United States of America et al v. Krause et al

Filing 46

ORDER granting in part and denying in part 32 Motion to Dismiss and denying without prejudice 41 Request to Amend Complaint. Signed by U.S. District Judge Charles B. Kornmann on 4/14/18. (SKK) (Main Document 46 replaced on 4/19/2018) (SKK).

HLED
UNITED STATES DISTRICT COURT

APR 1 9 2018

DISTRICT OF SOUTH DAKOTA

NORTHERN DIVISION

UNITED STATES OF AMERICA,ex rel.
DR. JOHN A MILLIN; and
DR. JOHN A. MILLIN,individually,

1:17-CV-01019-CBK

Relator,
ORDER
vs.

LARRY F. KRAUSE,an individual; and
KRAUSE-ALLBEE TRUCKING,INC., a South
Dakota Corporation,
Defendants.

BACKGROUND

On behalf of the United States and himself, Dr. John A. Millin ("Relator," together with
the United States,"plaintiffs") filed suit on July 18, 2016, against Larry F. Krause and KrauseAllbee Trucking, Inc.("defendants")in a qui tarn action under the False Claims Act("FCA"),

Title 31 U.S.Q § 3729, et. seq., as amended, to recover damages and penalties related to
defendants' alleged false claims for payment to the United States Department of Agriculture,
Farm Services Agency("FSA")in connection with farm subsidy payments, farm disaster

payments, and loans for farmers. Relator alleges that defendant Krause misrepresented the
ownership of Krause-Allbee Trucking by submitting filings to the FSA stating that.Relator and
his then spouse, Lori Millin, maintained ownership interests in Krause-Allbee Trucking, when
Relator did not maintain any such ownership interest. Relator states that he discovered he did not

hold any ownership interest in Krause-Albee Trucking after divorce irom his then spouse, when
his attorney contacted defendants to request Krause-Allbee Trucking's financial statements.

Specifically, Relator alleges that Krause filed documents with the FSA or the United
States Department of Agriculture or both in 2002,indicating that Relator and his then spouse
owned stock in Krause-Allbee Trucking. Krause also allegedly signed and submitted to the FSA
a document stating that Relator designated Krause-Allbee Trucking to receive FSA payments to
which Relator was entitled. The same Farm Operating Plan listing ownership interests in Krause-

Allbee Trucking was again filed in 2003 with the FSA. In 2004,2005, and 2006, Relator alleges
that Krause filed documents with the FSA,stating Relator and his then spouse held the same
ownership interests in Krause-Allbee Trucking.

According to plaintiffs' Complaint, filings with the FSA on behalf of Krause-Allbee
Trucking for 2007,2008, and 2009 similarly list Relator and his then spouse as holding

ownership interests in Krause-Allbee Trucking. Documents from 2009 include minutes of a
corporate meeting dated January 14,2009, indicating that Relator and his then spouse were the
only stockholders of Krause-Allbee Trucking. Relator alleges that additional documents from

2009, including the Farm Operating Plan, list Relator and his then spouse as guarantors of a loan
to Krause-Allbee Trucking fi-om the First State Bank of Warner, but that both Krause and the .

First State Bank of Warner have represented that Relator never guaranteed such a loan. Relator
further alleges that, from 2010-2015, Krause filed Farm Operating Plans with the FSA,listing
Relator and his then spouse as holding ownership interests in Krause-Allbee Trucking.
In 2002, 2006, and 2009 the FSA sent Krause-Allbee Trucking letters confirming the

stock ownership, stating that "[y]ou are 'actively engaged in farming' and eligible for payments

and benefits" and "Adjusted Gross Income provisions have been met based on your

certifications." According to plaintiffs' Complaint, Krause-Allbee Trucking received subsidies
fi^om the FSA of$307,924 in 2008, $62,506 in 2009,$347,134 in 2010, $72,205 in 2011,
$258,104 in 2012 and $108,585 in 2013. Plaintiffs' Complaint argues that the alleged false
statements regarding ownership interests were material to the FSA's grant offarm subsidies,

because Krause's payments would have otherwise been capped by limits on an individual's
receipt offarm subsidies. By listing Relator and his then spouse as owners of Krause-Allbee
Trucking, plaintiffs' Complaint alleges that "[djefendants were able to receive farm subsidy
payments to which they would not have been entitled if Krause and his wife were listed as the
owners of Krause-Allbee Trucking."

Plaintiffs' Complaint further states that Krause may have filed similar statements on
behalf of Krause-Allbee Farming, Inc. or L&L General Partnership or both, and that these

entities, along with K&L Land & Cattle, LLC,received subsidies from the FSA based on Farm
Operating Plans submitted to the FSA.
Plaintiffs filed claims for relief under the FCA,3.1 U.S.C. § 3729(a)(1),(i) for presenting

a false claim for payment or approval,(ii) making or using a false record or statement material to
a false claim,(iii) conspiring to defraud the Government, and (iv) using a false record or
statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the
Government(also called a "reverse false claim"). Plaintiffs' Complaint also seeks a declaratory

judgment pursuant to 28 U.S.C. § 2201 for Relator regarding his ownership interest in KrauseAllbee Trucking, as well as a claim of unjust enrichment against defendants for receiving
payments from farm subsidy programs on Relator's behalf.

Defendants move to dismiss plaintiffs' claims based on the statute of limitations codified
in the FCA at 31 U.S.C. § 3731(b), stating that the six-year limitation on claims bars "the

majority of plaintiffs' claims. Defendants also submit that plaintiffs' Complaint failed to meet
the plausibility requirement of Fed. R. Civ. P. 8(a) and the particularity requirement of Fed. R.
Civ. P. 9(b) for fraud claims. Defendants further argue that plaintiffs' conspiracy claim is barred
by the intracorpprate conspiracy doctrine. Relator's request for declaratory judgment, defendants
state, must be dismissed if the FCA elaims are dismissed, as the Declaratory Judgment Act does
not provide an independent basis for jurisdiction. Finally, defendants argue that Relator's claim
for unjust enrichment must be dismissed, stating that Relator has not pled the elements required
for such a claim. These arguments are addressed in turn below.

Plaintiffs filed an opposition to the motion to dismiss requesting, in the alternative, leave
to amend the Complaint.
DECISION

I. The applicable statute of limitations under the FCA,31 U.S.C.§ 3731(b)
A motion to dismiss may be granted "when a claim is barred under a statute of
limitations." Bradlev Timberland Res, v. Bradlev Lumber Co.. 712 F.3d 401,406 (8th Cir. 2013)

(citins Vamer v. Peterson Farms. 371 F.3d 1011, 1016 (8th Cir. 2004)). A court may dismiss a

complaint pursuant to Fed. R. Civ. P. 12(b)(6) when it appears from the face ofthe complaint
that the claim is time-barred and no facts are alleged to avoid the bar of the statute. Wong v.
Wells FareoBankN.A.. 789 F.3d 889, 897(8th Cir. 2015){citing Illie v. Union Elec. Co.. 652

F.3d971,976 (8th Cir. 19951'): Vamer v. Peterson Farms. 371 F.3dl011, 1016 (8th Cir.2004);
and Brictson v. Woodrough. 164 F.2d 107(8th Cir. 1947). In deciding a motion to dismiss under

Fed. R. Civ. P. 12(b)(6), a court must assume "all facts in the complaint to be true" and must
construe "all reasonable inferences most favorably to the complainant." U.S. ex rel. Ravnor v.
Nat'I Rural Utilities Co-op. Finance. Corp.. 690 F.3d 951 (8th Cir. 2012)(citins B & B
Hardware, Inc. v. Hareis Indus.. Inc.. 569 F.3d-383, 387(8th Cir.2009); and Eckert v. Titan Tire
Corp.. 514 F.3d 801, 806 (8th Cir.2008)).

