Abels v. Farmers Commodities Corp.
| Citation | 259 F.3d 910 |
| Decision Date | 14 March 2001 |
| Docket Number | 00-2045NI,Nos. 00-1946N,s. 00-1946N |
| Parties | (8th Cir. 2001) DAN ABELS; LES A. BEEKMAN; STEVEN BERSCHMAN; RONALD BERSCHMAN; DARYL CUSHMAN; DAVID FARMS, INC., AN IOWA CORPORATION; DUANE DAVIDS; DALE KRAMERSMEIER; DIANA KRAMERSMEIER; D&D KRAMERSMEIER, LTD, AN IOWA CORPORATION; M&J ENNEN FARMS, INC.; RONNY ENNEN; RANDE GIESKING; AND HAMILTON LAND CORPORATION, PLAINTIFFS - APPELLANTS, BRUCE A. HEETLAND AND HEIDECKER FARMS, INC., PLAINTIFFS, JAMES HOFBAUER AND RICK HOFBAUER, PLAINTIFFS - APPELLANTS, JUNKERMEIER FARMS, INC., PLAINTIFF, BRUCE MEINDERS, DALE L. MEINDERS, AND GARY MEINDERS, DOING BUSINESS AS MEINDERS BROTHERS; CLARENCE MILLER AND CHRISTIAN MILLER, DOING BUSINESS AS C&C MILLER FARMERS; J&K OFTEDAHL, INC., AN IOWA CORPORATION; PITKIN FARMS, LTD; JEFF PITKIN; SANDALE FARMS, INC.; RONALD L. SCHMIDT; DEBRA SCHMIDT; STEVE SHORTENHAUS; SHAWN THOMSEN; BILL WALSTEAD; JOYCE WALSTEAD; AND SJMC CORP., AN IOWA CORPORATION, PLAINTIFFS - APPELLANTS, v. FARMERS COMMODITIES CORPORATION, AN IOWA CORPORATION, AND FCC FUTURES, INC., AN IOWA CORPORATION, DEFENDANTS - APPELLEES. DAN ABELS; LES A. BEEKMAN; STEVEN BERSCHMAN; RONALD BERSCHMAN; DARYL CUSHMAN; DAVID FARMS, INC., AN IOWA CORPORATION; DUANE DAVIDS; DALE KRAMERSMEIER; DIANA KRAMERSMEIER; D&D KRAMERSMEIER, LTD, AN IOWA CORPORATION; M&J ENNEN FARMS, INC.; RONNY ENNEN; RANDE GIESKING; AND HAMILTON LAND CORPORATION, PLAINTIFFS, BRUCE A. HEETLAND AND HEIDECKER FARMS, INC., PLAINTIFFS - APPELLANTS, JAMES HOFBAUER; RICK HOFBAUER; JUNKERMEIER FARMS, INC., BRUCE MEINDERS, DALE L. MEINDERS, AND GARY MEINDERS, DOING BUSINESS AS MEINDERS BROTHERS; CLARENCE MILLER AND CHRISTIAN MILLER, DOING BUSINESS AS C&C MILLER FARMERS; J&K OFTEDAHL, INC., AN IOWA CORPORATION; PITKIN FARMS, LTD; JEFF PITKIN; SANDALE FARMS, INC.; RONALD L. SCHMIDT; DEBRA SCHMIDT; STEVE SHORTENHAUS; SHAWN THOMSEN; BILL WALSTEAD; JOYCE WALSTEAD; AND SJMC CORP., AN IOWA CORPORATION, PLAINTIFFS, v. FARMERS COMMODITIES CORPORATION, AN IOWA CORPORATION, AND FCC FUTURES, INC., AN IOWA CORPORATION, DEFENDANTS - APPEL |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
On Appeal from the United States District Court for the Northern District of Iowa. [Copyrighted Material Omitted]
[Copyrighted Material Omitted] Before Richard S. Arnold and Fagg, Circuit Judges, and Perry,1 District Judge.
The District Court dismissed this case for failure to state a claim. It held, first, that a plaintiff seeking to hold a principal liable for an agent's fraud must plead not only fraud but also agency with particularity pursuant to Federal Rule of Civil Procedure 9(b). In the District Court's view, the plaintiffs failed to meet that heightened standard in pleading a principal-agent relationship between the Farmers' Commodities Corporation and Henry Mayland, who is alleged to have induced many of the plaintiffs to enter into the "hedge-to-arrive" (HTA) contracts at issue here. The District Court also held that the plaintiffs lacked standing under the Commodity Exchange Act (CEA), and that they had again failed to satisfy Rule 9(b) with respect to the allegations of mail and wire fraud underlying their RICO claims. We reverse the District Court's judgment and remand the case for further proceedings.
The defendants have moved to strike certain exhibits which the plaintiffs introduce for the first time on appeal. The exhibits in question are not necessary to our analysis here, and we ignore them. We assume, as we must in reviewing a dismissal for failure to state a claim, that all factual allegations in the complaint are true. See Goss v. City of Little Rock, 90 F.3d 306, 308 (8th Cir. 1996).
