Dan Abels v. Farmers Commodities , 259 F.3d 910 ( 2001 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
_______________________
Nos. 00-1946NI, 00-2045NI
_______________________
____________ *
*
No. 00-1946NI *
____________ *
*
Dan Abels; Les A. Beekman; Steven *
Berschman; Ronald Berschman; Daryl *
Cushman; David Farms, Inc., an Iowa *
Corporation; Duane Davids; Dale *
Kramersmeier; Diana Kramersmeier; *
D&D Kramersmeier, LTD, an Iowa *
Corporation; M&J Ennen Farms, Inc.; *
Ronny Ennen; Rande Giesking; and *
Hamilton Land Corporation, * On Appeal from the United
* States District Court
Plaintiffs - Appellants, * for the Northern District
* of Iowa.
Bruce A. Heetland and Heidecker *
Farms, Inc., *
*
Plaintiffs, *
*
James Hofbauer and Rick Hofbauer, *
*
Plaintiffs - Appellants, *
*
Junkermeier Farms, Inc., *
*
Plaintiff, *
*
Bruce Meinders, Dale L. Meinders, *
and Gary Meinders, doing business as *
Meinders Brothers; Clarence Miller and *
Christian Miller, doing business as *
C&C Miller Farmers; J&K Oftedahl, *
Inc., an Iowa Corporation; Pitkin Farms, *
LTD; Jeff Pitkin; Sandale Farms, Inc.; *
Ronald L. Schmidt; Debra Schmidt; *
Steve Shortenhaus; Shawn Thomsen; *
Bill Walstead; Joyce Walstead; and *
SJMC Corp., an Iowa Corporation, *
*
Plaintiffs - Appellants, *
*
v. *
*
Farmers Commodities Corporation, * On Appeal from the United
an Iowa Corporation, and FCC * States District Court
Futures, Inc., an Iowa Corporation, * for the Northern District
* of Iowa.
Defendants - Appellees. *
____________ *
*
No. 00-2045NI *
____________ *
*
Dan Abels; Les A. Beekman; Steven *
Berschman; Ronald Berschman; Daryl *
Cushman; David Farms, Inc., an Iowa *
Corporation; Duane Davids; Dale *
Kramersmeier; Diana Kramersmeier; *
D&D Kramersmeier, LTD, an Iowa *
Corporation; M&J Ennen Farms, Inc.; *
Ronny Ennen; Rande Giesking; and *
Hamilton Land Corporation, *
*
Plaintiffs, *
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*
Bruce A. Heetland and Heidecker *
Farms, Inc., *
*
Plaintiffs - Appellants, *
*
James Hofbauer; Rick Hofbauer; *
Junkermeier Farms, Inc., Bruce *
Meinders, Dale L. Meinders, *
and Gary Meinders, doing business as *
Meinders Brothers; Clarence Miller and *
Christian Miller, doing business as *
C&C Miller Farmers; J&K Oftedahl, * On Appeal from the United
Inc., an Iowa Corporation; Pitkin Farms, * States District Court
LTD; Jeff Pitkin; Sandale Farms, Inc.; * for the Northern District
Ronald L. Schmidt; Debra Schmidt; * of Iowa.
Steve Shortenhaus; Shawn Thomsen; *
Bill Walstead; Joyce Walstead; and *
SJMC Corp., an Iowa Corporation, *
*
Plaintiffs, *
*
v. *
*
Farmers Commodities Corporation, *
an Iowa Corporation, and FCC *
Futures, Inc., an Iowa Corporation, *
*
Defendants - Appellees. *
___________
Submitted: March 14, 2001
Filed: July 3, 2001
___________
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Before RICHARD S. ARNOLD and FAGG, Circuit Judges, and PERRY,1 District
Judge.
___________
RICHARD S. ARNOLD, Circuit Judge.
