Farmers Co-Op. Elevator v. Abels

• Decision Date: 04 December 1996
• Docket Number: No. C96-3082-MWB.,C96-3082-MWB.
• Parties: FARMERS CO-OPERATIVE ELEVATOR OF BUFFALO CENTER, IA v. ABELS.
• Court: U.S. District Court — Northern District of Iowa

Page 931

950 F.Supp. 931

FARMERS CO-OPERATIVE ELEVATOR OF BUFFALO CENTER, IA v. ABELS.

No. C96-3082-MWB.

United States District Court, N.D. Iowa.

December 4, 1996.

Steven C. Schoenebaum, Richard K. Updegraff, and Sean P. Moore of Brown, Winick, Graves, Gross, Baskerville, Schoenebaum & Walker, P.C., in Des Moines, Iowa, for all of the plaintiff Elevators.

Joel J. Bellows, Laurel G. Bellows, Nicholas P. Iavarone, and Christopher L. Gallinari of Bellows and Bellows in Chicago, Illinois, and by local counsel Scott G. Buchanan and Jerrold L. Handsaker of Buchanan, Bibler, Buchanan, Handsaker & Gabor in Algona, Iowa, and Douglas B. Hodgson and Richard H. Moeller of Berenstein, Moore, Moser, Berenstein & Heffernan in Sioux City, Iowa, for all of the defendant Producers.

MEMORANDUM OPINION AND ORDER ON MOTIONS TO REMAND

                                   TABLE OF CONTENTS
                I.   INTRODUCTION ................932
                II.  BACKGROUND ..................934
                III. LEGAL ANALYSIS ...................934
                         A. Principles Of Removal Jurisdiction
                                        ........................934
                         B. Removal Jurisdiction In
                              These Cases ......................938
                         C. Attorneys Fees And Costs ................941
                IV. CONCLUSION ............................941
                

BENNETT, District Judge.

These matters come before the court pursuant to the plaintiffs' motions to remand these actions to state court. The principal question before the court is whether the plaintiffs' common-law contract claims, alleging breach of so-called "hedge-to-arrive" contracts (HTAs) for the sale and purchase of grain, however pleaded, actually "arise under" the Commodity Exchange Act (CEA), 7 U.S.C. §§ 1-25. If they do not, as plaintiffs contend, this federal court may not exercise jurisdiction over the removed actions on the basis of federal questions. Many of the issues and arguments raised here have previously been considered by the court in the Memorandum Opinion And Order Regarding Plaintiff's Motion To Remand in Farmers Co-op. Elevator v. Doden, 946 F.Supp. 718 (N.D.Iowa 1996), in which this court remanded that action to state court for lack of a proper federal question upon which to base removal jurisdiction. In their resistances to remand in the present cases, the defendants have focused on attempts to distinguish each of the present cases from the Doden case. The court will therefore consider the extent to which these attempts to distinguish Doden have been successful and whether remand of these cases is appropriate in light of principles already set forth more fully in the Doden decision.

I. INTRODUCTION

Presently before the court are fifty-two lawsuits originally filed in Iowa district courts by grain elevators (Elevators) asserting claims arising from alleged breach or repudiation of contracts by the defendant grain producers (Producers).¹ The contracts involved are so-called "hedge-to-arrive" (HTA) contracts for the sale and purchase of corn and soybeans. On or about September 12, 1996, the Producers each removed the state court action against them to this federal district court, asserting that the Elevators' claims involved federally regulated commodity futures transactions. Thus, the Producers asserted that these were matters over which this court has original jurisdiction pursuant to 28 U.S.C. § 1331 and the Commodity Exchange Act (CEA), 7 U.S.C. § 1 et seq., making removal proper under 28 U.S.C. § 1441(b). However, on October 15, 1996, the Elevators moved to remand all of the actions to state court because their petitions do not seek federal relief or otherwise present a federal question.

