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Llacua v. Western Range Association

United States Court of Appeals, Tenth Circuit

July 16, 2019

RODOLFO LLACUA; ESLIPER HUAMAN; LEOVEGILDO VILCHEZ GUERRA; LIBER VILCHEZ GUERRA; RAFEAL DE LA CRUZ, Plaintiffs - Appellants,
v.
WESTERN RANGE ASSOCIATION; MOUNTAIN PLAINS AGRICULTURAL SERVICE; MARTIN AUZA SHEEP CORPORATION; NOTTINGHAM LAND AND LIVESTOCK, LLLP; TWO BAR SHEEP CORPORATION, LLC; CUNNINGHAM SHEEP COMPANY; DENNIS RICHINS, D/B/A Dennis Richins Livestock, Defendants - Appellees.

          Appeal from the United States District Court No. 1:15-CV-01889-REB-CBS for the District of Colorado

          David H. Seligman (Alexander N. Hood with him on the briefs), Towards Justice, Denver, Colorado for Plaintiffs-Appellants.

          James Larry Stine, Wimberly, Lawson, Steckel, Schneider & Stine, P.C., Atlanta Georgia, and Amber J. Munck, Greenberg Traurig, Denver, Colorado (Elizabeth K. Dorminey, Wimberly, Lawson, Steckel, Schneider & Stine, P.C., Atlanta, Georgia, and Naomi G. Beer and Harriet McConnell, Greenberg Traurig, Denver, Colorado, with them on the brief), for Defendants-Appellees Western Range Association and Mountain Plains Agricultural Service.

          Kenneth F. Rossman IV, Lewis Roca Rothgerber Christie LLP, Denver, Colorado, (Stacy Kourlis Guillon, Lewis Roca Rothgerber Christie LLP, Denver, Colorado; Bradford J. Axel, Stokes Lawrence, P.S., Seattle, Washington; and J. Rod Betts, Paul, Plevin, Sullivan & Connaughton LLP, San Diego, California, with him on the brief), for Defendants-Appellees

          Nottingham Land and Livestock, LLLP, Two Bar Sheep Corporation, LLC, Cunningham Sheep Company, and Martin Auza Sheep Company.

          Before HARTZ, MURPHY, and McHUGH, Circuit Judges.

          MURPHY, CIRCUIT JUDGE.

         I. INTRODUCTION

         Five Peruvian shepherds (the "Shepherds")[1] who worked in the Western United States pursuant to H-2A agricultural visas[2] brought antitrust[3] claims, on behalf of themselves and similarly situated classes of shepherds, against several sheep ranchers (the "Rancher Defendants"), [4] two associations (the "Association Defendants"), [5] and Dennis Richins[6] (referred to collectively as the "Defendants"). The Shepherds alleged the Defendants "conspired and agreed to fix wages offered and paid to shepherds at the minimum DOL wage floor." The Shepherds also brought class action RICO[7] claims against Richins and the Association Defendants. The RICO claims focus on allegedly false assurances made by the Association Defendants to the federal government that H-2A shepherds are being properly reimbursed for "reasonable costs incurred by the worker for transportation and daily subsistence from the place from which the worker has come to work for the employer," as required by 20 C.F.R. § 655.122.

         The district court dismissed the antitrust claims on the ground the allegations in the operative complaint, the second amended complaint ("SAC"), did not plausibly allege an agreement to fix wages. The district court dismissed the RICO claims because the SAC failed to allege the existence of enterprises distinct from the persons alleged to have engaged in those enterprises.

         Thereafter, the district court denied the Shepherds' request to file a third amended complaint ("TAC"). It concluded the majority of the proposed amendments were futile. Alternatively, the district court concluded the proposed amendments were dilatory and allowing amendment would unduly prejudice the Defendants. The Shepherds appeal, asserting the SAC states valid Sherman Act and RICO claims and insisting the district court abused its discretion in denying their motion to file the TAC. We agree that the district court erred in dismissing the RICO claim naming Richins as a defendant. In all other regards, the district court is affirmed. Thus, exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court affirms in part, reverses in part, and remands to the district court for further proceedings.

