Ripplemeyer v. National Grape Co-op. Ass'n, Inc.

• Decision Date: 03 December 1992
• Docket Number: Civ. No. 92-5034.
• Citation: 807 F. Supp. 1439
• Parties: Marvin RIPPLEMEYER; Howard Bishop; Joe Bishop; Dennis Paulsell; George Piazza; C.B. Berg; Tony Mingo; Joe Bacon; and Jimmy Stacy, Plaintiffs, v. NATIONAL GRAPE COOPERATIVE ASSOCIATION, INC.; J. Roy Orton; Patrick O'Donnell; Welch Foods, Inc.; Everett N. Baldwin, Defendants.
• Court: U.S. District Court — Western District of Arkansas

807 F. Supp. 1439

Marvin RIPPLEMEYER; Howard Bishop; Joe Bishop; Dennis Paulsell; George Piazza; C.B. Berg; Tony Mingo; Joe Bacon; and Jimmy Stacy, Plaintiffs, v.NATIONAL GRAPE COOPERATIVE ASSOCIATION, INC.; J. Roy Orton; Patrick O'Donnell; Welch Foods, Inc.; Everett N. Baldwin, Defendants.

Civ. No. 92-5034.

United States District Court, W.D. Arkansas, Fayetteville Division.

December 3, 1992.

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Richard P. Arens, Arens Law Firm, Fayetteville, AR, for plaintiffs.

James M. Simpson, Tonia Jones, Friday, Eldredge & Clark, Little Rock, AR, for defendants.

MEMORANDUM OPINION

H.FRANKLIN WATERS, Chief Judge.

Currently pending before the court is a motion to dismiss filed on behalf of the individual defendants, J. Roy Orton, Everett N. Baldwin, and Patrick O'Donnell.Also pending before the court is the defendants' motion for summary judgment that was filed on November 9, 1992.The defendants have moved for summary judgment on each of the claims asserted by the plaintiffs.The plaintiffs have responded to both motions.

This matter was set for trial on November 30, 1992.The plaintiffs response to the summary judgment motion was not due to the court until November 24, 1992.In view of this, and for the reasons stated in a conference call with counsel for the partiesthe court continued this case and reset it for trial at a later date.

Background.

This action was filed on February 28, 1992, by Marvin Ripplemeyer, Howard Bishop, Joe Bishop, Dennis Paulsell, George Piazza, C.B. Berg, Tony Mingo, and Joe Bacon.By amended complaint filed on July 28, 1992, Jim Stacy was added as a plaintiff.Named as defendants are the National Grape Cooperative Association, Inc.(hereinafter National), J. Roy Orton, individually and as an agent and employee of National, Patrick O'Donnell, individually and as an agent and employee of National, Welch Foods, Inc.(hereinafter Welch), and Everett N. Baldwin, individually and as an agent and employee of Welch.J. Roy Orton was elected to the board of directors for National in 1970 and became president of the board in 1981.In 1981, Mr. Orton became the chairman of the board of directors of Welch.Everett N. Baldwin has been employed since 1982 as chief executive officer and president of Welch.Patrick O'Donnell has been employed by National since 1983 and has held the position of general manager since 1984.

The plaintiffs are grape growers in what was designated as area 7 of the eastern pool of National.This lawsuit arises out of the termination of the plaintiffs' memberships in National.

National is an agricultural marketing cooperative.Each plaintiff entered into a membership and marketing agreement with National in order to gain access to a nationwide market for the sale of Concord grapes raised in his vineyard.The marketing agreements provide that the agreements and "all facets of the cooperative relationship between the parties shall be governed and interpreted under the laws of the State of New York applicable to agreements to be performed therein."Pursuant to the agreement, grapes grown by National's members are purchased by National's wholly owned subsidiary, Welch.Welch is a cooperative association whose only member is National.National and Welch are non-stock cooperative corporations.Capitalization is maintained in part through the issuance of allocation certificates and permanent equity capital credits.The termination rights between the members and National are set forth in National's by-laws and the marketing agreements.

Until 1978 Welch operated a plant in Springdale, Arkansas which processed grapes grown by National's members in northwest Arkansas and southern Missouri into finished goods such as Welch's Grape Jelly.In 1978 Welch closed the finished goods production at the Springdale plant.Defendants state the closure of the finished goods production in Springdale was the result of a decline in the volume of grapes produced in northwest Arkansas and southern Missouri and a resulting under-utilization of the plant facility.Welch then installed a "concentrator" at the Springdale plant which processed the grapes into a filler product which could be transported to other Welch facilities for final processing.In 1978, area 7 had 136 members who produced 7,609 tons of Concord grapes.By 1990 those figures had declined to 59 members producing 2,280 tons.

