Court Opinion

ID: 205061
Source: CourtListenerOpinion
Date Created: 2011-02-18 00:12:02+00
Date Added: 2024-06-11T09:06:20.704167
License: Public Domain

REVISED FEBRUARY 17, 2011

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                              United States Court of Appeals
                                                                       Fifth Circuit

                                                                   FILED
                                 No. 10-10039                 December 21, 2010

                                                                 Lyle W. Cayce
                                                                      Clerk
CITY OF CLINTON, ARKANSAS

                                           Plaintiff-Appellant
v.

PILGRIM’S PRIDE CORPORATION

                                           Defendant-Appellee

                Appeal from the United States District Court
                     for the Northern District of Texas

Before KING, GARWOOD, and DAVIS, Circuit Judges.
GARWOOD, Circuit Judge:
      Defendant-appellee Pilgrim’s Pride Corporation (Pilgrim’s) is the owner
of a facility for growing and processing poultry in the City of Clinton, Arkansas
(City). Pilgrim’s acquired the facility in 2004 from another poultry processing
company, ConAgra. In October 2008, Pilgrim’s announced that it would close its
operations in the City. Pilgrim’s subsequently filed for relief under Chapter 11
of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., on December 1, 2008.
      As a result of the plant’s closure, the City has experienced economic
distress, including difficulty in repaying debts the City incurred in the
                                  No. 10-10039

construction of a water purification system designed to serve the needs of the
poultry plant. On June 1, 2009, the City of Clinton initiated an Adversary
Proceeding in Bankruptcy Court, alleging that Pilgrim’s violated the Packers
and Stockyards Act (PSA), 7 U.S.C. §§ 187 et seq., by closing the plant “for the
purpose” and with the “effect” of manipulating the price of commodity chicken,
id. at §192(a)-(e), and further alleging fraud, fraudulent non-disclosure, and
promissory estoppel. The District Court for the Northern District of Texas, Fort
Worth Division, withdrew the case from Bankruptcy Court on August 18, 2009
pursuant to 28 U.S.C. § 157(d).
      On September 15, 2009, the district court dismissed without prejudice the
City’s original complaint, finding that the City lacked standing to pursue its
claims under the PSA, and that the City’s complaint failed to state a claim for
promissory estoppel, fraud, or fraudulent non-disclosure. The City subsequently
filed a motion for leave to amend, and attached a proposed First Amended
Complaint that sought to plead the fraud and promissory estoppel claims with
sufficient specificity and to add claims for violations of the Arkansas Deceptive
Trade Practices Act (ADTPA) and unjust enrichment. The district court denied
leave to amend on the basis that amending the complaint would be futile, and
dismissed the civil action with prejudice. The district court thereafter entered
a Rule 54(b) Final Judgment. The City appeals the judgment. Although the
amended complaint repeated the claims for violation of the PSA, fraudulent non-
disclosure, and attorneys fees, the City does not challenge on appeal the
dismissal of any of those claims. Judgment in favor of Pilgrim’s and adverse to
the City has thus become final on each of those claims. Cf. Nilsen v. City of Moss
Point, 701 F.2d 556 (6th Cir. 1983) (en banc). Rather, the instant appeal

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                                 No. 10-10039

concerns only the adequacy of the allegations related to the City’s claims of
fraud, promissory estoppel, unjust enrichment, and the Arkansas Deceptive
Trade Practice Act (ADTPA).
                               BACKGROUND
      The proposed amended complaint attempts to add specificity to the
City’s allegations that both ConAgra and Pilgrim’s represented to the City
that if the City expanded its water treatment facilities to meet their needs,
they would keep the facility open and operational, or in the event that the
facility closed, would pay off the remaining bonds for the expansion. To this
end, the City relies entirely upon two oral statements by representatives of
ConAgra, which is not a defendant herein, and Pilgrim’s, that allegedly
induced the City to undertake the expansion project.
      First, the City alleges that in January 1985, the City Council and the
Water and Sewer Department met with management for ConAgra to discuss
the proposed expansion of the City’s water and sewer facilities to meet the
needs of the ConAgra poultry plant and the proposed issuance of 40-year
municipal bonds by the City to fund the expansion. City Councilman Paul
Bone allegedly asked the ConAgra representatives how the City would repay
the bonds if ConAgra “pulled up stakes and left.” Mr. Hooper, ConAgra’s
Clinton Plant Manager, allegedly replied: “We will not go off and leave you
holding the bag.” The City allegedly understood this statement, coupled with
the silence of the other attending ConAgra representatives, as a promise by
ConAgra not to close the plant without the bonds having first been paid off
and as inducement to the City to issue the bonds and expand the City’s water
treatment system. The City issued a series of bonds, beginning in 1986,