The District Court dismissed this case for failure to state a claim. It held, first,
that a plaintiff seeking to hold a principal liable for an agent's fraud must plead not only
fraud but also agency with particularity pursuant to Federal Rule of Civil Procedure
9(b). In the District Court's view, the plaintiffs failed to meet that heightened standard
in pleading a principal-agent relationship between the Farmers' Commodities
Corporation and Henry Mayland, who is alleged to have induced many of the plaintiffs
to enter into the "hedge-to-arrive" (HTA) contracts at issue here. The District Court
also held that the plaintiffs lacked standing under the Commodity Exchange Act (CEA),
and that they had again failed to satisfy Rule 9(b) with respect to the allegations of mail
and wire fraud underlying their RICO claims. We reverse the District Court's judgment
and remand the case for further proceedings.
I.
The defendants have moved to strike certain exhibits which the plaintiffs
introduce for the first time on appeal. The exhibits in question are not necessary to our
analysis here, and we ignore them. We assume, as we must in reviewing a dismissal
for failure to state a claim, that all factual allegations in the complaint are true. See
Goss v. City of Little Rock, 90 F.3d 306, 308 (8th Cir. 1996).
1
The Hon. Catherine D. Perry, United States District Judge for the Eastern
District of Missouri, sitting by designation.
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The plaintiffs in this case are farmers. The defendants are a futures commission
merchant, Farmers' Commodities Corporation (FCC), and its wholly-owned subsidiary
and introducing broker, FCC Futures, Inc. (Futures). Not a party here, but an important
actor nonetheless, is the Farmers Cooperative Elevator of Buffalo Center (the Elevator).
The manager of the Elevator, Henry Mayland, was also the manager of Futures' branch
office in Buffalo Center, Iowa. As manager of that office, Mayland was registered with
the Commodity Futures Trading Commission as an agent of Futures and was
responsible for whatever business Futures did through that office. Specifically, he had
the duty to oversee all sales of commodity futures and all promotion of such sales to
actual or prospective customers of Futures, and to review the content of all promotional
material used by his office. Because FCC was the guarantor futures commission
merchant of Futures, Mayland was required to obtain its approval of all promotional
material, including seminars and presentations made to the general public. In addition,
he had to implement any new procedures or compliance directives received from FCC
in its role as guarantor futures commission merchant of Futures.
As early as January, 1993, Henry Mayland began soliciting farmers who did
business with the Elevator to enter into HTA contracts. An HTA contract resembles
a normal commodity-futures contract, in that it is an agreement to exchange a certain
kind and quantity of a commodity – here, grain – at some future date, for a
predetermined price. Because the purchase price is set in advance, both the buyer and
the seller are exposed to the risk that the market price on the delivery date will differ,
unfavorably, from the contract price. The distinctive feature of an HTA contract lies
in its method of "hedging" that risk. In a typical HTA, the buyer protects itself by
taking an equal and opposite position in the futures market to offset any loss it would
suffer if the price it has agreed to pay turns out to be too high. The seller, for his part,
has the right to "roll" the delivery date. Thus, if the parties have contracted for delivery
in September, and the market price at that time turns out to be substantially higher than
the price agreed upon, the farmer may find it more profitable to sell the crop on the
cash market and defer delivery. This is allowed upon the payment of a certain sum in
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"roll charges." The net effect of the HTA arrangement is supposed to be to protect both
buyers and sellers from fluctuations in crop prices.
In order to solicit these agreements on behalf of his employers, Mr. Mayland
held "marketing meetings" at which he and others made representations to farmers
about the risks and advantages of HTA contracts. The complaint gives dates and
locations for these meetings and tells who spoke, what representations were made, and
what plaintiffs were in attendance. In essence, Mayland and his agents told the farmers
that HTAs were free of risk, that they could be rolled indefinitely into the future, and
that they could be used to hedge prices on a quantity up to 100% of a farmer's
anticipated annual production. Some farmers were told that, using HTAs, they could
sell more grain than they expected to grow and then sell their excess contracts to their
neighbors; that they would have no obligation to deliver grain; and that they could buy
out of the contract at any time. Mayland and his agents represented the HTA
agreements to many plaintiffs as a way to put a floor under the price they would receive
for their grain. That is, they said a farmer who used HTAs would not receive less than
the contract price, but would leave open the possibility of receiving more (in a seller's
market) by "rolling" the HTA delivery date and selling to another buyer. FCC's
employee Earl Cornelius, the featured speaker at a marketing meeting attended by one
plaintiff, made substantially the same representations as Mayland and his agents made.
