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Llacua v. Western Range Association

United States District Court, D. Colorado

December 21, 2016

RODOLFO LLACUA, et al., Plaintiffs,


          Craig B. Shaffer United States Magistrate Judge.

         This case comes before the court on the referred motion (doc. #140, public entry for doc. #139) of the named Plaintiffs to amend their Second Amended Complaint (“SAC, ” doc. #73) in a proposed Third Amended Complaint (“TAC”). Doc. #139-2 (redline version). Defendants oppose that motion. Doc. #148. As follows, the court grants the motion in part and recommends denying in part.[1]


         As the court previously described in more detail in its Recommendation (doc. #125, referred to hereafter as the “Recommendation”) on motions to dismiss the SAC, five named Plaintiffs bring this lawsuit: Messrs. Llacua, Huaman, Leovegildo Vilchez Guerra, Liber Vilchez Guerra, and De La Cruz. TAC ¶¶ 18-22. The Recommendation recites the SAC's allegations and claims in detail, and the court here assumes familiarity with it. To summarize, Plaintiffs bring a putative class action. Plaintiffs allege that they are “originally from Peru” and worked in the United States as “H-2A shepherd[s].” TAC ¶¶ 18-23. Plaintiffs allege that two industry associations (Western Range Association, “WRA, ” and Mountain Plains Agricultural Service, “MPAS, ” collectively the “Associations”) and five ranches[2] who are members of one or both Associations violated § 1 of the Sherman Act by agreeing to fix shepherds' offered and paid wages. Plaintiffs further allege that the Associations and Dennis Richins, a former officer of WRA, violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1964(c). Plaintiffs also bring several state law claims.

         The U.S. Department of Labor (“DOL”) regulates the employment of foreign shepherds under the H2-A program. The DOL requires employers to “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.” TAC ¶ 47 (quoting 20 C.F.R. § 655.122(a)). The employer must offer the “worker at least the AEWR [Adverse Effect Wage rate], the prevailing hourly wage rate … or the Federal or State minimum wage rate, in effect at the time work is performed, whichever is highest, for every hour or portion thereof worked during a pay period.” TAC at ¶ 48 (quoting 20 C.F.R. § 655.122(1)). For convenience, the court refers to these state-by-state mandatory minimum wages as the “minimum wage.”

         This case has been pending since September 1, 2015, when two of the Plaintiffs filed the original complaint. Doc. #1. Plaintiffs have amended the complaint twice. Defendants moved to dismiss each version. On March 8, 2016, the court held a scheduling conference. Doc. #112. In light of the then-pending motions to dismiss, the court did not enter a scheduling order. Doc. #112. Accordingly, the court has not yet set a deadline for motions to amend the pleadings. The parties have proceeded with some discovery. Id.

         On June 3, 2016, this court recommended dismissal of the SAC's federal claims with prejudice and recommended that the district court decline to exercise supplemental jurisdiction over the state law claims. Recommendation at pp. 41-42. On July 1, 2016, Plaintiffs objected to the Recommendation; on August 1, 2016, Defendants responded in support of the Recommendation. Docs. #131, 135, 136. Soon thereafter, on August 18, 2016, Plaintiffs filed their motion to amend the SAC, requesting that if Judge Blackburn agreed with the Recommendation that the Plaintiffs be permitted to file a proposed TAC. Doc. #139.[3] On September 6, Judge Blackburn overruled Plaintiffs' objections and adopted the Recommendation, except modifying to dismiss the federal claims without prejudice to Plaintiffs' motion to amend. Doc. #142. Plaintiffs then filed a notice of supplemental authority in support of their motion to amend (doc. #144) and a reply. Doc. #152. Judge Blackburn referred the motion to amend to this court.


         I. The Standard for Motions to Amend the Complaint.

         Rule 15(a) provides that “[t]he court should freely give leave when justice so requires.” Fed.R.Civ.P. 15(a)(2). “The purpose of the Rule is to provide litigants the maximum opportunity for each claim to be decided on its merits rather than on procedural niceties.” Minter v. Prime Equip. Co., 451 F.3d 1196, 1204 (10th Cir. 2006) (citations and internal quotation marks omitted).

If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason-such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.-the leave sought should, as the rules require, be “freely given.”

Foman v. Davis, 371 U.S. 178, 182 (1962). Here, Defendants oppose the motion on the grounds of failure to previously cure deficiencies, undue prejudice, undue delay, and futility. The court addresses futility first, as it is dispositive for most of the proposed federal claims.

