Cargill, the nation's largest private corporation and one of the world's two largest grain traders along with Craig D. Hungerford a Madison, Wisconsin land appraiser and his appraisal firm, Real Estate Dynamics Inc., is being charged in a federal court lawsuit with defrauding California state and federal governments by inflating the value of 10,000 acres of abandoned salt ponds on the northern edge of the state's San Pablo Bay by establishing an artificial price of $10 million by making a series of false claims.
In a complaint unsealed on December 17 by U.S. District Judge Charles R. Breyer in San Francisco, Cargill, through its wholly owned subsidiary, Leslie Salt Co., was able to inflate the price of its property by relying on an allegedly unlawful appraisal method known as a "public-interest value." Officials at Cargill's Wayzata, Minnesota, headquarters have vehemently denied the suits general allegations.
The "public-interest value" technique, as explained by Marc Lifsher in his report of the suit which appeared in the December 22 Wall Street Journal, purports to set a value for land that may not have much economic value in the open market. "Instead," Lesher notes, "the technique allows the land's value to be set at a higher price by concluding that its 'highest and best use' is to be purchased by the government or some other entity for conservation in its 'natural state'."
Critics of the method contend that it is arbitrary -- and results in inflated values, which is the position that the lawsuit has taken, contending that the only legal method for appraising such a parcel should be based on its "fair market value," or what it might sell for in an open, public sale.
In reality, the San Pablo tract had a "negative fair market value" because of the need for the new owners to mitigate environmental damage caused by years of salt-manufacturing operations, the complaint, lodged by John Dale Hansen, executive director of Integrity in Natural Resources, a Santa Rosa-based group that scrutinizes such environmental purchases, charges.
The complaint also specifically alleges that Cargill, Hungerford and his appraisal firm defrauded the state and federal governments by inflating the value of the Napa County marsh property by making a series of false claims, including:
* That new regulations known as the Uniform Appraisal Standards for Federal Land Acquisitions did not apply at the time that Hungerford, working for the Cargill Salt Division in the East Bay California city of Newark, submitted an appraisal to the state Wildlife Conservation Board. The appraisal concluded that the value of the property was $34.8 million. (New regulations issued in 1992 do not permit "public-interest value" as an acceptable appraisal method. Prior to those regulations, the rules made no mention of public-interest appraising.)
* That those new standards permitted the consideration of public-interest values in determining market value.
* That Cargill held clear title to all the Napa Marsh, when in fact ownership of at least one-third of the acreage had been claimed and contested by the State Lands Commission since 1973.
* That the land was primarily salt-marsh wetlands, when actually it consisted of man-made industrial salt evaporation ponds.
* That cleanup of super-saline brine deposits, left over from salt-making operations, would cost only $1 million. (Current estimates by several governmental agencies, according to Lifsher, estimate costs ranging from $3 million to $20 million.)
Using money from a variety of state and federal environmental funds, the State of California paid Cargill $10 million for the Napa Marsh salt ponds in May 1994, with the aim of eventually restoring them to biologically rich tidal wetlands. According to Cargill, the entire acquisition process was closely scrutinized by numerous government environmental agencies as well as real-estate specialists at the state Department of General Services. According to Lifsher's report the purchase has been widely praised as a good deal by dozens of state and federal elected and appointed officials, according to public records and interviews.
"This is one of the smartest purchases that the state has ever made," Georgia Lipphardt, assistant director for development at the state Wildlife Conservation Board, noted. Lipphardt served as senior land agent at the time of the Napa Marsh purchase.
In addition to the land fraud charges, the Integrity in Natural Resources complaint also alleges that Cargill has or may have sought tax benefits by claiming as much as $26 million in charitable contributions -- its claimed value of the property over and above the state's $10 million purchase price. Internal Revenue Service agents in Minnesota, according to Hansen, have been investigating possible Cargill tax-deduction claims arising from the $26 million. While the IRS agent reportedly in charge of the case, Steve Smith, has declined to comment, Cargill spokesperson Lori Johnson told the Journal that the giant grain commodity company had "no indication at all that there is any kind of (IRS) investigation going on."
The current suit is asking that triple damages be assessed against the defendants, as spelled out in the federal False Claims Act, a Civil War-era statute created to protect the U.S. government from war profiteers selling shoddy, overpriced goods to Union armies. The law, which was last overhauled in 1986, now allows private citizens to file civil suits in the name of the government in an effort to recover allegedly fraudulent payments.
Already being sued for price fixing and for covering up job-related injuries in its plants IBP, the U.S.'s leading beef packer and appropriately named the nation's "corporate outlaw" is now being charged in a 48-page lawsuit by the U.S. Department of Justice with violating five federal environmental laws with numerous incidents of air and water pollution and with improper handling of hazardous waste.
The suit was filed by the Justice Department on behalf of the Environmental Protection Agency (EPA).
"This is a substantial case which could result in a substantial penalty," said U.S. Attorney Tom Monaghan in Omaha. "And we're asserting some serious violations and a wide array of violations." In total, the Justice Department cites 15 different violations and seeks fines of up to $25,000 for each violation per day from August 1994 to Jan. 30, 1997, and up to $27,500 per day per violation since then.
