Free Answer to Amended Complaint - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS AG-INNOVATIONS, INC., LARRY FAILLACE, LINDA FAILLACE, and HOUGHTON FREEMAN, Plaintiffs, v. UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) )

No. 05-776C (Judge Sweeney)

DEFENDANT'S ANSWER AND AFFIRMATIVE DEFENSE IN RESPONSE TO PLAINTIFF'S AMENDED COMPLAINT Pursuant to the Court's order dated January 25, 2008, defendant hereby responds to plaintiffs' amended complaint filed on January 25, 2008. For its answer to plaintiffs' amended complaint and assertion of its affirmative defense, defendant admits, denies, and alleges as follows: The allegations contained in the introductory paragraph to plaintiffs' amended complaint are plaintiffs' characterization of this action, their request for relief and their cause of action, to which no response is required; to the extent that they may be deemed allegations of fact, they are denied. 1. The allegations contained in paragraph 1 are plaintiffs' characterization of their

action and conclusions of law to which no response is required; to the extent they may be deemed allegations of fact, they are denied. 2. The allegations contained in paragraph 2 are conclusions of law to which no

response is required; to the extent they may be deemed allegations of fact, they are denied. 3. The allegations contained in paragraph 3 are conclusions of law to which no

response is required; to the extent they may be deemed allegations of fact, they are denied.

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4.

Admits the allegations contained in paragraph 4 that Ag-Innovations is a Vermont

corporation engaged in the business of producing and distributing cheeses derived from sheep's milk; denies for lack of knowledge or information sufficient to form a belief as to the truth of the allegations that Ag-Innovations is currently engaged in the business of selling sheep genetic stock contained in the first sentence of paragraph 4. The remainder of the allegations contained in paragraph 4 are plaintiffs' characterization of their sheep and sheep products to which no response is required; to the extent they may be deemed allegations of fact, they are denied. 5. Denies the allegations contained in the first sentence of paragraph 5 for lack of

knowledge or information sufficient to form a belief as to the truth of the matters asserted. Admits the allegations contained in the second sentence of paragraph 5 that Larry Faillace and Linda Faillace are shepherds who owned and bred varieties of sheep, East Friesian, Beltex, East Friesian-Beltex Crosses, and Charollais, and raised the sheep for their genetic material and their production of cheeses; denies the remainder of the allegations contained in the second sentence of paragraph 5. Admits the allegations contained in the third sentence of paragraph 5 that the Faillaces and Ag-Innovations jointly owned certain sheep that were seized and destroyed; denies the remainder of the allegations contained in the fourth sentence of paragraph 5. Admits the allegations contained in the fourth sentence of paragraph 5 that the Faillaces are owners of AgInnovations; denies the remainder of the allegations contained in the fourth sentence for lack of knowledge or information sufficient to form a belief as to the truth of the matters asserted. 6. Denies the allegations contained in paragraph 6 for lack of information and belief

sufficient to form a belief as to the truth of the matters asserted. 7. Denies the allegations contained in paragraph 7 for lack of information and belief

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sufficient to form a belief as to the truth of the matters asserted 8. Admits the allegations contained in the first sentence of paragraph 8. Admits the

allegations contained in the second sentence of paragraph 8 that Mr. Freeman was in the business of breeding and raising purebred East Friesian Sheep for their milk and for the production of cheese; denies the allegations contained in the second sentence of paragraph 8 that Mr. Freeman was in the business of breeding and raising purebred East Friesian Sheep for their genetic material for lack of knowledge or information sufficient to form a belief as to the truth of the matters asserted; denies the remainder of the allegations contained in the second sentence of paragraph 8. Denies the allegations contained in the third and fourth sentences of paragraph 8 for lack of knowledge or information sufficient to form a belief as to the truth of the matters asserted. 9. Admits the allegations contained in paragraph 9 that the Department of

Agriculture (USDA) is a Federal agency of the United States and that the Animal and Plant Health Inspection Service (APHIS) is a part of USDA; denies the remainder of the allegations contained in paragraph 9. 10. Admits the allegations contained in paragraph 10 that USDA declared an

