Aurora Cooperative Elevator Company v. Aventine Renewable Energy Holdings, Inc. et al
MEMORANDUM AND ORDER that Aventine's motion for leave to amend its answer and counterclaims (case no. 4:12-cv-3200, filing 49 ) is granted in part and denied in part. Aventine's motion to dismiss (case no. 4:14-cv-3032, filing 20) is granted in part and denied in part. Aventine's motion to consolidate (case no. 4:14-cv-3032, filing 20) is denied, but without prejudice. Ordered by Judge John M. Gerrard. (JSF)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
MEMORANDUM AND ORDER
AVENTINE RENEWABLE ENERGY
HOLDINGS, INC., AVENTINE
RENEWABLE ENERGY, INC., and
AVENTINE RENEWABLE ENERGY
– AURORA WEST, LLC,
MEMORANDUM AND ORDER
AVENTINE RENEWABLE ENERGY
HOLDINGS, INC., AVENTINE
RENEWABLE ENERGY – AURORA
This matter is before the Court on two motions, in two separate cases,
involving substantially the same parties and raising overlapping and related
issues of law and fact. The plaintiff in both cases is Aurora Cooperative
(Aurora), a Nebraska corporation located in Aurora, Nebraska. Case no. 4:12cv-3200, filing 1 at ¶ 1.1 Defendants Aventine Renewable Energy Holdings
and Aventine Renewable Energy are corporations based in other states and
Unless otherwise indicated, citations to the record in this introduction and in the factual
background of this order refer to filings from case no. 4:12-cv-3200.
registered to do business in Nebraska, and Aventine Renewable Energy –
Aurora West is a limited liability company whose sole member is Aventine
Holdings (collectively, "Aventine"). Filing 1 at ¶¶ 2–4; filing 20 at ¶¶ 2–4, 60–
In case no. 4:12-cv-3200 (the "Grain Lawsuit"), Aventine has filed a
motion for leave to amend its answer and counterclaims. Filing 49. And in
case no. 4:14-cv-3032 (the "Easement Lawsuit"), Aventine has moved to
dismiss Aurora's complaint, or in the alternative, consolidate that case with
the Grain Lawsuit. Filing 20. For the reasons discussed below, both motions
will be granted in part and denied in part.
I. FACTUAL BACKGROUND2
A. DEVELOPMENT OF THE AURORA WEST SITE
Around 2006, Aurora acquired an agri-business complex on an
industrial site just west of the city of Aurora (the "Aurora West site"). Filing
39-21 at ¶ 4. The site is bounded to the north by U.S. Highway 34, and to the
south by a Burlington Northern Santa Fe (BNSF) railroad line. Filing 39-21
at ¶ 4; filing 39-24 at 3. In June 2006, Aurora sold Aventine a large portion of
the land within the site. Filing 20-1. And in August 2006, Aventine and
Aurora entered into a series of agreements, including a "Master Development
Agreement," which related to the development of an ethanol plant on the
land Aventine had purchased. Filing 1 at ¶¶ 8–9; filing 20-2; filing 39-21 at ¶
6. The parties' agreements provided for the development of roads, rail tracks,
and other infrastructure needed to operate the plant, and envisioned that
Aventine would operate the plant using grain provided by Aurora. Filing 1 at
¶ 8; filing 20-2 at 1–12; filing 20-3; filing 39-21 at ¶¶ 5–8. Aventine
constructed the plant, and Aurora built a grain elevator and grain storage
facility. Filing 20-2 at 1–11; filing 39-21 at ¶¶ 5, 16.
B. THE DOUBLE TRACK LOOP
This recitation of the facts is drawn, in part, from the Court's previous Memorandum and
Order of March 6, 2014, denying Aventine's motion for a preliminary injunction. Filing 49.
It includes references to materials, such as affidavits, that the Court may not consider
when ruling on certain aspects of Aventine's pending motions. For example, in reviewing
whether Aventine's motion to amend should be denied as futile—i.e., as unable to state a
claim for relief under Rule 12(b)(6)—the Court may not generally consider matters outside
the pleadings. Fed. R. Civ. P. 12(d). On the other hand, these outside materials are properly
considered in weighing Aventine's challenges under Rule 12(b)(1). See Osborn v. United
States, 918 F.2d 724, 729 n.6 (8th Cir. 1990). Mostly, the Court has provided this recitation
for background purposes, and where required, the Court has limited its consideration to
matters embraced by the pleadings.
Much of the present disputes concern a pair of railway tracks that
surround the Aurora West site and Aventine's ethanol plant—the "Double
Track Loop." The Loop is shaped roughly like an athletic track and consists of
two sets of railway tracks (the "Interior and Exterior Loops"). Filing 39-21 at
¶ 11; filing 39-5; filing 39-18; filing 39-22 at ¶ 6; filing 39-24 at 1–3. The
Inner and Exterior Loops are (with exceptions not relevant here) situated on
land owned by Aventine and Aurora, respectively. A service road runs
between the two tracks, and the line dividing the parties' property runs down
the middle of the road. Filing 39-21 at ¶ 11; filing 39-24 at ¶¶ 5–8 & p. 3.
On the southern border of the Aurora West site, the Double Track Loop
runs parallel to the BNSF line. A set of crossover tracks and switches
connects the Exterior Loop to the BNSF line, and another set of tracks and
switches connects the Exterior and Interior Loops. Filing 39-21 at ¶¶ 11, 13;
filings 39-5, 39-6, and 39-7; filing 39-18; filing 39-24 at 3. In order to move
from the BNSF line to the Interior Loop (or vice versa), a railcar must pass
over one set of crossover tracks, then travel along the Exterior Loop for a
short distance, then pass over another set of crossover tracks. The Court will
refer to the small portion of the Exterior Loop that lies between the crossover
tracks as the "Switching Portion."
