Opinion
Civ. No. 03-2559 (RHK/JSM).
July 14, 2003.
Scott Goldsmith, Goldsmith Law Offices, Long Lake, Minnesota, Attorney for Plaintiff.
David J. Lauth and Kevin Hopkins-Finnerty, Dorsey Whitney, L.L.P., Minneapolis, Minnesota, Attorney for Defendants.
MEMORANDUM OPINION AND ORDER
Introduction
This lawsuit arises from Plaintiff David Hjermstad's employment with Defendant Central Livestock Association, Inc. ("CLA"), a Minnesota cooperative based in South Saint Paul, Minnesota. Hjermstad worked for CLA from February 1999 to June 2000. He alleges that the Defendants wrongfully terminated his employment as a result of his refusal to condone, aid, and perpetuate the Defendants' allegedly illegal and unlawful actions in connection with (1) the operation of CLA's Livestock Feeding Program, (2) the marketing of cattle, (3) the operation of the Defendants' price protection strategies such as futures and options contracts, and (4) the operation of the Elite Vision sheep artificial insemination program.
Defendant Cooperative Resources International ("CRI") is the only voting member of CLA.
Presently before the Court is the Defendants' motion, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss Hjermstad's Complaint on the grounds that it fails to state claims upon which relief can be granted. After the Defendants filed and served their Motion to Dismiss, Hjermstad amended his complaint as a matter of right pursuant to Rule 15(a) of the Federal Rules of Civil Procedure (see Doc. No. 6), and submitted a memorandum opposing the motion to dismiss. The Defendants filed a reply asserting that the defects raised in their original motion apply to the Amended Complaint as well, and the Court should therefore consider their motion as having been made against the amended pleading. For the reasons set forth below, the Court will grant the Motion to Dismiss.
Rule 15(a) provides that a party may amend his or her pleading "once as a matter of course at any time before a responsive pleading is served. . . ." Fed.R.Civ.P. 15(a). A motion to dismiss for failure to state a claim, pursuant to Rule 12(b)(6) is not a "responsive pleading" for purposes of Rule 15(a). Camp v. Gregory, 67 F.3d 1286, 1289 (7th Cir. 1995);Lockhart v. Cedar Rapids Community Sch. Dist., 963 F. Supp. 805, 810 (N.D. Iowa, 1997).
Hjermstad has moved to strike this reply brief on the grounds that it exceeds the scope of a permissible reply by raising new legal arguments that could have been raised in the opening brief. In lieu of striking the reply, the Court granted Hjermstad leave to file a sur-response addressing the challenged arguments from the reply brief. The Court also granted leave to the Defendants to file a short sur-reply brief. Accordingly, the Court will deny Hjermstad's Motion to Strike.
Analysis
I. Standard of Decision
"Dismissal under Rule 12(b)(6) serves to eliminate actions which are fatally flawed in their legal premises and destined to fail, thereby sparing litigants the burden of unnecessary pretrial and trial activity." Young v. City of St. Charles, Mo., 244 F.3d 623, 627 (8th Cir. 2001). A cause of action "should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff cannot prove any set of facts in support of his claim that would entitle him to relief."Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 740 (8th Cir. 2002) (internal citations omitted) (citing Kohl v. Casson, 5 F.3d 1141, 1148 (8th Cir. 1993)). In analyzing the adequacy of a complaint's allegations under Rule 12(b)(6), the Court must construe the complaint liberally and afford the plaintiff all reasonable inferences to be drawn from those facts. See Turner v. Holbrook, 278 F.3d 754, 757 (8th Cir. 2002).
Count I of the Amended Complaint alleges that Defendants wrongfully terminated Hjermstad's employment in violation of (1) the public policy of the state of Minnesota, (2) Minnesota's Whistleblower Statute (Minn. Stat. § 181.932) and (3) the Packers and Stockyards Act ("PSA") (7 U.S.C. § 181-231), because he would not condone, aid, participate in, or allow practices that he believed violated the PSA, the Commodity Exchange Act ("CEA") (7 U.S.C. § 1-26), and/or certain unspecified Minnesota and Wisconsin cooperative laws. (Am. Compl. ¶¶ 26, 30.)
The paragraph numbers are taken from the Amended Complaint filed on June 3, 2003.
Count II of the Amended Complaint alleges that Defendants wrongfully terminated Hjermstad's employment in violation of (1) the public policy of the state of Minnesota, (2) Minnesota's Whistleblower Statute (Minn. Stat. § 181.932), (3) the Minnesota Prevention of Consumer Fraud Act ("MPCFA") (Minn. Stat. § 325F.69), (4) the Minnesota statute forbidding the use of false statements to induce an individual into entering an employment relationship (Minn. Stat. §§ 181.64 and 181.65), (5) common law fraud, and (6) covenants of good faith and fair dealing. (Am Compl. ¶ 37.) Hjermstad claims that he was terminated because he refused to condone, aid, participate in, or allow practices that he believed contravened the MPCFA, constituted common law fraud, and/or violated other unspecified state and federal laws. (Id. ¶¶ 33, 34.)
