Kratzer Farms Inc. v. Ind. Grain Buyers & Warehouse Licensing Agency

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KRATZER FARMS INC., et al., Plaintiffs, v. INDIANA GRAIN BUYERS AND WAREHOUSE LICENSING AGENCY and THOMAS HENRY WILMOTH in his official and personal capacity, Defendants.

No. 1:22-CV-213-HAB

United States District Court, N.D. Indiana, Fort Wayne Division

May 16, 2023

OPINION AND ORDER

JUDGE HOLLY A. BRADY UNITED STATES DISTRICT COURT

Plaintiffs are a group of farms and farmers who claim they suffered damages when a grain elevator, regulated by Defendants, went under. They have now filed three multi-count complaints alleging causes of action under federal and state law. Plaintiffs amended the first complaint on their own. The Court granted in part and denied in part a motion to dismiss the second complaint, granting Plaintiffs leave to amend. (ECF No. 20). Defendants, via the Indiana Attorney General's Office, now move to dismiss the second amended complaint. The motion is fully briefed (ECF Nos. 31, 39, 40) and is ripe for ruling.

I. Plaintiffs' Allegations

Defendant Indiana Grain Buyers and Warehouse Licensing Agency (“Agency”) is the regulatory agency tasked with administering the Indiana Grain Indemnity Program (“Program”), codified at Title 26 of the Indiana Code. Defendant Thomas Henry Wilmoth (“Wilmoth”) has acted as the Agency's director since 2018. The Program has two parts. The first is licensure of companies that buy or store grain in Indiana. The licensing regulations include strict financial requirements including positive net worth and certain asset-to-liability ratios. Licensees must show compliance with the financial requirements every year to obtain annual license renewals.

The second part is the Indiana Grain Indemnity Fund (“Fund”). The fund is overseen by the Indiana Grain Indemnity Corporation (“Corporation”), and Wilmoth regularly reports to the Corporation on licensed grain buyers in financial trouble.

The licensee here was Salamonie Mills, Inc. (“SMI”) a grain elevator in Wells and Huntington Counties. SMI's financial condition did not meet the Program's financial licensing requirements from 2012 through 2020, and they reported as much to the Agency. Still, the Agency licensed SMI each of those years.

By early 2020, SMI faced foreclosure. With that foreclosure imminent, the Agency suspended SMI's license in March 2020. The Agency determined that SMI's “failure date,” a date used to determine what farmers' grain deposits would be eligible for reimbursement by the Fund, as March 20, 2020. This meant that only farmers who delivered grain within two years of that date were eligible for reimbursement from the Fund.

Plaintiffs appealed the selected “failure date” via the Indiana administrative process. It was through discovery in that appeal that Plaintiffs learned of SMI's long-term financial problems and the Agency's continued licensure in violation of the terms of the Program. Plaintiffs assert that the selection of the “failure date” was arbitrary. They claim the failure date should have been months, if not years, earlier based on SMI's submissions to the Agency.

Based on these facts, Plaintiff's second amended complaint alleges six^[1] counts: negligence against the Agency; violation of the Indiana Equal Privileges and Immunities Clause against the Agency; violation of the Federal Equal Protection Clause against the Agency and Wilmoth in his “personal” and official capacities; procedural and substantive due process claims against and the Agency and Wilmoth in his “personal” and official capacities under the federal and state constitutions; violation of the Separation of Powers clause of the Indiana Constitution against the Agency; and fraud against the Agency.

II. Legal Discussion

A. Motion to Dismiss Standard

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal if the complaint fails to set forth a claim upon which relief can be granted. “The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide the merits.” Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). Thus, when analyzing a Rule 12(b)(6) motion to dismiss, a court construes the claim in the light most favorable to the plaintiff, accepts all factual allegations as true, and draws all reasonable inferences in favor of the plaintiff. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).

At a minimum, the claim must give fair notice of what the claim is and the grounds on which it rests; and the factual allegations must raise a right to relief above the speculative level. See Bissessur v. Ind. Univ. Bd. of Trs., 581 F.3d 599, 602-03 (7th Cir. 2009); Tamayo, 526 F.3d at 1081, 1083. While a claim need not include detailed factual allegations, a plaintiff has the obligation to provide the factual grounds supporting his entitlement to relief; and neither bare legal conclusions nor a formulaic recitation of the elements of a cause of action will suffice in meeting this obligation. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). See also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“the pleading standard Rule 8 . . . demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation” and “(t)hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice”). Although this does not require heightened fact pleading of specifics, it does require the claim to contain enough facts to state a claim to relief plausible on its face. Bell Atl. Corp., 550 U.S. at 570; Tamayo, 526 F.3d at 1083 (“(a) plaintiff still must provide only enough detail to give the defendant fair notice of what the claim is and the grounds upon which it rests, and, through his allegations, show that it is plausible rather than merely speculative, that he is entitled to relief”).

