Star City Sch. Dist. v. ACI Bldg. Sys., LLC

• Decision Date: 06 January 2017
• Docket Number: No. 15-3723,15-3723
• Citation: 844 F.3d 1011
• Parties: Star City School District, Plaintiff-Appellant, v. ACI Building Systems, LLC, Defendant-Appellee. ACI Building Systems, LLC, Third Party Plaintiff, v. Southeast Building Concepts, Inc.; Metal Building Components, Inc., Third Party Defendants.
• Court: U.S. Court of Appeals — Eighth Circuit

844 F.3d 1011

Star City School District, Plaintiff-Appellant,

v.ACI Building Systems, LLC, Defendant-Appellee.

ACI Building Systems, LLC, Third Party Plaintiff,

v.Southeast Building Concepts, Inc.; Metal Building Components, Inc., Third Party Defendants.

No. 15-3723

United States Court of Appeals, Eighth Circuit.

Submitted: September 21, 2016

Filed: January 6, 2017

George Jay Bequette, Jr., Bequette & Billingsley, Little Rock, AR, for Plaintiff-Appellant.

Richard D. Bennett, Farris & Bobango, Memphis, TN, for Defendant-Appellee.

Before WOLLMAN, ARNOLD, and KELLY, Circuit Judges.

WOLLMAN, Circuit Judge.

Star City School District (the District) filed suit against ACI Building Systems, LLC (ACI), a company that manufactured and supplied roofing materials that were used in the construction of a high school building. The complaint alleged that the building's roof was not watertight and that ACI had failed to repair or replace the roof, despite its promises and obligation to do so. The district court¹ granted ACI's motion to dismiss the claims of fraud and constructive fraud and later granted summary judgment in favor of ACI on the remaining claims of breach of warranty, breach of contract, and negligence. We affirm.

I. Background

In 2003, the District entered into a construction contract with Southeast Building Concepts, Inc. (SBC), for SBC to construct a new high school building. SBC served as the general contractor for the project and issued a performance and payment bond that named the District as the obligee. Steve Elliot served as the District's architect.

SBC began working on the project in late April 2003 and thereafter entered into an agreement with ACI, under which ACI agreed to supply SBC with certain metal building and roofing materials to be used in the construction of the high school building. ACI was not a party to the construction contract between SBC and the District, and ACI did not install the roof. That work was completed by SBC or others as directed by SBC.

The school's roof was not properly installed and has never been watertight. In a December 2004 letter addressed to the president of SBC and copied to the District's superintendent, Elliot's architectural firm expressed concerns that SBC had not yet repaired "several major roof leaks that [had been] brought to the job superintendent's attention several months ago." An ACI employee also discovered problems related to the roof's installation while inspecting the roof in March 2005. In an email to another ACI employee, he wrote: "I did a preliminary inspection on this roof yesterday—3/23/05. Absolutely pitiful.... I don't know if it will ever pass inspection. This is primarily FYI and to have a record in file." SBC later assured ACI that it had made the necessary repairs.

Elliot's architectural firm issued a certificate of substantial completion on March 28, 2005, and the District took possession of the building that June. In February 2006, ACI and SBC issued a 10-year warranty on the roof that provides, in part:

[T]he total liability and warranty of [SBC] shall be only to provide such workmanship as is necessary to repair or replace any defective material or workmanship without cost to the original owner, and the total liability and warranty of [ACI] shall be only to repair or replace any material without cost to the original owner.

The warranty further provides:

2.) This warranty shall not be enforceable if the roof system was not erected in accordance with ACI Building Systems, Inc. erection drawings....

3.) This warranty does not apply to cover any damages or leakage caused by or associated with ... roof penetrations, trim, flashing, evidence of repair work done by unqualified or un-authorized personnel, or any modifications or alterations to material beyond ACI's control....

Despite the continued leaks, the District did not make a claim on the bond. It made the final payment to SBC in May 2006. SBC thereafter continued work to repair the roof, but in early 2007, it advised the District that it would no longer make repairs. SBC eventually went out of business and filed for bankruptcy protection.