Extraordinary Emergency pursuant to 21 U.S.C. § 134a(b) because of the presence of an atypical transmissible spongiform encephalopathy of foreign origin on premises in Vermont and, as a result, seized and destroyed European-imported sheep and destroyed their genetic material; denies the remainder of the allegations contained in paragraph 10. Defendant avers that, pursuant to section 134a of title 21 of the United States Code, the USDA possesses the authority to declare an Extraordinary Emergency, seize, quarantine and dispose of, in such manner as it

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deems necessary, any animals found to be affected with or exposed to an atypical transmissible spongiform encephalopathy (Prion Disease) of a foreign origin, and their germ plasm, and otherwise to carry out the provisions of and purposes of the Act of July 2, 1962 (21 U.S.C. §§ 134-134(h)). 11. Admits the allegations contained in the first and second sentences of paragraph 11

that the Government concluded it was necessary to declare an extraordinary emergency, that no single diagnostic test can distinguish between "an atypical [transmissible spongiform encephalopathy (TSE)] of foreign origin," scrapie, and/or Bovine Spongiform Encephalopathy (BSE), and no sheep have been confirmed to have naturally contracted BSE; denies the remainder of the allegations contained in the first and second sentences of paragraph 9. Defendant further avers that, although plaintiffs' sheep were required to be enrolled in the Scrapie Certification Program, they did not reach certified status ("pass"). Moreover, defendant avers that even though no single diagnostic test can definitively distinguish between BSE and scrapie, the mouse bioassay system in conjunction with other diagnostic tests is a method currently used to differentiate among the various TSE agents. Defendant further avers that the disease was called an "atypical TSE," because, although testing demonstrated evidence of an abnormal form of prion protein, the lesion pattern seen on histopathology did not have the distinctive cellular changes or degenerative changes seen in scrapie cases and the testing was unable to distinguish between the scrapie agent and the BSE agent. In addition, even though defendant is not aware of any sheep that have been confirmed to have naturally contracted BSE, a goat has been confirmed to have a natural case of BSE, and samples from other sheep and goats are undergoing extensive testing to determine whether BSE is present, and results are

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pending. Finally, defendant avers that, although the United States first became aware of the "atypical TSE of foreign origin" in 2000, subsequently, the "atypical" classification has been used to describe scrapie in the scientific community. Denies the allegations contained in the third sentence of paragraph 11. 12. Denies the allegations contained in the first sentence of paragraph 12. The

allegations contained in the second sentence of paragraph 12 are plaintiffs' characterization of their action and conclusions of law to which no response is required; to the extent they may be deemed allegations of fact, they are denied. 13. Denies. Defendant avers that TSE is a class of neurological diseases that is not

only associated with the accumulation of abnormal prion in the brain, but that it is also associated with the accumulation of abnormal prion in other tissues throughout the body of sheep infected with both scrapie and BSE, for example, in lymphoid tissues, such as tonsils. Defendant further avers that infection may be present in the absence of detectable abnormal prion. 14. Admits the allegations contained in the first, second, fourth and fifth sentences of

paragraph 14. Denies the allegations contained in the third sentence of paragraph 14. Defendant avers that TSE diseases are not always species specific. For example, BSE has been diagnosed in a goat, domestic cats, large cats (e.g., lion, tiger, puma), exotic bovids, and humans. 15. Admits the allegations contained in the first sentence of paragraph 15. Denies the

allegations contained in the second and third sentences of paragraph 15. Defendant avers that scientific studies have shown that sheep can be infected with BSE through ingestion and that subsequent sheep-to-sheep transmission can occur. Therefore, while no "natural" cases of BSE in sheep have been confirmed, it is likely that natural cases of BSE in sheep have occurred.

