Schuster v. Anderson

• Decision Date: 12 July 2005
• Docket Number: No. C04-4089-MWB.,C04-4089-MWB.
• Citation: 378 F.Supp.2d 1070
• Parties: Orville SCHUSTER, Schuster Co., Lemars Truck & Trailer, Inc. and William Schlichte, Plaintiffs, v. Fay ANDERSON, F.H. Anderson Company, P.C., F.H. Anderson Company, Carl Anderson, Anderson Accounting & Tax Services, Inc., Cal Cleveringa and American State Bank, Defendants.
• Court: U.S. District Court — Northern District of Iowa

378 F.Supp.2d 1070

Orville SCHUSTER, Schuster Co., Lemars Truck & Trailer, Inc. and William Schlichte, Plaintiffs, v.Fay ANDERSON, F.H. Anderson Company, P.C., F.H. Anderson Company, Carl Anderson, Anderson Accounting & Tax Services, Inc., Cal Cleveringa and American State Bank, Defendants.

No. C04-4089-MWB.

United States District Court, N.D. Iowa, Western Division.

July 12, 2005.

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Terrence D. Brown, Hixson & Brown, PC, Clive, IA, Timothy A. Clausen, Klass, Stoik, Mugan, Villone, Phillips, Orzechowski, Clausen & Lapierre, LLP, Sioux City, IA, for Plaintiffs.

Edward M. Mansfield, Belin, Lamson, Mccormick, Zumbach, Flynn, Des Moines, IA, Lloyd W. Bierma, Oostra, Bierma & Schouten, Sioux Center, IA, John C. Gray, Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, Sioux City, IA, Stephen G. Olson, II, Robert Keith, Engles, Ketcham, Olson & Keith PC, Omaha, NE, Michael R. Hellige, Hellige, Frey & Roe, Sioux City, IA, for Defendants.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANTS' MOTIONS TO DISMISS AND PLAINTIFF SCHUSTER'S MOTION FOR LEAVE TO FILE A THIRD AMENDED AND SUBSTITUTED COMPLAINT

BENNETT, Chief Judge.

TABLE OF CONTENTS
                I.  INTRODUCTION AND BACKGROUND ............................................1075
                      A.  Procedural Background ..............................................1075
                      B.  Factual Background .................................................1078
                          1.  Relationships of the parties ...................................1078
                          2.  Yournet related entities & the Witherspoon affair ..............1078
                          3.  Plaintiffs' investments in Yournet related entities and the
                Witherspoon affair ................................................1079
                 II.  LEGAL ANALYSIS .........................................................1081
                      A.  Rule 12(b)(6) Standards ............................................1081
                      B.  Civil RICO Claims — Counts XIV-XVI ................................1083
                          1.  The RICO claims generally ......................................1083
                          2.  Pleading fraud with particularity ..............................1084
                              a.  Arguments of the parties ...................................1084
                              b.  The law ....................................................1086
                

c.  The Complaint ..............................................1088
                              d.  Analysis ...................................................1088
                                   i.  Wire transfers ........................................1089
                                  ii.  Circumstance constituting fraud .......................1092
                          3.  Pleading the "enterprise" requirement ..........................1094
                              a.  Arguments of the parties ...................................1094
                              b.  The law ....................................................1095
                              c.  The Complaint ..............................................1097
                              d.  Analysis ...................................................1097
                          4.  Respondeat superior theory of liability against ASB ............1099
                              a.  Arguments of the parties ...................................1099
                              b.  The law ....................................................1100
                              c.  Analysis ...................................................1102
                          5.  Ultimate disposition of RICO claims ............................1105
                      C.  Breach of Fiduciary Duty Claims — Counts IV & XX ..................1106
                          1.  The Complaint ..................................................1106
                          2.  Arguments of the parties .......................................1106
                          3.  Breach of fiduciary duty under Iowa law ........................1108
                          4.  Analysis .......................................................1109
                      D.  Fraudulent Misrepresentation And Fraudulent Nondisclosure —
                Counts VI & VII ..................................................1110
                          1.  The Complaint ..................................................1110
                          2.  Arguments of the parties .......................................1111
                          3.  Fraudulent misrepresentation and fraudulent nondisclosure under
                Iowa law .....................................................1112
                          4.  Analysis .......................................................1113
                      E.  Subject Matter Jurisdiction — Counts I, II & III ..................1114
                          1.  The Complaint ..................................................1114
                          2.  General law regarding subject matter jurisdiction ..............1115
                          3.  Arguments of the parties .......................................1116
                              a.  Arguments for dismissal ....................................1116
                                   i.  The Carl Anderson defendants ..........................1116
                                  ii.  The Anderson defendants ...............................1117
                              b.  The plaintiffs' arguments in resistance ....................1117
                              c.  The Anderson, and Carl Anderson, defendants' reply .........1119
                          4.  Analysis .......................................................1119
                      F.  Plaintiff Schuster's Motion For Leave To Amend .....................1122
                III.  CONCLUSION .............................................................1123
                

