Criminal Liabilities Annotations (Agricultural Law and Tax)

Posted November 13, 2017

No Need To Inform Farm About Criminal Investigation Concerning Crop Insurance Fraud. The defendant, is a federal crop insurer and the plaintiff is a farming operation that raised potatoes and onions. The plaintiff claimed that it purchased a federal crop insurance policy from the defendant and tendered an insurance claim to the defendant in 2004. The defendant denied the claim and the plaintiff demanded arbitration. The arbitrator found for the plaintiff, requiring the defendant to pay $1,454,450 plus interest on the claim. The defendant appealed the arbitrator’s award, but the trial court affirmed the award for the plaintiff. While the claim was in dispute the USDA was, unbeknownst to the plaintiff, conducting a criminal investigation of the plaintiff for an alleged scheme to profit from the filing of false federal crop insurance claims. Ultimately, the plaintiff and its principal were indicted based on their acceptance of the arbitrator's award which the government claimed constituted a criminal act. At the subsequent trial, the court dismissed all of the counts with prejudice. The plaintiff had also sued the defendant for breach of contract, negligent misrepresentation, and violation of the Washington Consumer Protection Act (WCPA). The plaintiff claimed that the defendant had acted as the USDA’s agent and, as a result, the arbitrator's award was simply a ruse to entrap the plaintiff. The plaintiff claimed that if it had known about the criminal investigation that it could have required the USDA’s direct involvement in the process and would then have the opportunity to be assured that no criminal charges were pending.  Altertnatively, the plaintiff alleged that it could have proceeded to court and get an order that the plaintiff had a right to recover on its claims. The trial court granted summary judgment for the defendant holding that a private insurance company has no authority to bind the federal government from pursuing a criminal prosecution, absent involvement from a party with the requisite authority. The trial court ruled that it was unreasonable as a matter of law for a settlement agreement between private parties which clearly defines the subject matter of the agreement, to preclude criminal prosecution by the government. The plaintiff appealed. The Mutual Release in the parties’ contract provided that the defendant, “for itself and for its insurance companies, and related companies” releases the plaintiff from liability for claims arising out of the plaintiff’s claim for indemnity under the 2003 crop insurance policies issued by the defendant. The plaintiff argued that “its insurance companies” included the Federal Crop Insurance Company and, therefore, the federal government. However, the appellate court held that the phrase could not reasonably be interpreted to bind the federal government and prevent the Department of Justice from pursing a criminal prosecution against the plaintiff for events related to the 2003 policies. Furthermore, the limited scope of the release could not be reasonably read to encompass the criminal charges filed against the plaintiff, which dealt with inflating crop baseline prices to increase eventual payouts on numerous insurance policies. Thus, the appellate court affirmed the trial court’s grant of summary judgment on the breach of contract claim. The plaintiff also alleged misrepresentation of a material fact. The appellate court determined, however, that the plaintiff failed to demonstrate a genuine factual dispute as to whether the defendant knew that the plaintiff was under a criminal investigation. The plaintiff’s evidence in support of that proposition stemmed from a 2004 insurance policy, rather than the 2003 insurance policy at issue in this case. Consequently, the appellate court agreed with the trial court that, as a matter of law, the plaintiff could not have reasonably relied on the purported misrepresentation. Therefore, the trial court’s grant of summary judgment on the plaintiff’s misrepresentation claim was granted. Finally, the plaintiff’s WCPA claim failed because there was no misrepresentation, deception or unfairness. The terms of the contract were not deceptive and the plaintiff did not make a showing that there was a genuine dispute over whether the defendant knew about the criminal investigation. POCO, L.L.C. v. Farmers Crop Ins. All., Inc., No. 16-35310, 2017 U.S. App. LEXIS 20853 (9th Cir. Oct. 23, 2017).