Count III of the Amended Complaint alleges that Defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") (18 U.S.C. § 1961-1964). (Am. Compl. ¶¶ 39-53.) Specifically, Hjermstad claims that the Defendants unlawfully employed a pattern of racketeering activity so as to acquire or maintain an interest in or control of an enterprise involved in interstate commerce, in violation of 18 U.S.C. § 1962(b). (Id. ¶ 40.) Hjermstad also alleges that the Defendants unlawfully conducted, or participated in, the affairs of an enterprise affecting interstate commerce through a pattern of racketeering activity, in violation of 18 U.S.C. § 1962(c). (Id. ¶ 49.) Finally, Hjermstad also asserts that the Defendants conspired with each other with the specific intent and purpose of accomplishing the objectives set out in the Amended Complaint. (Id. ¶ 52.)
II. Subject Matter Jurisdiction
Before addressing the Defendants' motion, the Court must first assess its subject matter jurisdiction. The Amended Complaint states that this Court has jurisdiction over this lawsuit "under 28 U.S.C. § 1332 by reason of the fact that this controversy is based, in part, on the Packer's and Stockyards Act, 7 U.S.C. § 192 and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq." (Am. Compl. ¶ 14.) "Under 28 U.S.C. § 1332(a), district courts have original diversity jurisdiction over civil actions when the matter in controversy exceeds $75,000, without considering interest and costs, and when the citizenship of each plaintiff is different from the citizenship of each defendant." Ryan ex rel. Ryan v. Schneider Nat'l Carriers, Inc., 263 F.3d 816, 819 (8th Cir. 2001) (citing Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996)) (emphasis added). Hjermstad has alleged that (1) he is a citizen of Minnesota who resides in Minnesota (id. at 2), (2) CLA is a Minnesota corporation having its principal place of business in South Saint Paul, Minnesota (id. ¶ 3), and (3) CRI is a Wisconsin corporation having its principal place of business in Shawano, Wisconsin. (Id. ¶ 4.) Because the citizenship of the plaintiff is the same as that of one of the defendants, there is not complete diversity of citizenship and subject matter jurisdiction does not exist by virtue of 28 U.S.C. § 1332.
The paragraphs found on pages two through four of the Amended Complaint are not numbered.
Reading the jurisdictional paragraph of the Amended Complaint as a whole, it appears that Hjermstad intended to cite 28 U.S.C. § 1331, which grants the district courts original jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." Pursuant to § 1331's federal question jurisdiction, the Court has original jurisdiction over Count III of the Amended Complaint, asserting violations of RICO, and Count I of the Amended Complaint, to the extent it alleges that the Defendants wrongfully terminated Hjermstad in violation of the Packers and Stockyards Act. The balance of Count I and all of Count II assert state law causes of action, over which the Court has supplemental jurisdiction pursuant to 28 U.S.C. § 1367. The Court therefore begins its analysis of the Defendants' Motion to Dismiss with the federal question claims.
III. RICO, 18 U.S.C. § 1961
The Defendants move to dismiss Hjermstad's civil RICO claim on the grounds that he lacks standing to pursue it. In a civil RICO claim, "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court. . . ." 18 U.S.C. § 1964(c). Section 1962, in pertinent part, makes it unlawful to acquire or maintain — through a pattern of racketeering activity — an interest in any enterprise engaged in interstate commerce, or to participate — through a pattern of racketeering activity — in the conduct of an enterprise engaged in interstate commerce, or to conspire to do either of the above. Therefore, to establish standing to bring a civil RICO claim, a plaintiff must show (1) an injury to "business or property" (2) caused "by reason of" a RICO violation. Hamm v. Rhone-Poulenc Rorer Pharms., Inc., 187 F.3d 941, 951 (8th Cir. 1999). The Supreme Court has held that an "injury caused by an overt act that is not an act of racketeering or otherwise wrongful under RICO . . . is not sufficient to give rise to a cause of action" under the civil RICO provisions. Beck v. Prupis, 529 U.S. 494, 505 (2000) (emphasis added).
The Defendants argue that Hjermstad has not been harmed "by reason of" a predicate act of racketeering and, therefore, lacks standing. "Mail fraud and wire fraud are within the predicate acts that may constitute `racketeering activity' under RICO,"Blue Dane Simmental Corp. v. American Simmental Ass'n, 178 F.3d 1035, 1041 (8th Cir. 1999), and Hjermstad has alleged numerous acts of mail fraud and wire fraud relating to the operation of CLA's Livestock Feeding Program as predicate acts of "racketeering activity." (Am. Compl. ¶¶ 44-50.) The issue, therefore, is whether the alleged injuries to Hjermstad were caused "by reason of" the alleged mail or wire fraud. The Court concludes that they were not.