Pursuant to the Producers' motions for consolidation, extension of time to file a resistance, and to file a resistance exceeding fifteen pages, the court held a telephonic status and scheduling conference with all counsel on October 30, 1996. At the conference, the court was advised that all counsel were aware of this court's ruling in the Doden case. At the conference, a briefing schedule for resistances was also established, which required that all resistances to motions to remand and accompanying briefs would be filed on or before November 7, 1996. By subsequent order, dated October 30, 1996, the court confirmed this briefing schedule and granted the Producers' motions for leave to file overlength briefs. The court, however, denied the Producers' requests for consolidation, although the court ruled that separate resistances could cross-reference and incorporate by reference, rather than duplicate, other resistances or portions of briefs. The Producers complied with the spirit of this order on November 7, 1996, by filing in each case an identical, unified brief in resistance to the motion to remand that discussed in turn groups of cases involving contracts with the same Elevator.² No reply briefs were filed in any of the cases.³

The Elevators argue quite simply that all of their actions are actions for breach of contract under state law, and thus do not involve a federal question upon which the jurisdiction of this court can be invoked. They assert that any federal issue arising in this case is by way of the Producers' affirmative defenses or counterclaims that the HTA contracts in question are illegal under the Commodity Exchange Act. The Elevators also contend that, because the cases have been improvidently removed, they are entitled to an award of attorneys fees and costs associated with their motions to remand pursuant to 28 U.S.C. § 1447(c).

The Producers' arguments are more complicated. Although the Producers concede that the CEA does not preempt the entire field of commodities and commodities regulation, they argue that the CEA does preempt the question of whether the contracts in question are illegal off-exchange futures contracts and trade options. They contend that the contracts in question, on their face, raise the federal question of their legality under the CEA. The Producers also ask the court to revisit its conclusion in Doden that the artful pleading rule was inapplicable in the absence of complete preemption, suggesting that such an interpretation is undercut by the court's citation of Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988), for the proposition that the well-pleaded complaint rule encompasses those cases in which the plaintiff's right to relief depends on resolution of a substantial question of federal law that is a necessary element of one of a plaintiff's claims.⁴ Next, the Producers assert two differences between the present cases and the Doden case that they assert are sufficient to distinguish Doden, in which the court found it lacked subject matter jurisdiction, from the present cases, in which the Producers assert subject matter jurisdiction exists. First, the Producers assert material differences in the pleadings. For example, they assert that, unlike the Doden plaintiff, who sought injunctive relief to require delivery of grain pursuant to the contracts, the plaintiffs here seek, not grain, but margin losses on commodity futures transactions. They also assert that allegations of contracts for the delivery of grain are missing entirely from the present cases. Furthermore, they assert that there are no allegations of repudiation of the contracts, as in Doden, but only allegations of "inadequate assurances." In short, they assert that the plaintiffs here have not alleged the essentials of valid cash forward contracts or breach of those contracts. Second, the Producers argue that previously filed federal actions, Gunderson v. ADM Investor Servs., No. C96-3148 (N.D.Iowa) (transferred from N.D.Ill., case No. C96-3382), and Hoover v. ADM Investor Servs., No. C96-3151 (N.D.Iowa) (transferred from N.D.Ill., case No. C96-3639) which involve the plaintiffs and defendants in these actions, are pending before this court, and thus the present claims by the Elevators are mandatory counterclaims in actions properly in federal court. The remainder of the Producers' resistance to remand is devoted to pointing out elements of the HTA contracts the Producers contend demonstrate that the HTAs cannot be valid cash forward contracts, and thus must be illegal under the CEA. The Producers have from time to time submitted as supplements to their resistance copies of complaints before the Commodity Futures Trading Commission in which similar HTAs are alleged to be illegal contracts under the CEA.

The parties have not requested oral arguments and the court does not find such arguments to be necessary. Therefore, the court turns to the factual background pertinent to these motions to remand.

II. BACKGROUND

Because the propriety of removal or remand is to be determined on the face of the removed petition, see, e.g., M. Nahas & Co. v. First Nat'l Bank of Hot Springs, 930 F.2d 608, 611 (8th Cir.1991), the court has based the following factual background upon the factual allegations in the Elevators' petitions. The court recognizes that the Producers deny many of the factual allegations in the petitions.

In their petitions, the Elevators allege that they are cooperatives of farmer members that pool their purchasing and marketing power and that the Producers are each producers of grain. See Petitions, ¶¶ 1 & 2. The Elevators allege that the Producers entered into so-called "hedge-to-arrive" or "flex-hedge" contracts with the Elevators in which the Producers "agreed to deliver grain to the [Elevator] at a price to be determined under the terms of the contracts." Id. at ¶ 3. The HTAs are alleged to be a mechanism by which the Producers could be protected against future price decreases and could obtain the benefits of narrowing the "basis," that is, the difference between the price on the Chicago Board of Trade (CBOT) and the local cash price for a particular delivery period, between the date of execution of the HTA and the date the grain was actually delivered. Id. at ¶ 4.

The...