Posted June 26, 2017

New Trial Ordered in Case Involving Conduct of Game Wardens. The defendant was walking the fence line of his land looking for trespassers on the last day of deer season when he was approached by two wardens with the Wisconsin Department of Natural Resources. It was near dark and the wardens who had gotten out of their truck and were walking on the farmer’s land, did not identify themselves. The defendant thought that the two men were trespassers hunting illegally. The wardens forcibly wrested his rifle from him and drew their handguns on him, causing the defendant to fear for his life. The defendant pointed his handgun at the two men believing he had to defend himself. At trial, the court determined that the defendant’s testimony was unreliable and refused to submit to the jury instructions on the defense of self-defense. The jury convicted the defendant of resisting a law enforcement officer and intentionally pointing a firearm at an officer. On appeal, the appellate court rejected the defendant’s argument that he was denied a constitutional right to present the defense of self-defense. The state (WI) Supreme Court reversed, holding that a reasonable jury could have determined that the defendant reasonably believed that the two men were not wardens and that he pointed his handgun at them believing he had to defend himself. The Court also noted that credibility is a question to be resolved by a jury rather than a court. Thus, the trial court should have instructed the jury on self-defense. The Court further held that the trial court’s error in refusing to give the jury instructions on self-defense affected the defendant’s substantial rights and was not a harmless error. The case was remanded for a new trial. State v. Stietz, No. 2014AP2701-CR, 2017 Wisc. LEXIS 303 (Wisc. Sup. Ct. Jun. 13, 2017).

Posted June 24, 2017

County Responsible for Fatal Dog Attack. The plaintiffs, the family members of a decedent who was killed by pit bull dogs, sued the defendant for failure to controls the dogs. The court determined that the defendant had a mandatory duty to take the dogs into custody pursuant to LACC § 10.12.090. The court also determined that there were strong public policy purposes inherent in the control of stray dogs and a part of that policy is to protect the public from dogs that are insufficiently controlled by an owner. Thus, LACC § 10.12.090 was designed to protect against the particular kind of injury the decedent suffered. Since there was no debate that the plaintiffs adequately asserted causation, the court found that the defendants were liable for the decedent’s death. The defendant claimed that the complaint was not timely filed, but the court determined that the plaintiffs did not know of the defendant’s wrongdoing until later alerted by a whistleblower. That was sufficient to postpone accrual of the causes of action under the delayed discovery doctrine. Consequently, the plaintiffs’ complaints were timely filed and the defendant was liable for breaching its duty to take the dogs into custody. Devitt v. L.A. County Dep’t of Animal Care & Control, No. B270577, 2017 Cal. App. Unpub. LEXIS 4063 (Cal. Ct. App. Jun. 14, 2017).

Posted June 9, 2017

Jail Sentence Imposed For Improperly Frying Chicken. The defendant left 17 chickens in three large Tupperware plastic tubs with top grates and chicken waterers inside her van for approximately 11 hours on a day in which temperatures were in the mid 80’s. When the chickens were removed, they were all lethargic and exhibited extreme thirst, one was unresponsive and later died. The defendant was charged with animal cruelty in violation of a city ordinance, a second-degree misdemeanor. At trial, a veterinarian with specific expertise in and knowledge of birds testified that under the conditions the ambient temperature inside the van would have been conservatively reached 130 to 140 degrees after 40-minutes. The veterinarian also testified that under these conditions the chickens would have become sick or in some way suffered and that the exposure to severe heat was likely the cause of the one chicken’s death. The trial court found the defendant guilty and the defendant argued on appeal that the veterinarian was not a competent witness to testify as to the inside temperature of the vehicle. The appellate court determined that the veterinarian’s statement about the buildup of heat inside the van was harmless and did not affect the outcome of the case and that the defendant’s lack of objection to the veterinarian’s testimony also did not affect the outcome of the case. The defendant was sentenced to 90 days in jail, $100 and court costs. State v. Paul, 2017 Ohio. App. LEXIS 2093 (Ohio Ct. App. May 30, 2017).

