HUTTERVILLE HUTTERIAN BRETHREN, INC., a South Dakota nonprofit corporation; GEORGE WALDNER, SR., TOM WALDNER, KENNETH WALDNER, Individually and as officers and directors of Hutterville Hutterian Brethren, Inc.; Plaintiffs,
JEFFREY T. SVEEN; RODRICK L. TOBIN; HARVEY C. JEWETT; and SIEGEL, BARNETT & SCHUTZ, L.L.P., a South Dakota limited liability partnership, Defendants.
MEMORANDUM OPINION AND ORDER RE: MOTION TO DISMISS
LAWRENCE L. PIERSOL, District Judge.
Plaintiffs Hutterville Hutterian Brethren, Inc. (Hutterville), George Waldner, Sr., Tom Waldner, and Kenneth Waldner, brought an action against attorneys Jeffrey T. Sveen, Rodrick L. Tobin, and Harvey C. Jewett, as wall as Siegel, Bamett & Schutz, L.L.P., an Aberdeen, South Dakota law firm. The initial complaint alleged a RICO cause of action under 18 U.S.C. § 1962(c) against Defendants Sveen, Jewett, Tobin and Siegel Barnett; a cause of action under 18 U.S.C. § 1962(d) for conspiracy to violate RICO against Defendants Sveen, Jewett, Tobin aud Siegel Barnett; a cause of action for breach of fiduciary duty against Defendants Sveen, Tobin, Jewett and Siegel Barnett; a cause of action for common law fraud against Defendants Sveen, Tobin, Jewett and Siegel Barnett; and a cause of action for South Dakota statutory deceit against Defendants Sveen, Tobin, Jewett and Siegel Barnett. Doc. 1.
All of the Defendants moved pursuant to Fed.R.Civ.P. 12(b)(1) and (6) to dismiss Plaintiffs' Complaint. Doc. 34. Plaintiffs then amended their Complaint to withdraw their 18 U.S.C. § 1962(c) and (d) claims against Siegel Barnett, and added an 18 U.S.C. § 1962(a) claim against Sveen, Jewett and Tobin. A motions hearing was held on May 6, 2013, at which time the Court heard argument. The parties later supplemented their submissions on the motion to dismiss. Doc. 79 and 80. After considering the pleadings and documents on file, the arguments of counsel, and the applicable law, the Court is ruling on the motion to dismiss.
Ongoing Controversy and Related Case Law History
The Plaintiff Hutterville Hutterian Brethren, Inc., (Hutterville) is a South Dakota nonprofit religious corporation with its principal place of business in Stratford, South Dakota. The individual Plaintiffs, George Waldner, Sr., and Tom and Kenneth Waldner, are members of and claim to be officers and directors of Hutterville. The Defendants Jeffrey Sveen, Rodrick Tobin and Harvey Jewett are lawyers from Aberdeen, South Dakota. Defendant Siegel Barnett & Schultz is a limited liability partnership law firm with its principal place of business in Aberdeen, South Dakota.
The allegations in the amended complaint revolve around Hutterville, a South Dakota nonprofit corporation with the stated purpose of promoting the Hutterite religious faith. The members of Hutterville live a communal lifestyle with all real and personal property being owned by the religious corporation. Hutterville operates as a communal colony farm, raising and selling crops and livestock.
Hutterville and other colonies belong to the Schmiedleut Conference of the Hutterian Church. Rev. Jacob Kleinsasser was Senior Elder or President of the Conference. This ordinarily is a lifetime appointment, and the Senior Elder acts as the final arbiter regarding issues affecting the members of the Church and the colonies. In 1992, after Rev. Kleinsasser was accused of improper financial dealings regarding the Church and colonies, a Conference meeting was held and attended by 173 ministers of the Hutterian Church. Ninety-five ministers repudiated Rev. Kleinsasser's leadership as Senior Elder and chose to follow the leadership of Rev. Joseph Wipf. The remaining 78 ministers remained loyal to the leadership of Rev. Kleinsasser. All but 5 of the 63 colonies in the Dakotas and Minnesota repudiated the leadership of Rev. Kleinsasser. See Decker ex rel. Decker v. Tschetter Hutterian Brethren, Inc., 594 N.W.2d 357, 360 (S.D. 1999).
The Plaintiffs in the case at hand remained loyal to Rev. Kleinsasser. The schism caused by the split in pro and anti Kleinsasser factions on the Hutterville colony has resulted in litigation and appeals to the South Dakota Supreme Court. In Hutterville Hutterian Brethren, Inc. v. Waldner, 791 N.W.2d 169 (S.D. 2010), followers of Rev. Joseph Wipf, as individuals and directors and officers of Hutterville commenced an action in state court seeking a declaration that they were the properly elected directors of Hutterville, and also applied for a temporary restraining order to prevent the followers of Rev. Kleinsasser from acting as directors of Hutterville. This action was commenced after attempts in 2008 and 2009 by the followers of Rev. Joseph Wipf to replace the followers of Rev. Kleinsasser as directors of Hutterville so as to repudiate Rev. Kleinsasser and follow Rev. Joseph Wipf. In August 2008, in an attempt to prevent the followers of Rev. Joseph Wipf from effecting this change of governance, George Waldner, Sr., one of the plaintiffs in the action at hand, called a special meeting of Hutterville at which the members removed the directors who were followers of Rev. Joseph Wipf. After additional meetings and elections resulted in giving the Wipf faction control, the Kleinsasser faction refused to recognize the officers and directors from the Wipf faction and refused to relinquish control of Hutterville's farming enterprise. Hutterville Hutterian Brethren, Inc. v. Waldner, 791 N.W.2d at 171-172.