This case falls within the scope of Bowman v. Western Auto Supply Co., 985 F.2d 383 (8th Cir. 1993). Bowman was an employee who protested his employer's double-billing of customers and was allegedly terminated for criticizing and refusing to participate in the alleged racketeering activity. As in the instant case, Bowman sued his former employer, asserting both substantive RICO claims under 18 U.S.C. § 1962(a)-(c) and a RICO conspiracy under 18 U.S.C. § 1962(d). The Eighth Circuit held that, as a matter of law, an employee lacked "standing to bring a `whistle blower' wrongful discharge suit [against his employer] under 18 U.S.C. § 1964(c) when the underlying RICO violation is based on § 1962(a), (b), or (c)." 985 F.2d at 386. "The simple act of discharging an employee as alleged in this case does not constitute racketeering activity as defined in RICO, and thus does not fall within the definition of what the Supreme Court has termed `predicate acts' under RICO." Id. at 385-86. As for the conspiracy claim, the Eighth Circuit reasoned that "[i]mposing the predicate act requirement on civil claims based on violations of § 1962(d) narrows the focus of those suits to the specific racketeering activity that lies at the heart of the RICO statute." Id. at 388. The Supreme Court confirmed this reasoning. See Beck, 529 U.S. at 507 (holding that "a person may not bring suit under § 1964(c) predicated on a violation of § 1962(d) for injuries caused by an overt act that is not an act of racketeering or otherwise unlawful under the statute.").
Hjermstad replies that he was a "target" of alleged misrepresentations that constitute predicate acts of mail fraud and wire fraud, and that he was terminated because he posed "a direct threat" to the Defendants' continued control and maintenance of their interest in the enterprise. Therefore, his injuries were caused by the predicate acts of racketeering activity. These arguments are not persuasive and do not distinguish this case from either Bowman or Hamm. As inHamm and Bowman, Hjermstad was not the real "target" of the predicate acts of racketeering activity. Hjermstad claims that the Defendants used acts of mail fraud and wire fraud "to induce farmers into [Livestock Feeding Program] contractual arrangements and to `control' and `maintain' [the Defendants'] interest in the enterprise to the absolute benefit of [the Defendants] and the detriment of the farmer participant." (Am. Compl. ¶ 46 (emphasis added).) Furthermore, Hjermstad's claimed compensatory damages involve "lost wages, out of pocket expenses, lost opportunity costs, . . . retirement benefits and other employment benefits." (Id. at 20, ¶ 1.) These damages are clearly employment-related and arise directly from his alleged retaliatory discharge, not from the alleged misrepresentations. The Court concludes that Hjermstad lacks standing to proceed with his civil RICO claims. Accordingly, Count III of the Amended Complaint will be dismissed with prejudice.
IV. The Packers and Stockyards Act, 7 U.S.C. § 209(a)
The Defendants also move to dismiss Hjermstad's claim for wrongful termination in violation of the PSA on the grounds that the Act does not provide a private cause of action for Hjermstad. In response, Hjermstad relies entirely on the plain language of § 209(a) of the Act, which imposes civil liability under the following circumstances:
If any person subject to this chapter violates any of the provisions of this chapter, or of any order of the Secretary [of Agriculture] under this chapter, relating to the purchase, sale, or handling of livestock, the purchase or sale of poultry, or relating to any poultry growing arrangement or swine production contract, he shall be liable to the person or persons injured thereby for the full amount of damages sustained in consequence of such violation.7 U.S.C. § 209(a) (emphasis added). Hjermstad appears to allege that Defendants engaged in the following conduct that violated the PSA:
Defendants failed to provide scale tickets or weigh tickets for livestock transactions as required by the Act;
Defendants, in livestock transactions based on weight, manipulated the weight of livestock in violation of the Act;
Defendants failed to keep accurate accounts and records and failed to make accounts and records available to member customers, as required by the Act;
Defendants failed to exercise reasonable care and promptness in transporting, feeding, watering, and handling livestock so as to prevent shrinkage, injury, and death, as required by the Act;
Defendants made false and misleading representations to member customers concerning source and quality of livestock, livestock market conditions, and the price and sale of livestock, in violation of the Act;
Hjermstad fails to identify the specific section or sections of the PSA that the Defendants allegedly violated through their conduct, citing only the Act in its entirety as "7 U.S.C. § 181-231." The Court notes that, at a minimum, § 213 is a catch-all provision making it
unlawful for any stockyard owner, market agency, or dealer to engage in or use any unfair, unjustly discriminatory, or deceptive practice or device in connection with determining whether persons should be authorized to operate at the stockyards or with the receiving, marketing, buying, or selling on a commission basis or otherwise, feeding, watering, holding, delivery, shipment, weighing, or handling of livestock.7 U.S.C. § 213(a) (emphasis added).
