United States of America v. John Hudson Farms, Inc. et al

Filing 55

DEFAULT JUDGMENT in favor of United States of America against John Hudson Farms, Inc. Signed by District Judge Louise Wood Flanagan on 8/30/2018. (Collins, S.)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NORTH CAROLINA
SOUTHERN DIVISION
NO:
UNITED STATES OF AMERICA,

7:18-CV-7-FL
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Plaintiff,
v.
JOHN HUDSON FARMS, INC.,
ET AL.,
Defendants.

ORDER AWARDING DEFAULT
JUDGMENT AGAINST DEFENDANT JOHN
HUDSON FARMS WITH EXPRESS
FINDINGS OF FALSE STATEMENTS,
FALSE CLAIMS, AND FRAUDULENT
SCHEME

This matter is before the Court on the Motion for Default
Judgment filed by Plaintiff United States of America against
Defendant John Hudson Farm (“JHF”) pursuant to Rule 55(b) of the
Federal Rules of Civil Procedure.
JHF failed to appear, plead, or otherwise defend this action
and

the

Clerk

Plaintiff.

of

Court

entered

Default,

upon

Motion

of

the

Plaintiff moved for Default Judgment against JHF in

the amount of $10,791,133, based upon the Complaint, the Plea
Agreement

entered

in

Declaration provided.

the

related

criminal

action,

and

the

Default Judgment is warranted.
FINDINGS OF FACT

JHF manager Phil Hudson pleaded guilty to theft of government
funds in violation of 18 U.S.C. § 641, in United States v. Phillip
Hudson, Case No. 5:17-CR-270-FL.

Phil Hudson admitted in the

Memorandum of Plea Agreement to restitution of $676,536 in the
1

related criminal fraud case. (DE 12 in Case No. 5:17-CR-270-FL,
filed November 15, 2017).

This theft of government funds plea is

related to JHF’s fraudulent claims and false statements to obtain
part of the FSA program payments for JHF at issue (but not other
claims or USDA crop insurance payments set out in the Complaint).
JHF filed a Chapter 11 bankruptcy on December 31, 2015, In re
John Hudson Farms, Inc., Case No. 15-7000-5-SWH.

Phil Hudson

filed a Chapter 11 bankruptcy on July 25, 2017, In re Phillip Lee
Hudson, Case No. 17-03634-5-SWH, which converted to Chapter 7 on
February

8,

2018.

The

United

States

filed

a

Complaint

For

Determination of Dischargeability against Phil Hudson in that
bankruptcy

case

(Adversary

Proceeding

No.

17-74-5-SWH),

to

establish that the fraud liabilities were not dischargeable in
bankruptcy pursuant to 11 U.S.C. § 523(a)(2), (a)(7) and (a)(13)
on October 23, 2017.

(DE 1, AP No. 17-74-5-SWH)

The Adversary

Proceeding was held in abeyance by a Consent Order dated February
13, 2018, based in part upon the Parties’ belief that “the criminal
and FCA case could likely resolve the dischargeability question at
issue in this action.”

(DE 14, AP No. 17-74-5-SWH).

The facts alleged in the Complaint are deemed admitted based
upon the Entry of Default.

(DE 26).

The following facts are

found by the Court based upon the Declaration of USDA Special Agent
Miles Davis and the Complaint.
2

1.

Phil Hudson managed the day-to-day operations of John

Hudson Farms (“JHF”), a North Carolina corporation that was part
of a combined family farming operation which included soybeans,
sweet potatoes, and tobacco. (DE 1 Compl. ¶¶ 5–6, 18, 27, Miles
Davis Declaration at 1 (hereafter “Declaration”)).
2.

Although

the

individual

defendants

were

operating

through JHF as a single farming operation, Phil Hudson and the
other defendants (five other family members) falsely purported to
be separate, individual farming operations in numerous forms and
applications provided to both the USDA Farm Service Agency (“FSA”)
and

USDA

Risk

Management

Agency’s

Federal

Crop

Insurance

Corporation (“FCIC”) (through private approved insurance providers
or “AIPs”). (DE 1 Compl. ¶¶ 18-20, Declaration at ¶ 2).
3.
fabricate

JHF used these fraudulent “shell farming operations” to
eligibility

and

obtain

additional

programs, as well as FCIC crop insurance.

funds

from

FSA

JHF ultimately used

program funds and loans fraudulently obtained from the FSA (and
FCIC crop insurance) to support the single farming operation of
JHF, not six individual farm operations. (DE 1 Compl. ¶¶ 18-20,
Declaration at ¶ 3).
4.