C. THE PARTIES' AGREEMENTS
Among the agreements signed by Aventine and Aurora in August 2006,
three are particularly important to the present dispute. The first is the
Double Track Loop Easement and Use Agreement (the "Double Loop
Agreement"). Filing 39-3. Under this agreement, Aventine and Aurora
granted each other easements over certain parcels of real estate owned by the
other party and over the portion of the Double Track Loop located on that
real estate. Filing 39-3 at 2, 6–7.
The second contract is the Grain Supply Agreement. Filing 20-3. It is
essentially a requirements contract, whereby Aventine agreed to purchase
from Aurora, on an exclusive basis, "all of the [g]rain which Aventine requires
to operate the Aventine Ethanol Plant." Filing 20-3 at 3. The agreement
allows Aurora to furnish the grain from its own farmer members or to
procure it from third parties. Filing 20-3 at 5–8. Each grain purchase was to
give rise to and be governed by a separate "Grain Contract." Any dispute
arising under a Grain Contract is subject to arbitration through the National
Grain and Feed Association (NGFA). Filing 20-3 at 2.
The third contract is the Aventine Marketing Agreement. The
Marketing Agreement gave Aurora the exclusive right to market byproducts
of the ethanol production process produced by the Aurora West plant. Filing
20 at ¶ 67; filing 20-4.
D. CONSTRUCTION OF THE PLANT
The Master Development Agreement originally provided that
Aventine's ethanol plant would be completed and fully operational on or
before July 11, 2009. Filing 1 at ¶ 12; filing 20-2 at 5, 15. However,
construction of the new plant did not proceed as the parties had envisioned.
See filing 1 at ¶¶ 20–23. In March 2010, Aventine and Aurora entered into a
new agreement (the "2010 Agreement") which amended various aspects of the
parties' existing agreements, and moved the completion deadline for the
plant to July 1, 2012. Filing 1 at ¶¶ 25–27.
Once more, things did not proceed as the parties had intended. By July
2012, the plant was complete and operational, in that it was capable of
producing ethanol.3 See filing 20 at ¶ 75. But by then Aventine had
determined that it was not profitable to produce ethanol using corn. Filing
34-10 at ¶ 11. So, on July 3, 2012, Aventine informed Aurora that it would
not be operating the plant, at least for the time being. Filing 1 at ¶ 34.
E. DISPUTES ARISING IN THE SUMMER OF 2012
According to Aurora, in May and June 2012, the parties were in
frequent contact concerning the procurement of grain for Aventine's
anticipated start-up in July 2012. Filing 1 at ¶ 29. Throughout this period,
the parties engaged in several grain transactions. See, e.g., filing 1 at ¶¶ 29–
41; filing 20 at ¶¶ 29–41, 70–76; filing 49-1 at pp. 10–13.
On June 14, 2012, Aventine agreed to price 300,000 bushels of corn
from Aurora. Aurora sent a pricing confirmation (filing 20-7), identified as
contract No. 015499-02, with delivery to occur on or before July 30. Filing 1
at ¶ 30; filing 20 at ¶ 30. Thus, the parties had formed a "Grain Contract"
under the Grain Supply Agreement. Aventine paid Aurora in advance for
70,000 bushels,4 and accepted delivery of those bushels in June. Filing 1 at ¶
The 2010 Agreement granted Aurora the right to repurchase the site (and plant) for a
significantly reduced price, in the event Aventine failed to "diligently pursue construction of
the Aurora West Facility to completion on or before July 1, 2012." Filing 20-5 at 5. In a
separate lawsuit that is also before this Court, Aurora seeks to show that the plant was not
"complete" or "operational" as defined in the parties' agreements, such that Aurora should
be allowed to exercise that option. See, e.g., case no. 4:12-cv-230, filings 1, 44, and 172.
Aurora claims that this delivery actually consisted of 80,163.75 bushels, while Aventine
states it was for 70,000. It is not clear if the parties actually disagree, as Aurora may be
including an additional 10,000 bushels in its figures which were actually provided earlier in
June 2012 under a separate Grain Contract. See, filing 1 at ¶¶ 30–31; filing 20 at ¶¶30–31;
filing 20-6; filing 20-7; filing 49-1 at p. 12. To the extent this discrepancy matters, it need
not be rectified at this time.
31; filing 20 at ¶ 31. That same month, Aventine ran the Aurora West plant
using these bushels. A byproduct of this operation was wet distiller's grain,
one of the byproducts covered by the Marketing Agreement. Aurora accepted
this byproduct and later sold it for approximately $130,000 in July. Aventine
claims that, under the Marketing Agreement, Aurora owes Aventine this
money. Filing 20 at ¶¶ 75–76. Aurora has yet to pay, for reasons that will be
Around the same time, from May to July 2012, Aurora alleges that it
acquired approximately 1.7 million bushels of corn "on behalf of Aventine
pursuant to Aventine's specific instructions to do so and upon the
representation that Aventine intended to start up and operate the Plant."
Filing 1 at ¶ 32. Aventine disputes that it directed Aurora to purchase this
grain. Filing 20 at ¶ 32. Instead, Aventine contends that this accumulation of
grain was part of an effort by Aurora to use "the parties' contractual
relationships as leverage to coerce Aventine . . . into operating its ethanol
plant at a loss," which was, in turn, an effort to force Aventine into financial
ruin so that it would agree to Aurora's purchase of the ethanol plant at an
extremely discounted price. Filing 50 at 5.