         II. Antitrust Claims

         “A proposed amendment is futile if the complaint, as amended, would be subject to dismissal.” Full Life Hospice LLC v. Sebelius, 709 F.3d 1012, 1018 (10th Cir. 2013) (internal quotation marks omitted). However, “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of [the alleged] facts is improbable, and that a recovery is very remote and unlikely.” Sanchez v. Hartley, 810 F.3d 750, 756 (10th Cir. 2016)).

         The legal standards for a § 1 claim and the pleading standard for its conspiracy element have not changed since the court discussed those standards at length in the Recommendation. Doc. #125 at pp. 9-17. “The essence of a claim of violation of Section 1 of the Sherman Act is the agreement itself.” Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1082 (10th Cir. 2006). “[T]he crucial question' is whether the challenged anticompetitive conduct ‘stem[s] from independent decision or from an agreement, tacit or express.'” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 553 (2007). “[W]hen allegations of parallel conduct are set out in order to make a § 1 claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.” Id. at 556-557. The allegations in Twombly are quite similar to Plaintiffs' allegations here: multiple corporate defendants engaged in the same conduct as their competitors, consistent with the regulatory system that governed the business in question. Id. at 567-68. With no allegations of direct evidence that the defendants had agreed among themselves to engage in that conduct, the Supreme Court held that circumstantial allegations of parallel conduct were insufficient to state a § 1 Sherman Act claim. Id. at 564-66.

         A. Plaintiffs' Antitrust Allegations Taken as a Whole

         In the SAC, Plaintiffs alleged that MPAS, WRA, and their members conspired to fix the wages offered and paid to shepherds. Plaintiffs alleged that Defendants agreed to offer domestic and foreign shepherds only the minimum wage. They alleged that the job orders for domestic shepherds went unfilled, such that Defendants hired only foreign shepherds. Plaintiffs further alleged that Defendants agreed to fix the wages that they paid at the minimum wage. The court concluded that the SAC's alleged conspiracy was not plausible under Twombly because (a) the Associations were authorized by statute to recruit and hire on behalf of their members, and thus were authorized to set the offered wages for their members, and (b) Defendants' uniform offering and paying only the minimum wage was consistent with a conspiracy but not suggestive of it because the same conduct was equally or more likely the result of parallel decisions under the H-2A regulatory system. Recommendation at pp. 20, 29.

         In their motion to amend, Plaintiffs do not propose to cure the deficiencies of the SAC with any direct allegations of an agreement, nor any new circumstantial allegations that would be plausible in light of the H-2A regulatory environment. Plaintiffs continue to allege conclusorily that the Associations are anticompetitive combinations of competitors. TAC at ¶¶ 66, 88. They also continue to allege that all Defendants conspired to fix the wages offered to shepherds at the minimum wage. TAC at ¶¶ 5, 6, 7(i), 68, 170. Plaintiffs seek to add more detail regarding the Associations' setting of the offered wages at the minimum wage, and the members' knowing delegation of hiring to the Associations. Id. at e.g., ¶¶ 68, 69, 90, 91, 117-158, 246-50.

         However, the proposed Third Amended Complaint drops the alleged conspiracy to fix wages paid to foreign shepherds. TAC at e.g., ¶¶ 4, 7(i), 7(ii), 91, 409, 412. Plaintiffs now concede that Defendants (and some non-party ranches) at times pay experienced foreign shepherds varying amounts above the minimum wage. Id. at ¶ 7(iv), 177-203, 217, 221, 222.[4]Plaintiffs allege that shepherding is a skilled profession in which years of experience at a ranch make a shepherd's services more valuable. See, e.g., TAC at ¶¶ 160-174, 175, 206-209. Plaintiffs point to admissions of some Defendants regarding the value of shepherds' experience. TAC at e.g., ¶¶ 160, 240. Thus, Plaintiffs claim that although Defendants actually paid foreign shepherds varying amounts above the minimum wage, they still offered only the minimum wage.[5]

         For purposes of factual support for the fixing of offered wages, Plaintiffs continue to allege many facts that regard only paid wages. See, e.g., TAC at ¶¶ 104-110, 137-141, 150, 153 (alleging Association correspondence, handbook, and DOL wage surveys). Plaintiffs allege that Defendants' payments of higher wages support a conspiracy to fix the offered wages in two ways. First, they claim that the variation in pay shows that a shepherd's skill and experience have additional value, and thus the lack of variation in offered pay must show an agreement to fix wages. TAC at ¶¶ 7(i), 7(ii), 159, 175. This theory does not take into account the equally logical explanation that Defendants independently offer only the minimum wage because they do not need to differentiate their job openings by years of experience. Plaintiffs do not allege anything in the H-2A regulatory system that requires the employer to offer positions differentiated by experience level.