The plaintiffs in this case are farmers. The defendants are a futures commission merchant, Farmers' Commodities Corporation (FCC), and its wholly-owned subsidiary and introducing broker, FCC Futures, Inc. (Futures). Not a party here, but an important actor nonetheless, is the Farmers Cooperative Elevator of Buffalo Center (the Elevator). The manager of the Elevator, Henry Mayland, was also the manager of Futures' branch office in Buffalo Center, Iowa. As manager of that office, Mayland was registered with the Commodity Futures Trading Commission as an agent of Futures and was responsible for whatever business Futures did through that office. Specifically, he had the duty to oversee all sales of commodity futures and all promotion of such sales to actual or prospective customers of Futures, and to review the content of all promotional material used by his office. Because FCC was the guarantor futures commission merchant of Futures, Mayland was required to obtain its approval of all promotional material, including seminars and presentations made to the general public. In addition, he had to implement any new procedures or compliance directives received from FCC in its role as guarantor futures commission merchant of Futures.
As early as January, 1993, Henry Mayland began soliciting farmers who did business with the Elevator to enter into HTA contracts. An HTA contract resembles a normal commodity-futures contract, in that it is an agreement to exchange a certain kind and quantity of a commodity - here, grain - at some future date, for a predetermined price. Because the purchase price is set in advance, both the buyer and the seller are exposed to the risk that the market price on the delivery date will differ, unfavorably, from the contract price. The distinctive feature of an HTA contract lies in its method of "hedging" that risk. In a typical HTA, the buyer protects itself by taking an equal and opposite position in the futures market to offset any loss it would suffer if the price it has agreed to pay turns out to be too high. The seller, for his part, has the right to "roll" the delivery date. Thus, if the parties have contracted for delivery in September, and the market price at that time turns out to be substantially higher than the price agreed upon, the farmer may find it more profitable to sell the crop on the cash market and defer delivery. This is allowed upon the payment of a certain sum in "roll charges." The net effect of the HTA arrangement is supposed to be to protect both buyers and sellers from fluctuations in crop prices.
In order to solicit these agreements on behalf of his employers, Mr. Mayland held "marketing meetings" at which he and others made representations to farmers about the risks and advantages of HTA contracts. The complaint gives dates and locations for these meetings and tells who spoke, what representations were made, and what plaintiffs were in attendance. In essence, Mayland and his agents told the farmers that HTAs were free of risk, that they could be rolled indefinitely into the future, and that they could be used to hedge prices on a quantity up to 100% of a farmer's anticipated annual production. Some farmers were told that, using HTAs, they could sell more grain than they expected to grow and then sell their excess contracts to their neighbors; that they would have no obligation to deliver grain; and that they could buy out of the contract at any time. Mayland and his agents represented the HTA agreements to many plaintiffs as a way to put a floor under the price they would receive for their grain. That is, they said a farmer who used HTAs would not receive less than the contract price, but would leave open the possibility of receiving more (in a seller's market) by "rolling" the HTA delivery date and selling to another buyer. FCC's employee Earl Cornelius, the featured speaker at a marketing meeting attended by one plaintiff, made substantially the same representations as Mayland and his agents made.
On the basis of these representations, each of the plaintiffs began writing HTA contracts with the Elevator. The contracts were printed on a standard form and had most of their terms in common. Each recites that "the following futures transaction was made for seller on the Chicago Board of Trade." The futures transactions corresponding to the contracts were placed in the Elevator's regulated commodity account with FCC, an activity which involved communication by mail and telephone. Each time a farmer rolled a delivery date, the Elevator would alter the corresponding futures position in its FCC account (again using the mails or wires) and charge the farmer a fee. FCC's commissions increased with the number of transactions in the account.
The farmers brought this action mainly to recover sums that the Elevator claims they owe on their HTA contracts. Their claim is essentially that, although represented by the defendants as a risk-free form of price protection, the HTA agreements actually exposed the farmers to a substantial risk of losing money on the futures market. The District Court dismissed the farmers' first complaint under Federal Rule of Civil Procedure 12(b)(6), but granted them leave to replead. They then filed an amended complaint, which the Court dismissed with prejudice. On appeal from that judgment, the plaintiffs challenge three specific holdings of the District Court. They argue that they have sufficiently pleaded a principal-agent relationship between Mayland and FCC, that they have standing to sue under the Commodity Exchange Act, and that their allegations of mail and wire fraud satisfy Rule 9(b), which requires that the circumstances constituting fraud be pleaded with particularity.
We find merit in all three of these arguments. The plaintiffs have sufficiently pleaded agency, even under the standard of Rule 9(b); they have pleaded facts that, if true, confer standing to bring at least one claim under the CEA; and their complaint gives the defendants sufficient notice of the specific misconduct for which the plaintiffs seek recovery under RICO. For these reasons, we reverse the judgment of the District Court in relevant part and remand for further proceedings.
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