Either way, on July 3, 2012, Aventine informed Aurora that it would
not be operating the Aurora West plant for the foreseeable future. So,
Aventine instructed Aurora that it would not be taking delivery of the
230,000 bushels of corn that were remaining under contract no. 015499-02.
Aventine also declined to take delivery of the "disputed corn," that is, the 1.7
million bushels that Aurora claims it had been accumulating for Aventine.
Filing 1 at ¶¶ 34–35, 38; filing 20 at ¶¶ 34–35, 38.
Under the Grain Supply Agreement, all cash positions that Aurora held
for Aventine's benefit were to be converted to grain contracts on the first and
fifteenth of each month. Filing 1 at ¶ 36; filing 20 at ¶ 36; filing 20-3 at 7. So,
Aurora claims that, on July 16 (the 15th was a Sunday), the 1.7 million
bushels were converted to a grain contract (no. 015548-02). Filing 1 at ¶ 36.
And Aurora alleges that, pursuant to the 2010 Agreement (which amended
portions of the Grain Supply Agreement), payment was due in advance of
delivery and was therefore due immediately. Filing 1 at ¶ 37.
Aurora alleges that it was able to sell the 230,000 bushels remaining
under contract no. 015499-02 at a net gain of approximately $280,000.
However, Aurora claims that on its sale of the 1.7 million bushels, it
sustained a loss of $2.1 million. Filing 1 at ¶¶ 38–40. Under the Grain Supply
Agreement, Aurora owed Aventine the gain of $280,000 from the first
transaction. Filing 1 at ¶ 41; filing 20 at ¶ 74. But Aurora claims that, under
the Grain Supply Agreement, Aventine owes it for the $2.1 million loss. So,
on or about August 15, 2012, Aurora informed Aventine that it was simply
deducting the $280,000 from the $2.1 million that it claimed Aventine owed.
Aurora alleges that, after this set-off, Aventine still owes it approximately
$1.8 million. Filing 1 at ¶¶ 41–44; filing 20-9. On September 17, 2012, Aurora
initiated arbitration proceedings before the NGFA to resolve the disputes
arising from these grain contracts. Filing 1 at ¶ 43–44.
For its part, Aventine maintains that it owes Aurora nothing for the 1.7
million bushels of corn, as these bushels were not procured for Aventine's
benefit and were never part of a valid grain contract. See filing 50 at 4–6.
Instead, Aventine contends that Aurora owes it $280,000 under the Grain
Supply Agreement and $130,000 under the Marketing Agreement. Filing 20
at ¶¶ 73–76. On September 18, 2012, the day after it initiated arbitration
proceedings, Aurora received a letter from Aventine's CEO, John W. Castle.
He wrote that Aventine was terminating the Grain Supply and Marketing
Agreements, based on Aurora's failure to pay. Filing 1 at ¶ 45; filing 20 at ¶
45; filing 20-8.
Aurora counters that it did not receive sufficient notice that the
$130,000 was due. Filing 1 at ¶ 48. Alternatively, Aurora maintains that it is
also entitled to deduct this amount from the remaining $1.8 million that it
claims Aventine owes. Filing 1 at ¶ 49.
F. GRAIN LAWSUIT
Shortly after initiating arbitration, Aurora filed suit in this Court.
Aurora seeks, among other things, a declaration that Aventine's purported
termination of the Grain Supply and Marketing Agreements were not
effective, that the agreements remains in effect, and that Aventine, not
Aurora, has breached the agreements. Filing 1 at 14–16. Aventine
counterclaimed, seeking a declaration to the opposite effect: that Aurora had
breached the agreements, which Aventine then lawfully terminated. Filing 20
at 13–14. After these initial filings, the case was stayed pending arbitration.
See, filings 26, 27, 28, 29, 30, 47, 48, and 56.
G. THE RAIL DISPUTE AND THE EASEMENT LAWSUIT
In the fall of 2013, Aventine learned that it could acquire sugar at a
favorable price from the U.S. Department of Agriculture. Aventine projected
that, using sugar rather than grain, it could produce ethanol at a profit.
Filing 34-10 at ¶ 12. So, Aventine contracted with the Department of
Agriculture to purchase "enough sugar to operate at full capacity for several
months." Filing 34-10 at ¶ 13. The sugar was to be delivered by rail, with the
first shipment scheduled to arrive in mid-February 2014. Filing 34-10 at ¶
Around the beginning of January 2014, Aurora learned of Aventine's
sugar plans. Filing 39-21 at ¶ 25; case no. 4:14-cv-3032, filing 1 at ¶ 40. In a
letter dated January 28, 2014, counsel for Aurora wrote to Aventine to
address what Aurora regarded as Aventine's "inconsistent positions"
regarding the Grain Supply and Double Loop Agreements. Case no. 4:14-cv3032, filing 1-8. Aurora maintained that pursuant to the Double Loop
Agreement, the easements that it granted were terminated immediately
(along with the Double Loop Agreement itself) in the event that either party
terminated the Grain Supply Agreement. And, Aurora asserted, without
these easements, Aventine had no right to access the Switching Portion of the
Exterior Loop, which Aventine would need to use to ship railcars between the
BNSF line and the Interior Loop. Case no. 4:14-cv-3032, filing 1-8.
