De Wit v. Firstar Corp.
| Decision Date | 01 March 1995 |
| Docket Number | No. C 94-4052.,C 94-4052. |
| Citation | 879 F. Supp. 947 |
| Court | U.S. District Court — Northern District of West Virginia |
| Parties | Don De WIT, High Line Pork, Robert Cash, Dan Murphy, and Double V Dairy, Plaintiffs, v. FIRSTAR CORPORATION, Firstar Bank Milwaukee, N.A., Firstar Bank Wausau, N.A., Firstar Bank Sioux City, N.A., and Mark J. Miley, Defendants and Third-Party Plaintiffs, v. Lee VAN VELDHUIZEN, Third-Party Defendant. |
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William P. Dixon of Davis, Miner, Barnhill & Galland, Madison, WI, and Randall A. Roos of the Roos Law Office, P.C., Sioux Center, IA, for plaintiffs.
Thomas L. Shriner, Jr., and James M. Caragher of Foley & Lardner, Milwaukee, WI, for defendants.
TABLE OF CONTENTS
I. PROCEDURAL AND FACTUAL BACKGROUND ................................... 954
A. Procedural Background ........................................... 954
B. The Amended Complaint ........................................... 955
C. The Third-Party Complaint ....................................... 957
D. Factual Background .............................................. 957
II. LEGAL ANALYSIS ...................................................... 959
A. The Motion To Dismiss And Plaintiffs' Federal Claims ............ 959
B. Standards For Dismissal Pursuant to Rule 12(b)(6) ............... 959
C. The RICO Claim .................................................. 960
1. Scope And Purpose Of RICO ................................... 960
2. Elements Of Plaintiffs' ? 1962(c) RICO Claim ................ 962
a. "Conduct ..." ........................................... 962
b. "Of an enterprise ..."................................... 966
c. "Through a pattern ...".................................. 968
d. "Of racketeering activity ..."........................... 970
i. Mail and wire fraud ................................ 970
ii. Securities fraud. .................................. 974
iii. Bankruptcy fraud ................................... 974
D. Securities Laws Violations ....................................... 975
1. The Definition Of "Securities" ............................... 977
2. "Investment Contracts" And The Howey Test .................... 977
a. Investment of money ...................................... 978
b. Common enterprise ........................................ 978
c. Expectation of profit from the effort of others .......... 980
d. Other cattle investment schemes .......................... 982
3. Definition Of A "Seller" Of Securities ....................... 984
a. Liability for solicitation ............................... 984
b. "Control person" liability ............................... 986
c. Liability for failure to make disclosures ................ 987
E. Common Law Fraud ................................................. 989
F. Common Law Wrongful Conversion Or Set-Off ........................ 990
1. Standards For Dismissal Pursuant to Rule 12(b)(7) ............ 990
2. Are The Trustees Indispensable Parties? ...................... 995
a. Necessary party under Rule 19(a) ......................... 995
b. Indispensable party under Rule 19(b) ..................... 997
G. Lack Of A Federal Question ....................................... 997
III. CONCLUSION .......................................................... 998
This lawsuit raises probing and nettlesome questions of whether parties injured by the collapse of a cattle investment scheme have stated claims against the banks that allegedly crossed the line dividing mere provision of banking services from intimate involvement in and control of the investment scheme. Plaintiffs also allege that when collapse of the investment scheme became imminent, the banks moved ruthlessly to protect their own financial interests to the substantial injury of investors in and suppliers to the investment scheme. Many of the issues involved in this motion to dismiss boil down to the essential question of with what specificity must plaintiffs identify the particular defendant or defendants involved in wrong-doing and allege the nature and circumstances of that wrong-doing in order to defeat a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6)?
Plaintiffs, investors in and suppliers to a cattle investment scheme called "Adventure Cattle," filed this lawsuit on behalf of two proposed classes: the first class is defined as investors in the investment scheme, and the second is defined as persons who sustained losses as the result of defendants' banking practices. The classes have not yet been certified by the court. Defendants are a bank holding company and subsidiary banks that provided banking services for Adventure Cattle and its principal, and the bank officer responsible for the accounts in question. Plaintiffs allege violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), the Securities Acts of 1933 and 1934, and assert state common law claims of wrongful conversion or set-off and fraud. Defendants have moved to dismiss the complaint for failure to state a claim upon which relief can be granted and for failure to join necessary parties.
