Question over judge's words leads to finger pointing in food fraud scandal

The words of a Ramsey County judge are getting new scrutiny this week as candidates for state office spar over who was responsible for allowing alleged fraud to mushroom in Minnesota's federally funded child nutrition program.

District Judge John Guthmann didn't issue a written order telling state regulators to continue paying the nonprofit Feeding Our Future as they sought more documentation for claimed meals served to poor children. But the 73-page transcript of an April 2021 hearing shows Guthmann listened to arguments about the payments and commented several times that he saw no regulations giving the state authority to stop paying Feeding Our Future at that point.

Based on the regulations he had read, he told the Minnesota Department of Education (MDE) that it would have "a real problem not reimbursing at this stage of the game" if the battle over payments played out in court.

While MDE disagreed with Guthmann's interpretation of the federal regulations, the department restarted payments to Feeding Our Future six days later and had already gone to the FBI — kicking off the sweeping investigation into Feeding Our Future and its associates that led to last week's charges of nearly 50 people in an alleged $250 million fraud scheme.

The investigation became public Jan. 20 after the FBI raided Feeding Our Future's offices and unsealed some search warrants. That day, MDE issued a news release describing its history with the nonprofit and adding that a judge had told the department "that it does not have the authority to stop payment to Feeding Our Future and must continue to pay Feeding Our Future's claims."

After the charges were filed last week, a reporter asked Gov. Tim Walz on Thursday if Guthmann should resign, and Walz responded that he had hoped there would be an investigation. The next day, Walz said he wasn't calling for any investigation into Guthmann but wanted a review of "how this fraud was allowed to continue, including lies the defendants told the court."

On Friday, Guthmann authorized a rare statement on the case, saying the Star Tribune, other media and Walz inaccurately stated that he had ordered the Education Department to restart payments. "Judge Guthmann never ordered the Department of Education to resume payments to FOF in April 2021, or at any other time," the statement said, adding that the department "voluntarily resumed making payments."

In response, MDE said in a statement Friday that "the court made it clear that if MDE were to continue the legal fight to withhold payments, MDE would incur sanctions and legal penalties." When asked by reporters last week why the department didn't continue to appeal or challenge Feeding Our Future payments, MDE leaders said that, besides being held in contempt later for not processing Feeding Our Future meal site applications quickly enough, the department was facing mounting legal fees and worried about tipping off Feeding Our Future to the FBI investigation.

Guthmann said through a spokesman Tuesday that he didn't say he would sanction MDE and held MDE in contempt only over applications not being processed in a timely manner.

Republicans are now blasting the Democratic governor, accusing Walz of making Guthmann a "scapegoat" and calling for Education Commissioner Heather Mueller to resign. GOP gubernatorial candidate Scott Jensen asked this week for an independent investigation of Walz.

Former Ramsey County Attorney Susan Gaertner, who isn't involved in the case, read through the transcript of the April 2021 hearing between Feeding Our Future and MDE and said it's a complicated case.

"The bottom line is that Judge Guthmann did not order them to continue payments. At the same time, it is understandable why the Department of Education felt like they had to continue paying," Gaertner said. "A fair reading of the federal regulations seemed to require it, and more importantly, though, they had to feel constrained to not in any way interfere with the FBI investigation."

Legal fight

Feeding Our Future had sued the Education Department in November 2020, saying that MDE wasn't following federal regulations for processing meal site applications quickly enough. In December 2020, Guthmann ordered the Education Department to approve or disapprove Feeding Our Future's applications in "a reasonably prompt manner."

The following month, the Education Department declared Feeding Our Future "seriously deficient" due to incomplete financial audits and a lapsed nonprofit status with the IRS. And in March 2021, the Education Department wrote that it would issue a "stop pay" to Feeding Our Future programs "until the claim is validated by the state agency."

Feeding Our Future said in court documents in April 2021 that the state owed more than $17 million to Feeding Our Future and its partners.

In a transcript of the nearly three-hour hearing on April 21, 2021, held over Zoom, Feeding Our Future's attorney Rhyddid Watkins argued that federal rules permitted a state agency to withhold funds only due to an allegation of a fraudulent claim, and the Education Department had not alleged fraud.

The lawsuit was filed over Feeding Our Future's meal site applications, Guthmann told the two sides, so if the department was impeding the ability for the organization to submit applications, that would be a violation of his December order and he would find the department in contempt. "But in terms of releasing money, that's outside the application process," he said, adding that Watkins would need to amend the lawsuit or file a new lawsuit to address payments.

Guthmann said, under his reading of regulations, MDE couldn't stop payments to Feeding Our Future while it sought information to validate claims. "You can't impose the additional conditions and stop paying before you determine that those additional conditions won't work. You've put the cart before the horse," Guthmann said.

Guthmann added to state attorney Kristine Nogosek, "you've got a real problem not reimbursing at this stage of the game. You may ultimately have every right to implement the suspension of payments under this regulation based upon whatever it is they're supposed to give you, but the standard that has to be met to entitle the department to stop paying is crystal clear in this regulation."

Six days later, MDE restarted payments to Feeding Our Future. The Education Department acknowledged in a May Star Tribune interview that, had it required extensive receipts and other paperwork, it may have been able to end the department's relationship with Feeding Our Future sooner, but said the department wasn't comfortable continuing to insist on additional records without explicit approval from the U.S. Department of Agriculture, which funds the meal programs.

Attorney General Keith Ellison, whose office represented the Education Department in court, added in a statement this week that his office didn't pursue the "stop-pay" further for risk of revealing the FBI investigation to Feeding Our Future.

MDE also didn't claim in court that any of Feeding Our Future's reimbursement claims were fraudulent. The department said last week that, because it was assisting with the federal investigation, the agency couldn't "assert certain defenses" when Feeding Our Future sued in order not to reveal the FBI's investigation.

"They would have been under tremendous pressure to not do anything that might alert the organization to the fact that they were being investigated [by the FBI]," Gaertner said. "It's very easy to say after the fact that the Department of Education should have stopped making payments. But at that point, based on the dynamics of the FBI investigation, the pretty clear reading of the federal regulations, the very aggressive legal posture taken by Feeding Our Future, I don't know that they had any choice."