Assuming that all of the facts in plaintiffs' Complaint are true and drawing inferences in

plaintiffs' favor, plaintiffs' claims allege that defendants may have committed violations ofthe
FCA each year from 2002-2015. However, 31 U. S. C. § 3731(b) provides that a civil action may
not be brought under the FCA

(1)more than 6 years after the date on which the violation ofsection
3729 is committed, or

(2) more than 3 years after the date when facts material to the right
of action are known or reasonably should have been known by the
official of the United States charged with responsibility to act in the
circumstances, but in no event more than 10 years after the date on
which the violation is committed,
whichever occurs last.

Whether 31 U. S. C. § 3731(b)(1) or (b)(2) applies in the instant case, then, determines whether
false claims submitted after 18 July 2010 or 18 July 2006 remain viable. Because it is clear from
the face ofthe Complaint that plaintiffs plead claims that may be barred by the statute of
limitations—specifically, any false claims allegedly submitted by defendants prior to either of
these dates—^we may decide this issue as raised in the defendants' motion to dismiss.
Plaintiffs and defendants acknowledge that where, as here, the government declines to

join a civil action brought by a private person, the Eighth Circuit has not determined which
limitations period applies. Moreover, circuit courts are split on this issue. As a question offirst
impression in our circuit on which a number of courts are in disagreement, then, this Court

undertakes a review of rationale given by leading opinions regarding which statute oflimitations
applies to private actions brought under the FCA.

Why Congress has not acted over a period of25 years to address all these questions and
different interpretations ofthe statute is a mystery to me. This inaction is a detriment to litigants
and the courts.

a. Interpretations of 31 U.S.C. § 3731(b) in the Eighth Circuit

In their motion to dismiss plaintiffs' claims as barred by the statute of limitations,

defendants state that the six-year limitation applies here,"as the three-year limitation applies only
to the government." In support of this statement, defendants cite an unreported case (TJ.S. ex rel.
Read v. Central Plains Clinic. 1998 WL 663330(D.S.D. 1998)), an Eighth Circuit case in which
the six-year statute oflimitations was not on appeal and so not considered in the Court's decision
CBavcol Prods. Litig.. 732 F.3d 869 (2013)), and two cases from the District of Minnesota which
cite an Eighth Circuit case, Joshi. as precedent(U.S. ex rel. Dicken v. Nw.Eve Center. P.A.. 2017
WL 2345579 (D. Minn. 2017); and U.S. ex rel. Sammarco v. Ludeman. 2010 WL 681454 (D.

Minn. 2010) (unreported)). The Court in Joshi, however, in fact declined to decide whether
§ 3731(b)(2) applies where the government does not intervene (U.S. ex rel. Joshi v. St. Luke's
Hosp.. Inc.. 441 F.3d 552, 559 (8th Cir. 2006)). There is no case law that otherwise determines
how this Court must decide this issue.

Courts have recognized three approaches to interpreting how the statute of limitations in
31 U.S.C. § 3731(b) applies to actions brought by a private person in which the government
declines to intervene. The first approach, which defendants argue this court should adopt,interprets
§ 3731(b)(2) as applying to the government only and as inapplicable in cases where the

government does not intervene. U.S. ex rel. Sanders v. N. Am. Bus. Indus.. Inc.. 546 F.3d 288 (4th
Cir. 2008). The second approach asserts that private parties are entitled to the 10 year statute of
limitations § 3731(b)(2) and that the limitations period begins on the date the government should
have known of facts material to the right of action. U.S. ex rel. Pogue v. Diabetes Treatment Ctrs.

ofAm..474 F.Supp.2d 75(D.D.C.2007). Finally, the third approach is that the private party stands
in for the government where the government declines to intervene, and that the limitations period

begins to run on the date that the plaintiff knew or should have known the facts relevant to the
right of action. U.S. ex rel. Hvatt v. Northron Corp.. 91 F.3dl211 (9th Cir. 1996).
b. First approach: Limiting private plaintiffs to the six year limitations period

In Sanders, the Fourth Circuit decided that, based upon a claimed plain reading of

§ 3731(b), it is clear that Congress intended clause (b)(2) of that section to apply only to cases in
which the government is a party, as reading clause (b)(2) to apply when the government is not a
party produces the "bizarre" result in which "the limitations period in a relator's action depends
on the knowledge of a nonparty to the action." U.S. ex rel. Sanders v. N. Am. Bus. Indus.. Inc..
546 F.3d 288, 293 (4th Cir. 2008). Such an interpretation of the government's awareness of facts

relevant to the claim "does not notify the relator of anything, so that knowledge cannot
reasonably begin the limitations period for a relator's claims." Id. at 294. Moreover, the
government official responsible for acting on such knowledge cannot "be charged with any
)

responsibility other than to see that the government brings or joins an FCA action within the
limitations period."Id. There is no responsibility for such official to assume that a private party
will bring an FCA action.

The Fourth Circuit further explains that, following the Supreme Court's decision in
Graham, it is clear that the reference to a "civil action" in § 3731(b)'s preface should not be

interpreted to mean that all civil actions are covered by each clause of § 3731(b), but rather that
"only a subset of civil actions may benefit from the extended limitations period in

§ 3731(b)(2)—those in which the government is a party." Id. at 295 (citing Graham Ctv. Soil &
Water Conservation Dist. v. ex rel. Wilson, 545 U.S. 409,411 (2005)). The Fourth Circuit notes

that § 3731(b)(2)is almost identical to another federal statute, 28 U.S.C. § 2416(c), which "tolls

the generally applicable statute of limitations in actions brought by the United States—and only
by the United States—^until 'facts material to the right of action' are actually or constructively
known by an 'official ofthe United States charged with the responsibility to act in the
circumstances.'" Sanders at 294 (internal citations omitted). It is argued then that Congress

transcribed language enacted in 28 U.S.C. § 2416(c), which applies only to the government,

when adopting § 3731(b)(2), suggesting that Congress intended § 3731(b)(2) to similarly only
apply to the government.^ Id.
Interpreting § 3731(b)(2) to apply to private plaintiffs could result in unfavorable
outcomes. In addition to requiring defendants, in asserting a.statute of limitations defense,"to
seek out and litigate the identity and knowledge of a government official not a party to the
action," it would also allow private plaintiffs to delay in filing an action, increasing their own
recovery in doing so and rendering the six-year statute oflimitations in § 3731(b)(1)superfluous.
Id. at 295. A private plaintiffs failure to timely file a claim may also cause the government to

'This Court notes that, as articulated by the District Court in U.S. ex rel. Griffith v. Conn. 15 U.S.C. § 78u-6
("Securities whistleblower incentives and protection") also contains language similar to that included in
§ 3731(b)(2) that, like 28 U.S.C. § 2416(c), applies only to the government. 117 F.Supp.3d 961 (E.D.Ky. 2015).

lose the opportunity to bring a criminal action for the fraud, which must be filed "within five
years ofthe violation," although this outcome could also occur in the event a plaintiff exercises
the full six-year limitations period set forth in § 3731(b)(1). Id. {citing 18 U.S.C. §§ 287,3282).
In the present case, there is no search required because the FSA operates in Aberdeen, S.D., and
is readily available to litigants.

