GREAT RIVERS CO-OP v. Farmland Industries, Inc.

• Decision Date: 03 July 1996
• Docket Number: Civil No. 4-95-70529.
• Citation: 934 F. Supp. 302
• Parties: GREAT RIVERS COOPERATIVE OF SOUTHEASTERN IOWA, et al., Plaintiffs, v. FARMLAND INDUSTRIES, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Iowa

934 F. Supp. 302

GREAT RIVERS COOPERATIVE OF SOUTHEASTERN IOWA, et al., Plaintiffs, v. FARMLAND INDUSTRIES, INC., et al., Defendants.

Civil No. 4-95-70529.

United States District Court, S.D. Iowa, Central Division.

July 3, 1996.

Frank A. Taylor, Popham Haik Schnobrich & Kaufman Ltd., Minneapolis, MN, Richard H. Zimmermann, Zimmermann & Zanville, Iowa City, IA, for plaintiffs.

Brad J. Brady, Thomas B. Read, Crawford Sullivan Read Roemerman & Brady PC, Cedar Rapids, IA, William C. Martucci, Michael F. Saunders, Spencer Fane Britt & Browne, Kansas City, MO, for defendants.

RULING DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AGAINST TACEY ON COUNT VI

VIETOR, District Judge.

Background

In this class action, plaintiffs are holders of "capital credits," a type of non-voting equity, in defendant Farmland Industries ("Farmland"). Plaintiffs allege that Farmland and Harry D. Cleberg, H. Wayne Rice, and Albert Shively, officers and/or directors of Farmland and its subsidiary, Farmland Foods, created a scheme under which plaintiffs and others were forced or misled into accepting capital credits. Plaintiffs further allege that it was the intent of defendants to refuse to redeem these capital credits, using their value to benefit Farmland, its active members, and its officers and directors. Plaintiffs assert claims under federal securities laws, the Racketeer Influenced and Corrupt Organizations Act, and various state laws including the count at issue in this ruling, count VI, for breach of fiduciary duty.

Prior to class certification (which occurred on May 7, 1996), defendants moved for partial summary judgment against plaintiff Roger Tacey. On December 20, 1995, I granted defendants' motion in part, denied it in part, and reserved ruling on the motion with respect to count VI pending supplemental briefing. The parties have now provided that briefing.

Count VI is a common law claim for breach of fiduciary duty. Defendants move for summary judgment on the basis that Kansas's statute of limitations, which is two years, bars the claim. I reserved ruling to explore more carefully the appropriate choice of law inasmuch as plaintiff Tacey is a citizen and resident of Nebraska, the individual defendants are citizens and residents of Missouri and Colorado, and Farmland is incorporated in Kansas and has its principal place of business in Missouri.

Choice of Laws

Generally

A federal court hearing state claims applies the conflict of law principles of the forum state. Birdsell v. Holiday Inns, 852 F.2d 1078, 1079 (8th Cir.1988) (federal district court must apply conflicts principles of state in which it sits); Cameron v. Hardisty, 407 N.W.2d 595, 596 (Iowa 1987) ("With Iowa as the chosen forum, however, the federal court is bound to apply our choice of law rules.").

The first question in an apparent conflicts of law case is whether there is a "true conflict." Nesladek v. Ford Motor Co., 46 F.3d 734, 736 (8th Cir.1995). If there is no "true conflict," a choice of laws analysis is unnecessary. In the present case, it appears that Iowa, Missouri, Colorado, Nebraska, or Kansas law could arguably apply. With regard to statutes of limitations for breach of fiduciary duty claims, the Iowa limitation is five years. See Iowa Code § 614.1(4); Kendall/Hunt Publishing Co. v. Rowe, 424 N.W.2d 235, 243 (Iowa 1988). The Missouri limitation is also five years. Mo.Rev.Stat. § 516.120. The Colorado limitation is three years. Colo.Rev.Stat. § 13-80-101(1)(f). Nebraska has a four-year statute of limitations. Neb.Rev.Stat. § 25-207. The Kansas limitation is two years. Kan.Stat.Ann. § 60-513(a)(3). On the summary judgment record, it is clear that summary judgment could not be granted based on the Iowa, Missouri, Nebraska, or Colorado limitations. It appears, however, that Tacey's count VI claim would likely be barred under Kansas's twoyear limitation. There exists, therefore, at least the potential for a true conflict, making a choice of law analysis necessary.

Iowa's choice of law rules traditionally have required application of local law to matters of procedure, subject to two exceptions: cases where the Iowa borrowing statute applies, and where the "right-remedy" distinction of Restatement (Second) of Conflict of Laws § 143 applies. Cameron, 407 N.W.2d at 596. Under Iowa law, statutes of limitations have traditionally been considered procedural. Id.; Drudge v. Overland Plazas Co., 531 F.Supp. 210, 212 (S.D.Iowa 1981) (applying Iowa limitations law, including Iowa's borrowing statute, in a diversity action), aff'd, 670 F.2d 92 (8th Cir.1982). Limitations under Iowa law are codified in Iowa Code chapter 614, which includes a five-year limitation for fiduciary duty claims. Iowa Code § 614.1(4). Also in chapter 614 is the first exception, the borrowing statute, which provides:

When a cause of action has been fully barred by the laws of any country where the defendant has previously resided, such bar shall be the same defense here as though it had arisen under the provisions of this chapter; but this section shall not apply to causes of action arising in this state.