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                                       No. 10-10039

allegedly in reliance on ConAgra’s said promise. Pilgrim’s acquired the plant
in 2004.1
        Second, the City alleges that Pilgrim’s ratified this 1985 ConAgra
promise on January 31, 2004. On that date, Bob Hendrix, a senior vice
president of Pilgrim’s, stated that Pilgrim’s would “have a long-term
commitment to the City of Clinton” as its “community partner.” The
statement was allegedly made at “a meeting of the Clinton Chamber of
Commerce,” attended that day by the City’s mayor and Water and Sewer
Commission president, among others. The proposed amended complaint
alleges that this statement “was false because, at the time it was made,
Pilgrim’s did not intend to make a long-term commitment to the City of
Clinton” and “[i]n fact, at the same time, Pilgrim’s was reviewing plans to
close the Clinton processing plant.” It is further alleged that “Pilgrim’s
intended for” the City “to rely upon” Hendrix’s said statement “in making
further expenditures for water and sewer facilities” and that the City “relied
upon this promise by Pilgrim’s by continuing to incur [unspecified] significant
debt in order to keep the poultry plant in Clinton, Arkansas in operation.”
The complaint alleges that over four years later “in October 2008" Pilgrim’s
announced “it was closing its operations in Clinton,” and completed doing so
within the next thirty days. Pilgrim’s filed for Chapter 11 on December 1,
2008.

        1
        The proposed amended complaint alleges that “[i]n 2004, Pilgrim’s purchased all of the
poultry operations and assets of ConAgra Foods, a competitor, and thereby became the owner,
operator, and successor in interest to ConAgra with respect to a processing plant and grower
operations in Clinton, Arkansas.”

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                                 No. 10-10039

      After evaluating the City’s amended complaint, the district court
dismissed all of the City’s claims with prejudice. The district court found that
the 1985 and 2004 statements contained no facts and could not serve as a
material misrepresentation or operative act to support a fraud, promissory
estoppel or unjust enrichment claim. In addition, the district court found that
the statements relate to future events and therefore could not form the basis
of a fraud action. The district court also found that the City could not
maintain an action under the ADTPA because the City was not a “person”
under that statute.
                          STANDARD OF REVIEW
      Ordinarily, this court reviews the denial of a motion for leave to file an
amended complaint for abuse of discretion. However, where, as here, the
district court’s denial of leave to amend was based solely on futility, we apply
a de novo standard of review identical, in practice, to the standard used for
reviewing a dismissal under Rule 12(b)(6). Wilson v. Bruks-Klockner, Inc.,
602 F.3d 363, 368 (5th Cir. 2010). Under the 12(b)(6) standard, all well-
pleaded facts are viewed in the light most favorable to the plaintiff, but
plaintiffs must allege facts that support the elements of the cause of action in
order to make out a valid claim. See Bell Atlantic Corp. v. Twombly, 127 S.Ct.
1955, 1965 (2007) (“Factual allegations must be enough to raise a right of
relief above the speculative level.”). We do not accept as true “[t]hreadbare
recitals of the elements of a cause of action, supported by mere conclusory
statements.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).