Sanders notes that the majority offederal circuit and district courts follow an approach

which limits private plaintiffs to a six-year statute oflimitations under the FCA.Id. at 296. While
Sanders does not engage in an exhaustive inquiry into congressional intent and statutory history,
the Fourth Circuit looks to the Tenth Circuit's decision in Sikkenga to support its argument that

§ 3731(b)(2)is adopted from 28 U.S.C. § 2416(c). In Sikkenga, the Tenth Circuit, outlining the
different approaches to interpreting § 3731(b), acknowledges that the plain language of the
statute "is ambiguous," and thereafter performs a lengthy statutory analysis, ultimately

determining "that § 3731(b) was not intended to apply to private qui tam relators at all." U.S. ex
rel. Sikkenga v. Regence Bluecross Blueshield of Utah. 472 F.3d 702, 722, 725(10th Cir. 2006).

Sanders leverages this analysis in its decision. In fact, it is virtually impossible to determine what
Congress intended.

c. Second approach: the government's knowledge determines the limitations period
In U.S. ex rel. Pogue v. Diabetes Treatment Centers of America, the District Court for the

District of Columbia held that the statute of limitations should begin to run when the government

becomes aware offacts material to the claim. The District Court opined that, because
§ 3731(b)(2) does not explicitly exclude private plaintiffs, and because the phrase "whichever

occurs last" appears, as offset, to apply both to § 3731(b)(1) and (b)(2), the prefatory language

"[a] civil action" should render both G5)(l) and (b)(2) as applying to all civil claims. U.S. ex rel.
Pogue V. Diabetes Treatment Ctrs. of Am..474 F.Supp.2d 75, 84, 85(D.D.C. 2007). However, as
discussed above, the Supreme Court expressly rejected this interpretation of§ 373l(b)'s preface
in Graham, and this Court is unpersuaded that any other reading would require interpreting

"whichever occurs last" as applying only to § 3731(b)(2) as the District Court argues. Rather, it
is clear that "whichever occurs last" determines which limitations period should apply should the

government choose to intervene in a claim brought by a private plaintiff, in line with the
Supreme Court's reading in Graham that "[a] civil action" does not include all civil actions.

After determining that the legislative history of the statute "shows,if anything, a desire to
ensure that the government's rights are not impaired by the conduct of some other person," the
)

Pogue opinion further reasons that § 3731(b)(2) could not apply to a private plaintiff, because
this would result in a situation where "the government could conceivably find itself time-barred
when it intervenes in a grui tarn case in which a relator waited more than three years to bring

suit." Id. at 87. This reasoning assumes that, in cases where the government does intervene, the
government would not receive the benefit of a plain reading of the statute, contrary to the Pogue
Court's own rationale for its interpretation of§ 3731(b)(2). The Pogue Court observed that,

interpreting § 3731(b)(2) such that the government is only bound by its own knowledge where it
intervenes, would "allow the government to change the applicable limitations period by deciding
to intervene," an outcome the Court characterizes as "unusual." However, I see nothing unusual
in this outcome. As implicitly acknowledged by the Sanders decision, in a case brought by a
private party, the private party will typically control when the government discovers the facts

material to the right of action. Pursuant to § 3730(b), the government may elect to intervene in

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the action within 60 days (subject to permitted extensions) of the plaintiff filing its complaint.

The complaint is not served on the defendant until ordered by the court. 31 U.S.C. § 3730.(b)(2).
The applicable statute of limitations, if at issue, could be apparent shortly after a private plaintiff
files its complaint.

It is clear from the discussion in Sanders (outlined above) that interpreting § 3731(b)(2)
as applying to the government only results in outcomes that are unfavorable to the timely filing
ofsuit, the government's rights to pursue fraud claims, and the conveniehce of both plaintiffs
and defendants. Although Poeue takes issue with the rationale provided in decisions that follow
Sanders that, were a private plaintiff not limited to the six year limitations period, that plaintiff

might sleep on the claim, this argument is unconvincing. The Pogue decision argues that the first
to file rule and public disclosure bar encourage private plaintiffs to file claims rapidly. U.S. ex
rel. Pogue v. Diabetes Treatment Ctrs. of Am..474 F.Supp.2d 75, 84,88(D.D.C. 2007).
However,for many private plaintiffs, as here, the likelihood of the fraud they have knowledge of

becoming public or being acted on by another party is limited. Moreover, plaintiffs that are the
original source ofinformation for such fraud will be able to exercise an exception to the public

disclosure bar. For the reasons stated here, this Court does not find the approach put forward by
the District Court in Pogue persuasive.
d. Third approach: the plaintifTs knowledge determines the limitations period
The third approach to interpreting § 3731(b)(2) is that, in cases where the government

chooses not to intervene, the plaintiff stands in for the government and the limitations period
begins to run on the date the plaintiff knew or should have known the facts relevant to the right
of action. In Hyatt v. Northrop Corp.. the Ninth Circuit adopted this approach, relying, however,

11

on the same argument, perhaps refuted by the Supreme Court's Graham decision, put forward by
Pogue: that the prefatory language of§ 3731(b) referring to "[a] civil action" should be read so
that both §§ 3731(b)(1) and (b)(2) apply to any civil actions. U.S. ex rel. Hvatt v. Northrop
Corp.. 91 F.3d 1211, 1214(9th Cir. 1996). Noting that.the legislative history is "at best
ambiguous," particularly with regard to the use ofthe word "government," the Ninth Circuit
posits that inconsistent use of"government""is actually consistent with the [Court's] theory of
the Act because qui tarn plaintiffs are merely agents suing on behalf ofthe government, which is
always the real party'in interest." Id. at 1215. This Court agrees with the Ninth Circuit that the
private plaintifffiling an FCA claim stands in for the government's interest. The Ninth Circuit's
finding that the legislative history is ambiguous provides sufficient rationale to render this
general observation dispositive in determining which limitations period applies to a plaintiffs
claim in which the government does not intervene. I prefer to base my decision here on matters
of equitable tolling and the facts of the present case.
The Ninth Circuit reasoned that equitable tolling, codified for the government in the FCA

at § 3731(b)(2), should similarly be available for a private plaintiff. Id. at 1216.1 agree with that
proposition. The Ninth Circuit cited legislative history only in support of equitable tolling on the
government's behalf. The fact that a federal statute sets a time limitation for a suit "does not

restrict the power ofthe federal courts to hold that the statute of limitations is tolled under certain
circumstances not inconsistent with legislative purpose" and I agree with that as well. Am. Pipe
& Const. Co. V. Utah. 414 U.S. 538, 559(1974). This is despite the fact that neither the

legislative history nor the text of the statute clearly provide for such a right for a particular party,
to the extent that one party must be substituted for another explicitly provided that right.