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Defendant further avers that scientific studies have shown that prions may be found in the mammary glands of scrapie-infected sheep with mastitis. 16. Denies the allegations contained in the first sentence of paragraph 16. Defendant

avers that, between July and December 1996, the Faillaces imported sheep in two shipments. Although the sheep were identified by the Faillaces as having participated in a scrapie program for four years in Belgium, documentation subsequently received by USDA revealed that some of the sheep were from the Netherlands and, thus, were ineligible to be imported into the United States. In addition, information provided by officials from the Belgian government indicated that one of the flocks of origin had only been enrolled in a scrapie monitoring program from June 26, 1996, to July 2, 1996. Therefore, these sheep were not in full compliance with the thenprevailing laws of the United States. Denies the allegations contained in the second sentence of paragraph 16. Defendant further avers that, after the sheep were released from quarantine at the New York Animal Import quarantine facility, they were transported to two premises in Vermont and one premise in New York, where they were to be placed with a United States flock that was enrolled in the Voluntary Scrapie Flock Certification Program, a program administered cooperatively by the USDA, the states, and industry for the purpose of controlling and eventually eradicating scrapie. Denies the allegations contained in the third sentence of paragraph 16. Defendant avers that, in 1996, the USDA required the sheep to be quarantined at the import quarantine facility for not less than 30 days from the date of arrival at the port of entry. In 1998, the sheep were again quarantined by the State of Vermont. USDA quarantined the premises in 2001. Denies the allegations contained in the fourth sentence of paragraph 16. Defendant avers that, with the granting of "A" status, the sheep were required to be inspected at least every 12

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months, and USDA monitored the sheep for the presence of disease any time that an animal on the farm died or presented certain clinical evidence of a TSE. Admits the allegations contained in the fifth sentence of paragraph 16 that plaintiffs' sheep were granted an "A" status from the Scrapie Surveillance Program; denies the remainder of the allegations contained in the fifth sentence of paragraph 16. Defendant avers that imported sheep are not permitted to be transported and sold throughout the United States without restriction until the flock in which the sheep resided obtain a "certified" status, which plaintiffs' flock did not achieve. Denies the allegations contained in the sixth sentence of paragraph 16. Defendant avers that the flock was not eligible to obtain "certified" status until June 2001. However, in 1998, the State of Vermont quarantined the sheep, so they did not receive "certified" status. 17. Denies the allegations contained in the first sentence of paragraph 17 for lack of

knowledge or information sufficient to form a belief as to the truth of the matters asserted. Denies the allegations contained in the second, third, and fourth sentences of paragraph 17. Defendant avers that the sheep could have been exposed to meal and bone meal. Moreover, defendant avers that the health certificate from the Belgian government did not certify the feeding practices related to the sheep and, in fact, could not certify such practices in many instances because the sheep were from the Netherlands. 18. Admits the allegations contained in the first sentence of paragraph 18 that USDA

personnel were fearful that the disease in the imported sheep could be spread throughout the United States herd; denies the remainder of the allegations contained in the first sentence of paragraph 18. Defendant avers that the available records indicate that the sheep had been exposed to meal and bone meal, that there were no health certificates certifying the feeding

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practices of the sheep, and that the sheep had not "successfully passed the Scrapie Surveillance Program." Defendant further avers that BSE is no longer a cattle-specific TSE, but that it has been detected in a goat, domestic cats, large cats (e.g., lion, tiger, puma), exotic bovids, and humans. Admits the allegations contained in the second sentence of paragraph 18 that APHIS personnel met with the plaintiffs in mid-July 1998 and on several other occasions to express concern that plaintiffs' sheep were putting the United States livestock industry at risk for BSE. Admits the allegations contained in the third sentence of paragraph 18 that, in the July 1998 meetings, the Government stated that it was willing to purchase the cull and slaughter sheep; denies the remainder of the allegations contained in the third sentence of paragraph 18. Defendant avers that the plaintiffs did not decline the Government's offer to purchase plaintiffs' sheep until October 1998. Defendant admits the allegations contained in the fourth sentence of paragraph 18 that APHIS supplied plaintiffs with additional scientific information to demonstrate the disease potential of their sheep; denies the remainder of the allegations contained in the fourth sentence of paragraph 18. Defendant avers that plaintiffs agreed to voluntarily comply with a protocol that was designed to keep the original imported sheep and their progeny out of the animal and human food chains. Defendant further avers that this action was voluntary until October 1998, when the state of Vermont imposed a quarantine upon the movement of the animals. 19. Admits the allegations contained in the first sentence of paragraph 19 that, on

September 18, 1998, the Administrator for Veterinary Services of APHIS approved the release of contingency funds to purchase plaintiffs' flock because of USDA's fear that plaintiffs' sheep might be infected with BSE; denies the remainder of the allegations contained in paragraph 19.