Iowa Code § 614.7; see Drudge, 531 F.Supp. at 212. "This poorly drafted statute has been construed by the Iowa Courts to cover causes of action barred in other states as well as foreign countries * * * and current residences of the defendant as well as previous residences * * *." Drudge, 531 F.Supp. at 212 (internal citations omitted).

Under the borrowing statute, the first step is to determine where the defendants reside. It is undisputed that presently and at all material times Cleberg and Rice have resided in Missouri and Shively has resided Colorado. "The residence of a corporation is where its principal place of business is located." Drudge, 531 F.Supp. at 212 (citing Iowa Public Serv. Corp. v. Iowa State Commerce Comm'n, 263 N.W.2d 766, 769 (Iowa 1978)). Farmland's principal place of business has, at all material times, been Missouri; therefore Farmland resides in Missouri.

Missouri Defendants: Farmland, Cleberg, and Rice

Determining whether Tacey's claim is "fully barred" against Farmland, Cleberg, and Rice (collectively, the "Missouri defendants") requires an analysis of Missouri's statute of limitations law, including its borrowing statute. Drudge, 531 F.Supp. at 212. Missouri's borrowing statute provides:

Whenever a cause of action has been fully barred by the laws of the state * * * in which it originated, said bar shall be a complete defense to any action thereon * * *.

Mo.Rev.Stat. § 516.190. The critical issue in applying the borrowing statute is determining where a cause of action originated. Nettles v. American Telephone & Telegraph Co., 55 F.3d 1358, 1362 (8th Cir.1995). An action originates where and when it accrues. Penalosa Co-op. Exchange v. A.S. Polonyi Co., 754 F.Supp. 722, 733 (W.D.Mo.1991) (citing Dorris v. McClanahan, 725 S.W.2d 870, 871 (Mo.1987)); Thompson v. Crawford, 833 S.W.2d 868, 871 (Mo.1992). A cause of action accrues not "when the wrong is done or the technical breach of contract or duty occurs, but when the damage resulting therefrom is sustained and is capable of ascertainment * * *." Mo.Rev.Stat. § 516.100.

It appears that the Missouri Supreme Court has not conclusively stated where a breach of fiduciary duty claim accrues. For most tort claims, including fraud, Missouri considers the action to accrue where the harm is discovered. Wayne v. Lederle Labs., 729 F.Supp. 662, 666 (W.D.Mo.1989); Renfroe v. Eli Lilly & Co., 686 F.2d 642, 646 (8th Cir.1982). In the present case, Tacey, a Nebraska resident, suffered his alleged harm in Nebraska. For some contract and breach of promise claims, on the other hand, the cause of action

ordinarily * * * accrues upon a defendant's failure to do the thing at the time and in the manner contracted, and a statute of limitations begins to run when a suit may be maintained therefore.

Nettles, 55 F.3d at 1363 (quoting Davis v. Laclede Gas Co., 603 S.W.2d 554, 555 (Mo. 1980)). Because the location of the origin of a claim is determined by when it accrues, this analysis would suggest that a breach of promise claim originates where the performance should have taken place, but did not. In the present case, the breach of promise reasoning would arguably suggest Missouri as the place of origin: that is where Farmland is headquartered and where its corporate duties are exercised. In this case, it is not necessary to predict with precision how the Missouri Supreme Court would determine the origination of a fiduciary duty claim. I am confident they would, faced with these facts, choose either Nebraska or Missouri. Nebraska law would not "fully bar" the claim for purposes of the Missouri borrowing statute, and Missouri's own limitations period, without applying their borrowing statute, would not bar the claim.

Defendants' argument that the claim originates in Kansas, Farmland's state of incorporation, merits discussion. Defendants base their argument on Restatement (Second) of Conflict of Laws § 309, which states, in relevant part:

The local law of the state of incorporation will be applied to determine the existence and extent of a director's or officer's liability to the corporation, its creditors and shareholders, except where, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the parties and the transaction, in which event the local law of the other state will be applied.

Missouri has adopted section 309, see Burt v. Danforth, 742 F.Supp. 1043, 1047 (E.D.Mo. 1990); Ranch Hand Foods, Inc. v. Polar Pak Foods, Inc., 690 S.W.2d 437, 444 (Mo.Ct.App. 1985), and for purposes of this ruling I assume that Missouri would apply Kansas's substantive law to fiduciary duty claim. Because Missouri so clearly equates where an action originates with when it originates, however, I believe that the Missouri Supreme Court would hold that...