JHF’s

fraudulent

schemes,

false

claims

and

false

statements included three types of damages: (1) payments under FSA
programs without required eligibility, (2) farm loans under FSA
3

programs without required eligibility, and (3) payment of federal
crop insurance claims without an insurable interest. (DE 1 Compl.
¶¶ 18, 19, 20, Declaration at ¶ 4).
Factual Allegations Related to FSA Program Payments
5.

Payments under FSA programs are made from the United

States,

based

upon

payment

limitations

and

eligibility

requirements that the recipient must satisfy. (DE 1 Compl. ¶¶ 12–
15, Declaration at ¶ 5).

These regulations require, inter alia,

that an applicant for funding truthfully complete and sign certain
documents, including Form CCC-502A, titled “Farm Operating Plan
for Payment Eligibility Review For An Individual” (“Form 502”),
and Form CCC-902I, titled “Farm Operating Plan for An Individual”
(“Form 902”). (DE 1 Compl. ¶¶ 16–17, Declaration at ¶ 5).
6.

Phil Hudson executed false Form 902s for 2009, 2010, and

2012 for himself and others, acting through a power of attorney,
to obtain funds for JHF. (DE 1 Compl. ¶¶ 34–36).

Each of the 902s

submitted by Phil Hudson, or caused to be submitted by him, were
false,

in

part

because

JHF

was

benefitting from the FSA funds.

the

actual

farming

operation

(DE 1 Compl. ¶¶ 37–40, 42-48,

Declaration at ¶ 6).
7.

The false statements on the Form 902s submitted by Phil

Hudson enabled JHF and defendant family members to circumvent FSA
eligibility

requirements

and

limitations
4

in

order

to

obtain

improper payments for 2009 through 2014.

(DE 1 Compl. ¶¶ 49-50,

Declaration at ¶ 7).
8.

Phil Hudson signed and/or submitted 17 false FSA 902s

for himself and family members from 2009 to 2012 for the support
of JHF. (DE 1 Compl. ¶¶ 34-36, 51, Declaration at ¶ 8).
9.

FSA paid at least $424,065 to Phil Hudson and JHF as a

result of the false statements and false claims made.

(DE 1 Compl.

¶ 51, Declaration at ¶ 9).
10.

JHF and Phil Hudson made false representations with the

knowledge that the information was false and that the information
would be used by the FSA to determine eligibility for funding as
persons actively engaged in farming. (DE 1 Compl. ¶ 40, Declaration
at ¶ 10). The individual defendants were determined to be eligible
for FSA funds based on these false Form 902 submissions. (DE 1
Compl. ¶ 41, Declaration at ¶ 10).
Factual Allegations Related to FSA Farm Program Loan Fraud
11.

Defendants Wendy Giddens, Seth Giddens, Jeremy Hudson,

and Joshua Hudson individually sought and obtained Farm Program
Loans

from

FSA,

with

current

principal

balances

totaling

$416,135.82, based upon false Form 502s and Form 902s (as described
above)

and

false

loan

applications,

including

false

representations to FSA at the time they applied for these loans
that

each

Defendant

operated

a
5

separate,

individual

farming

operation.

(DE 1 Compl. ¶¶ 71-72, 74-79, 83-84, Declaration at ¶

11).
12.

JHF and Phil Hudson signed or caused to be signed various

documents in connection with obtaining the above FSA Farm Program
Loans,

including

the

false

Form

902s,

in

furtherance

of

the

fraudulent scheme with other defendants to obtain funds for JHF,
and in order to avoid payment eligibility and limitation rules for
both FSA Farm Program Loans and FSA Program Payments. (DE 1 Compl.
¶¶ 19, 34-37, 71-72, 74-79, 84, 131; Declaration at ¶ 12).
13.

JHF and Phil Hudson presented or caused to be presented

to FSA false Form 902s and false loan applications in order to
facilitate Farm Program loans of at least $416,135 to which Wendy
Giddens, Seth Giddens, Jeremy Hudson and Joshua Hudson were not
entitled, and JHF conspired with these defendants in the fraudulent
scheme to obtain Farm Program Loans that were used in the JHF
combined family farming operation.