Posted July 7, 2016

Prison Sentences Upheld For Egg Company Executives Even Though Government Conceded They Had No Knowledge of Salmonella Contamination. The defendant, an executive of a large-scale egg production company (trustee of the trust that owned the company), and his son (the Chief Operating Officer of the company) pled guilty as “responsible corporate officers” to misdemeanor violations of 21 U.S.C. §331(a) for introducing eggs that had been adulterated with salmonella into interstate commerce from the beginning of 2010 until approximately August of 2010. They each were fined $100,000 and sentenced to three months in prison. They appealed their sentences as unconstitutional on the basis that they had no knowledge that the eggs at issue were contaminated at the time they were shipped. They also claimed that their sentences violated Due Process and the Eighth Amendment insomuch as the sentences were not proportional to their “crimes.” They also claimed that incarceration for a misdemeanor offense would violate substantive due process. The trial court determined that the poultry facilities were in poor condition, had not been appropriately cleaned, had the presence of rats and other rodents and frogs and, as a result, the defendant and his son either “knew or should have known” that additional salmonella testing was needed and that remedial and preventative measures were necessary to reduce the presence of salmonella. The appellate court agreed, finding that the evidence showed that the defendant and son were liable for negligently failing to prevent the salmonella outbreak and that 21 U.S.C. §331(a) did not have a knowledge requirement. The appellate court also did not find a due process violation. The defendant and son claimed that because they did not personally commit wrongful acts, and that due process is violated when prison terms are imposed for vicarious liability felonies where the sentence of imprisonment is only for misdemeanors. However, the court held that vicarious liability was not involved, and that 21 U.S.C. §331(a) holds a corporate officer accountable for failure to prevent or remedy “the conditions which gave rise to the charges against him.” Thus, the appellate court determined, the defendant and son were liable for negligently failing to prevent the salmonella outbreak. The court determined that the lack of criminal intent does not violate the Due Process Clause for a “public welfare offense” where the penalty is relatively small (the court believed it was), the defendant’s reputation was not “gravely” damaged (the court believed that it was not) and congressional intent supported the penalty (the court believed it did). The court also determined that there was no Eighth Amendment violation because “helpless” consumers of eggs were involved. The court also found no procedural or substantive due process violation with respect to the sentences because the court believed that the facts showed that the defendant and son “had reason to suspect contamination” and should have taken action to address the problem at that time (even though law didn’t require it). The dissent pointed out that the government stipulated at trial that its investigation did not identify any corporate personnel (including the defendant and son) who had any knowledge that eggs sold during the relevant timeframe were contaminated with salmonella. The dissent also noted that the government conceded that there was no legal requirement for the defendant or corporation to comply with stricter regulations during the timeframe in issue. As such, the convictions imposed and related sentences were based on wholly nonculpable conduct and there was no legal precedent supporting imprisonment in such a situation. The dissent noted that the corporation “immediately, and at great expense, voluntarily recalled hundreds of millions of shell eggs produced” at its facilities when first alerted to the problem. As such, according to the dissent, due process was violated and the sentences were unconstitutional. United States v. Decoster, No. 15-1890, 2016 U.S. App. LEXIS 12423 (8th Cir. Jul. 6, 2016).

Posted April 8, 2016

No Charge for Cultivation of Marijuana “Plants” Without Root Growth. Kansas law (K.S.A. §21-5701(c)) criminalizes the cultivation of marijuana. “Cultivate” is defined as the planting or promotion of the growth of five or more “plants” which contain or can produce controlled substances. The defendant was charged with cultivation of marijuana, possession of drug paraphernalia and marijuana possession. He admitted to having 2.1 grams of marijuana for personal use that was found in his home upon investigation of a drug complaint by neighbors. Upon searching the residence with the defendant’s permission, the officers found 29 small marijuana cuttings growing hydroponically in an upstairs attic. They also found one large marijuana plant with a complete root system. The parties agreed that the cuttings would grow a root system in one to three weeks and would be a clone of the large plant. The trial court determined that there was no question that the defendant intended to cultivate marijuana from the cuttings, and upheld the cultivation charge. On appeal, the appellate court reversed. The court noted that the statute did not define “plants” and the defendant maintained that the cuttings were not plants until there was visible root formation. On the other hand, the state claimed that the cuttings were plants because they had been transplanted into a growing medium. The court reasoned that the cuttings were not “plants” because they could not sustain life on their own by absorbing water and inorganic substances until they had roots. The court focused on the statutory requirement of five or more plants and not what the defendant intended to grow, which obviously was marijuana plants. The court also cited several federal cases defining marijuana plants for the proposition that a marijuana cutting is not a plant until there is “some readily observable evidence of root formation.” So, the defendant here did not cultivate or possess 29 individual marijuana plants under the statute. The legislature’s lack of definition for “plant” thus yielded to the common definition of the term among the courts which requires that a plant have an observable root formation. State v. Holsted, No. 112,846, 2016 Kan. App. LEXIS 24 (Kan. Ct. App. Apr. 8, 2016).

