USA v. Hawley

• Decision Date: 29 October 2010
• Docket Number: No. 08-2992.,08-2992.
• Citation: 619 F.3d 886
• Parties: UNITED STATES of America, Appellant, v. Russell T. HAWLEY; Hawley Insurance, Inc., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

619 F.3d 886

UNITED STATES of America, Appellant,

v.Russell T. HAWLEY; Hawley Insurance, Inc., Appellees.

No. 08-2992.

United States Court of Appeals,Eighth Circuit.

Submitted: May 12, 2009.

Filed: Aug. 23, 2010.

Rehearing and Rehearing En Banc Denied Oct. 29, 2010.

COPYRIGHT MATERIAL OMITTED.

Thomas Mark Bondy, argued, Douglas N. Letter, on the brief, Washington, DC, for appellant.

Bruce Brian Green, argued, Phillip Willson, on the brief, Council Bluffs, IA, for appellee.

Before RILEY, Chief Judge, ¹ SMITH, and COLLOTON, Circuit Judges.

COLLOTON, Circuit Judge.

The United States brought a civil action against Russell T. Hawley, an insurance agent, and his insurance company, Hawley Insurance, Inc. (collectively, “Hawley”), alleging violations of the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1)-(3) (2006), amended by Fraud Enforcement and Recovery Act of 2009, Pub.L. No. 111-21, § 4(a)(1), 123 Stat. 1617, 1621-22 (2009), and fraud under Iowa common law. The theory of the government's suit was that Hawley defrauded the government by causing ineligible farmers to make claims against insurance policies that were issued by a private insurance company and reinsured by a government corporation. The district court granted summary judgment in favor of Hawley on all claims, and the government appeals. We reverse and remand for further proceedings.

I.

In 1938, Congress enacted the Federal Crop Insurance Act (the “Act”), 7 U.S.C. §§ 1501-1524, to “improv[e] the economic stability of agriculture” by establishing a federal crop insurance program. Id. § 1502(a). To implement the program, Congress created the Federal Crop Insurance Corporation (“FCIC”), a wholly owned government corporation within the United States Department of Agriculture. Id. § 1503; 7 C.F.R. § 400.701. In 1996, Congress created the Risk Management Agency (“RMA”), which administers the federal crop insurance program on behalf of the FCIC. We refer to the FCIC and the RMA jointly as the FCIC.

The FCIC contracts with approved private insurance companies to offer crop insurance policies to eligible farmers. 7 U.S.C. § 1502(b)(2). Under the program, farmers purchase policies from the designated private insurance companies, and insurance agents receive commissions for the policies they write for those companies. Those companies are in turn reinsured by the FCIC in accordance with the terms of a standard reinsurance agreement (“SRA”). Thus, when a farmer incurs a loss to an insured crop, the farmer files a claim with the private insurance company. The insurance company assesses the amount of the loss, pays the farmer's claim for damage, and then seeks reimbursement from the FCIC. The FCIC reimburses the company for all or part of the amount paid to the farmer, depending on the particular arrangement set forth in the SRA. The FCIC also subsidizes a portion of the premiums paid by the insured farmers.

The approved private insurance company in this case was North Central Crop Insurance, Inc. (“NCCI”). Russell Hawley worked as a private insurance agent for NCCI. Hawley had experience in the crop insurance industry, having previously worked as a crop insurance adjuster for NCCI and another crop insurance company before starting his own crop insurance agency, Hawley Insurance, Inc., in 1994. As NCCI's agent, Hawley sold Multi-Peril Crop Insurance (“MPCI”) policies to various individuals, receiving commissions from NCCI on those policies. MPCI policies are reinsured by the FCIC and offer coverage for crop losses. 7 C.F.R. §§ 400.701, 457.172. To obtain MPCI, the farmer must have a bona fide interest, or “insurable interest,” in the crop at the time coverage begins and must submit an application for insurance through an insurance agent. 7 C.F.R. §§ 400.651, 654(a). Once the insurance company accepts the application and issues an insurance policy to the farmer, the farmer must report and certify each year to the insurance company that he has an interest in the insured crop. Id. § 400.654(d). These reports are termed “acreage reports.” Id.

