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Lay v. Burley Stabilization Corp.

March 14, 2007

LARRY C. LAY, ET AL., PLAINTIFFS,
v.
BURLEY STABILIZATION CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Thomas W. Phillips United States District Judge

Phillips

MEMORANDUM AND ORDER

Plaintiffs are members of the Burley Stabilization Corporation, which is an agricultural cooperative established to aid burley tobacco growers. With this lawsuit, plaintiffs have sued the cooperative and its directors and officers to obtain surplus funds that were allegedly received when the plaintiffs' tobacco corps were sold by the cooperative in various years. Specifically, plaintiffs allege that the cooperative, its directors and officers have misused and/or wasted corporate assets. Defendants have moved to dismiss this action for lack of subject matter jurisdiction asserting that because plaintiffs' claims are derivative in nature, plaintiffs claims must be dismissed for failure to make a pre-litigation demand upon the cooperative's board or directors. For the reasons which follow, the defendants' motions will be granted, and this action will be dismissed.

Background

In 2004, Congress passed legislation to discontinue the federal government's long-standing tobacco price-support program and to provide for the orderly liquidation and distribution of all remaining price-support program funds that were held by the Commodity Credit Corporation (CCC), which is the federal agency that administered and regulated the price-support program. At present, CCC is actively working with its tobacco cooperative association partners, like the Burley Stabilization Corporation (BSC) to implement this new federal law.

The BSC is a non-profit agricultural cooperative association organized under Tennessee law in 1953 to support growers of burley tobacco within its geographic area, which includes portions of Tennessee, North Carolina and Virginia. Among its other functions, BSC works through and with CCC to help administer the federal tobacco price-support program. The individual defendants are officers or directors of BSC.

According to their Fifth Amended Complaint, plaintiffs are tobacco producers and members of BSC who enjoyed federal price-support on burley tobacco sold under the federal price-support program for one or more of the 1982 through 2004 crop years. Plaintiffs' Fifth Amended Complaint asserts class claims whereby the named plaintiffs propose to represent the interests of approximately 140,000 additional members and co-owners of BSC.

In their Fifth Amended Complaint, plaintiffs seek to recover funds currently held by CCC for BSC in the so-called No Net Cost Account, together with any "Net Gains" realized on the sale of the 1983-2004 crops of price-support tobacco. Plaintiffs also seek recovery of any proceeds from the sale of price-support tobacco that CCC has released to BSC pursuant to the Reform Act. Finally, plaintiffs seek to recover any proceeds that may have been realized on BSC's redemption and resale of the 1982 tobacco crop, which was authorized by CCC in the 1980s and completed not later than 1991.

Procedural History

Plaintiffs filed their original complaint against the BSC defendants on February 14, 2005 in the Circuit Court for Knox County, Tennessee. Plaintiffs amended their complaint as of right on April 8, 2005, after which the BSC defendants moved to dismiss based on, among other grounds, plaintiffs' failure to comply with the requirements for asserting a derivative action. In response, plaintiffs sought and obtained leave to again amend their complaint to "clarify allegations in the Amended Complaint which were criticized by the defendants in their motion to dismiss."

In the following months, plaintiffs filed additional amended complaints, each of which the BSC defendants moved to dismiss, and each of which resulted in still further amendments to plaintiffs' complaint, which is currently in its sixth iteration. The state court held, pursuant to controlling case law, that plaintiffs' claims are derivative in nature and that the claims had not been brought by the requisite number of plaintiffs or verified, as required by Tenn. Code Ann. § 48-56-401. In lieu of dismissal, plaintiffs requested, and the state court granted, leave to further amend their complaint. Thus, the state court did not reach the remaining derivative issues (including plaintiffs' failure to make a pre-litigation demand). Following additional amendments, the state court next ruled that CCC was a necessary party and ordered plaintiffs to amend their complaint accordingly. Plaintiffs' filed their Fifth Amended Complaint naming CCC as a party-defendant. On March 29, 2006, CCC timely removed the case to this court pursuant to 28 U.S.C. § 1446(d).

Analysis

Defendant BSC and the individual defendants have moved to dismiss the claims against them on the grounds that plaintiffs' claims are derivative in nature, and this court lacks subject matter jurisdiction over said claims as a result of plaintiffs' repeated failure to exhaust their corporate remedies and to otherwise comply with the requirements for asserting derivative claims as set out in Tenn. Code Ann. § 48-56-401.

Defendant CCC has moved to dismiss plaintiffs' claims against it pursuant to Rule 12(b)(1) and (6) for lack of subject matter jurisdiction and failure to state ...


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