellant identified and certified himself as a separate person for USDA program purposes. He identified farms that he owned and rented. His farm plan and annual updates show that he contributed 100% of the labor and management including marketing. He indicated that he had read and understood regulations regarding the designation of a separate person.
3. RODI, Inc. is a separate farming entity that was managed by the Appellant's father. The Appellant's mother was the bookkeeper. In 1993 a potential wetland violation was identified on RODI managed land. This led to a review of the Appellant's status as a separate person because of USDA benefits. This review ended with a determination that Appellant was a separate person.
4. A USDA Office of Inspector General (OIG) review of RODI found that between 1993 and 1999 nearly 62% of RODI proceeds totaling $1,066,869.16 went to the Appellant. These proceeds were mainly from the marketing of his crops through RODI contracts.
5. In 1995 and 1997, the Appellant documented crop losses for insurance purposes using RODI scale tickets. He was subsequently paid crop insurance indemnities based on them.
6. In 1996, the Appellant paid a personal debt to the Klein-Berger Company using RODI navy beans.
7. From 1996-1999 RODI had wetland violations on land...
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