On the basis of these representations, each of the plaintiffs began writing HTA
contracts with the Elevator. The contracts were printed on a standard form and had
most of their terms in common. Each recites that "the following futures transaction was
made for seller on the Chicago Board of Trade." The futures transactions
corresponding to the contracts were placed in the Elevator's regulated commodity
account with FCC, an activity which involved communication by mail and telephone.
Each time a farmer rolled a delivery date, the Elevator would alter the corresponding
futures position in its FCC account (again using the mails or wires) and charge the
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farmer a fee. FCC's commissions increased with the number of transactions in the
account.
The farmers brought this action mainly to recover sums that the Elevator claims
they owe on their HTA contracts. Their claim is essentially that, although represented
by the defendants as a risk-free form of price protection, the HTA agreements actually
exposed the farmers to a substantial risk of losing money on the futures market. The
District Court dismissed the farmers' first complaint under Federal Rule of Civil
Procedure 12(b)(6), but granted them leave to replead. They then filed an amended
complaint, which the Court dismissed with prejudice. On appeal from that judgment,
the plaintiffs challenge three specific holdings of the District Court. They argue that
they have sufficiently pleaded a principal-agent relationship between Mayland and
FCC, that they have standing to sue under the Commodity Exchange Act, and that their
allegations of mail and wire fraud satisfy Rule 9(b), which requires that the
circumstances constituting fraud be pleaded with particularity.
We find merit in all three of these arguments. The plaintiffs have sufficiently
pleaded agency, even under the standard of Rule 9(b); they have pleaded facts that, if
true, confer standing to bring at least one claim under the CEA; and their complaint
gives the defendants sufficient notice of the specific misconduct for which the plaintiffs
seek recovery under RICO. For these reasons, we reverse the judgment of the District
Court in relevant part and remand for further proceedings.
II.
Because the decision to dismiss a complaint for failure to state a claim involves
no factual findings, we owe no deference to the District Court. Review is de novo. We
must construe the complaint so as to favor the non-moving party, here the plaintiffs, and
may dismiss "only if it is clear that no relief can be granted under any set of facts that
could be proven consistent with the allegations." Casino Resource Corp. v. Harrah's
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Entertainment, Inc., 243 F.3d 435, 437 (8th Cir. 2001). The factual complexity of this
case does not alter the essentially legal nature of questions concerning the sufficiency
of pleadings, nor does it affect the standard of review.
The District Court's holding that the plaintiffs had failed to state a claim against
FCC rested on its belief that, under Federal Rule of Civil Procedure 9(b), a plaintiff
seeking to hold a principal liable for an agent's fraud must plead not only fraud but also
agency with particularity. Some district courts have so held. See, e.g., Kolbeck v. LIT
Am., Inc., 923 F. Supp. 557, 569 (S.D.N.Y. 1996), aff'd, 152 F.3d 918 (2d Cir. 1998)
(summary order); American Credit Indem. Co. v. HCG Fin. Servs., Inc., 1990 WL
77992, *4 (N.D. Ill. June 1, 1990).2 In fact, a complaint by these very plaintiffs against
another futures commission merchant was recently dismissed on the same grounds, see
Gunderson v. ADM Investor Serv., Inc., 43 F. Supp. 2d 1058 (N.D. Iowa 1999), only
to be reinstated by this Court, Gunderson v. ADM Investor Serv., Inc., 230 F.3d 1363(table), 2000 WL 1154423 (8th Cir. 2000). In Gunderson, we held that the plaintiffs
had sufficiently pleaded the elements of agency under Iowa law, even under the higher
standard, because they alleged that the futures commission merchant "supervised the
content of [its guaranteed introducing broker's] seminars promoting HTA agreements
1
The narrower rule adopted by the Seventh Circuit in Lachmund v. ADM
Investor Serv., 191 F.3d 777 (7th Cir. 1999), would not apply here. In that case, the
court held that "when the plaintiff relies upon the same circumstances to establish both
the alleged fraud and the agency relationship of a defendant, the reasons for more
particularized pleading that animate Rule 9(b) apply with equal force to the issue of
agency and to the underlying fraud claim." Id. at 783. The Lachmund plaintiffs sought
to hold certain defendants liable as co-conspirators for the acts of other defendants. As
the court noted, this theory "depends . . . on the substantive allegations of fraud to
establish the agency relationship." Id. Here, in contrast, the plaintiffs do not allege that
the agency is "part of the fraud," Kolbeck, 923 F. Supp. at 569; instead, the allegation
of agency here is based on claims that one party supervised, controlled, and profited
from the activities of another.