Plaintiffs state there was an understanding and an agreement that Welch would not close its facilities in Arkansas until Welch had tested and approved a method of transporting such grapes from the Missouri and Arkansas receiving points to another Welch processing plant.Plaintiffs allege that the uncertainty created by the situation in this region resulted in a declining membership for this area.In September of 1991 National announced it had decided to close the Springdale plant entirely and terminate the membership and marketing agreements of all of its members in area 7.

The members were given a membership and marketing agreement termination and release form which when signed would constitute the member's withdrawal from National membership.The members were offered a settlement in lieu of other remedies.The settlement offer consisted of a net income component and a vineyard removal component.

Plaintiffs state they believe "their termination was not based on lack of raw product production, but rather on National's necessity to reduce the tonnage of grapes received by its members both for the purpose of increasing raw product prices and because of its lack of adequate storage facilities in which to store the admitted `record' harvest of Concord grapes, and that National attempted to achieve that end by conspiring to defraud the Arkansas/Missouri growers by literal misrepresentation of their motives for termination from National's membership."Complaintpara. 99.Plaintiffs assert various causes of action including 1) violations of the Sherman Anti-Trust Act, 15 U.S.C. §§ 1-2; 2) violations of the Agricultural Fair Practices Act of 1967, 7 U.S.C. § 2303; 3) violations of the Securities and Exchange Act of 1934, § 10(b),15 U.S.C. § 78j(b); 4) breach of contract; 5) breach of fiduciary duty; 6) breach of duty to deal fairly and in good faith; 7) misrepresentation and/or constructive fraud; 8) the tort of outrage; and 9) negligence.

We have not attempted to set forth in any detail all the background information provided by the parties.Rather for purposes of discussion, the court has merely tried to relate in general the relationship between the parties and the events that gave rise to this lawsuit.

Fiduciary Shield Doctrine.

As noted above, the individual defendants have moved to dismiss the claims against them.Each of the individual defendants contends he is not subject to the personal jurisdiction of this court pursuant to Ark.Code Ann. § 16-4-101(1987).The defendants argue that under the equitable fiduciary shield doctrine, jurisdiction over the individual officers and employees of a corporation may not be based upon the court's exercise of jurisdiction over the corporation itself.The individual defendants state that although they have all been physically present in Arkansas at various times in conjunction with the carrying out of their respective duties as corporate representatives, their visits to this state have been undertaken solely in a representative capacity.

In opposition plaintiffs point out that each defendant is charged with violations of the Securities and Exchange Act of 1934 and that the fiduciary shield doctrine does not apply to the federal securities claims.Plaintiffs refer the court to Abeloff v. Barth,119 F.R.D. 315(D.Mass.1988) in which the court noted the doctrine only applied in cases in which jurisdiction was asserted on the basis of a state long-arm statute.The Abeloff court further noted the doctrine had no application to causes of action under the securities laws.Additionally, plaintiffs argue that the fiduciary shield doctrine is only valid as long as no ultra vires acts have been committed by the parties seeking the protection of the doctrine.Plaintiffs argue that the individual defendants had much to gain for their own self-interest and personal advantage by closing the Springdale plant.Plaintiffs assert that the individual defendants exceeded their authority in taking actions that were illegal and self-serving.

Application of the fiduciary or corporate shield doctrine may arise in two separate contexts.First, it may arise as part of the court's jurisdictional analysis.Second, the doctrine may arise as a substantive rule of law.SeeByer v. Gordos Arkansas, Inc.,712 F.Supp. 149, 154(W.D.Ark.1989).As a jurisdictional rule, the doctrine operates as an equitable limit on the exercise of personal jurisdiction.

In National Precast Crypt Co. v. DyCore of Pa., Inc.,785 F.Supp. 1186(W.D.Pa.1992)the court discussed the doctrine in the following terms:

As a general rule, "individuals performing acts in a state in their corporate capacity are not subject to the personal jurisdiction of the courts of that state for those acts."This rule is commonly referred to as the fiduciary shield doctrine.Several U.S. Courts of Appeals have concluded that the rule is a creature of statutory construction rather than a constitutional principle.As a result there are several exceptions to the rule.

Courts will ignore the fiduciary shield rule in two circumstances, both of which have their roots in substantive legal theories that ignore the general corporate law rule of limited liability.First, a corporate agent may be held personally liable for torts committed in the corporate capacity.Accordingly, if the corporate officer engages in tortious conduct in his/her corporate capacity in the forum, courts will consider this conduct as contact with the forum sufficient to support a finding of

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