         II. DISCUSSION

         A. Second Amended Complaint

         1. Background

         a. Federal Regulatory Background

         The federal regulatory scheme governing the importation and employment of H-2A shepherds is set out in detail in the SAC. Because it is necessary to an understanding of the Shepherds' antitrust claims, this court sets out the regulatory scheme at some length.

         H-2A shepherds are nonimmigrant foreign nationals permitted to work temporarily in the United States under visas authorized by the DOL.[8] The H-2A program allows for issuance of visas to foreign workers to fill agricultural positions employers cannot fill through the domestic labor market.[9] See generally 8 U.S.C. §§ 1101(a)(15)(H)(ii)(a), 1188. Under regulations promulgated by the DOL to implement its statutory duty to protect American workers, employers must first offer the job to workers in the United States. 20 C.F.R. § 655.121.[10]Furthermore, the employer must offer domestic workers "no less than the same benefits, wages, and working conditions that the employer is offering, intends to offer, or will provide to H-2A workers." Id. § 655.122(a).[11] Only if an American worker does not accept a position offered through this process can the employer submit an Application for Temporary Employment Certification (an "H-2A Application") to the DOL. See generally 8 U.S.C. § 1188(a), (c)(3)(A).

         The DOL can promulgate exceptions to the H-2A visa program, known as "special procedures," for particular agricultural industries. See 20 C.F.R. § 655.102. The DOL has implemented special procedures governing the minimum wage for H-2A shepherds.[12] See id.; see also Labor Certification Process for the Temporary Employment of Aliens in Agriculture in the United States: Adverse Effect Wage Rate for Range Occupations Through 2016, 80 Fed. Reg. 70, 840, 70, 840 (Nov. 16, 2015) (hereinafter the "2015 Special Procedures"); Special Procedures: Labor Certification Process for Employers Engaged in Sheepherding and Goatherding Occupations under the H-2A Program, 76 Fed. Reg. 47, 256 (Aug. 4, 2011) (hereinafter the "2011 Special Procedures").[13] Under the 2011 Special Procedures, the DOL established an AEWR component of the minimum wage that varied by state. As of November 16, 2015, the AEWR component of minimum wage for H-2A shepherds was raised by the DOL to $1206.31 per month and made uniform across all states.[14] See 2015 Special Procedures, 80 Fed. Reg. 70, 840, 70, 840.[15] The SAC alleges that there is no statute, regulation, or special procedure preventing employers from offering higher wages to domestic workers, via relevant Job Orders, or to foreign shepherds via H-2A Applications.

          b. The Parties

         i. The Association Defendants

         WRA and MPAS are membership associations for sheep ranchers. They recruit and hire shepherds for their member ranches. WRA characterizes itself as a joint employer on Job Orders and H-2A Applications. See 20 C.F.R. § 655.103(b) (defining the term "joint employment").[16] MPAS, on the other hand, characterizes itself as an agent for its member ranches. See id. (defining the term "agent"); see also 20 C.F.R. § 655.133 (setting out requirements for agents). The relevant statute and regulations expressly contemplate that agents and associations acting as an agent can file Job Orders on behalf of sheep ranchers. 8 U.S.C. § 1188(d); 20 C.F.R. §§ 655.130, 655.131, 655.133. The Shepherds specifically focus on WRA's and MPAS's recruitment and hiring of "open range" shepherds.[17] From October 1, 2013, to October 1, 2014, WRA hired approximately 55% of all open range shepherds hired in the United States. During that same time frame, MPAS hired approximately 36% of all open range shepherds hired in the United States. WRA and MPAS submitted Job Orders for domestic workers on behalf of the Rancher Defendants. They also submitted H-2A Applications to DOL on behalf of the Rancher Defendants.