12

Moreover, I note that claims for equitable tolling apply where a plaintiff has been pursuing his
rights diligently and where "extraordinary circumstances" prevented timely filing. Menominee
Indian Tribe of Wisconsin v. U.S.. 136 S.Ct. 750, 755 (2016)(intemal citations omitted). All of
that exists here.

The defendants were in charge of the defend^t corporation's action and had sole control
of corporate records. Mr. Krause misrepresented many times in writing and under oath the status
of Relater and his then wife. It is possible, of course, that Relater and his then wife had rights,
obligations, and legal status which were altered as a result of the divorce to shield corporate
assets from any claims of Relator. These are questions of fact to be later determined. This is true
also as to whether any guarantees of corporate debt were involved. I cannot imagine a clearer
case in which equitable tolling should be used.
There is another logical reason why the longest period oftolling should be used. If the
Court has erred in not using a six year statute of limitations and the case is tried with an award
including more than a six year period, the case would be retried. I realize that the use of
interrogatories to the jury may prevent this, but that remains to be seen.
e. The third approach as modified as set forth above should apply in the Northern
Division of the District of South Dakota

It is clear from this overview ofinterpretations of§ 3731(b) that the plain meaning of the
statute is ambiguous. Moreover, given the breadth ofinterpretations of the legislative history of
this statute, we are persuaded that it is equally as ambiguous. While.the plain language of a
statute is the starting point for statutory interpretation, and the purpose of statutory interpretation
"is to give effect to the intent of Congress," canons of statutory interpretation "need not be

13

conclusive" and "other circumstances evidencing congressional intent can overcome their force."
U.S. V. Milk. 281 F.3d 762, 766, 767(8th Cir. 2002); U.S. v. McAllister, 225 F.3d 982, 986 (8th

Cir. 2000)(internal citations omitted); and Chickasaw Nation v. U.S., 534 U.S. 84,94(2001).
This is undoubtedly so where, as here, both the plain language of the statute and legislative

history are unclear. The third approach, as modified, should be used in the Northern Division of
the District of South Dakota in FCA cases in which the government does not intervene. In light
of this determination, the Court finds that any false claims alleged by plaintiffs to have been
„ made by defendants prior to 18 July 2006 are barred by the statute of limitations,
n.The complaint must plead claims for fraud plausibly and with particularity
In order to survive a motion to dismiss for failure to state a claim on which relief can be

granted, the plaintiff must allege "sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face." Torti v. Hoag. 868 F.3d 666,671 (8th Cir. 2017)(internal
citations omitted). A plausible claim must plead "factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged." Id. (internal

citations omitted). A prima facie case under the FCA requires that"(1)the defendant made a

claim against the United States;(2)the claim was false or fraudulent; and (3)the defendant knew
the claim was false or fraudulent." U.S. ex rel. Ravnor v. Nat'l Rural Utilities Co-op. Finance,

Corp.. 690 F.3d 951,955 (8th Cir. 2012) CaYmgU.S. v. Basin Elec. Power Coop.. 248 F.3d 781,
803 (8th Cir. 2001)). Liability under the FCA attaches to the claim for payment, rather than the
underlying fraud. Bavcol Prods. Litig.. 732 F.3d 869, 874(8th Cir. 2013).
Under the FCA,a defendant must have "actual knowledge," act "in deliberate ignorance
of or have "reckless disregard of the triith or falsity of the information" in presenting a

14

materially false claim. Bavcol Prods. Litig.. 732 F.3d at 875; 31 U.S.C. § 3729(b)(1)(A). Proof of
specific intent to defi^aud the government is not required. U.S. ex rel. Quirk v. Madonna Towers,
Inc.. 278 F.3d 765, 767 (8th Cir. 2002). Further, the "knowledge of officers and key employees

ofa corporation, obtained while acting in the course of their employment and within the scope of
their authority, is imputed to the corporation itself."-Acme Precision Products, Inc. v. Am. Alloys
Corp.. 422 F.2d 1395,1398 (8th Cir. 1970).

The heightened pleading standard for fraud under Fed. R. Civ. P. 9(b) applies to claims
brought under the FCA,to include reverse false claims. Ravnor at 956; and Olson v. Fairview
Health Services of Minnesota. 831 F.3d 1063, 1073 (8th Cir. 2016). Under Rule 9(b), a party

"must state with particularity the circumstances constituting fi^aud." Ravnor at 956. (internal
citations omitted)."To meet this standard," the plaintiffs complaint "alleging fraud 'must

identify who, what, where, when, and how.'"Id. (internal citations omitted). Pleading with the ,
requisite particularity includes the requirement to plead the materiality of the false claims to
payment. Olson at 1070; and Universal Health Services. Inc. v. U.S.. ex rel. Escobar. 136 S.Ct.
1989, n.6(2016). When a claim is based on facts "peculiarly within the opposing party's

knowledge," allegations may be pled "on information and belief so long as they are
"accompanied by a statement of facts on which the belief is founded" and the pleader identifies
"efforts made to obtain additional information." Drobnak v. Andersen Corp.. 561 F.3d 778,784

(8th Cir. 2009)(internal citations omitted). This relaxed standard,.though, does not remove the
plaintiffs requirement to plead "the equivalent of the first paragraph of any newspaper story."
Id.

15

When a plaintiff alleges a systematic practice offraud, the plaintiff need not allege details
of"every alleged fraudulent claim" but, ifthe defendants actions could, but may not necessarily
have led to the submission of false claims, must provide

representative examples of[the

defendants'] alleged fraudulent conduct, specifying the time, place, and content of their acts and
the identity of the actors" within the statute of limitations. U.S. ex rel. Joshi v. St. Luke's Hosp..
Inc.. 441 F.3d 552, 555, 557(8th Cir. 2006)(affirming lower court's dismissal ofcomplaint and
refusal ofleave to amend where plaintiffs specific claims of fraud were barred by the statute of
limitations); and U.S. ex.rel. Thaver v. Planned Parenthood of the Heartland. 765 F.3d 914, 918

(8th Cir. 2014)(clarifying the scope of the Joshi ruling). A plaintiff may.satisfy the particularity
requirement of Rule 9(b) in cases of systematic fraud without pleading representative examples
offalse claims where the plaintiff pleads "particular details of a scheme to submit false claims

paired with reliable indicia that lead to a strong inference that claims were actually submitted,"
such as "by pleading details about the defendant's billing practices and pleading personal
knowledge of the defendant's submission of false claims." Thaver at 918.