         Second, Plaintiffs allege that (a) Defendants pay higher wages but do not disclose them to DOL, (b) the nondisclosure subjects Defendants to risks of DOL fines and debarment from H-2A for noncompliance with 20 C.F.R. § 655.122, and (c) Defendants run those risks only to protect their agreement to fix offered wages at the minimum wage. TAC at ¶¶ 7(iii), 83-86, 177-182, 210-215; Doc. #152 at p.7. As with the SAC, Plaintiffs continue to ignore that their own allegations suggest more likely explanations for Defendants' uniform offers of the minimum wage: each Defendant wished to hire foreign shepherds under the H-2A program to take advantage of their “vulnerable immigration status.” TAC at ¶ 9.

         Plaintiffs allege that Defendants wish to exploit foreign workers' immigration status so that among other things, Defendants can obtain the value of their experience without needing to pay more than “slight premiums” for it. TAC at ¶¶ 9-11, 82, 214-215. Plaintiffs allege that Defendants know that in light of other, similar jobs paying higher wages or offering better conditions, the minimum wage is (or was, prior to November 2015) too low to attract domestic shepherds. Id.; see also TAC at ¶¶ 229-37. Offering the minimum wage ensures that the Defendants can hire foreign shepherds under H-2A. Thus, the H-2A regulatory system gives each Defendant an individual, parallel incentive to offer only the minimum wage.

         As the Recommendation concluded, there is no need for an agreement to do what the Defendants would do anyway. Doc. #125 at p. 29. Regardless that nondisclosure of higher wages may violate 20 C.F.R. § 655.122(a) or other H-2A rules, [6] a ranch's rule violation does not carry over to the association or vice versa “unless the OFLC Administrator determines that the association or another association member participated in the violation.” 20 C.F.R. § 655.182(a). Twombly rejected the theory that multiple defendants' alleged regulatory violations suggest conspiracy. Recommendation at p. 13 (quoting Twombly, 550 U.S. at 566). Moreover, Plaintiffs in this case continue to infer that prior to the November 2015 rule change, disclosing the higher paid wages to DOL would have resulted in Defendants paying a higher minimum wage going forward. See, e.g., TAC at ¶¶ 104-105. Thus, each Defendant had a direct, independent self-interest to not disclose the higher wages to DOL. As in the SAC, Defendants' alleged conduct is equally explainable by consciously parallel decisions.[7]

         In their motion, Plaintiffs do not cite any new cases regarding when a § 1 claim based on only circumstantial evidence of an agreement is plausible. Instead, Plaintiffs again argue that the Association Defendants' setting of wages for their members is sufficient, specifically asserting that “the existence of associations that uniformly offer wages for their members' employees … constitutes allegations that, if true, are direct evidence of an agreement to restrain trade in violation of the Sherman Act.” Doc. #152 at p. 2 n.1. In Plaintiffs' view, if an industry association sets the offered wage for its members, the association itself manifests the competitors' agreement to unreasonably restrain trade.

         Other than now asserting that the Association Defendants are direct evidence of an agreement, this is the same unavailing “association standard” argument. Recommendation at pp. 21-24. More is required than merely the existence of an industry association whose membership is comprised of competitors: “a legally single entity violate[s] [Section] 1 when the entity [i]s controlled by a group of competitors and serve[s], in essence, as a vehicle for ongoing concerted activity.Am. Needle, Inc. v. Nat'l Football League, 560 U.S. 183, 191 (2010) (emphasis added). An association is a vehicle for concerted antitrust activity when it requires its members to actively participate in the association's anticompetitive conduct; this generally requires showing association rules, canons or agreements that prohibit members from competing. Recommendation at pp. 20-23 (citing cases).