The portion of the Double Loop Agreement that Aurora relied upon
provides, in part:
The initial term of this Agreement and the easements granted
herein shall commence on August 1, 2006 . . . and shall continue
thereafter for a term of twenty (20) years . . ., except as is
expressly provided below. . . . Anything herein to the contrary
notwithstanding, this Agreement shall terminate as follows:
(B) Immediately in the event the then current Grain Supply
Agreement between Aurora Co-op and Aventine expires or
is terminated by either party.
Case no. 4:14-cv-3032, filing 1-3 at 4.
So, Aurora took the position that Aventine could not simultaneously
claim that it had terminated the Grain Supply Agreement in September 2012
and continue to claim access to the easements granted by the Double Loop
Agreement. Alternatively, Aurora maintains that Aventine's attempt to
terminate the Grain Supply Agreement, while not effective, did amount to an
anticipatory repudiation of that agreement. And, Aurora further argued, the
Grain Supply and Double Loop Agreements were closely intertwined, such
that a repudiation of one excused performance under the other. Thus, Aurora
asserted that it was entitled to suspend performance under the Double Loop
Agreement, such that it no longer had any obligation to allow Aventine on its
land. See, e.g., case no. 4:14-cv-3032, filing 1 at 11–14; case no. 4:12-cv-3200,
filing 38 at 1–4, 25–29.
Aventine disagreed with Aurora's legal analysis, and on February 4,
2014, Aventine used the Switching Portion to move two railcars from the
BNSF line to the Interior Loop. Case no. 4:14-cv-3032, filing 1 at ¶¶ 45–47.
That same day, Aurora filed a new lawsuit in this Court, essentially seeking
a declaration that its position above was correct and enjoining Aventine from
using the Switching Portion or Exterior Loop unless Aventine retracted its
position that the Grain Supply Agreement had been terminated. Case no.
4:14-cv-3032, filing 1 at 14–16.
However, that was not all Aurora did. On February 14, 2014, Aurora
locked the switches at the Exterior Track Loop, effectively barring rail traffic
from crossing between the BNSF line and the Interior Loop. Filing 39-21 at ¶
30. Aurora then sent a final letter to Aventine, stating that it would remove
the locks if Aventine provided written assurance that it would comply with
the Grain Supply Agreement until the Court had arrived at a final
determination of the parties' rights in the Grain Lawsuit. Filing 39-16.
In response, Aventine filed a motion for preliminary injunctive relief in
the Grain Lawsuit. Filing 34. Aventine asked the Court to order Aurora to
remove the locks and to enjoin Aurora from interfering with Aventine's use of
the portion of the Exterior Loop it needed to conduct its business. The Court
denied Aventine's motion, finding that while Aventine was facing significant
economic harm from the lock-out, it had failed to demonstrate a threat of
irreparable harm. Filing 46 at 6–8. The Court further found that Aventine
had not demonstrated a likelihood of success on the merits. In other words,
the Court found that Aurora's position was likely correct—that if the Grain
Supply Agreement was terminated, so were the easements granted under the
Double Loop Agreement. Alternatively, the Court determined, if Aventine's
termination of the Grain Supply Agreement was not effective, it was
nonetheless an anticipatory repudiation of that agreement, which entitled
Aurora to suspend performance under the related Double Loop Agreement.
Filing 46 at 9–19.
II. STANDARD OF REVIEW
In the Grain Lawsuit, Aventine has filed a motion for leave to amend
its answer and counterclaims. Case no. 4:12-cv-3200, filing 49. Aurora has
resisted, arguing that leave to amend should be denied as futile, as the
amended claims would not survive a motion to dismiss under Fed. R. Civ. P.
12(b)(6). In the Easement Lawsuit, Aventine has moved to dismiss Aurora's
complaint, or in the alternative, consolidate that case with the Grain
Lawsuit. Case no. 4:14-cv-3032, filing 20. Aventine has brought its motion
under both Fed. R. Civ. P. 12(b)(1) and 12(b)(6).
A. FED. R. CIV. P. 12(b)(1)
A motion pursuant to Fed. R. Civ. P. 12(b)(1) challenges whether the
Court has subject matter jurisdiction. The party asserting subject matter
jurisdiction bears the burden of proof. Great Rivers Habitat Alliance v.
FEMA, 615 F.3d 985, 988 (8th Cir. 2010). Rule 12(b)(1) motions can be
decided in three ways: at the pleading stage, like a Rule 12(b)(6) motion; on
undisputed facts, like a summary judgment motion; and on disputed facts.
Jessie v. Potter, 516 F.3d 709, 712 (8th Cir. 2008).
A Rule 12(b)(1) motion can be presented as either a "facial" or "factual"
challenge. Osborn v. United States, 918 F.2d 724, 729 n.6 (8th Cir. 1990).
When reviewing a facial challenge, the Court restricts itself to the face of the
pleadings, and the nonmovant receives the same protections as it would
facing a Rule 12(b)(6) motion. Id. By contrast, when reviewing a factual
challenge, the Court considers matters outside the pleadings, and the
nonmovant does not receive the benefit of Rule 12(b)(6) safeguards. Id.
Moreover, unlike a motion for summary judgment, the Court is free to resolve
disputed issues of fact. Jessie, 516 F.3d at 712.
B. FED. R. CIV. P. 12(b)(6)
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a
complaint must contain sufficient factual matter, accepted as true, to state a
claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). A claim has facial plausibility when the plaintiff pleads factual
content that allows the Court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id. While the Court must
accept as true all facts pleaded by the nonmoving party and grant all
reasonable inferences from the pleadings in favor of the nonmoving party,
Gallagher v. City of Clayton, 699 F.3d 1013, 1016 (8th Cir. 2012), a pleading
that offers labels and conclusions or a formulaic recitation of the elements of
a cause of action will not do. Iqbal, 556 U.S. at 678. Determining whether a
complaint states a plausible claim for relief requires the Court to draw on its
judicial experience and common sense. Id. at 679.
