Cervantes Orchards & Vineyards, LLC v. Deere & Co.

CERVANTES ORCHARDS & VINEYARDS, LLC,a Washington limited liability corporation;CERVANTES NURSERIES, LLC, a Washington limited liability corporation;CERVANTES PACKING & STORAGE, LLC,a Washington limited liability corporation;MANCHEGO REAL, LLC,a Washington limited liability corporation; JOSE G. CERVANTES and CYNTHIA C. CERVANTES, individually,and upon behalf of their community property marital estate; Plaintiffs, v. DEERE & COMPANY, a corporation; DEERE CREDIT, INC.,a corporation; JOHN DEERE CAPITAL CORPORATION, a corporation;JOHN DEERE FINANCIAL FSB,a corporation formerly known as FPC Financial;DEERE CREDIT SERVICES, INC., a corporation;AMERICAN WEST BANK, a corporation;SKBHC HOLDINGS, LLC, a Washington limited liabilitycorporation; T-16 MANAGEMENT CO, LTD, a Washington corporation;GARY JOHNSON and LINDA JOHNSON,individually and upon behalf of their community property marital estate;NW MANAGEMENT REALTY SERVICES, INC,a Washington corporation also known as Northwest Farm Management Company;and ROBERT WYLES and MICHELLE WYLES,individually and upon behalf of their community property marital estate, Defendants.

NO: 1:14-CV-3125-RMP

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON

July 10, 2015

ORDER GRANTING MOTION TO DISMISS DEERE DEFENDANTS

Before the Court is the Deere Defendants' Motion to Dismiss Plaintiffs' Second Amended Complaint, ECF No. 91.¹ The Court has reviewed the record and the parties' arguments.

BACKGROUND

Plaintiffs constitute a farming group that grows crops including apples, pears, grapes, and cherries. ECF No. 74 at 4. Plaintiffs assert that multiple defendants engaged in a broad scheme of misconduct involving racketeering, extortion, fraud, and civil rights violations. See ECF No. 74 at 17-24.

In 2003, Deere Credit, Inc. ("DCI") loaned money to Plaintiffs. See ECF No. 92, Ex. A at 3 (First Amended Order Confirming Chapter 11 Plan).² Plaintiffsdefaulted on their obligations to DCI, and eventually Plaintiff Cervantes Orchards & Vineyards, LLC ("COV") filed for bankruptcy. See ECF Nos. 74 at 2; 92, Ex. A at 1. A bankruptcy plan was adopted, which required COV to satisfy the debt to DCI by December 31, 2009. ECF Nos. 74 at 5; 92, Ex. A at 7. Plaintiffs allege that adverse economic conditions prevented them from meeting the payment deadline. ECF No. 74 at 6.

Plaintiffs assert that DCI "demanded a high rate of interest of 9.75% and an aggressive principal reduction during the term explicitly mandated within the plan of reorganization," between April 2007 and December 31, 2009. ECF No. 74 at 5. Jose Cervantes, COV's principal owner, proposed that DCI restructure financing for the debt so that COV could maintain its operations. ECF No. 74 at 6. Even though Mr. Cervantes informed DCI that he and the Cervantes Farming Group had substantial equity in their real property to support repayment of the debt, DCI refused to refinance the debt. ECF No. 74 at 6. COV alleges that it paid all interest due and reduced the amount of principal owed. ECF No. 74 at 6. As of December 31, 2009, Plaintiffs' debt to DCI was reduced from $4,941,876.77 to $4,339,378.27. ECF Nos. 74 at 5; 92, Ex. A at 4.

On January 8, 2010, DCI moved the bankruptcy court for an order appointing a liquidating agent pursuant to the terms of the bankruptcy plan. ECFNo. 74 at 6-7. DCI represented to the bankruptcy court that T-16 Management Company, Ltd. ("T-16"), an auction firm, was well qualified for the position. ECF No. 74 at 7. Plaintiffs claim that DCI failed to search for any other potential liquidating agents. ECF No. 74 at 7. Plaintiffs further "allege that counsel of record representing Deere Credit, Inc., Roger Bailey, Esq., of Bailey and Busey, PLLC, also represented the interests of T-16 because T-16 had served and acted under the direction and control of Deere Credit, T-16's principal." ECF No. 74 at 7. The bankruptcy court appointed T-16 as the liquidating agent and ordered COV to turn over all control of the orchards that constituted collateral for the debt owed to DCI. See ECF No. 74 at 7-8.

Plaintiffs allege that T-16 failed to care properly for the real property. After Plaintiffs turned over the property on March 17, 2010, Plaintiffs assert that no farming activities took place for over a week, despite Mr. Cervantes's warnings that it was necessary to protect the crops against the frost. ECF No. 74 at 8.