         ii. The Rancher Defendants

         Each of the Rancher Defendants is alleged to be, or have been, members of WRA or MPAS within the four years prior to the filing of the SAC. The Rancher Defendants are located in multiple western states. All of them, however, send their sheep to Colorado for "finishing." Except as to Richins, see supra n. 6, the Shepherds do not allege any facts that distinguish the Rancher Defendants from other members of WRA and/or MPAS. For example, the Shepherds allege they were each an WRA or MPAS "employee, "[18] but do not identify the ranches at which they worked. Instead, after identifying each of the Rancher Defendants, the remainder of the SAC refers to these Defendants collectively.[19]

         iii. The Shepherds

         Paragraph forty-three of the SAC describes the essential functions of a shepherd as follows:

shepherds tend herds of 1, 000 sheep or more, often in rugged high altitude terrain or dry desert conditions, hauling water for the animals, herding them to grazing areas and making sure they have enough to eat, keeping them from going astray, and protecting them from the constant threat of natural predators like coyotes, mountain lions, and wolves, harmful or poisonous plants, and man-made dangers like highways and domesticated dogs. During lambing . . . season, the shepherds assist the animals in the birthing process, and at all times, the shepherds provide for the health and medical needs of the herd.

Appellant's App. Vol. I at 31. The complaint also alleges that the life of a shepherd is socially isolated and generally devoid of most modern conveniences Americans take for granted (i.e., access to functional indoor plumbing).

         c. The Allegations in the Second Amended Complaint

         i. Antitrust Claims[20]

         Job Orders submitted to the DOL by the Association Defendants during the relevant period offered exactly the applicable minimum wage. See supra at 6-8 & n.10 (explaining that the Job Order process is a highly regulated attempt to hire domestic shepherds as a precursor to the filing of an H-2A Application). WRA filed Job Orders on behalf of multiple member ranches with an identical wage rate for all ranches operating in a state. For instance, one of the many representative Job Orders attached to the SAC offers eighteen possible domestic shepherds $750.00 per month-the then-minimum wage for H-2A shepherds under the 2011 Special Procedures-without distinguishing between ranches. Furthermore, the Job Order does not allow shepherds to apply to specific ranches, instead instructing them to apply through the WRA.

         The Defendants followed this same course of allegedly anticompetitive conduct during the H-2A Application process. See supra at 6-8 (noting that H-2A Applications cannot offer to pay Shepherds any more than the wages and benefits offered to domestic shepherds through the Job Order process). The WRA and MPAS, as joint ventures operating on behalf of their member ranches, applied for approximately 2000 H-2A visas for shepherds. Many of the shepherds WRA and MPAS hired through this process were already working on member ranches in the United States, meaning they were experienced and had a relationship with their employer. Just as with its Job Orders, however, H-2A Applications filed by WRA on behalf of multiple employers do not distinguish between ranches and do not purport to allow workers to shop between ranches, as in a competitive labor market.[21] The H-2A Applications include a "rate of pay" section that expressly pegs the wage for all H-2A shepherds at precisely the minimum wage in each state, without even identifying the ranches.

          The Shepherds assert communications between the Association Defendants and their members corroborate that these joint ventures fix wages at the minimum level-as opposed to the ranchers instructing the Associations to make offers to shepherds at that level. In support of this assertion, the Shepherds note that in January 2015, in response to an increased Oregon minimum wage for shepherds, WRA instructed its members that they should "immediately adjust wage payments to [that] amount."[22]

         The SAC also alleges the market wage for shepherds exceeds the minimum wage offered. According to the SAC, other jobs on ranches that require similar or less skill than shepherding- but that are also theoretically available to H-2A workers-are filled by domestic workers. Those workers receive wages that are variable- commensurate with experience, skill, work environment, etc.-and substantially higher than the wages offered to domestic and foreign shepherds.[23]

         ii. RICO Claims

         The Shepherds' RICO claims concern the Association Defendants' allegedly false assurances to the federal government that H-2A shepherd employers reimburse shepherds for "reasonable costs incurred by the worker for transportation and daily subsistence from the place from which the worker has come to work for the employer," as required by 20 C.F.R. § 655.122. Both WRA and MPAS have promised full reimbursement of these costs in Job Orders and H-2A Applications submitted on behalf of their members. WRA and MPAS have obtained H-2A shepherds for their members based on these assurances.

