Farmers Co-Op. Elevator, Woden, Iowa v. Doden

Decision Date29 October 1996
Docket NumberNo. C 96-3144-MWB.,C 96-3144-MWB.
PartiesFARMERS CO-OPERATIVE ELEVATOR, WODEN, IOWA, Plaintiff, v. Laurence DODEN, Defendant.
CourtU.S. District Court — Northern District of Iowa

David J. Siegrist of the David J. Siegrist Law Firm, Britt, IA, for plaintiff.

Nicholas P. Iavarone of Bellows and Bellows, Chicago, IL, Scott G. Buchanan of Buchanan, Bibler, Buchanan, Handsaker & Gabor, Algona, IA, and Richard H. Moeller of Berenstein, Moore, Moser, Berenstein & Heffernan, Sioux City, IA, for defendant.

MEMORANDUM OPINION AND ORDER REGARDING PLAINTIFF'S MOTION TO REMAND

BENNETT, District Judge.

                TABLE OF CONTENTS
                I. INTRODUCTION ..................................................... 722
                 II. BACKGROUND ....................................................... 723
                III. LEGAL ANALYSIS ................................................... 724
                     A. Removal Jurisdiction .......................................... 724
                        1. Statutory framework for removal and remand ................. 725
                        2. Burden of proof ............................................ 726
                        3. The "well-pleaded complaint" rule .......................... 727
                           a. The face of the complaint ............................... 727
                           b. Claims versus defenses .................................. 727
                           c. Claims "arising under" federal law ...................... 728
                     B. Are The Claims Removable? ..................................... 729
                        1. Doden's federal issue ...................................... 729
                        2. "Artful pleading" .......................................... 730
                        3. Claims "arising under" federal law ......................... 732
                 IV. CONCLUSION ....................................................... 734
                

Xerxes, King of Persia, no doubt thought little, at first, of the mere three hundred Spartans who opposed his huge army at Thermopylae, barring the way to his invasion of Greece in about 480 B.C. However, as tenaciously as those few Spartans fought to bar Xerxes's passage through the "hot gates" into Greece, so the plaintiff here fights to bar defendant's passage through the gates into federal court. In so doing, the plaintiff may also bar the gates to federal court to a veritable army of other lawsuits removed to this federal court involving so-called "hedge-to-arrive" contracts (HTAs) entered into between grain elevators and farmers. The Spartans were successful in their stand, and the Persian conquest of Greece was turned back for a time.1 This court must decide how successful plaintiff's stand is here. That determination depends upon whether plaintiff's common-law contract claims, however pleaded, actually "arise under" the Commodity Exchange Act (CEA), 7 U.S.C. §§ 1-25, such that this federal court may exercise jurisdiction on the basis of federal questions in the removed action.

I. INTRODUCTION

Plaintiff Farmers Co-operative Elevator, Woden, Iowa (Farmers Co-op), filed a petition in this matter in the Iowa District Court for Winnebago County on September 17, 1996, asserting claims arising from breach of several contracts against defendant Laurence Doden. Specifically, Farmers Co-op alleges that Doden has breached contracts under which Doden was to sell his corn and soybeans to Farmers Co-op. Division I of the petition alleges that Doden has repudiated these contracts. This division seeks specific performance of contracts to deliver Doden's corn and soybeans to Farmers Co-op for 1996 and subsequent years up to the total of the contracts, that is, 450,000 bushels of corn and 40,000 bushels of soybeans, to account for any corn or soybeans delivered to a third party, and to pay over the proceeds from such grain. This division also seeks a temporary restraining order during the pendency of the proceedings enjoining Doden from violating the terms of his contracts with Farmers Co-op. Division II of the petition seeks damages in excess of $1 million allegedly suffered by Farmers Co-op as losses on hedge contracts resulting from Doden's repudiation of the grain sales contracts.

On September 17, 1996, a judge of Iowa's Second Judicial District set a hearing on Farmers Co-op's request for a temporary restraining order for October 4, 1996. However, on October 2, 1996, prior to answering the petition, Doden removed this action to federal court, asserting that Farmers Co-op's petition involved a civil action for damages from breach of a federally regulated commodity futures transaction. Consequently, Doden asserted that this is a matter over which this court has original jurisdiction pursuant to 28 U.S.C. § 1331 and the Commodity Exchange Act, 7 U.S.C. § 24, making removal proper under 28 U.S.C. § 1441(b). On October 9, 1996, Farmers Co-op filed a motion to remand and for expedited relief. On October 9, 1996, the court ordered Doden to provide the court with an expedited response to the motion to remand by facsimile on or before October 15, 1996.2 The court stated that it would "take such actions after receiving the response as it deems appropriate to a just and expeditious disposition of the motion to remand." Order of October 9, 1996. Doden's response was filed on October 15, 1996, and somewhat earlier, on October 11, 1996, Doden answered Farmers Co-op's original petition. Farmers Co-op filed a reply brief in support of remand on October 21, 1996.