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20.

Denies the allegations contained in the first sentence of paragraph 20. Admits the

allegations contained in the second sentence of paragraph 20. 21. Admits the allegations contained in paragraph 21 that USDA would purchase the

animals at fair market value and use them for diagnostic purposes; denies the remainder of the allegations contained in paragraph 21. 22. 23. Denies. Denies the allegations contained in the first and second sentences of paragraph

23. Admits the allegations contained in the third sentence of paragraph 23 that the sheep were between 13 and 14 months of age at the time the samples were taken. Denies the remainder of the allegations contained in paragraph 23. Defendant avers that the sheep were seized and destroyed in March 2001 and that samples were taken at that time for testing purposes. Defendant further avers that TSEs are detectable in sheep at ages less than 18 months. Moreover, defendant avers that the tests conducted through the Scrapie Surveillance Program were not identical to the tests that were conducted on plaintiffs' sheep to determine whether it contained TSEs because plaintiffs requested that additional tests which were under development through research be conducted on its sheep. Once the research tests proved to be positive for TSE, USDA determined that additional western blot tests were necessary. 24. Denies. Defendant avers that USDA does not have any additional samples to

release to plaintiffs for independent testing. 25. Admits the allegations contained in the first, second and third sentences of

paragraph 25 to the extent supported by the Secretary of Agriculture's Declaration of Extraordinary Emergency issued on July 14, 2000, which is the best evidence of its contents;

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otherwise denies the allegations contained in the first, second, and third sentences of paragraph 25. The allegations contained in the fourth sentence of paragraph 25 are conclusions of law to which no response is required; to the extent that they may be deemed allegations of fact, they are denied. 26. Admits the allegations contained in the first sentence of paragraph 26 that

plaintiffs Faillace and Ag-Innovations filed an action in the United States District Court for the District of Vermont, Civil Action No. 1:00-CV-257-JGM; denies the remainder of the allegations contained in the first sentence of paragraph 26. Denies the allegations contained in the second sentence of paragraph 26. Admits the allegations contained in the third sentence of paragraph 26. 27. Admits the allegations contained in the first sentence of paragraph 27 that, on

March 21, 2001, USDA officials seized the sheep housed on Skunk Hollow Farm which belonged to plaintiff Freeman; denies the remainder of the allegations contained in the first sentence of paragraph 27. Admits the allegations contained in the second sentence of paragraph 27. Admits the allegations contained in the third sentence of paragraph 27 that defendant seized 138 semen straws, a variety of cheeses, and cheesemaking equipment; denies the remainder of the allegations contained in the third sentence of paragraph 27. Defendant avers that, for the most part, it did not seize the semen straw, cheese, and other farm and cheesemaking equipment until months after March 21, 2001. 28. Admits the allegations contained in the first sentence of paragraph 28 that, on

March 23, 2001, USDA officials seized the sheep which belonged to the plaintiffs Faillaces and to Ag-Innovations and that they later seized equipment; denies the remainder of the allegations

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contained in the first sentence of paragraph 28. Admits the allegations contained in the second sentence of paragraph 28 that USDA officials seized semen straws which belonged to plaintiffs Faillaces and Ag-Innovations; denies the remainder of the allegations contained in the second sentence of paragraph 28. Admits the allegations contained in the third sentence of paragraph 28. 29. 30. Denies. Admits the allegations contained in paragraph 30 to the extent supported by the

decision of the Second Circuit referred to in paragraph 30, which is the best evidence of its contents; otherwise denies the allegations contained in paragraph 30. 31. Admits the allegations contained in the first sentence of paragraph 31 that the

USDA issued a quarantine order over the entire pasture leased by the Faillaces and AgInnovations; denies the remainder of the allegations contained in the first sentence of paragraph 31. Admits the allegations contained in the second sentence of paragraph 31 to the extent supported by the quarantine order, which is the best evidence of its contents; otherwise denies the allegations contained in the second sentence of paragraph 31. Denies the allegations contained in the third sentence of paragraph 31. 32. Admits the allegations contained in the first sentence of paragraph 32 that, on