On a motion for leave to amend the complaint, the Court "should freely
give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). But the Court
has discretion to deny leave when amendment would be futile, such as when
the allegations of the amended complaint nonetheless fail to state a claim.
See, Gandhi v. Sitara Capital Management, LLC, 721 F.3d 865, 868–69 (7th
Cir. 2013); Hintz v. JPMorgan Chase Bank, N.A., 686 F.3d 505, 511 (8th Cir.
2012). So, the Court reviews the motion for leave to amend under the same
standard as a motion to dismiss under Rule 12(b)(6).
A. GRAIN LAWSUIT - AVENTINE'S MOTION TO AMEND
In its original counterclaim, Aventine sought a declaratory judgment
that Aurora owed Aventine the amounts discussed above, that Aurora
breached the Grain Supply and Marketing Agreements by not paying these
amounts, that Aventine was entitled to terminate both agreements, and that
both agreements were terminated. Case no. 4:12-cv-3200, filing 20 at ¶¶ 84–
99. Aventine also requested a declaration that Aurora was not entitled to any
set-off of these amounts—in other words, that Aventine was not obligated to
purchase the 1.7 million bushels of grain, as claimed by Aurora. Filing 20 at
In its proposed amended counterclaim, Aventine seeks to convert its
requests for declaratory relief to their "coercive" equivalents: "normal" claims
for breach of contract. So, Aventine's proposed counterclaim asserts breach of
contract claims based on Aurora's failure to pay sums allegedly due under the
Grain Supply and Marketing Agreements. Aventine has also added several
new claims for relief, which the Court will discuss below. Aurora argues that
Aventine's request to amend its counterclaims should be denied as futile, as
the amended claims are all either subject to arbitration or fail to state claims
for relief. See case no. 4:12-cv-3200, filing 52. The Court will consider each of
the proposed amendments in turn.
The Court begins with Aventine's proposed claims which have simply
been converted from requests for declaratory relief to their coercive
equivalents. Aurora argues that Aventine should not be allowed to convert its
existing claims because the underlying disputes—the amounts owed under
the Grain Supply and Marketing Agreements—are subject to arbitration and,
in fact, are currently being arbitrated. But as Aventine points out, the same
can be said for its existing claims for declaratory relief. And Aventine agrees
that its amended claims will also be stayed pending arbitration. See case no
4:12-cv-3200, filing 54 at 4.
Aurora has not explained how it will be prejudiced by this amendment.
The fact that Aventine's claims will change from declaratory to coercive does
not meaningfully prejudice Aurora. Aurora is already facing the possibility of
damages: the Declaratory Judgment Act authorizes the Court to award any
"[f]urther necessary or proper relief based on a declaratory judgment," 28
U.S.C. § 2202, which includes damages. See, Noatex Corp. v. King Const. of
Houston, L.L.C., 732 F.3d 479, 487 (5th Cir. 2013); Royal Indem. Co. v. Apex
Oil Co., 511 F.3d 788, 793–94 (8th Cir. 2008). So, Aventine will be permitted
to amend its existing claims to convert them to requests for coercive relief.
The Court turns next to Aventine's new claims. First, Aventine
contends that Aurora also breached the Grain Supply Agreement by claiming
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to accumulate 1.7 million bushels of grain on Aventine's behalf, when
Aventine had not, in fact, ordered that grain. Aventine argues that
accumulating this grain was a calculated strategy on Aurora's part—a badfaith attempt to manipulate Aventine—and that this conduct materially
impaired the value of the entire Grain Supply Agreement. See case no. 4:12cv-3200, filing 54 at 2–3. Aventine also claims that the manner in which
Aurora calculated its request for payment on those bushels amounted to a
breach of the Grain Supply Agreement. Case no. 4:12-cv-3200, filing 49-1 at
¶¶ 17–25, 38, 53.
Once more, Aurora simply argues that Aventine should not be allowed
to assert these claims because they are subject to arbitration. Aventine
counters that these claims concern the Grain Supply Agreement as a whole,
and do not "arise out of" individual grain contracts, such that they are not
subject to arbitration. At this time, the Court need not determine the precise
contours of these claims, nor whether they are subject to arbitration. Just as
with the previous "converted" claims, these claims' status relative to the
parties' arbitration is not a reason to deny Aventine leave to amend. If the
new claims are subject to arbitration, then they can be stayed; if not, then
Aurora has provided no reason Aventine should not be allowed to assert
Finally, Aventine has proposed two new claims arising out of the
parties' easement dispute. First, Aventine contends that, by locking Aventine
out and blocking its access to the BNSF main line, Aurora has breached the
Double Loop Agreement. Case no. 4:12-cv-3200, filing 49-1 at ¶¶ 67–74.
Second, Aventine claims that this lock-out also violated the Grain Supply
Agreement. Filing 49-1 at ¶ 53d. Aurora argues that neither states a claim
for relief, and leave to amend should be denied as futile. The Court agrees.
The Court begins with Aventine's claim that the lock-out violated the
Grain Supply Agreement. This fails to state a claim for the simple reason
that, according to Aventine, the Grain Supply Agreement had already been
terminated when the lock-out occurred. Aventine alleges that it terminated
the agreement in September 2012. See case no. 4:12-cv-3200, filing 49-1 at ¶¶
43-46. If that is true, then Aurora could not have breached it in January
2014, as there was no agreement to breach. Aventine is, of course, allowed to
plead inconsistent facts in support of alternative theories of recovery. Fed. R.