In support of the motion to remand presently before the court, Farmers Co-op argues that removal is improper, because its petition does not seek federal relief or otherwise present a federal question. Instead, Farmers Co-op asserts that, from the face of the complaint, it is obvious that the only claims are state-law claims for specific performance of contracts, damages for breach of contracts, and injunctive relief. Farmers Co-op points out that its claims are not based on the CEA or any other federal law. Farmers Co-op contends that any federal issues are raised by Doden's counterclaims or defenses, not by Farmers Co-op's state-law contract claims, and such federal issues raised in counterclaims or defenses cannot support jurisdiction on removal. Consequently, Farmers Co-op asserts that this court should remand this case, in expedited fashion, without further hearing, and that Farmers Co-op should be awarded its costs and reasonable attorneys fees for seeking the remand.

Doden does not agree remand is appropriate. Rather, Doden asserts that Farmers Co-op's claims present a case of "artful pleading" to avoid an obvious federal question upon which this court's jurisdiction may be based. Although Doden does not contend that the CEA has preempted all aspects of commodity regulation, he asserts that the cases are "legion" permitting customers to sue commodity firms for violations of state statutes and for common-law torts that also give rise to violations of the CEA. Furthermore, Doden contends that the CEA preempts the definition of what constitutes a commodity or a contract for future delivery, citing 7 U.S.C. § 1a(3) (defining "commodity") & (11) (defining "future delivery"), requires that all contracts for future delivery be traded on the contract market, citing 7 U.S.C. § 6(a) (restrictions on futures trading in contract markets), and that off-exchange futures contracts and trade options are illegal, citing 7 U.S.C. § 6c(b) (prohibiting specified off-exchange transactions). Doden contends that the precise issue raised by the face of Farmers Co-op's state court petition is, "Are the Woden HTA contracts illegal off-exchange futures contracts and/or prohibited trade options sold in violation [of] § 6(a) and § 6c(b)?" Defendant's Response To Plaintiff's Motion To Remand And For Expedited Oral Hearing (hereinafter, "Defendant's Response"), p. 2. Doden asserts that he is not pleading federal preemption as a defense, but is instead contending that Farmers Co-op has raised a federal question on the face of its pleadings, the question of whether the contracts are illegal, which is a question of federal law. Doden contends that Farmers Co-op has attempted to plead around this federal question by failing to plead that it is a defendant in an action in federal court in Illinois where Doden asserts that the HTA contracts in question are illegal, but that Farmers Co-op has failed to bring the claims it asserts here as compulsory counterclaims in the Illinois action. Doden also contends that Farmers Co-op has attempted to plead around the federal question by failing to plead that the reason Doden "repudiated" the contracts was their illegality under the CEA. Much of Doden's resistance to remand is devoted to attempting to demonstrate that the petition establishes the federal question under the CEA, because the factual allegations of the petition and its attached exhibits purportedly demonstrate the illegality of the contracts under the CEA.

In light of Doden's resistance to remand, Farmers Co-op marshaled its forces, and filed a reply brief on October 21, 1996. In that reply, Farmers Co-op asserts that the "artful pleading" rule does not apply to its petition, because the CEA is not the gravamen of its cause of action. Farmers Co-op points out that the CEA does not apply to every executory contract involving commodities. In fact, Farmers Co-op asserts that the HTAs in question here are "cash forward contracts" that are specifically excepted from the CEA. Farmers Co-op contends that it is a grain elevator, Doden is a grain farmer, and the HTAs all pertain to the marketing of Doden's corn and soybeans with actual delivery of the grain contemplated, although delivery is not to occur until sometime in the future. "Cash forward contracts," Farmers Co-op asserts, do not have to be traded on the commodities contract market. Farmers Co-op contends that the issue Doden asserts is central, that the HTAs are illegal off-exchange futures contracts and/or prohibited trade options sold in...

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