B. 42 U.S.C. § 1983

Plaintiffs' second amended complaint re-raises previously dismissed claims under 42 U.S.C. § 1983. Claims under the statute were dismissed by this Court on agreement of the parties because neither the state nor its agencies are a “person” under the statute. (See ECF No. 20 at 4). Plaintiffs have returned seeking relief of two kinds: injunctive relief under Ex parte Young, 209 U.S. 123 (1908), against the Agency and Wilmoth in his official capacity, and statutory damages against Wilmoth in his individual capacity. Defendant moves to dismiss both.^[2]

1. Injunctive Relief

The Ex parte Young doctrine “allows private parties to sue individual state officials for prospective relief to enjoin ongoing violations of federal law.” MCI Telecomms. Corp. v. Ill. Bell Tel. Co., 222 F.3d 323, 337 (7th Cir. 2000) (citations omitted). There is a longstanding rationale that underlies this doctrine: “[B]ecause an unconstitutional legislative enactment is ‘void,' a state official who enforces that law ‘comes into conflict with the superior authority of the Constitution,' and therefore is ‘stripped of his official or representative character and is subjected in his person to the consequences of his individual conduct.'” Va. Off. for Prot. & Advocacy v. Stewart, 563 U.S. 247, 254 (2011) (quoting Ex parte Young, 209 U.S. at 159-60). To determine whether a state actor may be so stripped of the official character of their positions, the Court “‘need only conduct a straightforward inquiry into whether the complaint alleges an ongoing violation of federal law and seeks relief properly characterized as prospective.'” Ind. Prot. & Advoc. Servs. v. Ind. Fam. & Soc. Servs. Admin., 603 F.3d 365, 371 (7th Cir. 2010) (quoting Verizon Md., Inc. v. Pub. Serv. Comm'n of Md., 535 U.S. 635, 645 (2002)).

The parties focus on whether the second amended complaint alleges an ongoing violation, but the Court finds the nature of the relief requested to be dispositive. Plaintiffs allege that they are “entitled to injunctive relief against Wilmoth and the Agency prohibiting Wilmoth and the Agency from continuing to ignore statutory duties and grain buyer license requirements imposed by I.C. 26-3-7.” (ECF No. 23 at 25). But the Seventh Circuit is clear that this Court cannot “insist that some provisions in state law, which counsel thinks underenforced, be fully enforced.” Ashley W. v. Holcomb, 34 F.4th 588, 594 (7th Cir. 2022). “It is improper for a federal court to issue an injunction requiring a state official to comply with state law.” Id., citing Pennhurst State Sch. and Hosp. v. Halderman, 465 U.S. 89, 97-124 (1984). Because that is precisely what Plaintiffs ask this Court to do-order the Agency and Wilmoth to fully enforce the terms of Ind. Code § 26-3-7- prospective injunctive relief is unavailable. Ex parte Young does not apply, leaving no official capacity claim.

2. Individual Capacity Claims

“On the merits, to establish personal liability in a § 1983 action, it is enough to show that the official, acting under color of state law, caused the deprivation of a federal right.” Kentucky v. Graham, 473 U.S. 159, 166 (1985). The difference between individual and official capacity claims turns not on the capacity in which the individual defendant acted when violating the federal right, but on who is the real party. Hafer v. Melo, 502 U.S. 21, 27-30 (1991). An individual capacity claim requires “a showing of personal involvement^[3] by a defendant government actor.” Warren ex rel. Warren v. Dart, No. 09-CV-3512, 2010 WL 4883923, at *4 (N.D. Ill. Nov. 24, 2010) (citing Gentry v. Duckworth, 65 F.3d 555, 561 (7th Cir. 1995)).

Plaintiffs' individual capacity claims proceed on two paths. The first is a claim for a violation of due process. Plaintiffs allege that they did not receive the process required by Ind. Code § 26-3-7: they did not have notice of SMI's financial condition, and the Agency did not hold a shortage hearing or a hearing to determine the failure date. (ECF No 39...