Gunderson v. Adm Investor Services, Inc.

Citation85 F.Supp.2d 892
Decision Date28 February 2000
Docket NumberNo. C96-3151-MWB.,No. C96-3148-MWB.,C96-3148-MWB.,C96-3151-MWB.
PartiesJay GUNDERSON, Roslyn Gunderson, et al., Plaintiffs, v. ADM INVESTOR SERVICES, INC., et al., Defendants. Gary Hoover, Marilyn Hoover, et al., Plaintiffs, v. ADM Investor Services, Inc., et al., Defendants.
CourtU.S. District Court — Northern District of Iowa

Joel J. Bellows, Nicholas P. Iavarone, Christopher L. Gallinari, Bellows & Bellows, Chicago, IL, Richard H. Moeller, Dawn E. Mastalir, Berenstein, Moore, Berenstein, Moore, Berenstein, Heffernan & Moeller, Sioux City, IA, for Plaintiffs.

Terry F. Moritz, Kenneth S. Ulrich, Golberg, Kohn, Bell, Black, Rosenbloom &amp Moritz, Ltd., Chicago, IL, Steven C. Schoenebaum, Richard K. Updegraff, Brown, Winick, Graves, Gross, Beaskerville & Schoenebaum, Des Moines, IA, for Defendants.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANT GRAIN ELEVATORS' MOTION TO DISMISS

BENNETT, Chief Judge.

                TABLE OF CONTENTS
                I. INTRODUCTION .......................................................896
                  II. FACTUAL BACKGROUND ................................................898
                  III. LEGAL ANALYSIS ...................................................___
                       A. Standards For Motions To Dismiss ..............................902
                       B. CEA Fraud Claims ..............................................902
                          1. Pleading requirements of FED. R. CIV. P. 9(b) ..............903
                          2. The pleading of fraud in Counts VI and IX ..................905
                          3. Dismissal with prejudice ...................................907
                       C. Count VI's Allegations Of Excessive Speculation ...............907
                       D. Count VIII's Failure-To-Register Allegations ..................909
                       E. Count XI-Commodity Trading Advisors Allegations ...............910
                       F. Counts VI, VII, VIII And IX-Allegations Of Futures Contracts ..911
                       G. Claims For Punitive Damages ...................................913
                       H. RICO Claims ...................................................913
                          1. Pleading fraud with particularity ..........................914
                          2. Pleading of elements of RICO ...............................914
                             a. Conduct of the enterprise ...............................915
                             b. RICO Enterprise .........................................916
                             c. Pattern of racketeering activity ........................916
                       I. State Law Claims ..............................................918
                          1. Rescission .................................................918
                          2. Breach of fiduciary duty ...................................920
                          3. Fraudulent Inducement ......................................922
                          4. Breach of Contract .........................................922
                          5. Negligence claim ...........................................922
                  IV. CONCLUSION ........................................................923
                

This opinion is the latest installment in a continuing succession of decisions in a plethora of cases in this district involving so-called "hedge-to-arrive" contracts (HTAs) for the sale and purchase of grain between grain producers and elevators. See generally Gunderson v. ADM Investor Servs., Inc., 43 F.Supp.2d 1058 (N.D.Iowa 1999); Johnson v. Land O' Lakes, Inc., 181 F.R.D. 388 (N.D.Iowa 1998); Johnson v. Land O' Lakes, Inc., 18 F.Supp.2d 985 (N.D.Iowa 1998); Barz v. Geneva Elevator Co., 12 F.Supp.2d 943 (N.D.Iowa 1998); Top of Iowa Coop. v. Schewe, 6 F.Supp.2d 843 (N.D.Iowa 1998); Oeltjenbrun v. CSA Investors, Inc., 3 F.Supp.2d 1024 (1998); Brown v. North Central F.S., Inc., 987 F.Supp. 1150 (N.D.Iowa 1997); Gunderson v. ADM Investor Servs., Inc. ., 976 F.Supp. 818 (N.D.Iowa 1997); Brown v. North Central F.S., Inc., 173 F.R.D. 658 (N.D.Iowa 1997); North Central F.S., Inc. v. Brown, 951 F.Supp. 1383 (N.D.Iowa 1996); Farmers Co-operative Elevator of Buffalo Center v. Abels, 950 F.Supp. 931 (N.D.Iowa 1996); Farmers Co-Operative Elevator, Woden, Iowa v. Doden, 946 F.Supp. 718 (N.D.Iowa 1996). In the two consolidated cases now before the court, the court is presented with the elevators' assertions that the grain producers' fraud claims have not been pleaded with sufficient particularity and that other counts in the grain producers' complaint fail to state claims upon which relief can be granted.