         Notwithstanding these promises, WRA and MPAS, together with their members, allegedly have a policy of not paying for expenses H-2A shepherds frequently incur in Peru when they are preparing to travel to the United States for work (i.e., costs of transportation, meals, medical checkups, and criminal background checks). Even though WRA promises the DOL it will reimburse these costs, it allegedly does not say anything to H-2A shepherds about any such costs but, instead, instructs only that "[t]ransportation [costs] for travel to and from your home country are paid if you complete the contract terms."

         d. The District Court Decision

         i. Antitrust Claims

         The district court began its analysis of whether the SAC stated a plausible antitrust claim by noting that "[t]he essence of a claim of violation of Section 1 of the Sherman Act is the agreement itself." See Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1082 (10th Cir. 2006). The agreement must be "designed unreasonably to restrain trade." Abraham v. Intermountain Health Care Inc., 461 F.3d 1249, 1257 (10th Cir. 2006). Thus, "the crucial question is whether the challenged anticompetitive conduct stems from independent decision or from an agreement, tacit or express." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 553 (2007) (quotation and alteration omitted). As the district court recognized, the facts showing such an agreement can be direct or circumstantial.[24]

         With this legal background set out, the district court moved on to conclude the SAC did not allege facts that directly establish a § 1 agreement. Instead, the SAC alleged "tacit collusion" and "collusive conduct" on the part of Defendants. That being the case, the district court applied the rule set out by the Supreme court in Twombly: mere allegations of parallel conduct, absent additional contextual facts, fail to state a plausible conspiracy claim. See Twombly, 550 U.S. at 556-57. That is, when the antitrust claim relies solely on circumstantial facts of parallel behavior, the conspiracy is not plausible if in light of common economic experience the alleged conduct is equally likely to result from independent action. See id. at 567-68.

         Finally, the district court concluded the facts alleged in the SAC did not plausibly allege an agreement to fix wages, especially when those facts were viewed in the context of the laws and regulations relating to the hiring of H-2A shepherds. To imply such an agreement, the SAC alleged five types of overlapping facts: (a) the Association Defendants recruit and hire shepherds for their members; (b) opportunities exist within the associations to communicate regarding recruiting and hiring of shepherds; (c) Job Orders and H-2A Applications offer only the minimum wages permitted by DOL; (d) common motives to depress wages; and (e) wages for open range shepherds are unusually low for employees working in the United States. According to the district court, however, these allegations are factually neutral. That is, these facts describe conduct equally likely to result from independent, lawful action based on the H-2A program and DOL regulations that established the process of hiring foreign shepherds and set the minimum wage.

         As to the first type of facts, membership in associations that recruit and hire shepherds, the district court noted it was undisputed (a) associations can lawfully represent ranchers in recruiting and hiring; and (b) ranchers or associations on their behalf can lawfully hire foreign employees by complying with the DOL's regulations. See 29 U.S.C. §§ 1802, 1821, 1822; 20 C.F.R. §§ 655.121, 655.122. Furthermore, the Shepherds did not cite authority indicating membership in a trade organization, standing alone, is suggestive of a conspiracy. Regarding the second type of facts-opportunity to communicate via the association-the district court stated the SAC's implication was no different from the argument trade associations are inherently anticompetitive.[25] The third type of facts-Defendants always offered the minimum wage-did not suggest a conspiracy because such parallelism is merely consistent with, not suggestive of, conspiracy. That was true, concluded the district court, because it is equally consistent with independently following the DOL's minimum wage and hiring regulations. As a matter of economic reality, it was in each Defendant's interest to pay no more wages than (a) legally required and (b) necessary to adequately fill their positions. These exact considerations also demonstrated why the SAC's fourth type of facts-common motive to fix wages-was not suggestive of a conspiracy. As to the final type of facts identified in the SAC-low and stagnant wages-the district court noted the Shepherds did not address the fact very low wages paid to shepherds are just as likely to result from individual decisions to use the DOL's minimum wage and H-2A program or that the legal minimum wage for H-2A shepherds was so low that adding "nominal amounts" would not attract domestic shepherds to fill the jobs.

