United States District Court, E.D. Wisconsin
DECISION AND ORDER GRANTING MOTION TO DISMISS AND
DENYING MOTIONS TO INTERVENE AS MOOT
William C. Griesbach, Chief Judge United States District
Dandy Veal, LLC, filed this action alleging claims under the
Racketeering Influenced and Corrupt Organizations Act
(“RICO”) and Wisconsin Organized Crime Control
Act (“WOCCA”) against Defendant Peter Lehman, and
claims of false advertising under Wis.Stat. § 100.18,
intentional fraud, strict responsibility misrepresentation,
and breach of contract against Defendant Packerland Whey
Products, Inc., (“Packerland”). Federal
jurisdiction over Plaintiff's RICO claim exists under 28
U.S.C. § 1331. The court has supplemental jurisdiction
over the remaining claims. 28 U.S.C. § 1367.
before the court is the Defendants' motion to dismiss all
but Plaintiff's breach of contract claim with prejudice
for failure to state a claim on which relief can be granted.
Defendants then urge dismissal of Plaintiff's breach of
contract claim without prejudice for lack of federal
jurisdiction. (ECF No. 16.) Also before the court are the
motions of Packerland's insurers, Maxum Casualty
Insurance Company (“Maxum”) and Farmland Mutual
Insurance Company (“Farmland”), to intervene,
bifurcate, and stay. (ECF Nos. 10, 24, 26.) For the reasons
below, Plaintiff's RICO and WOCCA claims against Lehman
will be dismissed for failing to state a claim. With the sole
federal claim gone, Plaintiff's remaining claims will be
dismissed for lack of federal jurisdiction and the
insurers' motions to intervene will be denied as moot.
ALLEGATIONS OF THE COMPLAINT
Dandy Veal, LLC, operates a farm in Luxemburg, Wisconsin with
approximately 3, 180 heifers, cows, and steers. Compl. (ECF
No. 1), ¶¶ 5, 11. Packerland Whey Products, Inc.,
also located in Luxemburg, Wisconsin, produces, markets, and
sells an animal feed ingredient called Lacto-Whey.
Id. at ¶¶ 1, 7. Peter Lehman is a
Chicago-based investor whose private equity fund, Granite
Creek, purchased Packerland in mid-2012. Id. at
¶ 6. Dandy Veal claims that Packerland began to
experience financial troubles some time after the acquisition
and that Lehman, in an attempt to get out from under those
difficulties, directed Packerland to decrease the protein
content of its Lacto-Whey product without disclosing this
fact to its customers. Id. at ¶ 21.
to the allegations of the complaint, from 2003 through the
spring of 2015, Dandy Veal purchased the animal feed
ingredient Lacto-Whey from Packerland as an additive for its
cattle feed. Id. at ¶ 12. Packerland guaranteed
to its customers that Lacto-Whey would have no less than 44%
crude protein content and no less than 61.5% solids and
various minerals. Id. at ¶ 15. Dandy Veal
asserts these guarantees were the principal reasons why it
bought Lacto-Whey from Packerland because it allowed Dandy
Veal to properly prepare its cattle feed rations.
Id. at ¶ 12. If the ration fed to a farm animal
is imbalanced, it may result in health problems, lower milk
production, delayed maturation for breeding purposes, and
other negative effects. Id. at ¶ 13. During the
relevant time period, Dandy Veal purchased approximately one
50, 000 pound truck-load of Lacto-Whey every week.
Id. at ¶ 12.
Veal claims that for at least 18 to 20 months from late 2013
through early 2015, Packerland, at Lehman's direction,
defrauded Dandy Veal, as well as “dozens if not
hundreds of dairy farmers” in Wisconsin, Iowa, Florida,
and other states by intentionally misrepresenting the protein
and solids/minerals content of the Lacto-Whey product it sold
them. Id. Dandy Veal claims that the low protein
content adversely affected its animals' health and
impaired its cows' milk production, and that the low
minerals/solids content caused other adverse health
consequences to its cattle, resulting in financial harm to
Dandy Veal and the other farmers who purchased and used it.
