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May 19, 1989

ATWOOD GRAIN & SUPPLY COMPANY, et al., Plaintiffs,
GROWMARK, INC., et al., Defendants

James B. Zagel, United States District Judge.

The opinion of the court was delivered by: ZAGEL


 Plaintiffs are each shareholders in Growmark, Inc., a Delaware corporation. Plaintiffs, in their individual capacity, seek damages against Growmark and complain that Growmark's Board of Directors fraudulently made decisions involving the sale of corporate assets which reduced the value of plaintiffs' shares, ignored plaintiffs' voting rights and deprived plaintiffs of the Growmark grain marketing system. In their seven count complaint plaintiffs allege that Growmark and Kenneth P. Baer, an officer at Growmark (referred to collectively as "Growmark") violated the Securities Exchange Act of 1934, violated Racketeer Influenced and Corrupt Organizations Act (RICO), engaged in common law fraud, breached their corporate fiduciary duties, and plaintiffs request that this court establish a constructive trust in their favor. The federal securities claim and the RICO claims are also directed at Archer Daniels Midland Company (ADM), who was the purchaser of some of Growmark's assets. *fn1"

 Defendants each filed a Motion to Dismiss the Complaint on the grounds that plaintiffs 1) lack standing to sue in their individual capacity, 2) lacked any legal right to vote on the transactions effected by Growmark's board, and 3) lacked any legal right to the services they claim to have lost as a result of the transactions.


 A. Background

 Each plaintiff is an independent cooperative association which owns grain storage facilities. Each grain facility has farmers who are its members and sell them grain. Plaintiffs, in turn, sell and transport the grain to various regional agricultural cooperatives, such as defendant-Growmark, Inc., of which plaintiffs are members. In addition to membership status, at all relevant times, each plaintiff held one share of Series G Common Stock in Growmark. Before becoming shareholders in Growmark, plaintiffs owned shares in the Illinois Grain Corporation (IGC), an agricultural marketing cooperative which owned seven grain elevators along the Illinois and Mississippi Rivers. IGC was also a shareholder in Farmers Export Company which owned a grain elevator in Ama, Louisiana.

 IGC gave a rebate of a portion of its net profits to its members each year, reflecting the amount of business conducted by the member with IGC. IGC often distributed these "patronage rebates" partially in cash and partially in Class E Preferred Stock. The Class E stock was distributed in amounts reflecting the retained earnings to which each member was entitled. The retained earnings were then used to make further capital investment for the benefit of the owners. In addition, Class E Preferred Shareholders received dividends each year. IGC instituted a stock redemption plan and by 1976, except for the amount required for the plaintiffs to maintain a minimum investment in IGC, all the Class E Preferred Stock issued prior to 1972 had been redeemed.

 Growmark, a Delaware corporation with its principal offices in Bloomington, Illinois, was formed in 1980 when IGC combined its operations with another agricultural cooperative, FS Services, Inc. IGC was a grain cooperative and FS Services was a supply cooperative, which provided fertilizers, seeds and other supplies to its members. As part of the combination, IGC transferred to Growmark the grain storage and handling facilities which had been capitalized by plaintiffs and other IGC members. At the time of the transfer plaintiffs' investment in the grain handling facilities and their retained earnings in IGC's books (and subsequently Growmark's books) was approximately $ 2.75 million. After the merger Growmark operated in two unincorporated divisions -- a supply division and a grain division. Members of one division receive no benefit from and do no business with the other divisions of Growmark unless they are members of that division. IGC shareholders became members of the grain division and accepted Growmark's G Series Preferred Stock in exchange for their IGC stock. As G series members of Growmark plaintiffs were also entitled to trade their grain through the Illinois Cooperative Futures Company (ICFC) at reduced commission rates. ICFC owned six seats on the Chicago Board of Trade.

 Plaintiffs contend that between March 1980 and October 1985 Growmark used the retained earnings allocated to each plaintiff's series G account but barred plaintiffs from realizing any return on their investment. During that time Growmark claimed losses in the grain business and refused to pay G series members any grain patronage rebates and refused to redeem any of plaintiffs' preferred stock.

 B. The Transactions

 Archer Daniels Midland Company (ADM) is a grain processor and marketer and also owns grain elevators. On September 5, 1985, Growmark entered into a contract with ADM pursuant to which Growmark agreed to sell the river elevators it had acquired from IGC to ADM in exchange for ADM Common Stock (the "Asset Sale").

 Growmark held two meetings, on September 5, the date the deal was consummated, and on September 23 to explain the transaction to the shareholders. At the meetings Growmark told the shareholders they anticipated the sale would benefit them. Plaintiffs now complain that Growmark failed to disclose the financial terms and the Asset Plan to shareholders and that shareholders were never permitted to vote on the transaction. Plaintiffs also object to the sale of the Louisiana grain elevator to ADM by Farmers Export Company (FEC). Growmark is a shareholder in FEC and voted for that sale, and plaintiffs complain that they should have been consulted. Plaintiffs contend that the consideration paid for the Growmark facilities was less than their market value and thus deprived them of the full value of their stock holdings.

 A year and a half after the Asset Sale, Growmark exercised its majority shareholder status in ICFC, a corporation which traded grain future contracts on the Chicago Board of Trade, to liquidate the firm. According to plaintiffs this deprived them of the reduced commission rates on grain trades, the last remaining benefit of their G series ...

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