In filing the suit, the Justice Department alleges that IBP, which processes more than 5,000 head of cattle daily at its Dakota City plant, repeatedly has avoided complying with federal environmental requirements and procedures for handling and disposing of hazardous waste. It has also been in violation of the Nebraska state law regarding permits controlling pollution discharges, according to the suit.
Further, the Justice Department contends that since August 1994, the meat-packing company in northeast Nebraska has illegally discharged excessive amounts of ammonia, nitrogen, fecal contaminants, chlorine and other solids into the Missouri River, thus harming aquatic life in the river, which has shown a continuing toxicity problem, the Justice Department said.
IBP's wastewater also allegedly emitted noxious odors in violation of a state permit and the Clean Water Act.
In addition, the complaint alleges, IBP has discharged illegal amounts of sulfur dioxide and hydrogen sulfide into the air in violation of the Clean Air Act. Dating from 1989, the suit contends, IBP's meat-packing plant released hydrogen sulfide, a hazardous substance, into the environment without reporting as required under the Community Right to Know Act of 1986. The releases of hydrogen sulfide also were supposed to be reported, but were not, to the National Response Center, a federal violation, the Justice Department complaint states.
Rod Krogh, a South Sioux City, Nebraska, businessman and member of a citizens group, told the Omaha World Herald's Jake Thompson that he was pleased by the government's action. "This company treads on our health and quality of life every day," Krogh said. "The bill has now come due. These are legitimate health concerns the community has raised for close to ten years, or longer in some cases," Krogh added. "We welcome their action, and it validates our concerns."
By law such facilities as IBP's are required to report discharges of hydrogen sulfide into the air that exceed 100 pounds a day. The government's complaint estimates that the Dakota City plant discharges, which smell like rotten eggs, and can cause headaches, nausea and eye irritation, are as high as 1,800 pounds each day.
The Department of Justice suit alleges that when IBP built its hide tannery in 1989, it increased its amount of wastewater, but did not obtain a required permit. The company also was cited for failure to obtain permits in 1994 and 1995.
IBP is likewise charged with skirting the federal Resource Conservation and Recovery Act by failing to analyze its solid waste discharges. The beef processor improperly threw hundreds of pounds of spent stun gun cartridges, which are used in its cattle killing operations, air filters and stun gun cushions, with toxic chemicals barium and lead, into its general trash.
Federal law requires that such hazardous materials be disposed of at a dump specifically licensed to handle the material, according to the Justice Department.
In addition to all the above charges the D of J suit states, on numerous occasions since 1994, IBP failed to keep required accurate information and report it to the government about its discharges into the Missouri River in violation of the Clean Water Act. And it declined to, as required, try to minimize its adverse impact to the environment, according to the government's case.
In a three-page response to the lawsuit, IBP said it was disappointed that the government filed suit. "The lawsuit will benefit no one," said Gary Mickelson, IBP's spokesman. "It only further delays environmental improvements we have been trying to make in Dakota City since 1997. We also strongly refute the allegations stated in the government complaint."
It is perfectly understandable if U.S. Secretary of Agriculture Dan Glickman tries to hide his annual report card from his superiors, for surely if he showed it to them he would make himself liable for several months' grounding.
The report card, drawn up by 22 of the 29 members who served on the USDA National Commission on Small Farms, a commission appointed in 1997 by Glickman to recommend actions for USDA to create a future for family farming and ranching, failed to meet even a "C" average.
The grades in ten categories are part of the second annual Time to Act Campaign report card which measures the progress made by USDA over the past year in implementing the recommendations of the Commission.
Time to Act Campaign members were particularly disappointed in USDA's failure to issue rules to define discriminatory pricing that is prohibited under the existing authority of the Packers and Stockyards Act. Without these rules, family farmers will continue to receive less money for the same quality livestock than large corporate producers.
"Despite the crisis faced by family farmers and livestock producers, Secretary Glickman is failing to use the powers at his disposal under the packers and stockyards act to provide a fair marketplace," Chuck Hassebrook, program director for the Center for Rural Affairs and a commission member who served on the Commission pointed out. "That is why for the second straight year USDA receives a 'D' on the issue of market access."
USDA received grades higher than a "C+" in only two areas out of ten. "While there has been some progress, the bias towards large-scale enterprise continues at USDA," said Hassebrook. "There can still be a bright future for family farmers and rural communities but only if we begin to get the strong leadership we need -- leadership that has so far been lacking."
The report card contains the following grades:
Market Access D
Market Development B+
Research and Extension C-
Beginning Farmers B-
Farm Workers D-
Civil Rights D
Risk Management C+
Outreach and Organization C
The National Commission on Small Farms' major finding was that the erosion of family farm agriculture was not a result of inevitable market forces, but of a bias towards large-scale enterprises at USDA. Its report, "A Time to Act," provides a blueprint for returning USDA to its historic mission of helping family farmers. It points the way to a more competitive, environmentally sound agriculture that strengthens rural communities.
Copies of the report can be seen by visiting the Center For Rural Affairs website at: http://www.cfra.org
A.V. Krebs is director of the Corporate Agribusiness Research Project, P.O. Box 2201, Everett, Washington 98203-0201; email firstname.lastname@example.org; web site www.ea1.com/CARP/