Siouxland Energy and Livestock Cooperative v. Gaylor, No. C02-4033-MWB (N.D. Iowa 12/9/2002)

• Decision Date: 09 December 2002
• Docket Number: No. C02-4033-MWB.,C02-4033-MWB.
• Parties: SIOUXLAND ENERGY AND LIVESTOCK COOPERATIVE, Plaintiff, v. MICHAEL GAYLOR AND GAYLOR ENGINEERING, Defendants.
• Court: U.S. District Court — Northern District of Iowa

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SIOUXLAND ENERGY AND LIVESTOCK COOPERATIVE, Plaintiff, v. MICHAEL GAYLOR AND GAYLOR ENGINEERING, Defendants.

No. C02-4033-MWB.

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

December 9, 2002.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANTS' MOTION TO DISMISS COUNT III OF PLAINTIFF'S AMENDED AND PROPOSED SECOND AMENDED AND SUBSTITUTED COMPLAINTS

MARK W. BENNETT, Chief Judge.

I. INTRODUCTION AND BACKGROUND

As this court has observed on at least one prior occasion, the issue of pleading fraud with particularity is no stranger to commercial litigation despite the efforts of this court and the Eighth Circuit Court of Appeals to clarify the requirements for pleading fraud. Seaboard Farms, Inc. v. Pork Data, Inc., No. C00-4031-MWB, 2000 WL 33915815, *1 (N.D.Iowa Dec. 11, 2000). Now before the court is defendants' Michael Gaylor and Gaylor Engineering (collectively "Gaylor") August 12, 2002 motion to dismiss Count III of plaintiff's Siouxland Energy and Livestock Cooperative ("Siouxland") Amended Complaint (#5). Gaylor contends that Siouxland has failed to plead fraud pursuant to Iowa common law with the "particularity" required by FED. R. CIV. P. 9(b). Siouxland resisted this motion, arguing that the court should deny Gaylor's motion and both grant Siouxland's Motion for Leave to File Amended Complaint and Resistance to Defendants' Motion to Dismiss (#15 & 20) and afford Siouxland the opportunity to file its proposed substituted second amended complaint (#26) because the litigation is still in its infancy and Gaylor cannot legitimately contend that it will be prejudiced. Pl.'s Memorandum in Support of Motion for Leave to Substitute, at 1.

On April 24, 2002, Siouxland brought suit against defendant Michael Gaylor in Iowa District Court alleging that it suffered compensatory, consequential and incidental damages as a result of Michael Gaylor's negligent and fraudulent misrepresentations and professional negligence. On May 13, 2002 Michael Gaylor removed the case to federal court based on diversity jurisdiction. Thereafter, Siouxland amended its complaint to add Gaylor Engineering as a defendant and defendants "Gaylor" filed an answer to Siouxland's amended complaint, counterclaimed against Siouxland and filed a motion to dismiss, presently before the court.

The remainder of the procedural history in this case is characterized by ample motion practice, particularly on the part of Siouxland. To begin, Siouxland resisted Gaylor's motion to dismiss by filing a Resistance and its first Motion for Leave to File Amended Complaint (#13) on August 30, 2002. Attached to the motion was Siouxland's proposed second amended complaint. United States Magistrate Judge Paul A. Zoss denied without prejudice Siouxland's motion for failure to comply with Local Rule 7.1(k). On September 11, 2002, Siouxland sought leave of the court for a second time to file its same proposed second amended complaint and resistance as it was previously submitted to the court (#15). Again, United States Magistrate Judge Zoss denied the motion without prejudice for failure of Siouxland to comply with Local Rule 7.1(k). For a third time, Siouxland sought leave of the court to file a second amended complaint and resistance to Gaylor's motion to dismiss on September 30, 2002 (#20).

On October 15, 2002 Gaylor filed a resistance to Siouxland's motion for leave to amend and declined to reply to Siouxland's resistance to Gaylor's motion to dismiss. Rather, Gaylor regarded Siouxland's failure to "challenge either the grounds supporting Gaylor's motion to dismiss or the law supporting it," coupled with Siouxland's request to file a second amended complaint, as conceding the accuracy of Gaylor's motion to dismiss. Def.'s Resistance to Pl.'s Third Mot. for Leave to Am. Compl. and Resistance to Mot. to Dismiss, at 2-3. Then, according to Siouxland, in an attempt to address Gaylors' disputes with Siouxland's proposed second amended complaint and without conceding that Gaylors' claims are correct, Siouxland proceeded to file a Motion for Leave to Substitute the attached second amended complaint (#26) for the one previously filed with its motion for leave to amend (#20). In addition, Siouxland filed its reply to Gaylor's resistance to Siouxland's motion for leave to file a second amended complaint (#28). On November 22, 2002, Gaylor filed a Resistance to Plaintiff's Motion for Leave to Substitute (#32). Thus, the court will address Gaylors' motion to dismiss, Siouxland's motion to file a second amended complaint, and Siouxland's motion for leave to file its proposed substituted second amended complaint.