* * * * *
Defendants breached their fiduciary duty to member customers by controlling livestock auctions, in violation of the Act;
Defendants breached their fiduciary duty to member customers by self-dealing, in violation of the Act;
Defendants used member customers' livestock to fulfill its own contracts, in violation of the Act;
Defendants breached their fiduciary duty to member customers by furnishing competitors with information for the purpose of restricting or limiting competition, manipulating livestock prices, or controlling the movement of livestock, in violation of the Act. . . .
(Am. Compl. ¶ 26(a)-(e), (g)-(j)). Hjermstad claims that he was injured by the above violations because he was terminated after he reported to management that such practices were illegal and indicated that he would not condone, aid, participate in, or allow such practices.
There is not a great wealth of case law under the PSA. Enacted in 1921, the PSA "was designed to secure the free and unburdened flow of livestock across the nation from producers to consumers by regulating the business of stockyards and their participants." United States v. Haun, 124 F.3d 745, 748 (6th Cir. 1997) (citing Stafford v. Wallace, 258 U.S. 495, 514 (1922)). Congress thus enacted a comprehensive set of laws and regulations to govern interstate commerce in livestock in order "to assure fair competition and fair trade practices in livestock marketing and in the meatpacking industry." H.R. Rep. No. 1048 (1957), reprinted in 1958 U.S.C.C.A.N. 5212, 5213. As the Eighth Circuit has acknowledged, "the PSA has its origins in antecedent antitrust legislation and primarily prevents conduct which injures competition." Jackson v. Swift Eckrich, Inc., 53 F.3d 1452, 1460 (8th Cir. 1995); see also Farrow v. United States Dep't of Agric., 760 F.2d 211, 214 (8th Cir. 1985) (observing that 7 U.S.C. § 213(a) "authorize[s] the Secretary of Agriculture to regulate anticompetitive trade practices in the livestock and meat industry in accord with `the basic antitrust blueprint of the Sherman Act and other pre-existing antitrust legislation such as the Clayton Act and the Fair Trade Commission Act"') (quoting De Jong Packing Co. v. United States Dep't of Agric., 618 F.2d 1329, 1335 n. 7 (9th Cir. 1980)).
Hjermstad's argument that a remedial statute must be broadly construed misstates the applicable canon of statutory construction — a remedial statute must be construed broadly to effectuate its purposes. Tcherepnin v. Knight, 389 U.S. 332, 336 (1967). Hjermstad has come forward with no authority establishing that a purpose of the PSA is to protect whistleblowing employees in the livestock industry from retaliatory discharge. Hjermstad has not cited, nor has the Court found, a single case in which a former employee of a "person subject to the [Act]" has sued his former employer under the PSA. Hjermstad has furthermore cited no authority suggesting that Congress ever intended to regulate employment relationships in the meatpacking industry through the Act. In short, there is no precedent for construing § 209(a) so broadly as to encompass a cause of action under the Act for what is, at root, a retaliatory discharge claim under an employment contract. That portion of Count I that is based on violations of the PSA will be dismissed with prejudice.
V. Continued Exercise of Supplemental Jurisdiction
The Court has concluded that all federal claims over which it purportedly had original jurisdiction must be dismissed. When a district court dismisses the claims over which it has original jurisdiction, it may decline to continue to exercise what is called "supplemental jurisdiction" over the state law claims that are related to those federal claims. See 28 U.S.C. § 1367(c)(3); American Civil Liberties Union v. City of Florissant, 186 F.3d 1095, 1098-99 (8th Cir. 1999) ("[W]hen state and federal claims are joined and all federal claims are dismissed . . . the state claims are ordinarily dismissed without prejudice to avoid needless decisions of state law . . . as a matter of comity."). Accordingly, the Court will dismiss the state law claims of wrongful termination in violation of various state laws without prejudice.
Conclusion
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS ORDERED that Plaintiff David Hjermstad's Motion to Strike Defendants' "Reply Memorandum" (Doc. No. 11) is DENIED; IT IS FURTHERMORE ORDERED that Defendants' Motion to Dismiss (Doc. No. 3) is GRANTED IN PART. Count III, alleging violations of the Racketeer Influenced and Corrupt Organizations Act, and that portion of Count I alleging wrongful termination in violation of the Packers and Stockyards Act, are DISMISSED WITH PREJUDICE. IT IS FURTHER ORDERED, that pursuant to 28 U.S.C. § 1367(c), the Court declines to exercise supplemental jurisdiction over the remaining state law claims. Plaintiff's state law claims are hereby DISMISSED WITHOUT PREJUDICE.
See generally 28 U.S.C. § 1367(d).