Civ. P. 8(d)(3); Babcock & Wilcox Co. v. Parsons Corp., 430 F.2d 531, 536 (8th
Cir. 1970). So, Aventine could have pleaded in the alternative—premising its
lock-out claim on the survival of the Grain Supply Agreement. But as the
Court reads Aventine's proposed counterclaim, that is not what Aventine has
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alleged. As to this portion of Aventine's proposed claim, leave to amend is
denied as futile.5
The Court turns finally to Aventine's claim that Aurora's lock-out
breached the Double Loop Agreement. This claim formed the basis of
Aventine's motion for a preliminary injunction. And in denying Aventine's
motion for injunctive relief, the Court determined that the claim was likely
without merit—whether or not the Grain Supply Agreement was terminated.
See case no. 4:12-cv-3200, filing 46 at 12–19. Due to the procedural posture of
the ruling—on an expedited motion for preliminary injunctive relief—the
Court cautioned that its ruling was necessarily preliminary. See filing 46 at
13, 19. But Aventine has not offered the Court any reason to modify its
previous finding. The Court thoroughly addressed a number of arguments
Aventine made in support of its claim at that time, and rejected each of them.
So, the Court finds that its previous determination remains correct. For the
reasons stated in its previous order, the Court finds that Aventine's lock-out
claim fails to state a claim for relief, and its motion for leave to amend will be
denied as futile.
For the sake of clarity, the Court notes that this portion of its previous
ruling was made solely on the basis of the parties' agreements, which are
materials necessarily embraced by the pleadings and thus part of the record
properly before the Court at this time. Fed. R. Civ. P. 12(d); see, Stahl v.
United States Dep't of Agric., 327 F.3d 697, 700 (8th Cir. 2003); Porous Media
Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
In its previous order, the Court also found that that Aurora did, in fact,
own the real estate under the Exterior Loop and its half of the Switching
Portion. See case no. 4:12-cv-3200, filing 46 at 10–11. That finding was made
on the basis of affidavits and other materials not properly considered at this
time. See Fed. R. Civ. P. 12(d). But the Court's present decision does not
depend on that aspect of its previous order. Aventine's claim for breach of the
Double Loop Agreement presupposes that Aventine needs an easement to
access rails that lie on land belonging to Aurora. In other words, as the Court
understands Aventine's proposed counterclaim, it has only alleged that
Aurora's interference with Aventine's access to the rails was wrongful as a
breach of contract, not under some other legal theory premised on Aventine's
(joint) ownership of the tracks themselves or the underlying real estate.
Aventine has alleged that it is not clear what, if any, ownership
interest either party has in any particular portion of the Double Track Loop
arrangement. Case no. 4:12-cv-3200, filing 49-1 at ¶ 16. It is not entirely clear
This is not to say that Aventine could not plead such an alternative claim. At this time,
the Court has no reason to determine whether such a claim would be viable.
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if Aventine is referring to the tracks themselves, the underlying real estate,
or both. But Aventine has not tied these allegations to any viable claim for
relief. Under its claim for breach of the Grain Supply Agreement, Aventine
alleges that it has suffered damages due to Aurora's "appropriation" of
Aventine's property, including the cross-over tracks and switches that it
helped pay to construct and maintain. Filing 49-1 at ¶ 60. But Aventine
claims that the Grain Supply Agreement had already been terminated when
this alleged misappropriation occurred, so it could not have been a breach of
To summarize: Aventine may amend its counterclaim to assert its
"converted" claims for coercive relief and its claims that Aurora breached the
Grain Supply Agreement by procuring the 1.7 million bushels of corn and by
the manner in which Aurora calculated its costs for those bushels. Aventine's
remaining proposed amendments fail to state claims for relief, and leave to
amend will be denied as futile.
B. EASEMENT LAWSUIT - AVENTINE'S MOTION TO DISMISS
In its complaint in the Easement Lawsuit, Aurora seeks a declaration
that, so long as Aventine maintains it has terminated the Grain Supply
Agreement, Aurora may suspend performance of its obligations under the
Double Loop Agreement. Aurora also seeks a declaration that "Aventine has
no right to use the portion of the Double Track Loop and Additional Track
Switch that [are] located on land owned by Aurora Co-op for any purpose."
Case no. 4:14-cv-3032, filing 1 at ¶¶ 55–57. And Aurora seeks an injunction
prohibiting Aventine from using any portion of the loop, or the switch, located
on land owned by Aurora, so long as Aventine maintains that it has
terminated the Grain Supply Agreement. Case no. 4:14-cv-3032, filing 1 at
Aventine's motion to dismiss rests on two grounds.7 First, Aventine
contends that Aurora's claims for injunctive and declaratory relief are moot.
Second, Aventine asks the Court to exercise its discretion to decline to hear
Aurora's claim for declaratory relief. The Court begins with Aurora's request
for injunctive relief. Aventine correctly observes that this request has been
mooted by the parties' conduct.
This is not to say that Aventine cannot amend its counterclaim to raise these alleged
damages in some other manner.
In its initial brief, Aventine also argued that service of process was insufficient. See filing
21 at 4–5. But following Aventine's motion to dismiss, Aurora re-served process. See filings
31 and 33. Aventine has not argued that this new service was lacking in any regard, see
filing 32, and the Court considers the matter resolved.