September 16, 2002, USDA issued a quarantine order on Mr. Freeman's barn, paddock area, and pastures; denies the remainder of the allegations contained in the first sentence of paragraph 32. Admits the allegations contained in the second sentence of paragraph 32 to the extent supported by the quarantine order, which is the best evidence of its contents; otherwise denies the allegations contained in the second sentence of paragraph 32. Denies the allegations contained

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in the third sentence of paragraph 32. 33. Admits the allegations contained in the first sentence of paragraph 33 to the

extent supported by the plaintiffs' Faillace and Ag-Innovations complaint in Civil Action No. 1:02-CV-003332-JGM, which is the best evidence of its contents; otherwise denies the allegations contained in the first sentence of paragraph 33. Admits the allegations contained in the second sentence of paragraph 33 to the extent supported by the Court's order issued on March 10, 2005, which is the best evidence of its contents; otherwise denies the allegations contained in the second sentence of paragraph 33. Defendant avers that the Court did not direct plaintiffs to seek compensation in the Court of Federal Claims; it simply dismissed plaintiffs' claims. 34. Denies the allegations contained in the first sentence of paragraph 34. Admits the

allegations contained in the second, third, and fourth sentences of paragraph 34 to the extent supported by a letter dated November 3, 2000,1 which is the best evidence of its contents; otherwise denies the allegations contained in the second, third, and fourth sentences of paragraph 34. Admits the allegations contained in the fifth sentence of paragraph 34 that the plaintiffs rejected the defendant's offer; denies the remainder of the allegations contained in the fifth sentence of paragraph 34. 35. Admits the allegations contained in the first, second, and third sentences of

Defendant is unable to locate a letter dated November 2, 2000, in its files, but it does have a letter dated November 3, 2000, which confirms the statements plaintiffs make in the second, third, and fourth sentences of paragraph 34. -12-

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paragraph 35 to the extent supported by a letter dated the November 1, 2001,2 which is the best evidence of its contents; otherwise denies the allegations contained in the first, second, and third sentences of paragraph 35. Admits the allegations contained in the fourth sentence of paragraph 35 that the plaintiffs rejected the defendant's offer; denies the remainder of the allegations contained in the fourth sentence of paragraph 35. 36. Admits the allegations contained in the first sentence of paragraph 34 that the

USDA sent the plaintiff Freeman a check for $407,820.00 on or about April 8, 2002; admits the remainder of the allegations contained in the first sentence of paragraph 36 to the extent supported by the November 1, 2001, and the April 8, 2002 letters referred to in paragraph 36, which are the best evidence of their contents; otherwise denies the allegations contained in the first sentence of paragraph 36. Admits the allegations contained in the second, third and fourth sentences of paragraph 36 to the extent supported by the June 18, 2002 letter cited, which is the best evidence of its contents; otherwise denies the allegations contained in the second, third, and fourth sentences of paragraph 36. Defendant denies the allegations contained in the June 18, 2002 letter that the compensation package was not full, fair, and adequate compensation. 37. Admits the allegations contained in paragraph 37 that the plaintiffs have not

received any compensation for the quarantine imposed over Skunk Hollow Farm; denies the remainder of the allegations contained in paragraph 37. Defendant avers that the quarantine ended on March 23, 2006. 38. Denies.

Defendant is unable to locate a letter dated November 11, 2001, in its files, but it does have a letter dated November 1, 2001, which confirms the statements plaintiffs make in the first, second, and third sentences of paragraph 35. -13-

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39.