I.INTRODUCTION AND BACKGROUND

A.Procedural Background

On September 21, 2004, plaintiffsOrville Schuster("Schuster") and William Schlichte("Schlichte") filed a complaint against defendantsAmerican State Bank("ASB"), Cal Cleveringa ("Cleveringa") and Fay Anderson("Anderson") alleging ten causes of action.(Doc. No. 2).The defendants each proceeded to file motions to dismiss in October and early November 2004.(Doc. Nos.9, 10, 14).Following several extensions of time in which to file their resistances, as well as the withdrawal of counsel due to conflicts of interest with the defendants, a status conference was held by United States Magistrate Judge Paul A. Zoss.Following the status conference, Judge Zoss ordered that issues surrounding Schlichte's legal representation be resolved by February 1, 2005, giving the plaintiffs until February 15, 2005, in which to file amended complaints, and denying the outstanding motions to dismiss without prejudice.(Doc. No. 42).On February 15, 2005, Schuster, Schlichte and newly-added plaintiffsSchuster Co. and Lemars Truck & Trailer, Inc.("LTT"), filed a Second Amended and Substituted Complaint ("Complaint") which alleged twenty counts against original defendants Anderson, Cleveringa and ASB, as well as newly added defendantsF.H. Anderson Company, P.C., F.H. Anderson Company, Carl Anderson, Anderson Accounting & Tax Services, Inc., and William & Company, C.P.A. (Doc. No. 44).The twenty causes of action asserted are as follows:

I. Schuster's professional negligence claim against defendants Anderson, F.H. Anderson Company, P.C. and F.H. Anderson Company;

II.Schuster Co.'s professional negligence claim against defendants Anderson, F.H. Anderson Company, P.C., F.H. Anderson Company, Carl Anderson, and Anderson Accounting & Tax Services, Inc.;

III.LTT's professional negligence claim against Carl Anderson and Anderson Accounting & Tax Services, Inc.;

IV.Schuster's breach of fiduciary duty claim against Anderson, F.H. Anderson Company, P.C. and F.H. Anderson Company;

V. Schuster and Schlichte's breach of fiduciary duty claim against Cleveringa and ASB;

VI.Schuster's claim for fraudulent misrepresentation against Anderson, F.H. Anderson Company, P.C. and F.H. Anderson Company;

VII.Schuster's fraudulent nondisclosure claim against Anderson, F.H. Anderson Company, P.C. and F.H. Anderson Company;

VIII.Schuster and Schlichte's fraudulent misrepresentation claim against Cleveringa and ASB;

IX.Schuster and Schlichte's fraudulent nondisclosure claim against Cleveringa and ASB;

X. Schuster's claim for negligent misrepresentation against Anderson, F.H. Anderson Company, P.C. and F.H. Anderson Company;

XI.Schuster and Schlichte's negligent misrepresentation claim against Cleveringa and ASB;

XII.Schuster and Schlichte's claim for fraud in the inducement based on fraudulent misrepresentations by ASB;

XIII.Schuster and Schlichte's claim for fraud in the inducement based on fraudulent nondisclosures;

XIV.Schuster and Schlichte's claim of an 18 U.S.C. § 1962(b)-Racketeer Influenced and Corrupt Organizations Act("RICO") violation by Anderson, F.H. Anderson Company, P.C., F.H. Anderson Company, Cleveringa and ASB;

XV.Schuster and Schlichte's claim of an 18 U.S.C. § 1962(c)-RICO violation by Anderson, F.H. Anderson Company, P.C.F.H. Anderson Company, Cleveringa and ASB;

XVI.Schuster and Schlichte's claim of an 18 U.S.C. § 1962(d)-RICO violation by Anderson, F.H. Anderson Company, P.C.F.H. Anderson Company, Cleveringa and ASB;

XVII.Schuster and Schlichte's claim for negligent supervision against Anderson, F.H. Anderson Company, P.C. and F.H. Anderson Company;

XVIII.Schuster and Schlichte's negligent supervision claim against ASB;

XIX.Schlichte's breach of contract claim against Anderson XX.Schlichte's breach of fiduciary duty claim against Anderson, F.H. Anderson Company, P.C. and F.H. Anderson Company.

The Complaint alleges that this court has subject matter jurisdiction by virtue of federal question jurisdiction, 28 U.S.C. § 1331, in light of the RICO claims, and supplemental jurisdiction under 28 U.S.C. § 1367 over the state law claims.On February 23, 2003, the plaintiffs filed a notice of voluntary dismissal of defendantWilliams & Company, C.P.A. (Doc. No. 45).On March 16, 2005, defendantsCarl Anderson and Anderson Accounting & Tax Services, Inc. filed a Motion to Dismiss Counts I, II, III, IV, V, VI, VII, VIII, IX, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII,...