Posted April 1, 2016

Court Says Law Criminalizing Illegal Videotaping Is Unconstitutional Because It Targets People That Would Take Illegal Videos. Idaho law criminalizes (Idaho Code Sec. 18-7042(1)(d)) "interference with agricultural production" when a person knowingly enters an ag production facility without permission or without a court order or without otherwise having the right to do so by statute (in other words, the person is on the premises illegally), and makes a video or audio recording of how the ag operation is conducted. In other words, the law criminalized the use of “misrepresentation” to gain access and record operations in an ag production facility. The court held that the law was unconstitutional because it violated the free speech rights of those wanting to take the illegal videos and was, therefore, subject to strict scrutiny as content-based regulation of protected speech. The court also held that the law was unconstitutional on equal protection grounds because it singled out persons who sought to take illegal videos. The court believed that the state had no legitimate interest to provide special protections to certain agricultural enterprises from those groups (such as the plaintiffs) that are devoted to ensuring that they don't exist and have used terroristic tactics in other cases to achieve their goals that have involved charges of ag terrorism under federal law. However, as an abortion provider that objected to clandestine videos being taken of operations in their facilities later found out, the court did not hold that undercover operations could never result in actionable fraud, breach of contract or libel, which the law could constitutionally be limited to capturing and, thus, be constitutional. Animal Legal Defense Fund, et al. v. Otter, 118 F. Supp. 3d 1195 (D. Idaho 2015).

Jail Time For Company Execs In Egg Salmonella Outbreak. The defendant, an egg producing company, was linked to an egg salmonella outbreak in 2010 that caused illnesses to almost 2,000 people. The defendant was ordered to pay a $6.8 million fine as part of a plea agreement Two of the defendant's executives were also fined $100,000 each and ordered to pay $83,000 in restitution. The court, on the sentencing phase of the case, sentenced the executives to three months of prison time each plus a year of supervised release. The executives claimed that they had no knowledge of the unclean conditions at the defendant's facility and were not directly involved. The court pointed out that the defendant's workers knowingly shipped eggs with false processing and expiration dates, and bribed USDA regulators to secure approval of sales of poor quality eggs. The executives are free pending appeal of the sentence. United States v. Quality Egg, LLC, et al., No. C 14-3024-MWB, 2015 U.S. Dist. LEXIS 50660 (N.D. Iowa Apr. 14, 2015).

Deer Decoys Are Wildlife Under Criminal Mischief Statute. The defendant was convicted of second degree criminal mischief for damaging the "property of another" when he aided and abetted his son in shooting two state-owned deer decoys that the defendant and his son believed to be deer. The defendant appealed his conviction because wild deer do not become property until reduced to physical possession (e.g., the son thought he was shooting at deer and deer are not "property of another" until reduced to possession). The appellate court upheld his conviction and the OR Supreme Court granted review to determine whether wild deer are "property of another" as used in Ore. Rev. Stat. Sec. 164.354. The Court noted that the legislature had amended Ore. Rev. Stat. Sec. 164.305(2) (the definition of "property of another" in 1977 to broaden it and that the state had previously declared that it had a property interest in wildlife. Thus, the state had a legal interest in wildlife and wild deer are "property of another" for purposes of the statute at issue. The conviction was upheld. State v. Dickerson, 356 Ore. 822 (2015), aff’g., 260 Ore. App. 80 (2013).

Conviction For Letting Vicious Dogs Run Loose Upheld. The defendant was convicted under K.S.A. Sec. 21-6418(a) for allowing a dangerous animal (her dogs) to run at large when she knew they had dangerous or vicious propensities. The defendant lives next to a sheep farm with many lambs. The dogs had a history of predation upon the sheep and one dog had been shot while harassing the sheep on one occasion. The farmer had often complained to the defendant about the dogs, but to no avail. Ultimately, the county sheriff warned the defendant that the dogs could be considered dangerous and vicious and that the defendant needed to restrain the dogs. The dogs again mauled some sheep, and the defendant was cited for the offense. The rial court found that the defendant had violated the dangerous animal statute, imposed a sentence of 6-months in jail, one year of unsupervised probation and $192.85 in restitution. On appeal, the court affirmed. The appellate court determined that the trial court properly applied the plain language of the statute to the facts and that there was no need to resort to canons of statutory construction because the statute was not vague. The appellate court also held that the evidence was sufficient to put the defendant on notice that the dogs had dangerous or vicious propensities. The defendant had been warned numerous times about the dogs harming the sheep and lambs, the existing holes in the fence near the defendant's house and the unlikelihood of harm caused by coyotes. State v. Shell, No. 111,779, 2015 Kan. App. Unpub. LEXIS 153 (Kan. Ct. App. Mar. 6, 2015).