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to plaintiffs, and knew or should have known that the seminars misrepresented the risks
involved." 2000 WL 1154423 at *2. The complaint in this case also contains such
allegations. Gunderson cannot be distinguished. The plaintiffs have sufficiently
pleaded that Mayland was FCC's agent for the purpose of soliciting HTA agreements,
and they should have a chance to prove that claim.
III.
The District Court held that the plaintiffs lacked standing to sue under the
Commodity Exchange Act. Standing exists under the Act if the plaintiff purchased a
futures contract through the defendant and suffered at the defendant's hands some
wrong for which the Act provides a remedy. 7 U.S.C. § 25(a)(1)(B). The plaintiffs
here have alleged that they wrote HTA contracts with the Elevator, in which the
Elevator agreed to purchase commodity futures through FCC and Futures. The futures
positions are claimed to have been taken "for the farmers' risk." Amended Complaint
at 7. This claim finds support in the HTA agreements themselves, in which the Buyer
(the Elevator) "confirms the following futures transaction was made for seller today on
the Chicago Board of Trade . . .." Appellants' Appendix 147 (emphasis added). The
defendants point out that only the Elevator actually had its name on a commodity
futures account with FCC. But if it traded on that account as an intermediary for the
farmers, then the farmers (through the Elevator) purchased commodity futures through
FCC and Futures and have standing to sue for those parties' alleged violations of the
Act.
Despite its holding that the plaintiffs lacked standing, the District Court went on
to address their claims for violations of the CEA. The plaintiffs do not appeal from the
District Court's holding that the Act does not create a private right of action for
excessive speculation under 7 U.S.C. § 6a. However, that holding did not affect the
plaintiffs' other CEA claim, which was based on the theory that the HTA agreements
were illegal off-exchange futures contracts. This claim was dismissed solely for lack
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of standing. The District Court rejected the defendants' alternative challenge to the
claim, correctly holding that the question whether the HTAs were futures contracts or
unregulated cash-forward contracts depended on whether the parties intended the actual
delivery of grain. See Grain Land Coop. v. Kar Kim Farms, Inc., 199 F.3d 983, 992
(8th Cir. 1999). Therefore, because the plaintiffs have standing to bring this claim, it
should be reinstated.
IV.
The District Court's dismissal of the plaintiffs' RICO claims was based in part
upon its holding that they had not sufficiently alleged the defendants' conduct of a
RICO enterprise. With respect to this element, the plaintiffs proceeded on two
independent theories: Count I treated the Elevator as the enterprise required by RICO,
while Count II substituted the plaintiffs' farms. Like the District Court, we cannot
endorse the view that a person who induces a farmer to adopt a new method of
protecting against ups and downs in the grain market, and advises the farmer in the use
of that method, is thereby conducting the operations of the farm. Dismissal was
therefore correct as to Count II. However, as the District Court also held, matters are
different with respect to Count I. It may be that FCC and Futures, "in effect, took over
. . . how the Buffalo Center [Elevator] marketed its purchasing of grain from local
farmers." Amended Complaint at 44. The complaint alleges facts from which a jury
could infer that the defendants supervised and directed the marketing activities of
Henry Mayland, a managerial employee of the Elevator, in order to maximize
commissions received from trades associated with HTA contracts. To direct a
business's normal activities is to participate in the conduct of an enterprise within the
meaning of RICO. See Reves v. Ernst & Young, 507 U.S. 170, 185 (1993) (RICO
extends to those who participate in the operation or management of an enterprise,
including outsiders associated with the enterprise who participate in the direction of its
activities through a pattern of racketeering activity); Handeen v. Lemaire, 112 F.3d
1339, 1349 n.12 (8th Cir. 1997) (same). We agree with the District Court that, as to
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Count I of the complaint, the plaintiffs have sufficiently pleaded conduct of a RICO
enterprise by FCC and Futures.