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                                       No. 10-10039

       This court may affirm the district court’s dismissal “on any grounds
supported by the record.” Hosein v. Gonzales, 452 F.3d 401, 403 (5th Cir.
2006).
                                      DISCUSSION
       All of the City’s claims at issue in this appeal– fraud, promissory
estoppel, unjust enrichment, and violation of the ADTPA– stem from the two
alleged “promises” by Hooper and Hendrix, respectively described above.
A. Fraud
       In order to make out a claim for fraud under Arkansas law,2 the
plaintiff must allege “(1) a false representation of a material fact; (2)
knowledge that the representation is false or that there is insufficient
evidence upon which to make the representation; (3) intent to induce action or
inaction in reliance upon the representation; (4) justifiable reliance on the
representation; and (5) damage suffered as a result of the representation.”
Bomar v. Moser, 251 S.W. 3d 234, 241 (Ark. 2007). As with any 12(b)(6)
motion to dismiss, we accept well-pled factual allegations as true, but
plaintiffs must allege “a plausible entitlement to relief” in order to withstand
the motion. Twombly, 127 S.Ct. at 1967-69. Fraud claims must also meet the
heightened pleading standard of Rule 9(b), under which “a party must state
with particularity the circumstances constituting fraud.” FED. R. CIV. P. 9(b).

       2
         As the district court noted, there is a choice-of-law issue here, between the laws of
Texas (the state in which the district court sat in diversity) and Arkansas (where the disputed
actions took place). The district court found that the two states’ laws were identical and so
declined to perform the choice-of-law analysis. For our purposes, since the City’s amended
complaint argues that Arkansas law applies, and since we conclude that the amended
complaint fails to state a claim under Arkansas law, we need not reach the choice-of-law issue
or analyze Texas law.

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                                  No. 10-10039

      The district court was correct in finding that the City’s proposed
amended complaint’s allegations of fraud are deficient, and that as a result,
allowing amendment of the fraud claim would be futile. First, the City’s
amended complaint fails to sufficiently plead that there has been a false
representation of a material fact, because the statements by Hooper and
Hendrix upon which the City relies simply do not contain any material facts.
Because a false statement is, by definition, material only “if a reasonable
person would attach importance to and be induced to act on the information,”
we have held that statements that are so inherently vague and ambiguous
cannot be material. Shangdong Yinguang Chem. Indus. Joint Stock Co. v.
Potter, 607 F.3d 1029, 1033 (5th Cir. 2010). Hooper’s January 1985 statement
that ConAgra “will not go off and leave you holding the bag,” even when
considered in the context of the meeting at which it was stated, is inherently
vague because it admits of a variety of interpretations. For example, an
equally plausible meaning to the one the City urges is that ConAgra was
promising not to close the plant right away after the City issued the bonds;
indeed, the plant did not close for over twenty-three years after the statement
was allegedly made. Hendrix’s January 2004 statement that Pilgrim’s would
“have a long-term commitment to the City of Clinton” as its “community
partner” is even more vague–it not only contains no facts on its face, but also
is devoid of context that would link it to the water system expansion in any
way. This court has held similarly vague and attenuated statements to be
insufficient to survive a motion to dismiss under the standards of Rules
12(b)(6) and 9(b). See, e.g. Potter, 607 F.3d at 1033. (“[Plaintiff] did not plead
that [Defendant] presented any detailed, corroborating information, facts or

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                                 No. 10-10039

figures to support the statement [that the company was in sound financial
condition] that might entice a reasonable person to attach importance to the
statement. Further, the statement is significantly attenuated from the
execution of [the contracts at issue] which occurred, respectively, seven and
ten months later.”).
      Moreover, the City does not allege any facts to provide a basis for its
claim that Hendrix’s oral statement constituted a “ratification” by Pilgrim’s of
the oral statement made nineteen years early by Hooper, as a representative
of ConAgra. Indeed, the City does not allege any facts indicating that
Hendrix was even aware that Hooper’s 1985 statement had been made. The
City has failed to allege a basis for holding Pilgrim’s liable for a ConAgra
plant manager’s alleged oral “promise” made nineteen years previously.
      Even if the context surrounding Hooper’s 1985 statement could be seen
as providing the requisite specificity for the statement, the City’s fraud claim
would still fail because the statements, which do not purport to be promises
at all, in any event wholly relate to future events, which cannot form the
basis of a fraud action. Se. Distrib. Co. v. Miller Brewing Co., 237 S.W. 3d 63,
74 (Ark. 2007). There is an exception to this rule where the plaintiff can show
that the defendant knew the promise was false when made, but the City has
insufficiently alleged that Hooper had any knowledge that the statement was
false at the time it was made. While the City alleges that “[a]t the time the
representation and promise was made, Mr. Hooper and ConAgra intended to
‘leave the City holding the bag’ of indebtedness...at the time the poultry
processor closed the plant,” this allegation is meaningless absent any factual
allegations concerning any then intent to close the plant, and the allegation is
essentially nothing more than a conclusory statement of the element of the

