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United States v. High Plains Livestock, LLC

United States District Court, D. New Mexico

August 9, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
HIGH PLAINS LIVESTOCK, LLC, dba PRODUCERS LIVESTOCK AUCTION, MICHAEL FLEN, CALVIN PAREO, and DARCI PAREO, Defendants.

          MAGISTRATE'S PROPOSED FINDINGS AND RECOMMENDED DISPOSITION ON MOTION REQUESTING REIMBURSEMENT

          JERRY H. RITTER U.S. MAGISTRATE JUDGE.

         Defendant High Plains Livestock ("HPL") seeks reimbursement from the Plaintiff United States for fees paid to Special Master Johnson Miller & Co. in the amount of $23, 428.43. HPL filed its Motion Requesting Reimbursement of Payments to Co-Special Master Johnson Miller & Co. [Doc. 402');">402');">402');">402');">402');">402');">402');">402] on September 26, 2017. The United States of America's Response in Opposition to Defendants' [sic] Motion Requesting Reimbursement of Payments to Co-Special Master Johnson Miller & Co. [Doc. 407] was filed on October 24, 2017. HPL's Reply to United States of America's Response in Opposition to Motion Requesting Reimbursement of Payments to Co-Special Master Johnson Miller & Co. [Doc. 416] completed the briefing on November 14, 2017.

         ISSUE PRESENTED

         Whether the District Court should order the United States to reimburse Defendant HPL for payments to the Co-Special Master made under a previous court order?

         MATERIAL FACTS

         The litigation was commenced by the United States under the Packers & Stockyards Act (PSA), 7 U.S.C. §§ 181-231, based upon the Plaintiff's belief that the Defendants were violating the law regarding record-keeping, fund management, and payments to customers of HPL's stock auction business. [Doc. 1]. The United States sought civil penalties against all Defendants as well as temporary injunctive relief to protect the public pending the conclusion of the litigation. Id.

         By direction of District Judge M. Christina Armijo, Magistrate Judge William P. Lynch held a four-day evidentiary hearing to determine whether the evidence supported issuance of a preliminary injunction under authority granted by 7 U.S.C. § 228a. Upon that evidence, Magistrate Judge Lynch found that Defendants had committed multiple violations of the PSA and that it was “appropriate to appoint a receiver to conduct an initial review of HPL's continued viability and, if viable, to take over all aspects of HPL's operations.” [Doc. 55, p. 2-3]. After allowing both sides additional input, District Judge Armijo adopted Magistrate Judge Lynch's findings, later noting that they, "and more, are supported by the record [and] Defendants do not challenge these factual findings as clearly erroneous." [Doc. 103');">103, p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 12-13].

         Based on Magistrate Judge Lynch's recommendations, District Judge Armijo considered whether it would be necessary to terminate HPL's business operations or take other steps to protect the interests of the public. Defendants contemporaneously represented that they intended either to cease operations completely or to wind them down over a period of months, prompting District Judge Armijo to appoint a receiver to take possession of HPL's assets and to maintain the status quo. [Doc. 103');">103, p. 5');">p. 5]. Judge Armijo later wrote that appointment of a receiver was merited, "[g]iven the strength of the evidence of rampant fraudulent conduct, and because that fraudulent conduct establishes the United States' basis for relief, [and] there is imminent danger of the property being diminished". Id., p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 14.

         When the proposed receiver declined to serve, District Judge Armijo issued a temporary injunction "that Defendants maintain their cattle and property in the same condition as they were in as of December 24, 2015 and not engage in any dealer activity, until further Order of the Court." [Doc. 89, p. 6; see Doc. 103');">103, p. 6]. At Defendants' suggestion, the Court then appointed Gayland Cowen as special master to monitor and report on Defendant's operations. [Docs. 103');">103 &amp. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 104]. At the same time, District Judge Armijo noted that she was considering appointing the CPA firm of Johnson, Miller & Co. as a co-special master. [Doc. 103');">103, p. 5');">p. 5].

         After sua sponte requesting and obtaining briefing on the issue of subject matter jurisdiction, Judge Armijo dismiss eight of the nine counts seeking civil penalties, although the temporary injunction regarding Defendants' operations remained in place. [Doc. 165, pp. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 10-12 &amp. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 14-16]. Thereafter, responding to concerns that the Special Master was unable to develop the data and analysis that would sufficiently inform the Court about Defendants' operations and viability, Judge Armijo stated her intention to appoint a co-special master to provide additional oversight. [Doc. 296].

         Between the Court's ruling that a co-special master was needed and the specific appointment of Johnson, Miller & Co., the ninth and final count for civil penalties was dismissed on the unopposed motion of the United States, stating that it was “no longer in the interest of the United States to pursue this claim.” [Doc. 336, p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1]. The order of dismissal expressly “[left] in place only the United States' request for temporary injunctive relief”. [Doc. 345, p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1].

         There followed a specific order appointing the accounting firm Johnson, Miller & Co. as Co-Special Master expressly "for the purpose of investigating whether High Plains Livestock is solvent". [Doc. 353, p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 11]. The order directed that "[a]ll payments to the Special Master shall be from the Court Registry" and that HPL would make monthly payments into the registry for that purpose. [Id., p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 1');">p. 10]. The Appointment Order also set forth a specific predicate for HPL to pursue reimbursement of those payments:

If the results of the solvency analysis are that 1) High Plains Livestock is solvent, and 2) there is no evidence that High Plains Livestock is utilizing the company funds for purposes other than company business, and 3) the Special Master's conclusions as to the monthly financial status of High Plains Livestock do not differ from Special Master Cowen's conclusions by greater than 10%, then High Plains Livestock may seek reimbursement of the cost of the Special Master's review and report from the United States.

         The merits of the case were ultimately resolved through a parallel administrative process at the U.S. Department of Agriculture: the parties reached a settlement memorialized in a Consent Decision [Doc. 388, Exh. 1]. The specific terms imposed a $100, 000 civil fine jointly and severally upon all Defendants, with 90% of the fine held in abeyance; there was no requirement that HPL repay customers or suspend its dealer operations. [Doc. 402');">402');">402');">402');">402');">402');">402');">402, p. 2]. Returning to court, Defendants submitted an Amended Unopposed Emergency Motion to Dismiss Remaining Claims and for an Order Directing Special Masters to Cease All Work on and Related to this Matter [Doc. 388], which the District Court granted on September 12, 2017. [Doc. ...


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