In order for Count I to survive dismissal, however, the plaintiffs must also have
adequately pleaded a "pattern of racketeering activity." 18 U.S.C. § 1962(c). In this
case, RICO liability is predicated on alleged acts of mail fraud, 18 U.S.C. § 1341, and
wire fraud, 18 U.S.C. § 1343. Those offenses consist in the foreseeable use of the
mails or wires for the purpose of carrying out a scheme to defraud. Atlas Pile Driving
Co. v. DiCon Financial Co., 886 F.2d 986, 991 (8th Cir. 1989). Beyond that, the
offense conduct may vary rather widely. "The crime of mail fraud is broad in scope
and its fraudulent aspect is measured by a non-technical standard, condemning conduct
which fails to conform to standards of moral uprightness, fundamental honesty, and fair
play." Id. A plaintiff may, but need not, allege that a defendant made
misrepresentations of fact. Murr Plumbing, Inc. v. Scherer Financial, 48 F.3d 1066,
1069 n.6 (8th Cir. 1995). Because misrepresentations of fact are not necessary to the
offense, it follows that no misrepresentations need be transmitted by mail or wire: even
routine business communications in these media may suffice to make a scheme of false
dealing into a federal offense. See, e.g., Atlas Pile Driving, 886 F.2d at 992 ("a mailing
[that serves as an element of mail fraud] may be a routine mailing or even one that is
sent for a legitimate business purpose so long as it assists in carrying out the fraud")
(internal quotations omitted).
In the present case, the offense elements that the District Court held to be
insufficiently pleaded are mail and wire communications of just this routine sort. As
to wire fraud, for example, the plaintiffs allege that
As part of the fraudulent scheme, from no later than January, 1993
through April 1996, FCC and FCC Futures made and caused the use of
interstate telephone lines to effectuate calls every business day between
FCC and FCC Futures and:
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A. Various Plaintiffs herein to solicit HTA contracts and to
confirm Rolls; and
B. With Buffalo Center to place and execute orders for
commodity futures contracts reflected in the monthly
statements (see Exhibit "D" hereto).
Amended Complaint at ¶ 100. The exhibit referred to consists of documents that
appear to be copies of monthly statements of the Elevator's account with FCC. As to
mail fraud, the plaintiffs similarly allege that
As part of the scheme, from no later than January, 1993 through
April 1996, FCC and FCC Futures caused the mailing of:
A. Commodity statements to Buffalo Center each month from
no later than January, 1993 through April, 1996 (see Exhibit
"D" hereto);
B. A confirmation of each trade reflected on such monthly
statements at the time the dates shown [sic] for such
transactions;
C. Contracts and roll confirmations by Buffalo Center to each
of the Plaintiffs which in turn caused Buffalo Center to enter
into corresponding futures positions in its FCC account; and
D. Exhibit "Z" hereto, to over 700 recipients.
Amended Complaint at ¶ 98. Exhibit "Z" appears to be a copy of a flyer advertising
a "Market Outlook & Strategy Meeting" relating to HTA contracts and featuring FCC
employee Earl Cornelius as a speaker. The exhibit gives dates and locations for the
meeting.
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The District Court held that both of these sets of allegations suffered from "the
same malady." Memorandum Opinion and Order at 44. Again applying the heightened
pleading requirement of Rule 9(b), the Court held that the plaintiffs' "bald allegations
of [mail and] wire fraud fail to identify the actors or the victims sufficiently for the court
to determine whether or not they 'have the same or similar purposes, results,
participants, victims, or methods of commission, or otherwise are interrelated by
distinguishing characteristics and are not isolated events.' " Id. at 45, quoting Sedima,
S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.14 (1984). It then dismissed Count I on
the ground that a pattern of racketeering activity had not been sufficiently alleged. Id.;
cf. Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1328 (7th Cir. 1994) (stating that
"[w]ithout an adequately detailed description of the predicate acts of mail and wire
fraud, a complaint does not provide either the defendant or the court with sufficient
information to determine whether or not a pattern of racketeering activity has been
established").