Id. at ¶ 2. Packerland's invoices and Dandy
Veal's payments for the Lacto-Whey were sent through the
United States mails. Id. at ¶ 14. Dandy Veal
alleges that Packerland sent invoices and received payments
from other customers using the same system. Id.
on these allegations, Dandy Veal alleges that Lehman
conducted Packerland's affairs through a pattern of
racketeering activity in violation of 18 U.S.C. §
1962(c). Dandy Veal alleges that Packerland is an enterprise
engaged in interstate commerce; that Lehman conducted the
affairs of Packerland by, among other things, using his
position as a principal of Granite Creek to direct and
control the activities of Packerland's officers and
employees; and that Packerland's use of the mails in
connection with its fraudulent scheme constitutes a pattern
of racketeering within the meaning of 18 U.S.C. §
1961(5). Id. at ¶¶ 28-35.
support of their motion to dismiss, Defendants contend that
Plaintiff's RICO claim is nothing more than a
garden-variety commercial fraud claim and fails for several
reasons. First, Defendants argue that Dandy Veal lacks
standing under RICO because it has failed to allege a causal
connection between the harm it purportedly suffered and the
predicate acts alleged. Defendants also argue that the
complaint fails to allege a pattern of racketeering activity
and that Lehman directed or controlled Packerland as a
criminal enterprise. Finally, Defendants contend that Dandy
Veal has failed to allege fraud with the particularity
required under Rule 9(b) of the Federal Rules of Civil
motion to dismiss under Rule 12(b)(6) challenges the
sufficiency of the complaint to state a claim upon which
relief may be granted. Fed.R.Civ.P. 12(b)(6). In order to
survive a motion to dismiss, a plaintiff must allege
“sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its
face.'” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). And while the court must accept all
factual allegations as true and draw all reasonable
inferences in favor of the non-movant, it need not accept as
true any legal assertions or a recital of the elements of a
cause of action that are “supported by mere conclusory
statements.” Alam v. Miller Brewing Co., 709
F.3d 662, 666 (7th Cir.2013). “[A] plaintiff's
obligation to provide the grounds of his entitle[ment] to
relief requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action
will not do.” Twombly, 550 U.S. at 555.
addition, allegations of fraud are subject to the heightened
pleading standard of Rule 9(b), which requires a plaintiff to
plead “all averments of fraud . . . with
particularity.” Fed.R.Civ.P. 9(b). “This
heightened pleading requirement is a response to the great
harm to the reputation of a business firm or other enterprise
a fraud claim can do.” Borsellino v. Goldman Sachs
Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007) (internal
quotation marks omitted). The purpose of the heightened
pleading standard is “to force the plaintiff to do more
than the usual investigation before filing his
complaint” in order to minimize the damage to
reputation a baseless claim of fraud can have on a party.
Ackerman v. Nw. Mut. Life Ins. Co., 172 F.3d 467,
469 (7th Cir. 1999). To state the circumstances with the
requisite particularity, the plaintiff must allege “the
who, what, when, where, and how” of the alleged fraud.
Windy City Metal Fabricators & Supply, Inc. v. CIT
Tech. Fin. Servs., Inc., 536 F.3d 663, 668 (7th Cir.
2008). Dandy Veal has alleged that Defendants violated RICO,
specifically Section 1962(c). RICO provides for private civil
enforcement: “[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 and shall recover threefold the damages he
sustains and the cost of the suit, including a reasonable
attorney's fee . . . .” 18 U.S.C. § 1964(c).
RICO makes it unlawful for “any person employed by or
associated with [an interstate] enterprise . . . to conduct
or participate . . . in the conduct of such enterprise's
affairs through a pattern of racketeering activity.” 18
U.S.C. § 1962(c). The elements, therefore, are
“(1) conduct (2) of an enterprise (3) through a pattern
(4) of racketeering activity.” United States v.
Cummings, 395 F.3d 392, 397 (7th Cir. 2005).
complaint claims that the racketeering activity here was mail
fraud under 18 U.S.C. § 1341. “Mail fraud, in
turn, occurs whenever a person, ‘having devised or
intending to devise any scheme or artifice to defraud, '
uses the mail ‘for the purpose of executing such scheme
or artifice or attempting so to do.'” Bridge v.
Phoenix Bond & Indem. Co., 553 U.S. 639, 647 (2008)
(citing 18 U.S.C. § 1341). Dandy Veal alleges Defendants
committed mail fraud when they used the United States mails
to send invoices and receive payments for the sales of
Lacto-Whey induced by fraudulent misrepresentations. Compl.
move to dismiss Dandy Veal's RICO claim for the failure
to state a claim. They assert that Dandy Veal lacks standing
to sue under RICO because it fails to establish a factual and
proximate cause between the alleged predicate act and the
harm it suffered. Defendants also argue that the complaint
fails to allege that Lehman directed/controlled Packerland as
a criminal enterprise, that the complaint fails to allege a
pattern of racketeering activity, and that Dandy Veal fails
to plead mail fraud with particularity. For the following
reasons, I conclude that Dandy Veal fails ...