Federal spigot opens wide after farmers claim discrimination

04/26/2013 3:22 PM

04/26/2013 3:23 PM

In the winter of 2010, after a decade of defending the government against bias claims by Hispanic and female farmers, Justice Department lawyers seemed to have victory within their grasp.

Ever since the Clinton administration agreed in 1999 to make $50,000 payments to thousands of black farmers, Hispanics and women had been clamoring in courtrooms and in Congress for the same deal. They argued, as the African-Americans had, that biased federal loan officers had systematically thwarted their attempts to borrow money to farm.

But a succession of courts — and finally the Supreme Court — had rebuffed their pleas. Instead of an army of potential claimants, the government faced just 91 plaintiffs. Those cases, the government lawyers figured, could be dispatched at limited cost.

They were wrong.

On the heels of the Supreme Court’s ruling, interviews and records show, the Obama administration’s political appointees at the Justice and Agriculture Departments engineered a stunning turnabout: They committed $1.33 billion to compensate not just the 91 plaintiffs but thousands of Hispanic and female farmers who had never claimed bias in court.

Magnet for fraud

The deal, several current and former government officials said, was fashioned in White House meetings over the vehement objections of career lawyers and agency officials who argued that there was no credible evidence of widespread discrimination. What is more, some protested, the template for the deal — the $50,000 payouts to black farmers — had proved a magnet for fraud.

“I think a lot of people were disappointed,” said J. Michael Kelly, who retired last year as the Agriculture Department’s associate general counsel. “You can’t spend a lot of years trying to defend those cases honestly, then have the tables turned on you and not question the wisdom of settling them in a broad sweep.”

The compensation effort sprang from a desire to redress what the government and a federal judge agreed was a painful legacy of bias against African-Americans by the Agriculture Department. But an examination by The New York Times shows that it became a runaway train, driven by racial politics, pressure from influential members of Congress and law firms that stand to gain more than $130 million in fees. In the past five years, it has grown to encompass a second group of African-Americans as well as Hispanic, female and Native American farmers. More than 90,000 people have filed claims. The total cost could top $4.4 billion.

From the start, the claims process prompted allegations of widespread fraud and criticism that its very design encouraged people to lie: Because relatively few records remained to verify accusations, claimants were not required to present documentary evidence that they had been unfairly treated or had even tried to farm. Agriculture Department reviewers found reams of suspicious claims, from nursery-school-age children and pockets of urban dwellers, sometimes in the same handwriting with nearly identical accounts of discrimination.

Yet those concerns were played down as the compensation effort grew. Though the government has started requiring more evidence to support some claims, even now people who say they were unfairly denied loans can collect up to $50,000 with little documentation.

Escalating demands

As a senator, Barack Obama supported expanding compensation for black farmers, and then as president he pressed for $1.15 billion to pay their claims. Other groups quickly escalated their demands for similar treatment. In a letter to the White House in September 2009, Sen. Robert Menendez of New Jersey, a leading Hispanic Democrat, threatened to mount a campaign “outside the Beltway” if Hispanic farmers were not compensated.

The groups found a champion in the new agriculture secretary, Tom Vilsack. New settlements would provide “a way to neutralize the argument that the government favors black farmers over Hispanic, Native American or women farmers,” an internal department memorandum stated in March 2010.

The payouts pitted Vilsack and other political appointees against career lawyers and agency officials, who argued that the legal risks did not justify the costs.

Beyond that, they said it was legally questionable to sidestep Congress and compensate the Hispanic and female farmers out of a special Treasury Department account, known as the Judgment Fund. The fund is restricted to payments of court-approved judgments and settlements, as well as to out-of-court settlements in cases where the government faces imminent litigation that it could lose. Some officials argued that tapping the fund for the farmers set a bad precedent, since most had arguably never contemplated suing and might not have won if they had.

“The fund is not politically accessible, it is only legally accessible,” said David Aufhauser, the Treasury Department’s general counsel from 2001 to 2003. “Otherwise, it is a license to raid the till.”

A 2010 settlement with Native Americans was contentious for its own reasons. Justice Department lawyers argued that the $760 million agreement far outstripped the potential cost of a defeat in court. Agriculture officials said not that many farmers would file claims.

That prediction proved prophetic. Only $300 million in claims were filed, leaving nearly $400 million in the control of plaintiffs’ lawyers to be distributed among nonprofit organizations serving Native American farmers. Two and a half years later, the groups have yet to be chosen.

The Times’ examination was based on thousands of pages of court and confidential government documents, as well as interviews with dozens of claimants, lawyers, former and current government officials and others involved in the cases over the past 14 years. Many officials spoke on the condition of anonymity, citing rules against disclosing internal government deliberations and, in a few cases, the desire not to be drawn into a racially charged controversy.

Vilsack has said the compensation effort ushers in “a new chapter of civil rights at USDA,” where “we celebrate diversity instead of discriminate against it.”

In an interview, he said the payments had been fully justified and carefully controlled. Fraud has been a “really, really small part of it,” he added, pointing out that so far, three of every 10 claims had been rejected and only three claimants had been convicted of fraud.

Acting Associate Attorney General Tony West, who supervised the civil division and oversaw the handling of the cases, canceled an interview. Attorney General Eric H. Holder Jr. also declined to comment.

Vilsack blamed disgruntled Agriculture Department employees for the criticism of the payouts, saying some simply refused to acknowledge the pervasiveness of discrimination. “There are a lot of agendas here, and you are opening up a Pandora’s box,” he said.