         Plaintiffs rely again on a case that they cited in opposing the motions to dismiss, Beltran v. InterExchange, Inc., 176 F.Supp.3d 1066 (D. Colo. 2016). In Beltran, the plaintiffs alleged direct evidence of an agreement in that “several of the [Defendant] Sponsors' employees (the ‘Directors') explicitly admitted to Plaintiffs' investigator that the Sponsors had expressly agreed among themselves to keep au pair wages at the lowest possible level;” the complaint also alleged the specific telephone conversations in which those admissions occurred. Beltran, 176 F.Supp.3d at 1073-74. The court did not find the defendants' memberships in (or officers' ties to) an industry association in themselves made the conspiracy plausible. Rather, the plaintiffs alleged that the industry association had recently sponsored a key note speaker who, in a published article, advocated that the members should not compete with each other on au pair wages. Id. at 1078. That fact was part of the circumstantial evidence that, together with the direct admissions, the court found plausibly alleged antitrust conspiracy. Id. at 1079. Thus, Beltran still does not support Plaintiffs' contention.[8]

         Plaintiffs also cite a treatise on which they relied in their objections to the Recommendation, 7 P. Areeda & H. Hovenkamp, Antitrust Law ¶ 1477, p. 337 (3d Ed. 2006). Plaintiffs rely on this treatise to argue “the Courts have had little difficulty in treating organizations created to serve their member-competitors or to regulate their market behavior as continuing ‘agreements' among the members, ” for purposes of finding an ‘agreement' in restraint of trade.” Doc. #152 at p. 2, n.1 (quoting Areeda and Hovenkamp ¶ 1477, p. 337). Section 1477 addresses intraenterprise conspiracy, i.e., the circumstances in which a single organization, such as a trade association, is capable of constituting a conspiracy despite being incapable of conspiring within itself. The treatise recognizes that trade associations are

routinely treated as continuing conspiracies …of their members … [but] [o]f course that leaves the second question, whether the trade association's decision controls the members' behavior in some way. * * * This brings association rules having a competitive impact within the reach of §1 of the Sherman Act.

Areeda and Hovenkamp ¶ 1477 at pp. 332-333. The trade association as a collaboration of competitors is generally permissible, and “the courts focus on and remedy only a particular alleged impropriety - such as a particular rule forbidding the members from engaging in competitive bidding.” Areeda and Hovenkamp ¶ 1477 at pp. 333-34. The treatise then discusses several examples of associations that controlled their members' actions through rules or canons requiring non-competition. Id. at 334-337. These are the same cases on which Plaintiffs misplaced their reliance in opposing the motions to dismiss. Recommendation at pp. 22-23. Just like the SAC, the TAC does not point to any rules, canons or membership agreements of WRA or MPAS that prohibit members from offering above the minimum wage.[9] The Areeda and Hovenkamp treatise does not support Plaintiffs' argument regarding the Associations.

         Furthermore, Plaintiffs' association argument continues to ignore that the H-2A program specifically authorizes associations to handle recruitment and hiring for ranches. 29 U.S.C. § 1801(d);[10] 8 U.S.C. § 1188(d)(1) (“[a] petition to import an alien as a temporary agricultural worker, and an application for a labor certification with respect to such a worker, may be filed by an association of agricultural producers which use agricultural services”); 20 C.F.R. § 655.131 (“[a]ssociations of agricultural employers may file an Application for Temporary Employment Certification for H-2A workers as a sole employer, a joint employer, or agent”); 20 C.F.R. § 655.215(b)(1) (Nov. 16, 2015) (H-2A applications for foreign herding and range livestock workers “may be filed by an individual employer [or] association”). Therefore, the fact that the Associations set the offered wages for their members does not make plausible that the Associations are vehicles for anticompetitive activity. See Recommendation at p. 20.

         Thus, at least in the H-2A context, the fact that members “knowingly allocate decisions regarding the wages offered to domestic shepherds to these associations constituted by competitor ranchers” (TAC ¶ 68; see also Id. at ¶ 90; ¶¶ 246-250) does not suggest a conspiracy. Alleging that the members “do so with the knowledge that the Association Defendants use job orders to illegally fix shepherd wages at the wage floor in each state” (Id. at ¶ 68; see also Id. at ¶ 6) is the same conclusory assertion as in SAC ¶ 91. Recommendation at p. 19. It remains conclusory. That each ranch “knew or should have known that it was not prohibited [by DOL] from setting its own offered wages, but instead decided to delegate that function to the Associations, ” TAC ¶ 247(v), likewise does not suggest that the ranches delegated hiring to WRA because of a conspiracy. It is equally if not more likely that the ranches delegated to WRA because they wished to participate in the H-2A program (TAC at ¶¶ 9-11, 82, 214-215), and delegating was more efficient than each ranch individually handling its own H-2A hiring. See, e.g., 20 C.F.R. § 655.121(2) (associations can file master applications on behalf of several ranches).

