The opinion of the court was delivered by: REINHARD
Defendants, David Duane Drake ("David Drake") and Jeffrey Lynn Drake ("Jeffrey Drake"), are both charged with two counts of violating 15 U.S.C. § 714m(c) for the unlawful disposition of collateral mortgaged to the Commodity Credit Corporation. Pending before the court are various pretrial motions filed separately by both defendants. All pending motions have been consolidated for purposes of this opinion and will be addressed herein.
I. MOTIONS TO DISMISS THE INDICTMENT
Both defendants move to dismiss the indictment on the grounds that it is barred by the Fifth Amendment's prohibition against multiple punishments for the same offense. The facts relevant to their respective motions are not in dispute and are as follows. Defendants operated a family farm business and, in the course of that business, participated in an Agricultural Stabilization and Conservation Service ("ASCS") program. The ASCS operates under the United States Department of Agriculture ("USDA") and administers price support loan programs for grains and similarly handled commodities. Participating farmers can obtain loans from the Commodity Credit Corporation ("CCC"), an agency of the USDA, and as security for these loans, pledge harvested crops as collateral. The relevant years of defendants' participation are 1993 and 1994.
To participate in the program, defendants entered into contractual agreements with the CCC. The terms and conditions of these contractual agreements are contained in Form CCC-601, CCC's standard contract for these loans. Two different versions of Form CCC-601 are involved in this case as defendants' loans were obtained at different times. One form is dated 4/26/93 and the other form is dated 2/28/91. The rules and regulations governing the CCC and the ASCS's administration of its program are found in Title 7 of the Code of Federal Regulations, part 1402 et seq. Some of the key terms and conditions contained in Form CCC-601 are also enumerated in the federal regulations.
In February 1994, the Stephenson County ASCS Committee ("Committee") conducted a hearing regarding the alleged disposition, removal and conversion of secured crops in 1993 and 1994 by defendants. Both defendants were present and participated at this meeting, during which the committee determined that defendants did not employ good faith in their disposition of the secured crops. Upon making this determination, the Committee called defendants' loans, imposed liquidated damages to the loan balances in accordance with the terms and conditions of the relevant CCC-601 contracts and suspended both defendants from obtaining any of the same type of loans for a two-year period.
Defendants claim that the penalties imposed do not bear a reasonable relationship to the government's loss, were punitive in nature and therefore constitute "punishment" for purposes of double jeopardy. Defendants further claim that these penalties were imposed upon them for the same conduct upon which the indictment is based and that the indictment, therefore, must be dismissed. In support of these claims, defendants contend that the imposition of the liquidated damages did not solely serve remedial goals, but also served punitive goals. Jeffrey Drake additionally contends that the imposition of the two-year suspension also served punitive, and not just remedial goals. Defendants contend that the Committee's sanctions were meant to punish defendants for their lack of good faith in the disposition of the secured crops. In support of these contentions, defendants principally rely upon United States v. Halper, 490 U.S. 435, 104 L. Ed. 2d 487, 109 S. Ct. 1892 (1989). In response, the government contends that the sanctions imposed were solely remedial and did not constitute "punishment" for purposes of double jeopardy. In addition, the government contends that any claim by defendants that the imposition of liquidated damages constituted punishment is foreclosed by the fact that the damages were contractually agreed to by defendants.
The Double Jeopardy Clause protects against three distinct abuses: (1) a second prosecution for the same offense after acquittal; (2) a second prosecution for the same offense after conviction; and (3) multiple punishments for the same offense. Halper, 490 U.S. at 440. In Halper, the Court addressed the issue of whether and under what circumstances a civil penalty may constitute punishment for purposes of the Double Jeopardy Clause. The Court held that a "civil as well as a criminal sanction constitutes punishment when the sanction as applied in the individual case serves the goals of punishment." Id. at 448. In more specific terms, a sanction is punishment if it "cannot fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either retributive or deterrent purposes." Id. In Austin v. United States, 509 U.S. 602, 113 S. Ct. 2801, 2812, 125 L. Ed. 2d 488 (1993), the Court reiterated this latter proposition, stating that the sanction will constitute punishment if it serves to deter or punish, notwithstanding the fact that it might also serve some remedial purpose. But see Bae v. Shalala, 44 F.3d 489, 493 (7th Cir. 1995) (construing statutory sanctions to be remedial despite incidental punitive effects).
While it is the imposition of liquidated damages which forms the primary basis for defendants' claims, the court will first address Jeffrey Drake's contention that the imposition of the two-year suspension was punitive and not solely remedial in nature. At the outset, the court notes that neither Jeffrey Drake nor the government directs the court to the source of the Committee's authority for imposing the two-year suspension. The court presumes, therefore, that the committee acted pursuant to 7 C.F.R. § 1421.16(g), which permits the denial of future loans for a period of two years after the date the unauthorized removal of secured crops is discovered.