Claims of bias

Farmers routinely borrow money to carry themselves from planting season to harvest time. The original lawsuit, Pigford v. Glickman, filed in federal court in Washington in August 1997, argued that the Agriculture Department’s credit bureau, now called the Farm Service Agency, routinely denied or limited loans to black farmers while freely distributing them to whites.

Two government reports that year found no evidence of ongoing, systemic discrimination. The Government Accountability Office reported that 16 percent of minority farmers were denied loans, compared with 10 percent of white farmers, but traced the difference to objective factors such as bad credit. An Agriculture Department study also found “no consistent picture of disparity” over the previous two years.

But the study concluded that decades of discrimination before then had cost African-American farmers significant amounts of land and income. Black farmers gave heart-rending accounts of loan officers who withheld promised money while crops withered, who repossessed their land and sold it to white cronies.

John W. Boyd Jr., a Virginia farmer who leads the National Black Farmers Association, was among those who pressed President Bill Clinton to settle the case. At a White House meeting in December 1997, Boyd said, he recounted how a loan officer had denied him $7,500 and then handed a $150,000 check to a white farmer who had not even filled out an application.

The same loan officer spat at him, he said, and later claimed that he had missed a spittoon. It was, Boyd said in an interview, “the most degrading thing that ever happened to me.” Just five months after the lawsuit was filed, and without the investigative step of discovery, the Justice Department opened settlement negotiations.

There were certainly legal reasons to resolve the case. The presiding federal judge, Paul L. Friedman, was clearly unsympathetic to the government’s arguments. Moreover, the Justice Department was barred from appealing his certification of the lawsuit as a class action until after the case was over. That set the stage for a potentially long and costly battle.

Still, “it was more a political decision than a litigation decision,” said one lawyer familiar with the administration’s stance. “The administration was genuinely sympathetic to the plight of these farmers.”

Clinton asked Carol Willis, then a senior adviser to the Democratic National Committee who was known for his expertise in black voter turnout, to get involved. Willis said the president wanted to make sure his home state, Arkansas, benefited. Willis said he recruited Othello Cross, a Pine Bluff lawyer, to join the plaintiffs’ legal team.

“It had been wrong for many years,” Willis said. “Clinton figured he had to try to right it.”

The settlement, the judge’s opinion said, was designed to provide “those class members with little or no documentary evidence with a virtually automatic cash payment of $50,000.” Those with documentary proof could seek higher awards, a tack ultimately chosen by fewer than 1 percent of applicants.

‘It just went wild’

Delton Wright, a Pine Bluff justice of the peace, recalled what happened after word of the settlement reached his community: “It just went wild. Some people took the money who didn’t even have a garden in the ground.” He added, “They didn’t make it hard at all, and that’s why people jumped on it.”

Wright, whose family owns farmland outside Pine Bluff, won his claim. So did two other applicants whose claims were virtually identical to his, with the same rounded handwriting, the same accusations of bias and similar descriptions of damages suffered.

Now 57, with his memory weakened by what he said was a recent stroke, Wright said he could not recall details of the discrimination he encountered, much less explain the apparent duplicate claims.

But Cross, the Pine Bluff lawyer, has his suspicions. “It got out of control,” said Cross, adding that he had filed about 1,500 claims, including Wright’s and the apparent duplicates.

On two floors of the Cotton Annex building in Washington, a 300-member team from the Farm Service Agency reviewed claims before adjudicators rendered their final decisions. In recent interviews, 15 current and former Agriculture Department employees who reviewed or responded to claims said the loose conditions for payment had opened the floodgates to fraud.

“It was the craziest thing I have ever seen,” one former high-ranking department official said. “We had applications for kids who were 4 or 5 years old. We had cases where every single member of the family applied.” The official added, “You couldn’t have designed it worse if you had tried.”

Few prosecuted

A fraud hot line to the Agriculture Department’s inspector general rang off the hook. The office referred 503 cases involving 2,089 individuals to the FBI.

The FBI opened 60 criminal investigations, a spokesman said, but prosecutors abandoned all but a few for lack of evidence or proof of criminal intent, vague accusations or other reasons. Former federal officials said the bar for a successful claim was so low that it was almost impossible to show criminality.

In Arkansas, prosecutors rejected a test case against a Pine Bluff police officer who had admitted lying on his claim form. Paula J. Casey, the U.S. attorney in Arkansas in 2000, said that singling out one individual raised questions of selective prosecution.

Change in course

Under President George W. Bush, the Justice Department had rebuffed efforts to settle the parallel discrimination suits brought by Native American, Hispanic and female farmers – suits that made similar claims to those made by blacks.

But after he took office, Obama changed course.

After the Supreme Court dealt a blow to Hispanic and women plaintiffs on the issue of class certification, Daniel J. Meltzer, principal deputy White House counsel, convened a meeting in February 2010 to discuss the case, records show. Among the attendees were senior Justice and Agriculture Department officials, including West, Associate Attorney General Thomas J. Perrelli and Krysta Harden, then the assistant agriculture secretary for Congressional relations.

Settlement negotiations began the next week.

The decision to compensate tens of thousands of Hispanics and women out of the Judgment Fund averted what was likely to be an uphill struggle with Congress. Nearly a year after the White House had asked for money to compensate the second wave of African-American farmers, Congress was still sitting on its hands.

So far, about 1,900 Hispanics and 24,000 women have sought compensation, many in states where middlemen have built a cottage industry, promising to help win payouts for a fee.

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