(DE 1 Compl. ¶¶ 19, 34-37, 84-

85, 131; Declaration at ¶ 13).
Factual Allegations Related To FCIC Crop Insurance Payments
14.

In

addition,

JHF

and

Phil

Hudson

made

false

crop

insurance indemnity claims to FCIC through AIPs. (DE 1 Compl. ¶¶ 4,
86-89, 95, Declaration at ¶ 14).

Specifically, JHF acted through

Phil Hudson and the other defendants to claim their purported
individual farming operations were eligible for crop insurance,
6

but in fact each individual lacked a separate insurable interest
in JHF crops, that being the value of the producer’s interest in
a crop that was at risk from insurable cause of loss. (DE 1 Compl.
¶¶ 90, 91, 96, 97, 98, Declaration at ¶ 14).

Instead, JHF had the

insurable interest in its crops, or at least Phil Hudson and the
individual defendants had a lesser interest than that stated. (DE
1 Compl. ¶ 106, Declaration at ¶ 14).
15.

JHF and Phil Hudson caused false representations to be

made in order to obtain FCIC funds for JHF.

The false statements

to obtain crop insurance payments were contained within documents
caused to be submitted for payment.

JHF and Phil Hudson submitted

false acreage reports and insurances claims annually from 2010
through 2015 through the AIPs. (DE 1 Compl. ¶ 102, Declaration at
¶ 15).

In each of those years, JHF and Phil Hudson submitted

false claims with the AIPs, the AIPs paid Defendant family members,
and

the

FCIC

reimbursed

the

AIPs

based

upon

these

representations. (DE 1 Compl. ¶ 103, Declaration at ¶ 15).

false
As a

result, JHF and Phil Hudson obtained funds for which they were
ineligible because they falsely stated the individual Defendants’
insurable

interest

in

JHF

crops.

(DE

1

Compl.

¶¶ 104,

105,

Declaration at ¶ 15).
16.

FCIC reimbursed at least $2,639,511 for these false

claims to support JHF, including the claims for which Phil Hudson
7

and the other defendants were paid, and these crop insurance
indemnity payments were passed on to JHF. (DE 1 Compl. ¶ 103, 107,
108, Declaration at ¶ 16).

These crop insurance funds were

transferred by Phil Hudson and other Defendants to JHF for JHF’s
benefit,

including

by

Defendants’

depositing

the

funds

into

individual checking accounts and then drawing checks from those
accounts to pay JHF. (DE 1 Compl. ¶¶ 108–112, Declaration at ¶
16).

Phil

Hudson

signed

at

least

some

of

the

checks

from

individual bank accounts to JHF to transfer the fraudulent crop
insurance

funds,

including

checks

for

$66,000

and

$90,000

transferring crop insurance funds through Defendant Wendy Giddens’
bank account to JHF.

(DE 1 Compl. ¶¶ 109–110, Declaration at ¶

16).
Factual Allegations Related to False Claims Act Violations For
FSA Program Payments, FSA Loans, and FCIC Crop Insurance Payments
17.
presented

JHF and Phil Hudson knowingly presented or caused to be
false

and

fraudulent

claims

to

the

United

States,

including claims for FSA program payments, FSA loan payments, and
FCIC crop insurance claims to support JHF. (DE 1 Compl. ¶¶ 18-20,
34-39, 102, 108–110, 118-124, 131, Declaration at ¶ 17).
18.

JHF and Phil Hudson knowingly made or caused to be made

false statements material to false claims to the United States,
including claims for FSA program payments, FSA loan payments, and
FCIC crop insurance payments to support JHF. (DE 1 Compl. ¶¶ 188

20, 34-39, 102, 108–110, 127-128, 131, Declaration at ¶ 18).
19.

JHF and Phil Hudson acted with actual knowledge and

reckless disregard that the statements and claims at issue were
false, including false Form 902s, Form 502s, acreage reports,
insurance claims, and fraudulent requests for payments for FSA
programs, FSA loans, and FCIC crop insurance. (DE 1 Compl. ¶¶ 1820, 22, 34-39, 95, 99, 102, 113, 124, 128, 131, Declaration at ¶
19).
20.

JHF and Phil Hudson directed the fraudulent scheme in

order to obtain FSA program payments, FSA loans, and FCIC crop
insurance payments for JHF that exceeded the requirements and
limitations for JHF. (DE 1 Compl. ¶¶ 18-20, 117-132, Declaration
at ¶ 20).
21.

