United States v. Cooperative Grain and Supply Co.

• Decision Date: 15 March 1973
• Docket Number: No. 71-1651 to 71-1653,71-1666 to 71-1668.,71-1651 to 71-1653
• Citation: 476 F.2d 47
• Parties: UNITED STATES of America, Plaintiff-Appellant, Cross-Appellee, v. COOPERATIVE GRAIN AND SUPPLY CO. et al., Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

476 F.2d 47 (1973)

UNITED STATES of America, Plaintiff-Appellant, Cross-Appellee, v. COOPERATIVE GRAIN AND SUPPLY CO. et al., Defendants-Appellees, Cross-Appellants.

Nos. 71-1651 to 71-1653, 71-1666 to 71-1668.

United States Court of Appeals, Eighth Circuit.

Submitted November 13, 1972.

Decided March 15, 1973.

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Robert C. Guenzel, Lincoln, Neb., for Cooperative Grain & Supply Co.

Ronald R. Glancz, Atty., Appellate Section, U. S. Dept. of Justice, Washington, D. C., for the United States.

Before GIBSON and LAY, Circuit Judges, and DURFEE,^* United States Court of Claims Judge.

GIBSON, Circuit Judge.

This consolidated appeal is from a series of civil actions for damages and statutory penalties under the first and second grounds of the False Claims Act, 31 U.S.C. § 231,¹ and the Agricultural Act of 1949, 7 U.S.C. § 1425. The gravamen of the Government's complaint is that the defendants submitted false claims to the Government and obtained price support payments and other public funds that they should not have received.

The defendants are Cooperative Grain and Supply Company, a grain elevator located in Roseland, Nebraska; John Klein, Cooperative's manager, who was head of the elevator's daily operations from January 1960 until January 1966; Jerome E. Heuertz, Cooperative's bookkeeper from November 1961 until January 1966 and its manager from January 1966 through July 15, 1967; and 27 grain producers (farmers) in the vicinity of Roseland, Nebraska, who had obtained price support payments from the Government.² The District Court,³ in its unpublished opinion, generally found that the grain producers, due to the submission of false but not fraudulent claims, were liable for the price support payment plus certain warehouse charges and interest. The District Court did not hold the producers liable for double damages or the statutory $2,000 forfeiture under the False Claims Act, since the producers did not have what the District Court deemed to be the requisite specific intent to defraud the Government under the False Claims Act. Cooperative and John Klein, who were held to have the specific intent to defraud, were found liable for double damages with respect to each of the grain producers' individual transactions and a $2,000 forfeiture for each transaction. Jerome E. Heuertz, an employee of Cooperative, was exonerated of all liability. Cooperative, Klein,⁴ and the producers were held jointly and severally liable for the single damages. The District Court exonerated one producer, Arthur H. Schiffrens, on the doctrine of de minimis.

We affirm the District Court with respect to the exoneration of Heuertz and Schiffrens, and also affirm the liability of Cooperative and Klein with certain "damage" modifications to be discussed. We reverse with respect to the individual producers and hold them liable under the False Claims Act.

The District Court perceived the central legal issue of this case as whether a specific intent to defraud the Government is necessary under the False Claims Act. We think the central question is whether the defendants' conduct in submitting the false claims constituted the necessary knowledge under the Act in order to affix liability.

I. THE FACTUAL BACKGROUND

The Agricultural Act of 1949, 7 U.S.C. § 1421 et seq., directs the Secretary of Agriculture, through the Commodity Credit Cooperation (hereinafter CCC), to provide price support for certain agricultural commodities, for example corn and wheat. The purpose of the price support is to help producers of commodities achieve a certain parity of income with the cost of producing the commodities on which price support is made available. The parity price of any commodity is a dollar amount, computed under a statutory formula, which will give the commodity the same purchasing power in terms of goods and services bought by farmers that the commodity had in a specified base period.