Admits the allegations that, on July 19, 2000, Larry and Linda Faillaces' and Ag-

Innovations' sheep were appraised at $193,650.00 contained in the first sentence of paragraph 39. Denies the allegations contained in the second sentence of paragraph 39. Admits the allegations contained in the third sentence of paragraph 39; defendant avers that the check was mailed on April 8, 2002. Denies the allegations contained in the fourth sentence of paragraph 39. 40. Admits the allegations contained in the first sentence of paragraph 40 that the

initial appraisals did not include other property taken and destroyed; defendant avers that subsequent to the seizure and destruction of the sheep, plaintiffs were compensated for other property taken and destroyed. Admits the allegations contained in the second sentence of

paragraph that the 2000 independent appraisals did not include economic losses or importation and start-up costs, but they did examine the milking and breeding potential of the animals; denies the remainder of the allegations contained in the second sentence of paragraph 40. Denies the allegations contained in the third sentence of paragraph 40 of the complaint. 41. Admits the allegations contained in paragraph 41 that the plaintiffs have not

received any compensation for the quarantine imposed over the Ag-Innovations farm; denies the remainder of the allegations contained in paragraph 41. Defendant avers that the quarantine ended on March 23, 2006. CAUSES OF ACTION Count I (Constitutional Compensation for Taking of Sheep) 42. Defendant re-alleges and incorporates by reference defendant's responses to the

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allegations plaintiffs made in numbered paragraphs 1 through 41. 43. 44. Denies. Denies the allegations contained in paragraph 44 that the defendant seized and

destroyed "gourmet" cheese stock; denies the allegations contained in paragraph 44 that the defendant seized and destroyed other "crops" and "business-related business assets" for lack of knowledge or information sufficient to form a belief as to the truth of the matters asserted; admits the remainder of the allegations contained in paragraph 44. 45. 46. Denies. Denies. Count II (Statutory Compensation for Quarantined Properties) 47. Defendant re-alleges and incorporates by reference defendant's responses to the

allegations plaintiffs made in numbered paragraphs 1 through 46. 48. Admits the allegations contained in the first sentence of paragraph 48 that the

United States imposed a quarantine upon plaintiffs' property in August and September 2002; denies the remainder of the allegations contained in paragraph 48. Defendant avers that the quarantine ended on March 23, 2006. Defendant further avers that the parties have stipulated to the dismissal of Count II in accordance with their Joint Motion To Dismiss Count II And To Limit Discovery, filed on February 8, 2008. 49. Admits the allegations contained in paragraph 49 that the United States has not

provided any compensation for the quarantine imposed upon plaintiffs' property; denies the remainder of the allegations contained in paragraph 49. Defendant avers that the parties have

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stipulated to the dismissal of Count II in accordance with their Joint Motion To Dismiss Count II And To Limit Discovery, filed on February 8, 2008. Count III (Statutory Compensation for Taking of Sheep) 50. Defendant re-alleges and incorporates by reference defendant's responses to the

allegations plaintiffs made in numbered paragraphs 1 through 49. 51. 52. 53. Denies. Denies. Denies that the plaintiff is entitled to the relief set forth in paragraphs (a), (b), and

(c), or to any relief whatsoever. 54. Denies each and every allegation not previously admitted or otherwise qualified. DEFENDANT'S AFFIRMATIVE DEFENSE 55. 56. Plaintiffs' Fifth Amendment takings claims are barred by nuisance.3 Plaintiffs should be denied recovery under their Fifth Amendment takings claims.

WHEREFORE, defendant requests that the Court enter judgment in its favor, order that the complaint be dismissed, and grant defendant such other and further relief as the Court may deem just and proper. Respectfully submitted,

JEFFREY S. BUCHOLTZ Acting Assistant Attorney General

By asserting an affirmative defense that plaintiffs are barred by nuisance, we are not thereby conceding that plaintiffs may state a categorical Fifth Amendment takings claim for the seizure of their sheep under Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). -16-

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/s/ Jeanne E. Davidson JEANNE E. DAVIDSON Director

OF COUNSEL: DARLENE BOLINGER United States Department of Agriculture Office of General Counsel 1400 Independence Ave., S.W. Washington, D.C. 20250

/s/ Sheryl L. Floyd SHERYL L. FLOYD Senior Trial Counsel Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tele: (202) 307-0282 Facsimile: (202) 514-8624 Attorneys for Defendant

FEBRUARY 11, 2008

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CERTIFICATE OF FILING I hereby certify under penalty of perjury that on this 11th of February, 2008, a copy of this "DEFENDANT'S ANSWER AND AFFIRMATIVE DEFENSE IN RESPONSE TO PLAINTIFF'S AMENDED COMPLAINT" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

/s/ Sheryl L. Floyd