I. INTRODUCTION

This case arises from hedge-to-arrive contracts ("HTAs"), contracts for the sale and purchase of grain, that were entered into by grain producers and grain elevators. On June 14, 1996, case No. C96-3148-MWB (Gunderson), was filed in the United States District Court for the Northern District of Illinois. Plaintiffs in Gunderson are a group of grain producers seeking declaratory judgment and other relief as described in greater detail below.1 Plaintiffs alleged, inter alia, that defendants engaged in the promotion and marketing of HTAs in violation of the Commodity Exchange Act, 7 U.S.C. § 1 et seq.2 Also on June 14, 1996, case No. C96-3151-MWB (Hoover), which likewise seeks declaratory judgment and other relief, was filed in the United States District Court for the Northern District of Illinois by a second group of grain producers.3 Both the original complaints in Gunderson and Hoover asserted the same thirteen claims for relief.4

All of the grain producers will be referred to herein collectively as the Producers. The defendants will be referred to collectively as the defendants, unless otherwise indicated. Defendants Farmers Co-op, Titonka, Buffalo Center, FCS, West Bend, FCE, Bode Co-op, and Cylinder Co-op will be referred to collectively as the Grain Elevators.

On September 25, 1996, the Honorable Suzanne B. Conlon, United States District Court Judge for the Northern District of Illinois transferred Gunderson to the Northern District of Iowa. On October 3, 1996, the Honorable James H. Alesia, United States District Court Judge for the Northern District of Illinois, transferred Hoover to the Northern District of Iowa.

Defendants ADM and the Grain Elevators subsequently moved for dismissal of the Producers' claims on a number of grounds. On April 17, 1997, the court entered its ruling on defendants' motions to dismiss and found, inter alia, that the Producers' CEA fraud claims had not been pleaded with sufficient particularity. The court also concluded that it did not need to consider at that time defendants' various challenges, pursuant to Federal Rule of Civil Procedure 12(b)(6), to the adequacy of other claims asserted by the Producers, because repleading of the fraud claims, either by amendment or by refiling, was necessary in both cases. The court therefore granted defendants' motions to dismiss in each case to the extent that it found the claims of fraud inadequately pleaded under Federal Rules of Civil Procedure 9(b) and 12(b)(6). The Producers were directed to file an amended complaint adequately pleading fraud pursuant to Federal Rule of Civil Procedure 9(b). The court further held that such an amended complaint might also rectify any inadequacies perceived in the pleading of other claims, and therefore the Producers would be permitted to replead each count.

On May 20, 1997, the court consolidated Gunderson and Hoover. On June 10, 1997, the Producers filed their First Amended Complaint in the consolidated case.5 The First Amended Complaint contained fifteen claims.6 Defendant ADM and the Grain Elevators again sought the dismissal of all claims asserted against them in the First Amended Complaint. Among the grounds for dismissal asserted by defendants was the argument that the Producers had again failed to plead fraud with the particularity required by Federal Rule of Civil Procedure 9(b). On March 31, 1998, the court entered its ruling on defendants' motions to dismiss and again found, inter alia, that the Producers' CEA fraud claims had not been pleaded with sufficient particularity. The court further concluded that it did not need to consider, at that time, defendants' remaining challenges, pursuant to Federal Rule of Civil Procedure 12(b)(6), to the adequacy of other claims asserted by the Producers, because repleading of the fraud claims, either by amendment or by refiling, was necessary in both cases. The court therefore again granted defendants' motions to dismiss in each case to the extent that it found the claims of fraud inadequately pleaded under Federal Rules of Civil Procedure 9(b) and 12(b)(6). The Producers were directed to file a second amended complaint adequately pleading fraud pursuant to Federal Rule of Civil Procedure 9(b).

On May 28, 1998, the Producers filed their Second Amended Complaint in the consolidated case.7 The Second Amended Complaint asserts the following fifteen claims: Counts I and II allege violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), under 18 U.S.C. § 1962(c), by ADM, CSA, FAC-MARC, and Agri-Plan; Count III alleges a RICO violation, under 18 U.S.C. § 1962(c), by Titonka; Count IV alleges a RICO violation, under 18 U.S.C. § 1962(c), by ADM; Count V alleges fraud in violation of § 4b of the Commodity Exchange Act ("CEA"), 7 U.S.C. § 6b, against ADM and CSA; Count VI alleges that the HTAs are illegal because they violate §§ 4(a) and 4(d) of the CEA, 7 U.S.C. §§ 6(a) and 6(c); Count VII seeks declaratory judgment of the rights of the parties to the HTAs, a declaration that the HTAs are illegal, void, and unenforceable, because they violate §§ 4(a)-(c) of the CEA, 7 U.S.C. §§ 6(a)-(c), § 2(1) of the Securities Act of 1933, 15 U.S.C. § 77b(1), and § 3(a)(10) of the Securities Act of 1934, 15 U.S.C. § 78c (a)(10); Count VIII alleges a violation of the CEA, 7 U.S.C. § 6d, by the Grain Elevators; Count IX alleges a violation of the CEA, 7 U.S.C. § 6o(1), by Titonka, FCE, Bode Co-op, Buffalo Center, West Bend, Cylinder Co-op, FCS and Farmer's Co-op; Count X alleges a state-law claim for recission of the HTA...

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