In light of this Court's determination regarding the applicable limitations period for
plaintiffs' FCA claims, Relator's allegations of false claims defendant submitted on or after the
date when "barring" first occurs must be pled with the requisite plausibility and particularity to

withstand a motion to dismiss under Fed. R. Civ. P. 12(b)(6). This date is 18 July 2006. The
Complaint alleges that defendants filed Farm Operating Plans "and other documents" every year

from 2006 to 2015 indicating that Relator and his then spouse were each 50% shareholders in
Krause-AIlbee Trucking. In opposition to defendants' motion to dismiss, Relator appends Farm
Operating Plans dated June 13, 2006, July 26,2007, May 19, 2009, May 12, 2010, June 6, 2011,

16

and July 23, 2013, as well ks minutes of corporate meetings dated January 15, 2007, January 14,
2008, and January 14, 2009, among other documents. This Court will not consider facts pled by
Relator outside of the statute oflimitations as representative examples or fulfilling the requisite

particular details of a pattern of fraud as such fraud must nonetheless not be time-barred. Joshi at
555. However, this Court considers the Farm Operating Plans as potentially representative

examples offraud which Relator alleges defendants committed from 2006-2015.
a. The Court may consider Farm Operating Plans and 2009 corporate minutes
submitted by Relator
When on a motion to dismiss for failure to state a claim, extrinsic evidence outside the

pleadings is considered by the court, the motion must be treated as one for summary judgment.
Mattes V. ABC Plastics, Inc.. 323 F.3d 695, n.4(8th Cir. 2003). However, a district court may

consider materials "necessarily embraced by the pleadings." Id. {quoting Porous Media Corp. v.
Pall Corp., 186 F.3d 1077, 1079(8th Cir. 1999)). When deciding a motion to dismiss, the court
"may consider the complaint and documents whose contents are alleged in a complaint and

whose authenticity no party questions." Kushner v. Beverlv Enters.. Inc., 317 F.3d 820, 831 (8th
Cir. 2003). Where a party "has actual notice of all the information in [a] movant's papers and has
relied upon these docurnents in framing the complaint the necessity of translating a Rule 12(b)(6)
motion into one under Rule 56 is largely dissipated." Cortec Indus.. Inc. v. Sum Holding L.P..

949 F.2d 42,47-48(2d Cir. 1991). Because the Complaint refers to the Farm Operating Plans
and 2009 minutes of a corporate meeting, copies of which are included in the opposition to
defendants' motion to dismiss, this Court will consider the Farm Operating Plans and 2009
minutes of corporate meeting without converting this motion to one for summary judgment. This

17

Court need not consider the 2007 or 2008 minutes of meetings, as they are not mentioned in the
Complaint.

The Farm Operating Plan dated June 13, 2006, is outside of the statute of limitations as

the limitations period under the False Claim Act § 3731(b)(1) begins to run on "the date the false
claim was actually submitted." Graham Ctv. Soil & Water Conservation Dist. v. ex rel. Wilson.
545 U.S. 409,415(2005). The 2007 Farm Operating Plan is an update to the 2006 Farm
Operating Plan and indicates no change to the share ownership provided therein: John Millin,
32%; Lori Millin, 43%; and Brian Ellison, 25%. The 2009 Farm Operating Plan is signed by
Larry Krause and Lori A. Millin, who is listed as "President- Director" with Relator listed as
"Vice President- Director," and each as holding 50% ownership in Krause-Allbee Trucking.
The 2009 Farm Operating Plan lists Lori Millin as maintaining 50% "Active Personal"
management of the company, with Relator maintaining 25% "Active Personal" management.
Relator's management is described as including participating in management meetings and being

responsible for major decisions. The plan also states that Lori and Relator are guarantors of a
loan at "First State Bank of Warner in Warner, SD." The 2009 minutes of corporate meeting list
Lori and John Millin as the only stockholders and.directors. The 2010 and 2011 Farm Operating
Plans are re-certifications of the 2009 Farm Operating Plan, signed by Lori A. Millin. The 2013
Farm Operating Plan, signed by Larry Krause on July 23,2013, maintains the same ownership
and active personal management interests in Krause-Allbee Trucking for both Lori Millin and
Relator as stated in the 2011 plan. Relator includes correspondence from Krause's counsel,

Kennith Gosch, dated June 22,2015, stating that "John Millin is not now nor has he ever been a
shareholder" in Krause-Allbee Trucking, as well as a letter from First State Bank, dated August

18

17, 2015,that states that "John Millin is not a guarantor for any obligation of Krause-Allbee
Trucking." It appears to be undisputed that false information was submitted to the government
many times.

The Complaint alleges that "[u]pon information and belief, documents filed in 2007,

2008, and/or 2009 with the FSA by Krause-Allbee Trucking, including Farm Operating Plans,
show a similar ownership structure to that as stated in 2006." Further, the Complaint states that
"[u]pon information and belief, Krause filed documents, including but not limited to Farm

Operating Plans, in 2010 and 2011 on behalf of ICrause-Allbee Trucking indicating that there
were no ownership changes for 2010 and 2011" from the 2009 filings. The Complaint also
alleges that "[u]pon information and belief," Krause filed 2012,2013,2014, and 2015 Farm

Operating Plans indicating that Relator held a 50% ownership in Krause-Allbee Trucking.
• Allegations may be.pled on information and belief when facts are, as here, likely to be

"peculiarly within the opposing party's knowledge," but such belief must be accompanied by
facts justifying the belief and a statement identifying "efforts made to obtain additional
information." Drobnak at 784. Relator supports the allegation that defendants filed Farm
Operating Plans in 2007, 2009, 2010, 2011 and 2013 indicating Relator's ownership in KrauseAllbee Trucking with a copy of those plans. The opposition to defendants' motion to dismiss
additionally identifies Relator's efforts, by way of e-mail communication through his counsel, to
obtain additional information regarding his ownership interest from Krause. The 2007, 2009,

2010,2011 and 2013 Farm Operating Plans are pled as representative of a scheme of fraud
undertaken by defendants until 2015.

19

Relator has pled the "first paragraph of any newspaper story," meeting the heightened
pleading requirements for Fed. R. Civ. P. 9(b) and plausibility requirements of Fed. R. Civ. P.
(8)(a) for claims beginning in 2007. Krause or Lori Millin submitted Farm Operating Plans in
2007, 2009, 2010,2011 and 2013 to the FSA for farm subsidies. The plans are stamped with the

date of receipt by the Brown County FSA in Aberdeen as July 26, 2007, May 19, 2009, May 26,
2010, June 8, 2011, and July 29, 2013,respectively. These Plans indicate an ownership interest
in Krause-Allbee Trucking for Relator of 32 to 50%, although attorney Gosch has stated that
Relator was never a shareholder in the company. The 2009-2013 Farm Operating Plans also
indicate that Relator participated in management meetings on a regular basis and was responsible
for major decisions, although Relator states that he had no engagement of any kind with the

company. Farm Operating Plans determine "payment eligibility and limitation determinations for
farm subsidies" as is clear from the form documents.

Moreover, the form Farm Operating Plans contain a certification section that defendant
Krause signed stating that "I certify that all information entered on this document... is true and
correct," that "I understand that furnishing inconect information will result in forfeiture of
payments and may result in the assessment of a penalty," and that "it is my responsibility to
timely notify FSA in writing of any changes that may affect these representations." It is clear that
the requirements for a prima facie case under the FCA have been met by Relator, as Relator has
demonstrated that(1)the defendants made claims against the United States—^here, the FSA;(2)

the claims were false or fraudulent in stating Relator's ownership interest; and (3)the defendants
knew, or were at least in "reckless disregard of the truth or falsity of the information" of the
claim. Relator has further sufficiently pled representative examples of a scheme of fraud—he has

20

clearly specified "the time, place, and content" of the fi-audulent behavior as well as "the identity
ofthe actors"—to warrant retaining claims fi-om 2007 to 2015 inclusive. Joshi at 557. Relator

need not plead personal knowledge of defendants' submission of false claims where, as here, he
is able to meet the standard set forth by Joshi.
b. Relator has demonstrated defendants' false claims were material to payment