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                                  No. 10-10039

cause of action, and therefore lacks sufficient specificity. See Dorsey v.
Portfolio Equities, Inc., 540 F.3d 333, 339 (5th Cir. 2008) (“simple allegations
that defendants possess fraudulent intent will not satisfy Rule 9(b)”). While
Rule 9(b) provides that intent and knowledge “may be alleged generally,” this
is not license to base claims of fraud upon conclusory allegations. See, e.g.
Tuchman v. DSC Commc’ns Corp., 14 F.3d 1061, 1068 (5th Cir. 1994) (“To
plead scienter adequately, a plaintiff must set forth specific facts that support
an inference of fraud.”).
      The City contends that its allegations are factually similar to those in
the Arkansas Supreme Court case Tyson v. Davis, where the court found that
the plaintiffs had sufficiently evidenced fraudulent intent. Tyson v. Davis, 66
S.W.3d 568 (Ark. 2002). The cases are totally unlike. In Davis, the plaintiff,
an independent hog raiser, presented evidence that defendant, Tyson Foods,
several times specifically promised him that he would be provided hogs to
raise over a long many-year term, but that Tyson had all along actually
planned to send its hogs to other units as soon as they became operational.
Indeed, Tyson had admitted that it all along intended its business with the
plaintiff to be a stop-gap until its temporarily interrupted Missouri operations
could resume, and was instead only contesting that representations to the
contrary had ever been made. In contrast, the City in this case has alleged no
facts sufficient to support its conclusory assertion that Hooper knew his
statement to be false when made. Hendrix’s alleged statement is so vague as
to be essentially meaningless.
B. Promissory Estoppel

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                                  No. 10-10039

      The City next argues that the district court erred in denying it leave to
amend its complaint to more sufficiently allege promissory estoppel. A
plaintiff claiming promissory estoppel must allege (1) a promise by the
defendant; (2) that the defendant should reasonably expect to induce action or
forbearance; (3) that the plaintiff did act in reliance on that promise to its
detriment; and (4) that injustice can be avoided only be enforcing that
promise. Van Dyke v. Glover, 934 S.W.2d 204, 209 (Ark. 1996).
      Like the fraud cause of action, the promissory estoppel cause of action
fails because the statements by Hooper and Hendrix, upon which the City
bases its claims, are impermissibly vague and ambiguous. Such vague and
attenuated statements cannot be considered to be promises that the
defendant would reasonably expect to induce action.
      Furthermore, the City has failed to adequately allege reasonable
reliance. The City primarily argues that the district court erroneously
applied Texas, rather than Arkansas, law and that under Arkansas law the
question of reasonable reliance is for the finder of fact to determine.
However, the Arkansas law relied upon by the City still requires, with respect
to “actual reliance . . . and whether it was reasonable,” that “at the pleading
stage, the allegation must be sufficiently stated.” Van Dyke, 934 S.W.2d at
209. In federal court, the sufficiency of the pleadings is determined by federal
procedure. Cf. Duffy v. Leading Edge Prods., Inc., 44 F.3d 308 (5th Cir. 1995)
(on summary judgment in federal court diversity case, where nonmovant
would, under state law, have burden of proof at trial on a given issue, it will
have burden of proof in federal summary judgment proceedings on that issue
even though it would not have such burden as nonmovant in state court

