Legal Case Summaries

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Note: ¹The Foreign Agricultural Service (FAS), a division of the United States Department of Agriculture (USDA), administered the Export Guarantee Program (GSM-102), with the stated purpose of “financ[ing] the commercial export of U.S. agricultural products, particularly to developing countries.” Atypical transaction contemplated a U.S. exporter approaching a foreign importer who would in turn approach a foreign bank to obtain a letter of credit with the U.S. exporter as beneficiary. The foreign bank would then approach a U.S. bank to obtain a guarantee against the LC, to be repaid by the foreign bank. The GSM-102 program then guarantees the payment made by the U.S. bank to the U.S. exporter.

As a fifteen-year program participant, and later federal investigation subject ultimately convicted for wire fraud and conspiracy, Brett Lillemoe (Plaintiff) alleged that FAS had long been aware that the program facilitated “rented trade flows” wherein GSM exporters and importers played “no role in the actual export of physical goods” but instead “use[d] photocopies of shipping documents” for the purpose of obtaining “synthetic LCs”. Through this practice “U.S. banks c[ould] issue program-guaranteed – and thus below-market – loans to foreign banks for purposes unrelated to the actual purchase of agricultural exports.” FAS became aware of such practices when it solicited comments from participants in 2008. The relationship between Plaintiff and FAS changed, however, when FAS inquired as to fifteen anticipated GSM-102 transactions to be facilitated by Plaintiff’s company, GTR, LLC (GTR)in October 2012. FAS was concerned with applications indicating that “the Consignee listed on the bills of lading differed from the importer identified on the GSM-102 guarantee, and [FAS] requested additional information about the role each entity played in the transaction.” Ultimately, FAS denied Plaintiff and GTR’s applications but approved other participant applications utilizing rented trade flows.

Between a federal indictment and eventual guilty verdict, Plaintiff and GTR (collectively, Plaintiffs) sued the USDA, FAS and two named defendants (collectively, Defendants). In the amended complaint, Plaintiffs sought an injunction against FAS as well as return of their GSM-102 application fees based on a theory of unjust enrichment. Moreover, the complaint included counts based on the Administrative Procedure Act (APA) as well as constitutional claims alleging disparate governmental treatment. Defendants moved to dismiss the complaint. The trial court granted the motion in part and denied the motion in part, dismissing Plaintiffs’ request for an injunction and the additional constitutional claims, but allowed the unjust enrichment claim and APA claim to proceed. Subsequently, Plaintiffs filed a motion seeking (1) that FAS supplement the administrative record with specific documents; and (2) that Plaintiffs be given leave to conduct limited discovery. FAS moved for summary judgment on Plaintiffs’ APA claim. The United States District Court for the District of Columbia, Friedrich, J., denied each motion but ordered FAS to clarify its position regarding Plaintiffs’ APA claim.

The Judge noted the “strong presumption against discovery” regarding agency actions under the APA as courts assume that agencies offer properly designated records for judicial review. Thus, an opposing party must “demonstrate unusual circumstances” in order to justify supplementing the record such as the agency either willfully or negligently excluding documents or otherwise “frustrat[ing] judicial review.” Regarding Plaintiff’s first motion, the Judge noted that the issue was rendered moot as FAS voluntarily supplemented the administrative record after Plaintiffs filed their motion seeking specific documents. The Judge noted that the documents suggested that FAS “struggled to understand the structure of the [P]laintiffs’ transactions” and there was insufficient evidence to conclude that FAS intentionally or negligently omitted those documents.

The Judge previously ruled that Plaintiffs had “plausibly alleged an APA claim” based on FAS’s decision to prohibit Plaintiffs from using rented trade flows while approving GSM-102 applications using the same structure. Although FAS argued that Plaintiffs’ claims of disparate treatment were without “merit”, the Judge noted that FAS failed to demonstrate how its position was supported by the administrative record. The Judge had previously decided that the federal investigation of Plaintiffs sufficiently justified its decision to treat Plaintiffs’ applications differently so as to defeat constitutional claims; the administrative record, however, failed to adequately “state that FAS denied and delayed [P]laintiffs’ applications because of that investigation.” Accordingly, the Judge denied Plaintiffs’ motion for discovery but directed FAS “to clarify, with citations to the record – and, if necessary, supplement the record with evidence, including declarations – (1) whether FAS treated GTR’s applications differently from other program participants that submitted similar applications, and (2) if so, whether it had a legitimate reason or reasons for treating GTR differently.”

[MJK]

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