In Hutterville Hutterian Brethren, Inc. v. Waldner , the state circuit court granted injunctive relief to the Wipf faction after analyzing Hutterville's articles of incorporation and bylaws regarding meeting requirements. The state circuit court further ordered that the Kleinsasser-Waldner faction was precluded from being officers or directors of Hutterville unless they were elected pursuant to the meeting requirements. Although the Wipf faction officers and directors obtained control of Hutterville, George Waldner, Sr., who remained the minister of the Church, and two other Church elders issued a Church resolution on August 18, 2009, excommunicating the Wipf faction officers and directors, as well as other Wipf faction members. After an October 18, 2009 election of Kleinsasser-Waldner faction directors and officers, the Wipf faction requested relief from the state court based on the change of events. The Waldner-Kleinsasser faction sought a dismissal of the action based on lack of subject matter jurisdiction, and the state circuit court concluded that the matter had become a religious dispute which deprived the court of jurisdiction under the First Amendment. Hutterville Hutterian Brethren, Inc. v. Waldner, 791 N.W.2d at 172-174.
In affirming the state circuit court's dismissal of the action, the South Dakota Supreme Court reasoned that the First Amendment and article VI, § 3 of the South Dakota Constitution preclude civil courts from entertaining religious disputes over doctrine even if a portion of the dispute involves secular claims. Hutterville Hutterian Brethren, Inc. v. Waldner, 791 N.W.2d at 175 (citing Decker ex rel. Decker v. Tschetter Hutterian Brethren, Inc., 594 N.W.2d at 364). In rejecting the Wipf faction's argument that the governance issue could be resolved by applying neutral principles governing corporate law, the South Dakota Supreme Court noted that the Wipf faction itself had advanced religious arguments contesting the validity of their excommunications to support their arguments concerning their entitlement to the corporate director and officer positions. 791 N.W.2d at 176. The South Dakota Supreme Court concluded, "Hutterville's articles of incorporation and bylaws reflect that governance of the corporation is inseparable from membership in the Hutterian Church and compliance with its religious principles." Hutterville Hutterian Brethren, Inc. v. Waldner, 791 N.W.2d at 177. The South Dakota Supreme Court concluded that since voting memberships, directorships and officerships of Hutterville are inseparable from religious principles, these matters were shielded from judicial scrutiny under the First Amendment. 791 N.W.2d at 179.
Continuing disagreements between the Kleinsasser-Waldner faction and the Wipf faction in Hutterville resulted in another lawsuit in state circuit court and another appeal to the South Dakota Supreme Court in Wipf v. Hutterville Hutterian Brethren, Inc., 808 N.W.2d 678 (S.D. 2012). While the appeal in Hutterville Hutterian Brethren, Inc. V. Waldner, 791 N.W.2d 169 (S.D. 2010), was pending, the Wipf faction brought a second action alleging that deadlock and misapplication of corporate assets was causing irreparable injury to the corporation's financial status and requested the dissolution of Hutterville and the appointment of a receiver to carry out the business of the corporation while Hutterville wound up its business. The Kleinsasser-Waldner faction unsuccessfully moved the trial court to dismiss for lack of subject matter jurisdiction on First Amendment grounds. The circuit court ruled that Hutterville's directors were deadlocked, that Hutterville was not functioning as a communal corporation and was incapable of carrying out its corporate purposes. The circuit court therefore ordered Hutterville dissolved pursuant to S.D.C.L. § 47-26-22,  and appointed Harvey C. Jewett, a defendant in the case at hand, as the receiver to divide the corporate property among the Hutterville membership, a group that the circuit court defined as "persons of the age of 8 and older who resided upon the real property of [Hutterville] on November 17, 2010." In reversing the circuit court on jurisdictional grounds, the South Dakota Supreme Court concluded "that the underlying religious controversies over church leadership so pervade the dissolution of the religious corporation that the dissolution is beyond a secular court's jurisdiction." Wipf v. Hutterville Hutterian Brethren, Inc., 808 N.W.2d at 686.
Before the Wipf v. Hutterville Hutterian Brethren, Inc . case was remitted to the circuit court, Jewett, as the appointed receiver, moved for approval of his accounting, for payment of his fees and expenses, and for payment of a bill from Siegel, Barnett & Schutz, LLP. The circuit court approved Jewett's actions and accounting, although it denied payment of the bill from Siegel, Barnett & Schutz, LLP. The circuit court terminated the receivership and discharged Jewett on October 25, 2012. Both parties appealed from the circuit court's decision. While this federal action has been pending, the South Dakota Supreme Court affirmed the circuit court's exercise of control over the Hutterville property after the remand and affirmed the circuit court's order that Jewett, his staff and counsel were "released and discharged from any claims by, and liability of any nature to Hutterville Hutterian Brethren, Inc., Beulah Hutterian Brethren, Inc., and their respective members, directors, officers, successors, affiliates, and assigns relating, directly or indirectly to the actions, decisions, receipts, disbursements, and accountings involved with the administration of the receivership." Wipf v. Hutterville Hutterian Brethren, Inc ., 834 N.W.2d 324, 334 (S.D. 2013).
At all relevant times in the present action the Kleinsasser-Waldner faction, led by Plaintiff George Waldner, Sr., continues to maintain that it is in control of Hutterville, and the Wipf faction, led by Johnny Wipf, continues to believe that it is in control of Hutterville. Plaintiffs allege in their amended complaint that attorneys for the law fit iii of Siegel, Barnett and Schutz and the state court receiver Harvey Jewett have conspired with others, including Johnny Wipf, who claims to be the President of Hutterville, to wrest control of Hutterville from its duly elected officers and directors and to transfer control of Hutterville's business, assets and property to the Wipf faction co-conspirators. ...