DeWit v. Firstar Corp.

• Full Citation: DeWit v. Firstar Corp., 904 F.Supp. 1476 (N.D. W.Va. 1995)
• Decision Date: 29 August 1995
• Citation: 904 F. Supp. 1476
• Docket Number: No. C 94-4052.,C 94-4052.
• Court: U.S. District Court — Northern District of West Virginia
• Parties: Don DeWIT, High Line Pork, Robert Cash, Dan Murphy, and Double V Dairy, Plaintiffs, v. FIRSTAR CORPORATION, Firstar Bank Milwaukee, N.A., Firstar Bank Wausau, N.A., Firstar Bank Sioux City, N.A., and Mark J. Miley, Defendants and Third-Party Plaintiffs, v. Lee Van VELDHUIZEN, Third-Party Defendant.

904 F. Supp. 1476

Don DeWIT, High Line Pork, Robert Cash, Dan Murphy, and Double V Dairy, Plaintiffs, v. FIRSTAR CORPORATION, Firstar Bank Milwaukee, N.A., Firstar Bank Wausau, N.A., Firstar Bank Sioux City, N.A., and Mark J. Miley, Defendants and Third-Party Plaintiffs, v. Lee Van VELDHUIZEN, Third-Party Defendant.

No. C 94-4052.

United States District Court, N.D. Iowa, Western Division.

August 29, 1995.

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Randall A. Roos of the Roos Law Office, P.C., Sioux Center, Iowa, for Plaintiffs.

Thomas L. Shriner, Jr., and G. Michael Halfenger of Foley & Lardner, Milwaukee, Wisconsin, and Jeffrey L. Poulson of Corbett, Anderson, Corbett, Poulson, Flom & Vellinga, Sioux City, Iowa, for Defendants.

MEMORANDUM OPINION AND ORDER REGARDING PLAINTIFFS' MOTIONS FOR RECONSIDERATION AND LEAVE TO FILE AMENDED COMPLAINT AND DEFENDANTS' MOTIONS TO STRIKE

                                      TABLE OF CONTENTS
                  I. PROCEDURAL AND FACTUAL BACKGROUND ....................................................... 1482
                     A. Procedural Background ................................................................ 1483
                     B. Factual Background ................................................................... 1485
                        1. Securities Allegations ............................................................ 1486
                           TABLE I: Comparison Of Securities Allegations In The First And
                           Second Amended Complaints ......................................................... 1486
                        2. RICO Allegations .................................................................. 1489
                           TABLE II: Comparison Of RICO Allegations In The First And
                           Second Amended Complaints ......................................................... 1490
                 II. LEGAL ANALYSIS .......................................................................... 1493
                      A. The Motion For Reconsideration ...................................................... 1493
                         1. Applicable standards ............................................................. 1494
                            a. Rule 59(e) motion to alter or amend ........................................... 1494
                            b. Rule 60(b) motion for relief from judgment .................................... 1496
                         2. Reconsideration here ............................................................. 1498
                            a. Reconsideration in light of controlling precedent ............................. 1498
                                i. The disregarded precedent ................................................. 1498
                               ii. Import of the precedent ................................................... 1499
                              iii. Irrelevance of the precedent to this court's ultimate determination ....... 1500
                            b. Reconsideration of failure to include leave to amend .......................... 1501
                                i. Opportunity to replead after dismissal .................................... 1502
                               ii. Leave to amend here........................................................ 1505
                         3. Summary Regarding The Motion For Reconsideration.................................. 1507
                      B. Adequacy Of The Second Amended Complaint............................................. 1507
                         1. Repleaded securities claims ...................................................... 1507
                            a. Commonality.................................................................... 1509
                                i. Horizontal commonality .................................................... 1509
                               ii. Vertical commonality....................................................... 1513
                            b. Expectation of profit from the effort of others................................ 1514
                         2. Repleaded RICO claims............................................................. 1516
                            a. A proper RICO enterprise ...................................................... 1516
                                i. Association-in-fact enterprises ........................................... 1516
                

                               ii. Enterprises consisting of parents and subsidiaries .......................... 1520
                              iii. The enterprise alleged here ................................................. 1521
                           b. Pattern or racketeering .......................................................... 1523
                           c. Predicate acts ................................................................... 1524
                               i. Mail, wire, and common-law fraud ............................................. 1524
                              ii. Bankruptcy fraud ............................................................. 1525
                        3. Summary of disposition of the motion for leave to amend ............................. 1525
                     C. Interlocutory Appeal ................................................................... 1525
                III. CONCLUSION ................................................................................ 1527
                

BENNETT, District Judge.