Following Escobar, a motion to dismiss may also properly encompass the materiality of a
defendant's false claims to the government's decision to pay a claim. The FCA defines

materiality as "having a natural tendency to influence, or be capable ofinfluencing, the payment
or receipt of money or property." 31 U.S.C. § 3729(b)(4). The fact that the government is

entitled to refiase payment if aware of a violation, as is suggested by the certification provision of
the Farm Operating Plans, is insufficient to meet the materiality requirement. Escobar at 2004.
However, a false statement is considered material under the FCA if"either(1) a reasonable

person would likely attach importance to it or(2) the defendant knew or should have known that
the government would attach importance to it." U.S. ex rel. Miller v. Weston Educ.. Inc.. 840
F.3d 494, 503-4(8th Cir. 2016). The ownership interest ofindividuals for an entity seeking
benefits from the FSA, as well as their engagement in that entity, are central to the payment

eligibility criteria for farm subsidies established in 7 CFR Part 1400-Payment Limitation and
Payment Eligibility. Indeed,"[ijdentifying who or what is participating and therefore how
payments may be attributed is the cornerstone to most program eligibility." CONG. Research
Serv., R44739,U.S. FARM PROGRAM Eligibility and Payment Limits 5(2017). A reasonable

person would therefore likely attach importance to the statement of ownership interests to the
FSA in the Farm Operating Plan, and these considerations, in determining an individual's

21

eligibility for farm subsidies, undoubtedly influence the payment offarm subsidies by the
government as required by § 3729(b)(4).

The pertinent regulations in force at the time the 2009, 2010, 2011 and 2013 Farm

Operating Plans were submitted demonstrate that the defendants' false claims were material to
the government's decision to'pay claims. The version of7 CFR Part 1400 in force in 2007 differs

slightly from the versions discussed below, but is materially the same; differences are indicated
with footnotes. The regulations codified at 7 CFR Part 1400 provide detailed guidance for the

attribution of payments by the pro rata share of a person's interest in an entity, used to establish

an individual's cumulative payments against their annual payment limits, 7 CFR § 1400.105.^
Payment limitations per person are established in § 1400.1(f) and average adjusted gross income
limitations are set forth in § 1400.500(a)-(d).^ The payment eligibility requirements state that
"[t]o be considered eligible to receive payments with respect to a particular farming operation, a
person or legal entity must be actively engaged in farming with respect to such operation." 7
CFR § 1400.201. The requirement to be actively engaged in farming has evolved since its
inclusion in the 1987 Farm Program Payments Integrity Act, but continues to be an area in which
the government has recognized potential for fraud. CONG. RESEARCH Serv.,R44656,USDA'S
I

Acttvely Engaged in Farming(AEF)Requirement 3(2016)(stating that the actively engaged
in farming requirement may "facilitate[e] the creation of new farm operation members simply to
expand an operation's farm payment receipts.") Requirements for active engagement in farming
are established separately for different entities or individuals engaged in farming operations.

^ While the 2007 regulations do not provide guidance for the attribution of payments, payment limitations per person
are "applied on a 'direct attribution' method with respect to the individual or entity." § 1400.1(g), n.l.
3 See §§ 1400.1(g), 1400.600(2007).

22

What follows looks at the provisions governing potentially relevant entities for the current
instance.

For a farming operation conducted predominately by family members, in order to be
actively engaged in farming, the adult family member must
(1)[h]ave a share of the profits or losses from the farming operation
commensurate with such person's contribution to the operation and
(2)[m]ake contributions to the farming operation that are at risk for
a loss, with the level ofrisk being commensurate with such person's

claimed share ofthe fanning operation. 7 CFR § 1400.208.''
Contribution is defined as "providing land, capital, or equipment assets, and the actions of
providing active personal labor or active personal management to a farming operation in
exchange for, or with the expectation of, deriving benefit based solely on the success of the

farming operation." 7 CFR § 1400.3. Active personal management includes "general supervision
and direction of activities" or "[sjervices reasonably related and necessary to the farming
operation," which could potentially not require physically visiting the farming operation.
However,taking Relator's allegations as true that Relator had no engagement of any type with

the farming operation nor contributed any capital or other assets, this Court must presume for the
purposes of deciding the motion to dismiss that Relator was not "actively engaged in farming,"
and that he otherwise made no "contributions to the farming operation."

The requirement.to be actively engaged in farming adheres for members of a corporation,
with the additional requirement that the "active personal labor-and active personal management"

is "(i)[p]erformed on a regular basis;(ii)[ijdentifiable and documentable; and (iii)[s]eparate

* The 2007 regulations state that "an adult family member who makes a significant contribution of active personal
management, active personal labor, or a combination of active personal labor and active personal management shall
be considered to be actively engaged in farming." The 2007 regulations do not define contribution. This does not
change the analysis in the present paragraph.

23

and distinct from such contributions of any other ... member of the farming operation." 7 CFR

§ 1400.2p4(a)(2)(i)-(iii).^ As of 2011, an exception to the requirement that a member be actively
engaged in farming exists where "[a]t least 50 percent ofthe stock is held by ... members that
are actively providing labor or management." 7 CFR § 1400.204(a)(2),(c)(1). It is also possible,
as of2011, for one spouse to contribute either active personal labor, actiye personal

management, or a combination of these for both spouses. 7 CFR § 1400.204(a)(2). While the
2009, 2010, 2011 and 2013 Farm Operating Plans state that Lori Millin will "be responsible for
the minor decisions," to include "financial" and "tax decisions," and will take responsibility for

"the planning and direction of the farming operation," to include "mak[ing] the cattle buying

decisions,""the major decisions," and "participat[ing] in management meetings on a regular
basis," defendants provide no indication that Lori Millin was actively providing labor or
management or otherwise seek to counter Relator's argument that these statements were

fraudulently made. The 2007 Farm Operating Plan provides no indication that Lori or John
Millin provided any management function. Since Relator states that his then-wife was not
"actively engaged in the management of any farming operations" for the duration of his

marriage, accepting his allegations as true, this Court must also presume that Lori Millin was not
"actively providing labor or management" to the farming operation for the purpose of this
motion to dismiss.

Like the exception for spouses included under corporations, as of 2009, a provision in the

regulation under "Persons" indicates that where one spouse is actively engaged in farming the
other spouse need not be. 7 CFR § 1400.202(b). However, this provision specifically references

^ This clarification does not exist in the 2007 regulations; however, this does not change the analysis in this
paragraph.