         In sum, taking all of the allegations described above as a whole, and considering them in light of common economic experience, the district court ruled the SAC did not allege facts that plausibly support the conclusory assertions of an anti-competitive agreement. Instead, the Shepherds' allegations were like the claims dismissed in Twombly as conduct equally likely to result from independent parallel action. "Because the [Shepherds] . . . ha[d] not nudged their claims across the line from conceivable to plausible," Twombly, 550 U.S. at 570, the district court granted Defendants' motions to dismiss the Shepherds' antitrust claims.

         ii. RICO Claims

         The district court began by noting "[t]he elements of a civil RICO claim are (1) investment in, control of, or conduct of (2) an enterprise (3) through a pattern (4) of racketeering activity." Tal v. Hogan, 453 F.3d 1244, 1261 (10th Cir. 2006). RICO defines an enterprise broadly as "any individual . . . corporation, association, . . . and any . . . group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). The latter type of enterprise, an "association-in-fact," is a group of persons associated together for a common purpose of engaging in a course of conduct and requires evidence of an ongoing organization, formal or informal, and evidence that the various associates function as a continuing unit. See United States v. Turkette, 452 U.S. 576, 583 (1981). "[T]o establish liability under § 1962(c) one must allege and prove the existence of two distinct entities: (1) a 'person'; and (2) an 'enterprise' that is not simply the same 'person' referred to by a different name." Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001).

         In light of these requirements, WRA, MPAS, and Richins argued the SAC's allegations failed to satisfy the "enterprise" element of a RICO claim as to each of the three alleged association-in-fact enterprises.[26] The district court agreed with this assertion, concluding the three RICO Defendants are part of, not distinct from, the identified enterprises. As to the Association Defendants, the district court concluded the SAC alleged nothing more than that they associated-in-fact with their members to submit fraudulent Job Orders and H-2A Applications. Relying on the decision of the D.C. Circuit in Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 883 F.2d 132, 141 (D.C. Cir. 1989), the district court ruled such allegations did not demonstrate the necessary distinctness between the alleged enterprise (the alleged association-in-fact between WRA and MPAS and their members) and the allegedly responsible person (WRA and MPAS). See id. ("[A]n organization cannot join with its own members to do that which it normally does and thereby form an enterprise separate and apart from itself. Where, as here, the organization is named as defendant, and the organization associates with its member to form the enterprise 'association-in-fact,' the requisite distinctness does not obtain."). As to Richins, the district court first stated the SAC suffered from its failure to plead the WRA Enterprise and Richins Enterprise separately. This fact doomed the claim against Richins, according to the district court, because a corporation and its officer cannot be a RICO association-in-fact regarding conduct undertaken in the corporation's regular business as an officer of the corporation. Because the SAC failed to allege any enterprise distinct from the person alleged to have controlled or conducted them, the district court dismissed all three of the RICO claims set out in the SAC.

         2. Analysis

         This court reviews de novo a Fed.R.Civ.P. 12(b)(6) dismissal for failure to state a claim. Wasatch Equal. v. Alta Ski Lifts Co., 820 F.3d 381, 386 (10th Cir. 2016). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is facially plausible when the plaintiff has pled "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. When a complaint alleges "facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Id. (quotation omitted). The question is whether, if the allegations are true, it is plausible and not merely possible that the plaintiff may obtain relief. Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008).

         a. ...


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