In its prior order dismissing the complaint in this litigation, DeWit v. Firstar Corp., 879 F.Supp. 947 (N.D.Iowa 1995), the court observed that this lawsuit, asserting claims pursuant to RICO and securities laws, raised a number of probing and nettlesome questions. Now, confronted with plaintiffs' motion to reconsider its prior ruling and for leave to file a second amended complaint, the court finds itself once more among the nettles.

Plaintiffs particularly take the court to task for its conclusion, in dismissing the first amended complaint, that the cattle feeding contracts at issue here are not securities as a matter of law. Plaintiffs assert that the court's error in dismissing the securities claim is made even more apparent in the repleading of that claim in the proffered second amended complaint. However, rather than standing upon the RICO allegations made in the first amended complaint, the plaintiffs have submitted drastically altered allegations concerning the definition of the "RICO enterprise" in their proffered second amended complaint. Plaintiffs have thereby dramatically changed the inquiry concerning the adequacy of the pleading of their RICO claims.

Plaintiffs, investors in and suppliers to a cattle investment scheme called "Adventure Cattle," filed this lawsuit against a bank holding company and subsidiary banks that provided banking services for Adventure Cattle, its principal, John Morken, and Morken's related business, Spring Grove Livestock Exchange (SGLE), and against the bank officer responsible for the accounts in question. In a first amended complaint, plaintiffs alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), the Securities Acts of 1933 and 1934, and also asserted state common-law claims of fraud and wrongful conversion or set-off. The court granted defendants' motion to dismiss the first amended complaint for failure to state a federal claim upon which relief can be granted and declined to exercise supplemental jurisdiction over state law claims. Plaintiffs now move the court to reconsider dismissal of the first amended complaint, arguing that the court made factual and legal errors in dismissing the first amended complaint and should have granted plaintiffs leave to file a second amended complaint to cure the defects the court perceived in the first amended complaint rather than simply dismissing it. Plaintiffs subsequently filed, as a supplement to their motion for reconsideration, a "second amended complaint" in order to demonstrate that their claims could be pleaded with sufficient particularity. Defendants resist the motion to reconsider, asserting that the court rightly dismissed the first amended complaint. Defendants further challenge either the filing or consideration by the court of the second amended complaint. In the event that the court considers the adequacy of the second amended complaint, defendants argue that it fails to cure the critical flaws identified by the court in the first amended complaint. Defendants therefore argue that plaintiffs should be denied leave to file the second amended complaint on the ground that the amendment is futile.

I. PROCEDURAL AND FACTUAL BACKGROUND

The procedural and factual background for this lawsuit is discussed extensively in the court's prior ruling. See DeWit v. Firstar Corp., 879 F.Supp. 947, 954-959 (N.D.Iowa 1995). The court will therefore present here only procedural matters arising since the court dismissed the first amended complaint and the new factual allegations of the proffered second amended complaint.

A. Procedural Background

By order dated March 1, 1995, this court dismissed plaintiffs' second amended complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. The court held that: (1) plaintiffs' RICO claim failed to plead sufficiently the elements of a RICO offense under 18 U.S.C. ? 1962(c); (2) plaintiffs failed to state claims of securities laws violations, because the Adventure Cattle contracts at issue are not "securities" under the test articulated by the Supreme Court in Securities and Exchange Comm'n v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), and therefore were not subject to the securities laws; (3) plaintiffs' state law claims of common-law fraud did not meet the heightened pleading requirements for fraud under Fed. R.Civ.P. 9(b); and (4) the court should decline to exercise supplemental jurisdiction over the only surviving state-law claim, for wrongful conversion or set-off, because all federal claims had been dismissed.¹

On March 9, 1995, plaintiffs moved the court to reconsider the dismissal of the first amended complaint. In that motion for reconsideration, plaintiffs assert that the court dismissed the first amended complaint in large part because the complaint lacked sufficient...