II. LEGAL ANALYSIS

A. Standards For Motions To Dismiss

Federal Rule of Civil Procedure 12(b)(6) authorizes the district courts to dismiss any complaint which fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). Rule 12(b)(6) affords a defendant an opportunity to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true. Under this standard, a complaint should be dismissed only where it appears that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Knapp v. Hanson, 183 F.3d 786, 788 (8th Cir. 1999) ("A motion to dismiss should be granted only if `it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief.'") (quoting Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986), and citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In applying this standard, the court must presume all factual allegations in the complaint as true and draw all reasonable inferences in favor of the non-moving party. E.g., Whitmore v. Harrington, 204 F.3d 784, 784 (8th Cir. 2000); accord Cruz v. Beto, 405 U.S. 319, 322 (1972); Anderson v. Franklin County, Mo., 192 F.3d 1125, 1131 (8th Cir. 1999); Gross v. Weber, 186 F.3d 1089, 1090 (8th Cir. 1999); Midwestern Mach., Inc. v. Northwest Airlines, Inc., 167 F.3d 439, 441 (8th Cir. 1999); Valiant-Bey v. Morris, 829 F.2d 1441, 1443 (8th Cir. 1987). The court need not, however, accord the presumption of truthfulness to any legal conclusions, opinions or deductions, even if they are couched as factual allegations. Silver v. H & R Block, Inc., 105 F.3d 394, 397 (8th Cir. 1997) (citing In re Syntex Corp. Securities Lit., 95 F.3d 922, 926 (9th Cir. 1996)); Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990) (the court "do[es] not, however, blindly accept the legal conclusions drawn by the pleader from the facts," citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987), and 5 Charles A. Wright et al., Federal Practice And Procedure § 1357, at 595-97 (1969)); see also LRL Props. v. Portage Metro Hous. Auth., 55 F.3d 1097, 1103 (6th Cir. 1995) (the court "need not accept as true legal conclusions or unwarranted factual inferences," quoting Morgan, 829 F.2d at 12).

B. Requirements For Pleading Fraud

A federal court sitting in diversity applies the applicable state substantive law, in this case Iowa law. Under Iowa law, to establish a claim for fraudulent misrepresentation, a plaintiff must prove: "(1) defendant made a representation to the plaintiff, (2) the representation was false, (3) the representation was material, 4) the defendant knew the representation was false, (5) the defendant intended to deceive the plaintiff, (6) the plaintiff acted in reliance on the truth of the representation and was justified in relying on the representation, (7) the representation was a proximate cause of plaintiff's damages, and (8) the amount of damages." Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 745-46 (8th Cir. 2002) (citing Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 400 (Iowa 2001)). Because the proceedings are generally governed by the Federal Rules of Civil Procedure where there is no conflict with the state procedure, Roberts v. Francis, 128 F.3d 647, 650-51 (8th Cir. 1997) (citing Hanna v. Plumer, 380 U.S. 460, 465 (1965), the court is obliged to determine whether Siouxland sufficiently pleaded fraud with particularity under Federal Rule of Civil Procedure 9(b), thereby entitling Siouxland to a trial on the merits.

This court has articulated the elements of fraud under Iowa law and the standards for pleading fraud with the particularity required by FED. R. CIV. P. 9(b) in several recent decisions. See Wright v. Brooke Group, Ltd., 114 F. Supp.2d 797, 832-33 (N.D.Iowa 2000); Doe v. Hartz, 52 F. Supp.2d 1027, 1055 (N.D.Iowa 1999) (elements and pleading); Brown v. North Cent. F.S., Inc., 987 F. Supp. 1150, 1155-57 (N.D.Iowa 1997) (pleading); Brown v. North Cent. F.S., Inc., 173 F.R.D. 658, 664-65 (N.D.Iowa 1997) (pleading); Tralon Corp. v. Cedarapids, Inc., 966 F. Supp. 812 (N.D.Iowa 1997) (elements); North Cent. F.S., Inc. v. Brown, 951 F. Supp. 1383, 1407-08 (N.D.Iowa 1996) (pleading); Jones Distrib. Co. v. White Consol. Indus., Inc., 943 F. Supp. 1445, 1469 (N.D.Iowa 1996) (elements of fraud and fraudulent non-disclosure); De Witt v. Firstar Corp., 879 F. Supp. 947, 970 (N.D.Iowa 1995) (elements and pleading). In Wright, 114 F. Supp.2d at 832-33, this court discussed Rule 9(b) and its requirement that a plaintiff "allege with particularity the facts constituting the fraud.'" See Brown, 987 F. Supp. at 1155 (quoting Independent Business Forms v. A-M Graphics, 127 F.3d 698, 703 n. 2 (8th Cir. 1997)). Thus, "`When pleading fraud, a plaintiff cannot simply make conclusory allegations.'" Brown, 987 F. Supp. at 1155 (quoting Roberts v. Francis, 128 F.3d 647, 651 (8th Cir. 1997)); see Commercial Prop. Inv., Inc. v. Quality Inns Int'l, Inc., 61 F.3d 639 (8th Cir. 1995) (finding conclusory allegations insufficient because "one of the main purposes of the rule is to facilitate a defendant's ability to respond and to prepare a defense to charges of fraud," quotin...