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                                   No. 10-10039

summary judgment proceeding). Thus, before the issue of reasonable reliance
may be heard by the finder of fact, the City’s pleadings must meet the
standards set out in Rule 12(b)(6). Because the City has failed to show more
than mere conclusory allegations of justifiable reliance, the City has failed to
meet its burden. See Twombly, 127 S.Ct. at 1966. It is facially apparent that
no reasonable City official could have relied on the statements alleged and no
facts are alleged which plausibly suggest otherwise. See Iqbal, 129 S.Ct. at
1950.
        Because we conclude that the City’s amended complaint fails to state a
claim under the Arkansas law of promissory estoppel, we affirm the district
court’s ruling that amendment on this issue would be futile.
C. Unjust Enrichment
        The City also argues that it should have been granted leave to amend
its complaint to add an unjust enrichment claim. Unjust enrichment occurs
when the defendant “has received money under such circumstances that, in
equity and good conscience, he ought not to retain.” Merchants Plants Bank
& Trust Co. v. Massey, 790 S.W.2d 889, 891 (Ark. 1990).
        The City argues that the district court reached its conclusion that this
amendment would be futile by improperly imposing a requirement that an
unjust enrichment claim be predicated on another tort (e.g. fraud or
promissory estoppel). While the City is correct in stating that promissory
estoppel under Arkansas law does not require a tortious or illegal act by the
defendant, an “operative act, intent, or situation to make the enrichment
unjust and compensable” is needed. Hatchell v. Wren, 211 S.W. 3d 516, 522
(Ark. 2006).

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                                  No. 10-10039

      The “operative act” alleged by the City is the inducement by ConAgra
and Pilgrim’s–by way of Hooper and Hendrix’s statements–of the City to
undertake the water system expansion. Because the meanings of the
statements were vague and ambiguous, and because the statements were so
attenuated from the eventual closure of the facility, they do not amount to a
sufficient “operative act” that rendered the enrichment unjust and
compensable. Further, while Arkansas law of unjust enrichment does not
actually require promises or statements, the City does not otherwise allege
“circumstances...such that equitably defendant should restore to plaintiff
what he has received.” Frigillana v. Frigillana, 584 S.W.2d 30, 34 (Ark.
1979). While ConAgra and Pilgrim’s undoubtedly benefitted from the
expanded infrastructure, the City has failed to demonstrate that this
enrichment was unjust. See Hatchell, 211 S.W. at 522 (“One who is free from
fault cannot be held to be unjustly enriched merely because he or she has
chosen to exercise a legal or contractual right.”)
D. Arkansas Deceptive Trade Practices Act (ADTPA)
      Finally, the City appeals the district court’s denial of leave to amend
the complaint to include a claim for violation of the ADTPA. The City’s
amended complaint alleges violation of section 107(a)(10) of the ADTPA,
which makes it unlawful for “any person” to “[engage] in
any...unconscionable, false, or deceptive act or practice in business,
commerce, or trade.” Ark. Code § 4-88-107(a)(10). A plaintiff need not prove
that the defendant was knowingly or intentionally deceptive, and instead
need only prove that the defendant engaged in a practice that has the

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                                  No. 10-10039

capacity to deceive a reasonable consumer. See Curtis Lumber Co. v.
Louisiana Pac. Corp., 618 F.3d 762 (8th Cir. 2010).
      We affirm the district court’s finding that amendment of the complaint
to include the ADTPA claim would be futile. However, it was unnecessary for
the district court to reach the issue of whether a municipal corporation can
ever be considered a “person” for purposes of standing under the ADTPA. See
Ark. Code § 4-88-113(f). Instead, we affirm the futility finding on the ground
that the City’s primary ADTPA claim– that Pilgrim’s acted in an
“unconscionable” manner in inducing the City to expand its water system–
fails, like the other claims, because the statements by Hooper and Hendrix
are too vague and ambiguous to satisfy the specificity requirements of Rule
12(b)(6). These alleged statements simply had no capacity to deceive a
reasonable consumer, and no facts are alleged which plausibly suggest
otherwise. See Twombly, 127 S.Ct. at 1966.
      The City mentions briefly in passing an alternative basis for an ADPTA
claim, based on allegations that Pilgrim’s had acted in an unconscionable
manner by selectively closing facilities in order to drive up poultry prices.
However, this argument is insufficiently developed before this court because
no further explanation or legal arguments were provided regarding these
allegations.
                                CONCLUSION
      The district court did not err in denying the City’s motion for leave to
file an amended complaint or in dismissing the City’s petition for failure to
state a claim. Accordingly, the judgment of the district court is
                                  AFFIRMED.

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