In February 2000, Hawley signed and submitted to NCCI a crop insurance application in the names of brothers Sydney and Stanley Windquist for crops in South Dakota. The Windquists, however, were ineligible to receive FCIC-reinsured coverage, because they had no insurable interest in the crops. The Windquists certified that they had an interest in the crops, and in June 2000, Hawley signed and submitted their acreage reports to NCCI. Subsequently, the Windquists filed claims with NCCI for losses to the insured crops, and NCCI paid the Windquists for those losses. The FCIC ultimately reimbursed NCCI for those payments and for premium subsidies on the Windquist policy, in the amount of $145,540. The government prosecuted the Windquists for federal crop insurance fraud, and the case was resolved when the Windquists admitted that they did not have an insurable interest in the crops and entered into pretrial diversion agreements.

A similar sequence of events occurred in 2001. In March of that year, Hawley signed and submitted to NCCI an application for crop insurance in the name of Ed Marshall for land in South Dakota. Hawley received Marshall's application from another individual, so Hawley never witnessed Marshall sign the application. Marshall eventually admitted to the government as part of a civil settlement agreement that he never signed the application, and that Hawley told him in April 2001 that he was insured on land in South Dakota. In June 2001, Hawley signed and submitted to NCCI acreage reports for the crop land in Marshall's name, and Marshall eventually submitted claims to NCCI for losses to the insured crops. NCCI paid Marshall for those losses, and FCIC reimbursed NCCI for those payments and for premium subsidies in the amount of $159,960.

The government learned of Hawley's actions, and in October 2006, brought a civil action against him in the district court. The complaint alleged that Hawley knowingly caused ineligible farmers to obtain MPCI coverage and to receive payments from NCCI, payments which the FCIC reimbursed. The government sought treble damages and civil penalties under three subsections of the FCA, 31 U.S.C. § 3729(a)(1)-(3) (2006), amended by Fraud Enforcement and Recovery Act of 2009, Pub.L. No. 111-21, § 4(a)(1), 123 Stat. 1617, 1621-22 (2009). Section 3729(a)(1) renders liable any person who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval.” Section 3729(a)(2) imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government.” And section 3729(a)(3) makes liable any person who “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid.” The government also asserted an Iowa common-law claim of fraud.

The parties filed cross-motions for summary judgment. In April 2008, the district court granted summary judgment in favor of Hawley on the government's § 3729(a)(1) claim, but denied the motions on the remaining claims and set them for trial. United States v. Hawley, 544 F.Supp.2d 787 (N.D.Iowa 2008). The court concluded that the plain language of § 3729(a)(1) requires proof that Hawley “presented or caused to be presented” a claim “to an officer or employee of the United States Government,” not merely to NCCI. Id. at 806. In the court's view, the government had alleged and proved only that Hawley presented, or caused to be presented, false claims to NCCI, and thus the government, as a matter of law, could not establish the element of presentment. Id. As to the § 3729(a)(2) and (a)(3) claims, the court concluded that neither provision required “presentment” to the United States government, and that genuine issues of material fact remained regarding the falsity of the insurance applications and acreage reports, Hawley's knowledge of such falsity, and Hawley's participation in a conspiracy to get false claims paid by the government. Id. at 809-11. These and other similar fact questions, the court held, also precluded summary judgment on the common-law fraud claim. Id. at 813-15.

In June 2008, five days before trial was scheduled to begin, the court sua sponte issued an order cancelling trial and granting summary judgment in favor of Hawley on the three remaining claims. United States v. Hawley, 566 F.Supp.2d 918 (N.D.Iowa 2008). The court concluded that in light of the Supreme Court's decision in Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 128 S.Ct. 2123, 170 L.Ed.2d 1030 (2008), issued earlier that month, the government's remaining FCA claims failed as a matter of law. Turning first to the § 3729(a)(2) claim, the court noted that under Allison Engine, the government was required to prove that Hawley intended the government to rely on the false documents as a condition of reimbursing NCCI. Id. at 2130. The court found that because the government had failed to make that showing, and because there was no evidence that the false documents were ever forwarded to or approved by the government, Hawley could not be liable under § 3729(a)(2). 566 F.Supp.2d at 926-27. The court next addressed the government's § 3729(a)(3) claim, noting that it was premised on an agreement or conspiracy to engage in the same conduct that the government alleged violated § 3729(a)(2). Borrowing its analysis under § 3729(a)(2), the court concluded that the government's evidence showed at most that Hawley and his alleged coconspirators agreed to defraud NCCI, not the government. Id. at 927-28. Finally, repudiating its earlier April 2008 order, the court determined that the common-law fraud claim also failed, on the ground that there was no evidence that Hawley had reason to expect that the misrepresentations would reach the...