24

such spouse's active engagement in farming as fulfilling the other spouse's requirement to do so
under § 1400.202(a)(l)(ii). It therefore does not nullify the requirement in the same section for

each spouse to provide capital as provided in paragraph (a)(l)(i). Nor do we read this provision
alongside the less restrictive requirements for family members under § 1400.208 or spousal
members of a corporation under § 1400.204(a)(2) as suggesting that neithen spouse is required to
contribute capital to the faiming operation. This Court notes that neither party has alleged that
any property, to include marital property, was contributed to ICrause-Allbee Tnicking's farming

operations by Lori or John Millin to fulfill the active personal management requirement. While
the 2007 Farm Operating Plan states that Lori and John Millin contributed 846.4 acres ofleased
land to the farming operating for $50 per acre, and while such lease ofland to the farming
operation may be sufficient to satisfy the requirement for capital under 7 CFR § 1400, the
spousal exception described here was not available in 2007, and defendants allege in the 2009
Farm Operating Plan that the cash-rent tenant rule is not applicable as John and Lori Millin will
contribute active personal management. Nor is the loan with the First State Bank of Warner
sufficient to satisfy the capital requirement, as any loan provided by a person to fulfill paragraph
(a)(l)(i) must not be co-signed or guaranteed by "[a]ny other person" that "has an interest in such
farming operation." The 2009,2010,2011 and 2013 Farm Operating Plans, however, list both
John and Lori Millin as guarantors for the loan from the First State Bank of Warner, and Lori
Millin is also listed as having an ownership interest in Krause-Allbee Trucking. Moreover, given

Relator's allegations, representations regarding the loan must be presumed to be false.
The provisions of7 CFR Part 1400 moreover provide that "[a]ny change in a farming

operation that would increase the number of persons or legal entities to which the provisions of

25

this part apply must be bona fide and substantive." 7 CFR § 1400.104.^ It contains specific
provisions for refunding payments received "if the person or legal entity fails to comply with the
provisions of this part and adopts or participates in adopting a scheme or device designed to
evade this part." 7 CFR § 1400.5."^ Defendants should have been aware, then, that the
government would attach importance to the ownership interests in Krause-Allbee Trucking
indicated on the Farm Operating Plan.

For the above reasons, this Court finds that(1) a reasonable person would likely attach

importance to the ownership interests indicated on the Farm Operating Plans submitted to the
FSA and (2)defendants should have known the government would attach importance to those

representations. The false claims were then material to the government's decision to pay claims.
This determination, alongside the determination that plaintiffs have pled representative examples
of a prima facie case under the FCA,leads this Court to the conclusion that plaintiffs have
clearly pled facts for fraud in connection with Krause-Allbee Trucking's claim for farm subsidies
from 2007-2015 with the requisite particularity and plausibility under the FCA's
§§ 3729(a)(1)(A) and (a)(1)(B).

However, because Relator has pled no facts, other than Krause's alleged ownership, with

regard to Krause-Allbee Farming, Inc., L&L General Partnership, and K&L Land & Cattle, LLC,
any claims involving these entities should be dismissed. Moreover, Relator's reverse false claim
under § 3729(a)(1)(G) should also be dismissed, as Relator has alleged no facts showing that

1400.109 (2007).

' 2007 regulation reads slightly differently but is substantively the same:"All or any part ofthe payment
The
otherwise due a person on all farms in which the person has an interest may be withheld or be required to be

refunded if the person adopts or participates in adopting a scheme or device designed to evade this part or that has
the effect ofevading this part."

26

defendants' claims were either "material to an obligation to pay or transmit money or property to

the Government" or that the defendants "knowingly conceal[ed] or knowingly and improperly

avoid[ed] or decreas[ed] an obligation to pay or transmit money or property to the Government."

31 U.S.C. §§ 3729(a)(1)(G);

also U.S. v. O Intern. Courier. Inc.. 131 F.3d 770, 773 (8th Cir.

1997)(holding that reverse false claims require that "a defendant must have had a present duty to
pay money or property" to the government). Rather, Relator's Complaint alleges defendants
received unearned subsidies from the FSA,not that defendants avoided paying money owed to

the government. While it is possible that defendants could have reduced loan repayment rates for
loans received through farm subsidy programs, Relator has not pled this claim with any
specificity.
III. Relator's claim for conspiracy under the FCA
Relator's final claim under the FCA is that Krause and Krause-Allbee Trucking

"conspired with one another to defraud the govemihent by getting false or fraudulent claims
allowed or paid" in.violation of 31 U.S.C. § 3729(a)(1)(C). Defendants state that this claim is

barred by the intracorporate conspiracy doctrine. The Eighth Circuit has yet to determine the
applicability of this doctrine to claims brought under the FCA. The intracorporate conspiracy
doctrine, developed within the context of antitrust law, holds that a corporation cannot conspire

with its employees, agents, or subsidiaries, as that would amount to conspiring with itself. See,
e.g., Copperweld Corp. v. Indep. Tube Corp.. 467 U.S. 752(1984). The doctrine "turns on
specific antitrust objectives" and at least one district court has held that it is not available under
the FCA. Cedric tCushner Promotions. Ltd. v. King. 533 U.S. 158, 166 (2001); and U.S. ex rel.

Harris v. Lockheed Martin Corp., 905 F.Supp.2d 1343 (N.D.Ga. 2012)(holding that the

27

intracorporate conspiracy doctrine does not apply to criminal conspiracies under 18 U.S.C. § 371
and that, because the conduct plaintiffs alleged would constitute a violation of both that statute
and the civil liability provisions of§ 3729(a), the intracorporate doctrine cannot shield the same
conspiracy alleging.criminal wrongdoing from civil liability); see also U.S. v. President and
Fellows of Harvard College. 323 F.Supp.2d 151, n.40(D.Mass. 2004)(stating that "it is

questionable whether" the intracorporate conspiracy doctrine would apply to an FCA case but
without ruling on the issue). On the other hand, a handful of district courts have extended the
intracorporate conspiracy doctrine to bar claims for conspiracy under the FCA.See U.S. v.
Gwinn, 2008 WL 867927, 24(S.D.W.Va. 2008)(collecting cases). This includes two district
court cases from the Eighth Circuit, which assume that plaintiffs in a claim for conspiracy under
the FCA must plead facts of conspiracy outside the corporate structure in order not to be barred
by the intracorporate conspiracy doctrine. U.S. ex rel. Scharber v. Golden Gate NaFl Senior

Care, LLC. 135 F.Supp.3d 944, 967(D.Minn. 2015); and U.S. v. Cathedral Rock Corp.. 2007
WL 4270784,6(B.D.Mo. 2007)(not reported). This Court is persuaded by the rationale
provided by the Northern District of Georgia: because the intracorporate conspiracy doctrine •
does not apply to criminal conspiracy, and because the conduct that Relator alleges would
constitute a violation of both 18 U.S.C. § 371 and the civil liability provisions of§ 3729(a), the

intracorporate conspiracy must not shield the same conspiracy from civil liability. See e.g.,
McAndrew v. Lockheed Martin Corp., 206 F.3d 1031, 1034(11th Cir. 2000).'
This Court also finds that Relator has plead a claim under 31 U.S.C. § 3729(a)(1)(C) with
the particularity required of Fed. R. Civ. P. 9(b). The particularity requirement of Fed. R. Civ. P.

