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Dandy Veal LLC v. Lehman

United States District Court, E.D. Wisconsin

May 23, 2017

DANDY VEAL LLC, Plaintiff,
v.
PETER LEHMAN and PACKERLAND WHEY PRODUCTS INC, Defendants.

          DECISION AND ORDER GRANTING MOTION TO DISMISS AND DENYING MOTIONS TO INTERVENE AS MOOT

          William C. Griesbach, Chief Judge United States District Court.

         Plaintiff 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.

         Currently 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.

         RICO ALLEGATIONS OF THE COMPLAINT

         Plaintiff 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.

         According 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.

         Dandy 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.

         Based 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.

         In 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 Procedure.

         MOTION TO DISMISS

         A 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.

         In 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).

         The 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. ¶ 36.

         Defendants 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 ...


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