Summary of a Recent
Judicial Development in
Administrative Law and
Farm Commodity Programs

Eight Circuit Interprets Payment
Limitation Regulations

Kurt B. Olson
National AgLaw Center Graduate Assistant

In Mages v. Johanns, 431 F.3d 1132 (8th Cir.), the Eighth Circuit Court of Appeals held that a farmer acting cooperatively with his parents' corporation was nonetheless a separate and distinct entity and that the farmer did not engage in a scheme or device to circumvent payment limitations. Jason Mages had been farming on his own since 1992 while his parents ran their own farm operation using a corporation called RODI. Id at 1135. While Mages and RODI occasionally swapped labor and equipment and had a verbal agreement to jointly purchase inputs and cooperatively market crops through RODI, Mages kept diligent records showing each entity's interest in such transactions. Id at 1135-1136. Following a trial in 1999, during which RODI was charged with defrauding the USDA by receiving farm program payments while committing wetland violations, the County Farm Service Agency (FSA) conducted its own investigation and found Mages was not separate and distinct from RODI. Id at 1136. On appeal, the FSA State Committee – and subsequently the USDA's National Appeals Division (NAD), the director of NAD, and the district court - found that not only was Mages not separate and distinct from RODI, but his failure to disclose the relationship on his farm program applications constituted a scheme or device designed to earn payments he was not otherwise entitled to receive. Id at 1137.

In holding the USDA's "separate and distinct" ruling "plainly inconsistent with the regulation," the Eighth Circuit pointed out the regulation requires a "separate person" to have a separate interest in the land or the crop; Mages is a "separate person" under the regulation because no evidence was presented showing RODI had any interest in Mages's land, regardless of RODI's alleged interest in his crops. See id. at 1139-1140. The court also found Mages's failure to report his relationship with RODI did not constitute a scheme or device designed to evade payment limitations because RODI did not have a "commensurate share" in Mages's operation, due to its lack of an "at risk" contribution, and Mages was not an "affiliated person" of a wetlands violator because the record did not show that he held the required 20% interest in the corporation or that RODI was his alter ego. See id. at 1140-1146.

The court did not rule on whether RODI's marketing activities constituted "active personal management" of Mages's operation or whether the USDA must show intent to defraud before finding a person engaged in a scheme or device to evade payment limitations. Id at 1146-1147.

The case was decided on December 27, 2005; this summary was posted Feb. 23, 2006.