With DCI's approval, T-16 hired Northwest Management and Realty Services, Inc., a.k.a Northwest Farm Management ("NWFM") to manage the property. ECF No. 74 at 8. Plaintiffs allege that NWFM in turn contracted with workers who lacked proper farm labor contractor licensing. ECF No. 74 at 8. Furthermore, Plaintiffs claim that both T-16 and DCI knew that NWFM lacked a statutorily required farm labor contractor license. ECF No. 74 at 8.

According to Plaintiffs, persons believed to be NWFM employees removed personal property from the orchards. ECF No. 74 at 9. Specifically, the persons allegedly took truckloads of smudge pots to land owned by Defendants Robert and Michelle Wyles and former defendant Scott Anderson.³ ECF No. 74 at 9. If the smudge pots had been kept on Plaintiffs' property, Plaintiffs claim that they could have been used to protect the crops from frost damage. ECF No. 74 at 9.

Plaintiffs assert that the refusal to maintain the real property was a direct result of the concerted efforts of multiple defendants, including DCI. ECF No. 74 at 9. Plaintiffs claim that the intent of these defendants was to obtain Plaintiffs' business and property. ECF No. 74 at 9.

As a result of T-16's conduct, COV moved the bankruptcy court to remove the firm as the liquidating agent. ECF No. 74 at 9. In response, Mr. Anderson filed a declaration, which Plaintiffs assert is fraudulent. ECF No. 74 at 10. Plaintiffs claim that because of the fraudulent declaration, Mr. Cervantes was prohibited from entering the real property. ECF No. 74 at 10. Plaintiffs allege that DCI, by aiding and abetting other defendants: caused COV's laborers to work on other orchards that NWFM managed; charged COV for the time and expense of using equipment on other NWFM property; charged COV for labor and suppliesthat NWFM used; and threatened and retaliated against COV labor contractors hired by COV if those contractors refused to cooperate with NWFM. See ECF No. 74 at 10-11.

Plaintiffs contend that these actions were intended to reduce the value of the real property so that it "could be sold by Deere and American West Bank to customers and friendly parties at greatly diminished prices." ECF No. 74 at 11. By the time that the property was sold in 2010 and 2011, Plaintiffs allege that the mismanagement had rendered it virtually worthless. ECF No. 74 at 11.

The Deere Defendants' alleged misconduct continued after the sale of the property. Plaintiffs assert that DCI sought to conceal from COV and the bankruptcy court a settlement agreement that concerned the sale of damaged apples. ECF No. 74 at 13. The settlement agreement included a confidentiality provision, which Plaintiffs contend was meant to conceal the sale of a particular block of property. ECF No. 74 at 13. Also, Plaintiffs claim that on August 17, 2011, Robert Thompson, a representative from John Deere Financial, Inc., called Mr. Cervantes, threatening him with "immediate problems" if he did not resolve his dispute with DCI. ECF No. 74 at 14.

Furthermore, Plaintiffs contend that DCI discriminated against Plaintiffs in its lending practices by requiring them and other Hispanic farm owners to provide a disproportionately large amount of capital to secure corporate and personal loans. ECF No. 74 at 15. DCI also allegedly refused requests from Plaintiffs and otherHispanic farm owners to extend or modify the terms of debt repayment. ECF No. 74 at 15.

The parties have pursued previous legal actions related to these incidents. On November 16, 2009, DCI filed a complaint in state court against Plaintiffs other than COV ("non-COV Plaintiffs"), for breach of a forbearance agreement and for judgment and foreclosure of mortgages and security interests ("Foreclosure Action"). ECF No. 92, Ex. B. Also, on May 31, 2012, COV filed an amended adversary complaint against NWFM, Mr. Anderson, Mr. Wyles, and T-16 in its bankruptcy case, alleging that the defendants had committed acts including fraud, misrepresentation, conversion, unjust enrichment, tortious interference with reasonable business expectancy, breach of fiduciary trust, and gross negligence. ECF No. 100, Ex. 2.

Here, Plaintiffs claim that the Deere Defendants violated multiple provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Together with other defendants, Plaintiffs allege that the Deere Defendants constituted a continuing criminal enterprise that engaged in and conspired to engage in racketeering, extortion, and fraud. ECF No. 74 at 17-22. Plaintiffs further assert violations of federal civil rights statutes. ECF No. 74 at 22-23.

ANALYSIS

The Deere Defendants move to dismiss the case, contending that Plaintiffs' RICO theory is implausible, that Plaintiffs' claims are barred by the doctrine of resjudicata, and that Plaintiffs have failed to allege sufficient facts to support any of the predicate acts that supposedly support their RICO theory. Furthermore, the Deere Defendants assert that Plaintiffs' lending discrimination claims are time barred.

Motion to Dismiss Standard

The Federal Rules of Civil Procedure allow for the dismissal of a complaint where the plaintiff fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A motion to dismiss brought pursuant to this rule "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The Supreme Court has offered the following method for assessing the sufficiency of a complaint:

[A] court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are

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