JHF

and

Phil

Hudson

made

false

representations

and

committed fraud to obtain USDA program payments, loans, and crop
insurance payments, including signing and using false forms and
applications to obtain payments. (DE 1 Compl. ¶¶ 18-20, 117-132,
Declaration at ¶ 21).
22.

JHF

and

Phil

Hudson

made

materially

false

written

statements respecting his financial condition and related matters,
with

the

intent

to

deceive

USDA

in

order

to

obtain

federal

payments, and USDA relied upon the false statements in making
payments. (DE 1 Compl. ¶¶ 18-20, 40, 52, 85, 96-101, 117-132,
9

Declaration at ¶ 22).
23.

JHF and Phil Hudson caused total single damages of at

least $3,479,711 under the False Claims Act through causing false
claims, causing false statements, and engaging in a fraudulent
scheme to obtain USDA payments, which included at least $424,065
in FSA program payments, at least $416,135 in FSA loan payments,
and at least $2,639,511 in crop insurance payments. (DE 1 Compl.
¶¶ 18-20, 51, 83, 103, 117-132, Declaration at ¶ 23).
24.

JHF

is

further

liable

for

32

statutory

penalties,

including 17 false 902 statements, at least 5 false crop insurance
applications, at least 5 false acreage reports, and at least 5
false insurance claims for 2009-2014 that JHF, through Defendant
Phil Hudson, caused to be used (as well as other false statements
and false claims). (DE 1 Compl. ¶¶ 18-20, 34, 35, 36, 37, 50, 88,
94, 95, 102, 103, 117-132, Declaration at ¶ 24).
25.
damages

JHF is liable under the False Claims Act for treble
of

$10,439,133

(three

times

the

single

damages

established), and $352,000 in penalties (for 32 penalties at
$11,000 per penalty), for a total of $10,791,133. (DE 1 Compl.
¶¶ 18-20, 34, 35, 36, 37, 50, 51, 83, 88, 94, 95, 102, 103, 117132, Declaration at ¶ 25).
CONCLUSIONS OF LAW
Defendant JHF is liable under the False Claims Act for damages
10

and penalties based upon the Entry of Default, the allegations of
the Complaint, the Special Agent’s Declaration, and the Plea
Agreement entered in the related criminal action, as set out in
the above Findings of Fact.
The entry of default judgment is governed by Rule 55 of the
Federal Rules of Civil Procedure which provides in relevant part
that “[w]hen a party against whom a judgment for affirmative relief
is sought has failed to plead or otherwise defend, and that failure
is shown by affidavit or otherwise, the clerk must enter the
party's default.” Fed.R.Civ.P. 55(a). If, after the entry of
default, Plaintiff's complaint does not specify a “sum certain” or
“a sum that can be made certain by computation,” the Court may
enter a default judgment against the defendant. See Fed.R.Civ.P.
55(b)(1), (2).
Upon the entry of default, the defaulted party is deemed to
have admitted all well-pleaded allegations of fact contained in
the complaint. Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780
(4th Cir. 2001); Richardson v. Bostick, 2014 WL 3508916 at *5
(E.D.N.C. July 14, 2014); Weft, Inc. v. GC Inv. Assocs., 630
F.Supp. 1138, 1141 (E.D.N.C. 1986).

However, “a default is not

treated

by

as

an

absolute

confession

the

defendant

of

his

liability” and “the court must consider whether the unchallenged
facts support the relief sought.”
11

See, e.g., Ryan, 253 F.3d at

780; Richardson, 2014 WL 3508916 at *5.

The party in whose favor

a default has been entered is entitled to the benefit of all
reasonable inferences from the evidence tendered, and attempts by
the party against whom a default has been entered to attack the
validity of the allegations deemed proven by the default are to be
strictly circumscribed.

See, e.g., Ryan, 253 F.3d at 780.

If the court determines that liability is established and
default judgment is warranted, it then must make an independent
determination

of

the

appropriate

amount

of

damages.

The

allegations in the complaint with respect to the amount of the
damages are not controlling.