With due respect to the District Court, we find the reference to Sedima
somewhat off point. There are two issues here that should be kept distinct: whether
the plaintiffs have sufficiently pleaded acts of racketeering, and whether those alleged
acts can be said to form a pattern. The District Court was quite correct in applying a
heightened pleading standard to the plaintiffs' allegations of fraud. See Murr Plumbing,
Inc., 48 F.3d 1066, 1069 ("The particularity requirements of Rule 9(b) apply to
allegations of mail fraud . . . and wire fraud . . . when used as predicate acts for a RICO
claim."). But that standard applies because the allegations are allegations of fraud, not
because particularized allegations are needed in order to determine whether a pattern
exists. If the racketeering activity alleged were bribery, for example, Rule 9(b) would
not apply, but a court ruling on a motion to dismiss would still have to determine
whether there were any facts the plaintiffs could prove that would connect the acts of
bribery into a pattern.
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Putting aside the question of racketeering, the allegations here satisfy the pattern
requirement as glossed in Sedima. The acts imputed to the defendants had a common
purpose, namely, to earn profits from trades associated with HTA contracts. Common
results and victims are alleged. The participants in the marketing of the HTAs –
Cornelius, Mayland, and Mayland's alleged sub-agents – are specifically named and
claimed to be connected with each other in specific ways. The methods by which the
plaintiffs were allegedly induced to purchase the contracts have many common
features, such as the use of marketing meetings and a common set of representations
about HTAs. Finally, the plaintiffs have alleged that many such acts occurred in a time
frame of just over three years. The complaint clearly depicts something more than a
set of "isolated events." Sedima, 473 U.S. 479, 496 n.14. The question remaining,
then, is whether the acts alleged constitute racketeering activity, or, more specifically,
whether the plaintiffs have sufficiently pleaded mail and wire fraud under the standard
of Rule 9(b).
V.
We must interpret the requirements of Rule 9(b) "in harmony with the principles
of notice pleading." Gunderson, 2000 WL 1154423 at *3; see also Michaels Bldg. Co.
v. Ameritrust Co., 848 F.2d 674, 679 (6th Cir. 1988) ("Rule 9(b)'s particularity
requirement does not mute the general principles set out in Rule 8; rather, the two rules
must be read in harmony."); Seville Indus. Machinery v. Southmost Machinery, 742
F.2d 786, 791 (3d Cir. 1984) (application of Rule 9(b) must "take account of the
general simplicity and flexibility contemplated by the rules"). The special nature of
fraud does not necessitate anything other than notice of the claim; it simply necessitates
a higher degree of notice, enabling the defendant to respond specifically, at an early
stage of the case, to potentially damaging allegations of immoral and criminal conduct.
Thus, a plaintiff must specifically allege the "circumstances constituting fraud," Fed.
R. Civ. P. 9(b), including "such matters as the time, place and contents of false
representations, as well as the identity of the person making the misrepresentation and
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what was obtained or given up thereby." Bennett v. Berg, 685 F.2d 1053, 1062 (8th
Cir.), adhered to on reh'g, 710 F.2d 1361 (8th Cir. 1982) (en banc), cert. denied, 464
U.S. 1008 (1983); see also Murr Plumbing, Inc., 48 F.3d at 1069.
In the case at hand, the circumstances we described in Bennett are sufficiently
pleaded. The complaint sets forth times and places of numerous meetings, marketing
seminars, and private conversations in which misrepresentations are claimed to have
been made. It names the parties to those communications and describes the content of
the claimed false statements. It names the plaintiffs who allegedly relied on these
statements in deciding to begin writing HTA contracts with Buffalo Center Elevator,
and it states the specific monetary damage to each plaintiff that is claimed to have
resulted from that venture. Indeed, the District Court found no fault with the complaint
in these respects. Its decision turned on the element of mail and telephone use, which
the plaintiffs pleaded as described above.