         In short, Plaintiffs' motion to amend and proposed amendments do not attempt to meet the pleading standards for § 1 antitrust conspiracy claims noted in the Recommendation. Nor do Plaintiffs' rely on new cases to take issue with those pleading standards. Just as the court concluded in the Recommendation, Plaintiffs must meet Twombly's requirement of fact allegations that are not equally likely caused by consciously parallel conduct. None of the documents attached to the TAC and none of the specific, proposed fact allegations meet that standard, as follows.

         B. Attachments to the TAC: MPAS Job Orders for Domestic Shepherds

         Even if Plaintiffs had otherwise pled facts to make the conspiracy plausible, several of the job orders that Plaintiffs attach to the TAC contradict that conspiracy.[11] The court can consider the attachments to the TAC at the Rule 12(b)(6) phase. Tal v. Hogan, 453 F.3d 1244, 1264 n.24 (10th Cir. 2006). See also Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). Several of the MPAS[12] job orders to U.S. workers offer compensation above the minimum wage, and do so in terms varying from ranch to ranch. See, e.g., Doc. #139-3 at p. 4 ¶ 18 (2015 job order for Auza, “[e]mployer may offer a bonus”); Id. at p. 20 ¶ 18 (2014 job order for Child Ranch, “[e]mployer, at the employer's discretion, may pay wages higher than the established minimum wage rate.”); Doc. #139-4 at p. 4 ¶ 18 (2015 job order for Estill Ranches, “[b]onuses and/or wages that are higher than the guaranteed wage rate may be offered at the employer's discretion. Any such added benefit(s), if elected by the employer, will be applied in a non-discriminatory manner to all employees under this job order who meet the employer's determined criteria, example: length of service with the employer.”); Id. at p. 30 ¶ 18 (2015 job order for Two Bar, same language as for Estill).[13] Indeed, Plaintiffs indirectly recognize these facts in alleging that “MPAS admits that ‘some employers offered and paid base wages in excess of the published minimum, wage established by DOL' and notes that ‘some offered opportunities to earn additional pay and bonuses.'” TAC at ¶ 183 (footnote omitted). Because the TAC attachments show that MPAS, Auza and Two Bar offered above the minimum in their job orders, the court cannot infer that these Defendants agreed to fix offered wages to domestic shepherds.

         Plaintiffs allege that these differences in the compensation that MPAS, Auza and Two Bar offered are insignificant because they do not state specific amounts for potential bonuses, which Plaintiffs assert is a violation of unspecified DOL regulations. See, e.g., TAC at ¶¶ 83, 84. This is a legal conclusion that the court need not accept as true. In 20 C.F.R. § 655.122, DOL defines the content that it requires for job offers, and it does not mention any requirement that the employer must specify the amounts of potential bonuses or potentially higher wages. 20 C.F.R. § 655.122(a)-(q). The rule prohibits the employer from providing better compensation to foreign shepherds than it offers to domestic workers, but it does not specify the level of detail that the employer must disclose regarding offered compensation:

The employer's job offer must offer to U.S. 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. Job offers may not impose on U.S. workers any restrictions or obligations that will not be imposed on the employer's H-2A workers.

20 C.F.R. § 655.122(a) (emphasis added). The H-2A form likewise requires the ranch to certify that “[t]he job opportunity offers U.S. 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 and complies with the requirements at 20 CFR 655, Subpart B.” Doc. #139-6 at p. 8 ¶ 4 (emphasis added). So long as the job orders describe the compensation in sufficient detail to ensure the employer describes no less than what it intends to offer to foreign shepherds, and at least meets the minimum wage, the rule does not impose any particular requirements on how the compensation must be described.

         Plaintiffs also argue that notwithstanding these offers of potential bonuses and higher wages, the base wage rates MPAS uniformly offered were the minimum wage. Doc. #152 at p. 9. In support of their theory that the base wage rate is the key and potential bonuses are immaterial, Plaintiffs cite In re High Fructose Corn Syrup Antitrust Litig., 295 F.3d 651, 656 (7th Cir. 2002). The case does not support Plaintiffs' argument. High Fructose notes that an agreement to fix list prices (here, offered wages) can constitute a per se violation of § 1. However, the court expressly recognized that the existence of list prices and transactions based off of them do not in themselves show more than parallel conduct.

[I]f many sales are made at prices below the list price, the fact that the sellers' list prices are the same is not compelling proof of collusion. … But it wouldn't be anyway, since identical list prices might be ...

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