If a producer chooses to place any of the commodities that he will grow under price support, he must first get a determination from certain local county committees and eventually the local CCC concerning the number of acres and amount of grain eligible for price support. Eligible grain usually is grain that will be grown or has been grown by the producer-farmer. However, if a person has a "beneficial interest" in a commodity, for example a beneficiary of a trust whose res is land that produces grain, that person is considered a producer and can receive price support.⁵

Price support payments are made through warehouse-stored loans, farmstored loans, and purchase agreements.⁶ A producer may decide to participate under any number, or none, of these programs, even after the CCC has determined that a certain amount of a producer's commodity is eligible for price support. Of the 27 defendant-producers, 20 obtained solely warehouse-stored loans, three chose only farm-stored loans, one used a purchase agreement alone, two had both warehouse-stored and farm-stored loans, and one received price support under all three programs.

To obtain price support under a warehouse-stored loan, the producer first delivered his produced ("farm-grown") grain to a grain elevator, which in this case was Cooperative. The elevator had to have entered previously into the Uniform Grain Storage Agreements with the CCC. Cooperative signed these agreements on July 1, 1960, and July 1, 1966. According to the agreements, Klein as Cooperative's manager and chief of daily operations, received the producer's grain, determined the grain's grade (for example, Grade No. 1 Corn, the highest grade) and quantity, and issued a negotiable warehouse receipt to the producer. This receipt listed how the grain was delivered, i.e. truck or rail. Cooperative stored the grain for the Government until the CCC ordered delivery.⁷ The Government paid for the storing, receiving, and load-out charges connected with warehousing and pledging the grain.

Each negotiable warehouse receipt was intended to represent grain of the producer's own production. The producer then took or mailed this negotiable warehouse receipt to the local CCC office in Adams County, Nebraska, pledged the receipt as security for a loan, signed a Producer's Note and Loan Agreement, and received a loan from the CCC. That agreement, in part, read:

"For the purpose of obtaining the loan evidenced by the producers note, the producer, with full knowledge of the provisions (printed on the reverse side hereof) of section 15(a) of the Commodity Credit Corporation Charter Act, by signing the note agrees to the terms and conditions contained in section 8, on the reverse side hereof, and further represents and warrants to and agrees with all holders of the note as follows:

"(a) That the pledged commodity was produced by or for him as landowner, landlord, tenant, or sharecropper on a farm located in the county and state specified above, that both he and the pledged commodity are eligible for a loan under the provisions of the Program Bulletin and that the loan shall be subject to all the provisions of such Program Bulletin."

The producer then could pay off the loan during a certain period of time and thus redeem the pledged grain, which he might do if the market price of the grain exceeded the loan price. Otherwise, the CCC would "take over" the grain. These transactions are handled through the use of negotiable warehouse receipts issued on the produced grain.

A producer could decide, in addition to the other program or exclusively, to participate in a farm-stored loan. With this program, the producer signed a similar Producer's Note and Supplemental Loan Agreement, with the similar clauses concerning production that were quoted above in relation to the warehouse-stored loan. The producer then would store the grain directly on his farm after a CCC representative had physically inspector the grain and recorded the quantity, quality, and grade of the grain. The representative would post a notice on the side of the producer's grain storage building, which notified all persons that the grain "under seal" was pledged as security to the CCC. The farmer received payments each year from the Government, known as "reseal payments," for the storage costs of the grain and could renew the storage agreement each year with the CCC. At the time that the grain was put under seal, the CCC made a loan to the producer taking a chattel mortgage on the stored grain. The loan, as with the warehouse-stored loan, represented payment for the commodity at the price support rate. Shortly before the grain was due to be delivered to the CCC, a Commodity Delivery Notice was sent to each producer, which required the producer to certify that "no commodity has been added to or substituted for the commodity as described in the chattel mortgage." If the farmer-producer chose to deliver his grain to the CCC instead of paying off the loan, he would remove the grain from under seal and truck it to Cooperative.

The defendant-producers received price support through purchase agreements. The producer, under this method, would deliver his grain to Cooperative, receive a negotiable warehouse receipt (the same receipt as with the warehouse-stored loan), take this receipt to the CCC, sign a Purchase Agreement Settlement containing representations that the delivered grain was produced by him, and receive payment from the CCC at the price support rate. Of course, the producer would utilize this method only if the price support payment for his commodity was higher than the present market value.

The gist of the Government's false claim action is that the individual producers delivered grain under these programs and received illegal price support and other payments. A short background history of Cooperative's business illustrates the method used in circumventing the Government's farm program of price support.

In 1961, Klein was the manager of...