Plaintiffs filed their original complaint in this matter on June 27, 1994, as the result of the collapse of a cattle investment scheme called "Adventure Cattle." The investment scheme giving rise to the claims in this matter was operated by John Morken through his company, Spring Grove Livestock Exchange (SGLE). However, Morken and SGLE are not parties to this lawsuit, as each is currently in bankruptcy. A first amended complaint, asserting a class action in five counts, was filed on September 8, 1994. The named plaintiffs are Don De Wit, an Iowa resident, High Line Pork, an Iowa partnership, Robert Cash, a resident of Nevada, Dan Murphy, a resident of California, and Double V Dairy, a/k/a Double V Cattle, an Oregon partnership consisting of Arthur Van Veldhuizen and Mary Ann Van Veldhuizen. Defendants are Firstar Corporation, identified as a bank holding company that owns the other defendant national banks, those banks, identified as Firstar Bank Milwaukee, N.A. (Firstar Milwaukee), Firstar Bank Wausau, N.A. (Firstar Wausau), Firstar Bank Sioux City, N.A. (Firstar SC), and, finally, Mark J. Miley, alleged to be an officer and agent of Firstar Milwaukee, Firstar Wausau, and Firstar Corporation. Throughout the complaint, the defendants are referred to collectively as "Firstar," and only rarely are any of the defendants identified individually.
The amended complaint asserts that each of the named plaintiffs was "victimized by the Defendants' conduct as an investor in Adventure Cattle and as a person or business who sustained loss by reason of the Firstar banking practices" described in the complaint. Complaint, ? 18. The amended complaint also asserts that the named plaintiffs, as representative parties, "can and will fairly and adequately protect the interest of the class." Complaint, ? 19. Although paragraph 19 refers only to "the class," the complaint identifies two classes of plaintiffs on whose behalf the complaint has been brought: "1) all persons, businesses, or other entities investing in the investment scheme called "Adventure Cattle" ... and 2) all persons, businesses, or other entities who sustained losses as a result of defendants' banking practices...." Complaint, ? 15.1 The complaint further asserts that Class 1 includes approximately 78 members, while Class 2 includes at least 150 members. Members of both classes are allegedly dispersed throughout the United States. Although plaintiffs have moved for certification of the classes, the court has not yet ruled on certification.
Defendants answered the amended complaint on October 11, 1994, and at the same time filed a third-party complaint against Lee Van Veldhuizen and the present motion to dismiss. The third-party defendant answered the third-party complaint on December 9, 1994. Defendants were granted leave to file an overlength brief in support of the motion to dismiss, and filed such a brief on October 19, 1994. The plaintiffs were granted an extension of time to resist the motion, and ultimately filed their resistance to the motion to dismiss on December 2, 1994. Defendants then filed a reply brief on December 8, 1994.
The court held telephonic oral arguments on defendants motion to dismiss on February 23, 1995. Plaintiffs were represented at oral arguments by counsel William P. Dixon of Davis, Miner, Barnhill & Galland, in Madison, Wisconsin, and Randall A. Roos of the Roos Law Office, P.C., in Sioux Center, Iowa. Defendants were represented at the oral arguments by Thomas L. Shriner, Jr., and James M. Caragher of Foley & Lardner, in Milwaukee, Wisconsin. Third-Party defendant Lee Van Veldhuizen was also present telephonically at the oral arguments, but did not offer any argument on the matters presented in defendants' motion to dismiss. This matter is now fully submitted. The court therefore turns to the allegations of the amended complaint and the grounds defendants urge for dismissal.
Count I of the amended complaint alleges a violation of the provision of the Racketeer Influenced And Corrupt Organizations Act, 18 U.S.C. ? 1962(c), which pertains to interest in or control of a RICO enterprise.2 The complaint alleges that "from at least September 30, 1993, and through...
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§19.5 Purpose and Procedure
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