Criminal Indictment Upheld Against Farm Animal Terrorists. The defendants, from the Bel Air, California, area, were arrested in Illinois and charged in a two count indictment with violating the Animal Enterprise Terrorism Act (18 U.S.C. Sec. 43) (Act) for terroristic acts committed upon an Illinois mink farm. In an earlier action, one of the charges involved using a facility of interstate and foreign commerce for the purpose of damaging and interfering with the operation of an animal enterprise under the Act. Two cells phones were found in their car at the time of the arrest and the government searched those phones pursuant to a search warrant. The search indicated contact with a third cell phone and the government sought an order seeking historical cell site and toll record information for the third phone. The defendants claimed that the government had to obtain a search warrant to obtain that information because the defendant had a reasonable expectation of privacy in the information. The court disagreed with the defendants, noting that no federal case had ever determined that obtaining such information implicated the Fourth Amendment's requirement of a search warrant. The court held that the defendants did not have an expectation of privacy in historical cell site information. The court also noted that the records were relevant and material to the ongoing criminal investigation of the defendants and that the third cell phone's number belonged to one of the defendants. United States v. Lang, 78 F. Supp. 3d 830 (N.D. Ill. 2014). In the present action, the indictment charged the defendants with damaging an animal enterprise (18 U.S.C. Sec. 43(a)(2)(A)) and conspiring to damage an animal enterprise (18 U.S.C. Sec. 43(a)(2)(C)). The defendants moved to dismiss the indictment on the basis that the Act is facially overbroad because it criminalizes protected speech that causes an "animal enterprise" to lose profits or business goodwill. They also challenged the indictment as being void for vagueness because it allowed for arbitrary and discriminatory enforcement against animal rights activists, and that it is violated substantive due process for punishing as terrorism non-violent damage to property. The court rejected the overbreadth argument because the Act excludes purely economic damage. The court also rejected the void for vagueness argument and the substantive due process argument under rational basis review. United States v. Johnson, et al., No. 14-CR-390, 2015 U.S. Dist. LEXIS 26843 (N.D. Ill. Mar. 5, 2015).

Conspiracy To Commit Money Laundering, Mail Fraud and Wire Fraud Exists Before Investors Actually Ripped-Off By Investments in Fictitious Wind Farm. The defendant was in charge of an elaborate scheme to gather investments in a non-existent “wind farm” in South Dakota. The defendant was the sole signatory over invested funds solicited from others and could withdraw the funds for the other members of the conspiracy. The defendant set up money drop boxes, ran the “boiler room” where sales people worked, came up with sales pitches, told an investor that a wind turbine had been purchased with the $250,000 that the investor paid when it hadn’t been, oversaw the placement of signage in a field indicating that a “wind farm” was under construction when it wasn’t, and claimed he was merely a consultant paid $125,000 annually even though he transferred over $7000,000 of invested funds to his account over a period of two and one-half years. The defendant plead guilty to conspiracy to commit money laundering, as well as wire and mail fraud and was sentenced to over 12 years in prison plus three years of supervised release and ordered to pay restitution. The defendant appealed his sentence on the basis that the scheme had not resulted in any criminal securities violations as of the start of his prosecution and, thus, the court lacked subject matter jurisdiction because the government didn’t first obtain a referral from the Securities and Exchange Commission. The court rejected the argument and upheld the sentence enhancements. United States v. Reed, 602 Fed. Appx. 436 (10th Cir. 2015), cert. den., 2015 U.S. LEXIS 5408 (U.S. Sup. Ct. Oct. 5, 2015), cert. of appealability den., sub. nom., United States v. Scott, 2015 U.S. App. LEXIS 18244 (10th Cir. Oct. 15, 2015).