A cursory examination of part 1421.16(g) reveals that the two-year suspension is not punitive in nature, rather, the regulation exists to protect the integrity of the CCC and the price support loan program. Part 1421.16(g) authorizes the imposition of various sanctions, including a two-year suspension from obtaining future loans, "if, for any violation in accordance with paragraph (b) of this section, the County Committee determines that CCC's interest is not or will not be protected." The fact that the particular sanction imposed here was both limited in duration and designed to protect the financial integrity of the CCC leads the court to conclude that the sanction serves solely a remedial purpose. In reaching this conclusion, the court finds both Bae v. Shalala, 44 F.3d 489 (7th Cir. 1995) and United States v. Furlett, 974 F.2d 839 (7th Cir. 1992) analogous. Although the sanctions at issue in those cases were of slightly different natures than here-- Bae involving the debarment from providing services to individuals with approved or pending drug product applications and Furlett involving the debarment from trading on any contract market-- the Seventh Circuit found them to serve remedial goals because the debarments protected the integrity of those markets despite the fact that the debarments were permanent in duration. See Bae, 44 F.3d at 495; Furlett, 974 F.2d at 844-45. Accordingly, the court finds that the two-year suspension was solely remedial and served no punitive or retributive purpose.
Turning, therefore, to defendants' primary contention, the court must determine whether the liquidated damages imposed by the Committee constituted punishment for purposes of the Double Jeopardy Clause. Both defendants heavily rely on Halper. At issue in Halper was whether civil penalties imposed pursuant to the False Claims Act, 31 U.S.C. §§ 3729-3731, constituted punishment. In reaching its decision, the Court was careful to limit the scope of its decision, stating "what we announce now is a rule for the rare case, the case such as the one before us, where a fixed-penalty provision subjects a prolific but small-gauge offender to a sanction overwhelmingly disproportionate to the damages he has caused." Halper, 490 U.S. at 449.
The facts of this case are dramatically different, and in the court's opinion, legally distinguishable from Halper. Here, the liquidated damages (or what defendants term penalties) were imposed pursuant to the contractual agreements between defendants and the CCC, not pursuant to a civil statute as in Halper. The liquidated damages provisions are contained in sections 7 and 8 of the CCC-601 contract forms and clearly set forth the method of calculation for such damages. Thus, the source of the imposition of the liquidated damages is derived solely from the agreed terms of a contract, not a civil statute applicable to the public at large as in Halper. On this basis alone, the court finds Halper not only distinguishable, but inapplicable. Cf. United States v. Payne, 2 F.3d 706, 711 (6th Cir. 1993) (holding that government's enforcement of its employment contract against postal employee did not constitute punishment); United States v. Reed, 937 F.2d 575, 577 (11th Cir. 1991) (finding Halper inapplicable to a penalty imposed upon a federal employee pursuant to a collective bargaining agreement).
Even if this court were to find Halper applicable to this case, it would nonetheless conclude that the liquidated damages or penalties imposed were not punishment for purposes of double jeopardy. The heart of Halper's analysis is that a penalty is not remedial if it does something other than make the government whole. Halper, 490 U.S. at 449. Assessing what amount goes beyond what is necessary to make the government whole is not an exact pursuit. To this end, the Court stated that "the process of affixing a sanction that compensates the Government for all its costs inevitably involves an element of rough justice. Our upholding reasonable liquidated damages clauses reflects this unavoidable imprecision." Id. The Court's past approval of reasonable liquidated damages clauses, see Rex Trailer Co. v. United States, 350 U.S. 148, 151, 100 L. Ed. 149, 76 S. Ct. 219 (1956), and fixed-penalty-plus-double-damages provisions, see United States ex rel. Marcus v. Hess, 317 U.S. 537, 549, 87 L. Ed. 443, 63 S. Ct. 379 (1943), leads this court to conclude that the liquidated damages clauses at issue here are reasonably designed to make the government whole. Liquidated damages clauses, when reasonable, are not to be regarded as penalties. Rex Trailer Co., 350 U.S. at 151. The reason for this is that, when valid, liquidated damages are compensatory in nature. See Restatement (Second) of Contracts § 356 cmt. a. The applicable federal regulations governing the CCC reflect that the reason liquidated damages clauses are included in the contracts is because it is difficult, if not impossible, to prove the amount of damages to the CCC in the event secured crops are improperly removed. See 7 C.F.R. § 1421.16(c). In addition, the liquidated damages are assessed, in part, on the quantity of the commodity involved in the violation. Thus, the provisions at issue here are reasonable.
Even if this court were to agree with defendants' characterization of the provisions at issue and conclude they are punitive, defendants would not prevail on their double jeopardy claims. If a liquidated damages clause is found to be punitive, it ceases to be a valid contractual term and is unenforceable on the grounds of public policy. See Restatement (Second) of Contracts § 356. Unlike a liquidated damages clause contained in a statute, which if found to be punitive, would merely transform the statutory remedy into a criminal penalty, see Rex Trailer Co., 350 U.S. at 154, the provisions at issue here arise out of a contract, which if found to be punitive, would cease to be enforceable. Thus, if the provisions at issue here are punitive, all defendants would have is a basis upon which to avoid paying ...