9(b) applies to conspiracy claims brought under the FCA. U.S. ex rel. Grubbs v. Kanneaanti. 565

28

F.3d 180,193 (5th Cir. 2009). To state a claim for conspiracy under § 3729(a)(1)(C), it must be
shown that the conspirators intended "to defraud the government." Allison Engine Co.. Inc. v.
U.S. ex rel. Sanders;553 U.S. 662,672-3 (2008). Although "it is not necessary to show that the
conspirators intended the false record or statement to be presented directly to the Government,"

the plaintiffs must establish "that they agreed that the false record or statement would have a
material effect on the Government's decision to pay the false or fraudulent claim." Id, A plaintiff
need not provide proof of express agreement, but must establish "a tacit understanding between
the parties" which may be shown "wholly through the circumstantial evidence of each
defendant's actions." Aguilar v. PNC Bank. N.A., 853 F.3d 390,402(8th Cir. 2017). Relatorhas

pled facts of an agreement to support claims for conspiracy under § 3729(a)(1)(C) by furnishing
the minutes of Krause-Allbee Trucking's corporate meeting, dated January 14, 2009. These
minutes of corporate meeting indicate that both John Millin and his then spouse are stockholders
and officers of BUause-Allbee Trucking. This Court finds that these minutes of meeting, in

addition to the Farm Operating Plans submitted by defendants, provide sufficient circumstantial
evidence to establish a tacit understanding that defendants intended to defraud the government to
support claims for conspiracy under 31 U.S.C.,§ 3729(a)(1)(C). Because I also hold that the
intracorporate conspiracy doctrine does not apply to claims under the FCA,the claim for
conspiracy under the FCA should not be dismissed.
IV. Declaratory judgment of ownership interests in Krause-Allbee Trucking

This Court will not dismiss Relator's claims for declaratory judgment of Relator's current

or former ownership interest in Krause-Allbee Trucking under 28 U.S.C. § 2201. As this Court
will not dismiss all of Relator's claims under the FCA,independent federal jurisdiction exists as

29

required under 28 U.S.C. § 2201(a). Defendants argue that this Court should nonetheless dismiss

the request for declaratory judgment as "Krause-Allbee Trucking's ownership" is "a matter of
state corporate and common law." However, this Court's jurisdiction over Relator's claim is

proper as a matter ofsupplemental jurisdiction and defendants put forward no other reason that
this claim should be dismissed. 28 U.S.C. § 1367.
V. Relator's claim for unjust enrichment

Pursuant to Fed. R. Civ. P. 8(d), a party may plead "2 or more statements of a claim or

defense alternatively or hypothetically." Where altemative statements are made "the pleading is
sufficient if any one ofthem is sufficient." Fed. R. Civ. P. 8(d)(2). Moreover, a party "may state

as many separate claims or defenses as it has, regardless of consistency." Fed. R. Civ. P. 8(d)(3).
This rule is also recognized in South Dakota. SDCL 15-6-8(a),(e). The fact that Relator's claim

for unjust enrichment may be inconsistent with claims brought under the FCA is not a reason for^
dismissal.

In the instant case, Relator has pled a claim for unjust enrichment that is plausible on its
face and that allows this court "to draw the reasonable inference that the defendant is liable for

the misconduct alleged." Torti v. Hoag. 868 F.3d at 671. Unjust enrichment "occurs 'when one

confers a benefit upon another who accepts or acquiesces in that benefit, making it inequitable to
retain that benefit without paying.'" Hofeldt v. Mehline. 658 N.W.2d 783,788 (S.D. 2003). To
establish a prima facie claim for unjust enrichment in South Dakota, the plaintiff must claim that
the defendant(1)received a benefit;(2)the defendant"was cognizant of that benefit"; and (3)
"the retention of the benefit without reimbursement would unjustly enrich the recipient." Mack
V. Mack. 613 N.W.2d 64,69(S.D. 2000). The relevant inquiry in determining whether the

30

recipient was unjustly enriched "is whether the circumstances are such that equitably the
beneficiary should restore to the benefactor the benefit or its value." Dowline Family P'shin v.
Midland Farms. 865 N.W.2d 854, 863 (S.D. 2015)(internal citations omitted). Further,"[a]n

enrichment is unjust ifit 'lacks an adequate legal basis; [i.e.,] it results from a transaction that the
law treats as ineffective to work a conclusive alteration in ownership rights.'" Id. (internal
citations omitted).
South Dakota state courts follow the Restatement of Restitution and Unjust Enrichment.

See, e.g., FarmPro Services. Inc. v. Finneman. 887 N.W.2d 72(S.D. 2016); Dowline Family
P'shin. 865 N.W.2d 854(S.D. 2015); Hofeldt. 658 N.W.2d 783(S.D. 2003); Juttelstad v.

Juttlestad. 587 N.W.2d 447(S.D. 1998); Tallevv. Tallev. 566 N.W.2d 846(S.D. 1997); and
Hofer V. Bon Homme Hutterian Brethren. Inc.. 109 N.W.2d 258 (S.D. 1961). While a claim for

unjust enrichment may exist where a person "is unjustly enriched at the expense of another," "the
consecrated formula 'at the expense of another' can also mean 'in violation of the other's legally
protected rights,' without the need to show that the claimant has suffered a loss." Restatement
(Third) of Restitution & Unjust Enrichment § 1, cmt. a(Am. Law Inst. 2011). Where the breach
offiduciary duty is at issue,"the defendant's benefit is regarded as being 'at the plaintiffs
expense' because it resulted in a wrong committed against him." Daniel Friedmann, Restitution
of Benefits Obtained Through the Appropriation ofProperty or the Commission of a Wrong, 80
COLUM. L. Rev. 504, 504(1980).

Accepting Relator's factual allegations as true, if the claims against defendants do not
succeed under the FCA,Relator has nonetheless pled a prima facie case for unjust enrichment.

The defendants(1) received a benefit of subsidies for their farm operation and Relator has pled

31

that the inclusion of Relator's interest in Krause-Allbee Trucking on the Farm Operating Plans
was material to the FSA' s decision to issue those subsjdies. Defendants, having drafted and
submitted the Farm Operating Plans to the FSA, and received the subsidies, (2) were "cognizant
of that benefit." Finally, as Relator was never compensated for the liquidation of his possible
interest in Krause-Allbee Trucking, Inc., (3) "the retention of the benefit without reimbursement
would unjustly enrich the recipient."
VI. Relator's request to amend the complaint

· A decision whether to allow a plaintiff to amend a complaint is "left to the sound
discretion of the district court." Popoalii v. Correctional Medical Services, 512 F.3<! 488,497
(8th Cir. 2008) (internal citations omitted). Amendments may be denied where they unduly
prejudice the non-moving party or would be futile. Id. Relator's request for leave to amend the
Complaint in the brief in opposition to defendants' motion to dismiss violates one of the local
rules in the District of South Dakota. D.S.D. LR 15.1. Without the court and defendants
receiving a proposed amendment to the Complaint along with the motion to amend, granting the
motion to amend would allow Relator leeway to state unexpected claims. Allowing such would
be unduly prejudicial to the opposing party. The motion to amend should therefore be denied,
without prejudice.

ORDER
Now, therefore,
IT IS ORDERED:
1.Defendants' motion to dismiss, Doc. 32, is granted in part and denied in part. With
regard to Count I-False Claims Act§ 3729(a)(I), Count II- False Claims Act

3 2.

§ 3729(a)(2), and Count III - Conspiring to Defraud the Government of plaintiffs'
Complaint, Doc. 1, defendants' motion to dismiss is granted for any claims prior to
July 18, 2006.
2. Defendants' motion to dismiss is granted in full for Count IV - Reverse False Claims
of plaintiffs' complaint.

3. Defendants' motion to dismiss Count V - Declaratory Judgment and Count VIUnjust Enrichment of plaintiffs' Complaint are denied.

4. Plaintiffs' request to amend the Complaint, Doc. 41,is denied, without prejudice.

Dated this t^3^of April, 2018.
BY THE COURT:

CHARLES B. KORNMANN

United States District Judge

33