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Article III of the Constitution grants federal courts the power to hear
"Cases" and "Controversies." U.S. Const. art. III, § 2, cl. 1. To satisfy the
irreducible constitutional minimum of Article III standing, a plaintiff must
establish that it has suffered an injury in fact that is concrete and
particularized and actual or imminent, not conjectural or hypothetical; that
there is a causal connection between the injury and the conduct complained
of; and that it is likely, as opposed to merely speculative, that the injury will
be redressed by a favorable decision. Constitution Party of South Dakota v.
Nelson, 639 F.3d 417, 420 (8th Cir. 2011). A case becomes moot—and
therefore no longer a case or controversy for purposes of Article III—when the
issues presented are no longer live or the parties lack a legally cognizable
interest in the outcome. Teague v. Cooper, 720 F.3d 973, 976 (8th Cir. 2013).
The Court will dismiss a case as moot when changed circumstances have
already provided the requested relief and eliminated the need for court
Since filing this lawsuit, Aurora has installed locks that have
effectively blocked Aventine from accessing any portion of the Exterior Track
Loop or Switching Portion that lies on Aurora's land. This has not changed in
the approximately 9 months since Aurora installed the locks. Aventine has
not taken any steps to remove the locks, and there is no suggestion it is going
to do so any time soon. In other words, there is no longer any actual or
imminent threat that Aventine will trespass upon the Switching Portion or
any portion of the Exterior Track Loop that lies on Aurora's land.8 So, there is
nothing to enjoin, and Aurora's request for injunctive relief is moot. The same
is true for Aurora's request for a declaration that "Aventine has no right to
use the portion of the Double Track Loop and Additional Track Switch that
[are] located on land owned by Aurora Co-op for any purpose." Case no. 4:14cv-3032, filing 1 at ¶¶ 55–57.
However, Aurora's other request for declaratory relief—that Aurora is
not violating the Grain Supply Agreement by locking Aventine out—is not
moot. Aurora is essentially seeking a declaration of non-liability.9 This claim
There is, however, a portion of the Exterior Loop that lies on land belonging to NELLC,
which has granted Aurora and Aventine an easement to construction and operation of the
track loop. Aventine and NELLC have recently undertaken efforts to modify that portion of
the Loop in order to allow Aventine access to the BNSF main line. Aurora has separately
moved to enjoin these efforts. See filing 34. The analysis governing these matters is distinct
from the present dispute and will be addressed in a separate memorandum and order. The
present dispute is limited to determining the parties' rights with respect to land owned by
That is a proper use of the Declaratory Judgment Act, which allows a party like Aurora
"who expects to eventually be sued, to determine [its] rights and liabilities without waiting
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is not moot because as Aurora continues to lock Aventine out, Aventine's
damages from being unable to access the railroad will continue to accrue.
There is an actual, concrete dispute between the parties, as demonstrated by
the fact that Aventine has already filed suit to recoup these costs, by way of
its proposed amendments to its counterclaim in the Grain Lawsuit. The fact
that the Court has denied leave to plead those claims as futile does not
render Aurora's request for declaratory relief moot. Instead, it simply shows
that Aurora is likely entitled to the declaration it seeks. Aurora retains a
legitimate interest in obtaining an actual judgment declaring its non-liability,
as opposed to the Court's interlocutory ruling on Aventine's motion to amend.
Aventine next argues that the Court should decline to exercise
jurisdiction over Aurora's remaining claim for discretionary relief. The
Federal Declaratory Judgment Act provides, in relevant part:
In a case of actual controversy within its jurisdiction, except with
respect to [certain enumerated actions], any court of the United
States, upon the filing of an appropriate pleading, may declare
the rights and other legal relations of any interested party
seeking such declaration, whether or not further relief is or could
28 U.S.C. § 2201(a) (emphasis supplied). As the language of the statute
suggests, whether to grant declaratory relief is discretionary. Medical Assur.
Co., Inc. v. Hellman, 610 F.3d 371, 379 (7th Cir. 2010); Aetna Cas. and Sur.
Co. v. Jefferson Trust and Sav. Bank of Peoria, 993 F.2d 1364, 1366 (8th Cir.
In Wilton v. Seven Falls Co., 515 U.S. 277, 282–90 (1995), the Supreme
Court held that federal district courts have broad discretion in determining
whether to exercise jurisdiction in a declaratory judgment action when
parallel proceedings are pending in state court. Suits are "parallel" if
substantially the same parties litigate substantially the same issues in
different forums. Scottsdale Ins. Co. v. Detco Industries, Inc., 426 F.3d 994,
997 (8th Cir. 2005). "In the declaratory judgment context, the normal
principle that federal courts should adjudicate claims within their
jurisdiction yields to considerations of practicality and wise judicial
administration." Wilton, 515 U.S. at 288. But Wilton expressly limited its
holding to cases in which there were parallel state proceedings. Id. at 290.
for [its] adversary, the presumptive plaintiff, to bring suit." DeBartolo v. Healthsouth Corp.,
569 F.3d 736, 741 (7th Cir. 2009).
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When there is not a parallel state action pending, the Eighth Circuit
has held that the broad discretion allowed under Wilton should be tempered
by a six-factor test. Scottsdale, 426 F.3d at 998. Without a parallel state
action, the interests of practicality and judicial administration are less
pressing, and courts should not decline jurisdiction as readily. Id. at 999. And
without a second, parallel case, it becomes less likely that all of the parties'
claims will be satisfactorily adjudicated. Id.