We believe, for several reasons, that the function of Rule 9(b) is not well served
by a dismissal on that ground. First, as we have already noted, the plaintiffs here do
not claim that any misrepresentations were made by mail or telephone. The mail and
wire communications alleged here are ordinary business letters and phone calls. These
are not "circumstances constituting fraud," except in the sense of satisfying a
jurisdictional element of a federal fraud statute. The drafters of Rule 9(b) most likely
did not intend to require specific pleading of such facts: when the rule was adopted in
1937, RICO did not exist, and a common-law fraud action in the state courts was the
only remedy normally available to private plaintiffs who claimed to have been
defrauded through use of the mails or wires. See Sedima, 473 U.S. 479, 501 (Marshall,
J., dissenting) (noting the absence of a federal civil action for mail or wire fraud prior
to the enactment of RICO). Nor is the rule's purpose advanced by applying it in that
way. There is no risk of damage to a defendant's reputation from the claim that he
mailed out a commodity-futures account statement or called an account holder on the
telephone to confirm a trade. It is settled, as we have already said, that Rule 9(b)
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applies to allegations of mail and wire fraud. But this does not mean that we should
apply it in a way that constrains the liberality of notice pleading without advancing the
purpose of the rule.
Second, many of the communications at issue are claimed to have taken place
between FCC and Futures, or between one of them and the Elevator. As to these uses
of the mails and wires, the plaintiffs are surely correct that a court cannot reasonably
expect highly specific allegations before allowing at least a brief discovery period. The
facts that would have to be alleged are known to the defendants, but the plaintiffs have
not yet had a chance to find them out. (This is especially true of telephone calls, which
may leave little or no paper trail.) Where a plaintiff is not a party to a communication,
particularity in pleading may become impracticable. For that reason, several of our
sister circuits have declined to require, before discovery, the pleading of dates and
times of communications in furtherance of a scheme to defraud, where the complaint
alleges facts supporting the inference that the mails or wires were used. See Seville,
742 F.2d at 792 n.7 (holding that Rule 9(b) does not require a plaintiff to specify, prior
to discovery, the place and time of events that connect a defendant's fraud with
interstate commerce); Durham v. Bus. Mgmt. Assoc., 847 F.2d 1505, 1510 (11th Cir.
1988) (holding allegation of use of the mails sufficient, where plaintiffs' allegation that
"correspondence and other communications concerning [the alleged scheme to defraud]
took place through . . . the mails" was supported by an attached affidavit from a
recipient describing such correspondence, even though dates and times of mailings
were not stated); New England Data Serv. v. Becher, 829 F.2d 286, 292 (1st Cir. 1987)
(holding that, although First Circuit precedent requires that dates and times of mail or
wire communications be pleaded, it is often "unreasonable" to dismiss a complaint on
this basis without first allowing a period of discovery). Here, although the plaintiffs
have been allowed to amend their complaint, they have not had the benefit of
discovery. We think it only fair to give them that benefit before requiring them to plead
facts that remain within the defendants' private knowledge.
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Finally, we find merit in the plaintiffs' argument that they have specified the dates
and contents of the defendants' mail communications by attaching to the complaint the
items they claim were mailed. "A copy of any written instrument which is an exhibit
to a pleading is a part thereof for all purposes." Fed. R. Civ. P. 10(c). For that reason,
a court ruling on a motion to dismiss under Rule 12(b)(6) may consider materials
attached to the complaint. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). The
exhibits to which the plaintiffs refer were explicitly incorporated into Count I.
Considering those exhibits as part of the pleading, we believe that the complaint gives
the defendants notice of specifically when and how they are claimed to have used the
mails in furtherance of a scheme to defraud.
VI.
While we express no view on the merits of the case, we believe that further
proceedings are warranted here. The plaintiffs have sufficiently alleged that Henry
Mayland was an agent of FCC for the purpose of soliciting HTA contracts. They have
pleaded facts that confer standing under the Commodity Exchange Act. Finally, Count
I of the complaint adequately pleads a civil RICO claim based on a pattern of mail and
wire fraud. We therefore reverse and remand for further proceedings consistent with
this opinion.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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