Ryan, 253 F.3d at 780–81; J&J Sports

Productions, Inc. v. Bullard, 2012 WL 5844807 at * 1 (E.D.N.C.
Nov. 19, 2012); Richardson, 2014 WL 3508916 at *6; Arista Records,
LLC v. Gaines, 635 F.Supp.2d 414, 416-17 (E.D.N.C. 2009); Credit
Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d
Cir. 1999); Fed.R.Civ.P. 55(b)(2)(B).
While

the

court

may

conduct

an

evidentiary

hearing

to

determine damages, it is not required to do so, but may rely
instead on declarations or documentary evidence in the record to
determine the appropriate damages amount.

See, e.g., American

Dairy Queen Corp. v. YS & J Enterprises, Inc., 2014 WL 4055550 at
*2

(E.D.N.C.

Aug.

14,

2014)(hearing

not

warranted

because

”sufficient affidavits and supporting documents to enable the
12

court to calculate damages”); J&J Sports, 2012 WL 5844807 at *1;
EEOC v. Carter Behavior Health Services, 2011 WL 5325485, at *4
(E.D.N.C. Oct. 7, 2011); United States v. Walker, 2017 WL 3974242
at *2. (W.D.N.C. September 8, 2017); EEOC v. North Am. Land Corp.,
2010 WL 2723727, at *2 (W.D.N.C. Jul. 8, 2010). In entering default
in a False Claims Act case, a hearing may not be necessary if the
specific amount of the false claims are set forth in the Complaint.
United States v. Graham County Soil & Water Conservation District,
2016 WL 910191 at *2 (W.D.N.C. March 9, 2016).
The well-pleaded facts contained in the Complaint, along with
the related criminal Plea Agreement and Declaration of Special
Agent Miles Davis, are sufficient to establish a basis for the
relief sought and the damages set forth in the Complaint.

See,

e.g., Arista Records, 635 F.Supp.2d at 416; Dairy Queen, 2014 WL
4055550 at *2; Walker, 2017 WL 3974242 at *2; Graham County, 2016
WL 910191 at *2.

The Court has discretion under Fed. R. Civ. P.

55(b)(2) to enter a judgment after a default has been entered.
The False Claims Act provides for treble damages, plus $5,500
to $11,000 per false claim as a required statutory penalty.

31

U.S.C. § 3729(a)(1); 28 C.F.R. § 85.3(a)(9); United States v. Byrd,
100 F.Supp.2d 342, 344.

A penalty may be awarded for each separate

false form submitted as part of a false claim.

United States v.

Tuomey, 792 F.3d 364, 386 (awarding penalty for each separate claim
13

based upon each form submitted).

The Court may award FCA treble

damages and penalties on default judgment or summary judgment.
See, e.g., Graham County, 2016 WL 910191 at *2 (default judgment
awarding treble damages and six separate penalties); Byrd, 100
F.Supp.2d at 342, 344 (summary judgment awarding 264 penalties for
each separate claim); United States v. Convalescent Transports,
Inc., 2007 WL 2090210 at *7 (E.D.N.C. July 19, 2007)(awarding
treble damages and one maximum penalty established).
The Complaint and Declaration establish that JHF and Phil
Hudson directed a scheme to present false statements and fraudulent
claims to obtain FSA program payments and FCIC insurance payments
for himself and JHF. (Findings of Fact 2-4, 6-23 above).
The Complaint and Declaration establish that JHF and Phil
Hudson caused the false statements and false claims with actual
knowledge. (Findings of Fact 10, 19 above).
These Findings of Fact enable the Court to determine damages
(trebled under False Claims Act) and statutory penalties (per false
claim or false statement).

JHF and Phil Hudson caused single

damages in the amount of $3,479,711, comprised of $424,065 in FSA
program payments, $416,135 in FSA loan payments, and $2,639,511 in
FCIC crop payments. (Findings of Fact 23 above)..

JHF and Phil

Hudson also made or caused to be used 32 false statements and false
claims, including 17 false 902s. (Findings of Fact 24 above).
14

JHF is jointly and severally liable under the False Claims
Act for treble damages of $10,439,133 (three times single damages
established), and $352,000 in penalties (for 32 penalties at
$11,000 per penalty), for a total of $10,791,133. (Findings of
Fact 23-25 above).
For the foregoing reasons, the Clerk of Court is directed to
enter Default Judgment against Defendant John Hudson Farms, Inc in
the amount of $10,791,133, based upon the express findings that
he made false statements, caused false claims, and engaged in a
fraudulent scheme to obtain federal funds.
SO ORDERED, this the 30th day of August, 2018.

__________________________________
LOUISE W. FLANAGAN
United States District Court Judge

15