The six Scottsdale factors are: (1) whether the declaratory judgment
sought will serve a useful purpose in clarifying and settling the legal
relations in issue; (2) whether the declaratory judgment will terminate and
afford relief from the uncertainty, insecurity, and controversy giving rise to
the federal proceeding; (3) the strength of the state's interest in having the
issues raised in the federal declaratory judgment action decided in the state
courts; (4) whether the issues raised in the federal action can more efficiently
be resolved in the court in which the state action is pending; (5) whether
permitting the federal action to go forward would result in unnecessary
entanglement between the federal and state court systems, because of the
presence of overlapping issues of fact or law; and (6) whether the declaratory
judgment action is being used merely as a device for procedural fencing—that
is, to provide another forum in a race for res judicata or to achieve a federal
hearing in a case otherwise not removable. Id. at 998.
In Scottsdale, there was a second case pending in state court, it simply
was not sufficiently similar to be considered parallel. Id. at 996–97. In the
present dispute, there is no state proceeding whatsoever, parallel or
otherwise. It is not entirely clear that Scottsdale applies in such
circumstances. But several circuits have held that, even absent any state
proceeding, district courts may exercise the intermediate level of discretion
set forth in Scottsdale. See, e.g., Reifer v. Westport Ins. Corp., 751 F.3d 129,
143–44 (3d Cir. 2014); Sherwin–Williams Co. v. Holmes Cnty., 343 F. 3d 383,
394 (5th Cir. 2003); United States v. City of Las Cruces, 289 F.3d 1170, 1183
(10th Cir. 2002). The Court will therefore assume that Scottsdale applies
even when there is no other case pending.10
The first and second Scottsdale factors weigh in favor of deciding this
declaratory judgment action. A declaratory judgment will clarify and settle
There is, of course, a parallel lawsuit pending before this Court: the Grain Lawsuit. The
Court will nonetheless evaluate this request for declaratory relief as if there were no
parallel proceeding. Aurora's claims under in the Grain Lawsuit also invoke the
Declaratory Judgment Act. And Aventine has not asked the Court to decline to exercise its
discretion to hear those claims. So, it hardly makes sense for the Court to decline to hear
Aurora's request for declaratory relief in this case, on the grounds that Aurora could raise it
in another case before this very Court.
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the legal relations at issue in this case, and afford relief from the uncertainty,
insecurity, and controversy of this portion of the parties' dispute. True, other
disputes will remain between these parties. But this case presents a chance
to begin narrowing the scope of that dispute. The third, fourth, and fifth
Scottsdale factors are inapplicable. Finally, as to the sixth factor, there is no
evidence that this lawsuit is being used as a device for procedural fencing.
Having considered the Scottsdale factors, the Court finds it appropriate to
exercise jurisdiction over Aurora's claim for declaratory relief.
In sum, the Court finds that Aurora's request for injunctive relief, and
the corresponding request for declaratory relief, are moot, and will grant
Aventine's motion to dismiss that portion of Aurora's complaint. The Court
finds that Aurora's remaining request for declaratory relief is not moot, and
further finds that it presents an appropriate invocation of the Court's
jurisdiction under the Declaratory Judgment Act. To that extent, Aventine's
motion will be denied.
C. EASEMENT LAWSUIT - AVENTINE'S MOTION TO CONSOLIDATE
Aventine also asks the Court to consolidate the Easement and Grain
Lawsuits. Case no. 4:14-cv-3032, filing 20. Aurora is not opposed to this
request. However, given the Court's findings in this Memorandum and Order,
consolidation may no longer be the most productive course of action.
Consolidation is governed by Rule 42(a), which provides that if actions
before the Court involve a common question of law or fact, the Court may: (1)
join for hearing or trial any or all matters at issue in the actions; (2)
consolidate the actions; or (3) issue any other orders to avoid unnecessary
cost or delay. Fed. R. Civ. P. 42(a). The Court has broad discretion in
determining whether to consolidate cases. Enterprise Bank v. Saettele, 21
F.3d 233, 235 (8th Cir. 1994). Consolidation is permitted as a matter of
convenience and economy in administration, but does not merge the suits
into a single cause, or change the rights of the parties, or make those who are
parties in one suit parties in another. Id.
The Grain Supply and Easement Lawsuits are eligible for
consolidation, in that they involve overlapping questions of law and fact. But
as a result of the Court's findings in this Memorandum and Order, the cases
may now be at very different procedural stages. The Grain Lawsuit is in its
preliminary stages—little has happened there (aside from Aventine's motion
for injunctive relief) and the case is (more or less) stayed pending arbitration.
But in ruling on Aventine's motion to amend in that case, the Court has
tipped its hand, so to speak, on its view of the merits of Aurora's request for
declaratory relief in the Easement Lawsuit. So, unless there are undisclosed
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issues of fact or new arguments to consider, the Easement Lawsuit may be
amenable to disposition on summary judgment.
Therefore, it may not make sense to consolidate these cases at this
time. The Court appreciates this cooperation by the parties and their effort to
efficiently resolve a complicated set of disputes. Perhaps the Court has
underestimated the need for discovery or further proceedings in the
Easement Lawsuit. That case may not be as close to resolution as the Court
suspects. Therefore, the parties should consult and determine the best course
of action. If the parties still suggest that consolidation is appropriate, then
they should notify the Court. Accordingly,
IT IS ORDERED:
Aventine's motion for leave to amend its answer and
counterclaims (case no. 4:12-cv-3200, filing 49) is granted in
part and denied in part, as set forth above.
Aventine's motion to dismiss (case no. 4:14-cv-3032, filing
20) is granted in part and denied in part, as set forth above.
Aventine's motion to consolidate (case no. 4:14-cv-3032,
filing 20) is denied, but without prejudice.
Dated this 25th day of November, 2014.
BY THE COURT:
John M. Gerrard
United States District Judge
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