ACI vice president and chief operating officer Ron Knapp testified that he first became aware of the leaks in September 2006, when Elliot wrote to him and reported that the roof was leaking. Sometime after SBC stopped making repairs to the roof, both the District and ACI asked Steve Naff, the owner of a local construction company, to inspect the roof and advise whether it could be repaired. Naff, who had worked on other construction projects for the District, believed that he could fix the roof. ACI authorized him to do the work, even though ACI believed that the problems were caused by improper installation and poor workmanship and that the work thus was beyond the scope of ACI's warranty. According to Knapp, ACI paid for the repairs as a gesture of goodwill.

According to the District, ACI repeatedly promised to repair or replace the roof. Naff made numerous repairs from 2007 through April 2011, but the roof continued to leak. Naff thereafter advised ACI and the District that he no longer believed that he could repair the roof. In December 2012, the District made a claim on the bond, which was denied.

The District filed suit against ACI in Arkansas state court in February 2013. ACI removed the action to federal district court on the basis of diversity jurisdiction.² The District alleged in its amended complaint that it "ha[d] been damaged by reason of ACI's failure to appropriately manufacture and repair the roof on the Building in a workmanlike manner." The District claimed that ACI had issued a warranty on the roof, even though an inspection by ACI "revealed significant deficiencies, which ACI failed to disclose." The District further alleged that ACI had repeatedly promised to repair or replace the roof, that the repairs were unsuccessful, and that the roof continued to leak. The District alleged claims of fraud, constructive fraud, breach of warranty, breach of contract, and negligence.

Applying the substantive law of Arkansas, the district court dismissed the District's claims of fraud and constructive fraud for failure to state a claim. In its summary judgment order, the district court determined that the remaining claims were barred by the five-year statute of repose set forth in Arkansas Code § 16–56–112(a).

II. Discussion

A. Fraud and Constructive Fraud

The District argues that the district court erred in dismissing its claims of fraud and constructive fraud. We review de novo a district court's order granting a motion to dismiss, accepting as true the allegations set forth in the complaint and drawing all reasonable inferences in favor of the nonmoving party. Farm Credit Servs. of Am., FLCA v. Haun, 734 F.3d 800, 803–04 (8th Cir. 2013). To withstand a motion to dismiss, the complaint must set forth sufficient factual allegations to provide the grounds on which the plaintiff's claims rest. SeeBell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Rule 9(b) of the Federal Rules of Civil Procedure requires that circumstances constituting fraud be pleaded with particularity. "We interpret this rule in harmony with the principles of notice pleading, and to satisfy it, the complaint must allege such matters as the time, place, and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby." Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8th Cir. 2009) (internal quotation marks and citation omitted).

Under Arkansas law, a cause of action for actual fraud requires proof of the following elements: "(1) a false representation, usually of a material fact; (2) knowledge or belief by the defendant that the representation is false; (3) intent to induce reliance on the part of the plaintiff; (4) justifiable reliance by the plaintiff; and (5) resulting damage to the plaintiff." Country Corner Food & Drug, Inc. v. First State Bank & Trust Co. of Conway, Ark., 332 Ark. 645, 966 S.W.2d 894, 897 (1998). The district court determined that Star City failed to plead a false representation or actual reliance. We agree.

The District first argues that it adequately pleaded a false representation, pointing to its allegations related to ACI's assurances "that ACI would do whatever was necessary to repair or replace the roof." Those assurances, however, relate to a future event of repairing or replacing the roof, and generally a "misrepresentation must relate to a past event or a present circumstance." Rice v. Ragsdale, 104 Ark. App. 364, 292 S.W.3d 856, 864 (2009) ; see alsoDelta Sch. of Commerce, Inc. v. Wood, 298 Ark. 195, 766 S.W.2d 424, 427 (1989) ("In general, an action for fraud or deceit may not be predicated on representations relating solely to future events."); Anthony v. First Nat'l Bank of Magnolia, 244 Ark. 1015, 1028, 431 S.W.2d 267 (1968) ( "Representations that are promissory in nature or of facts that will exist in the future, though false, do not support an action for fraud.").

The District argues that ACI's assurances are nonetheless actionable because they fall within "an exception to the ‘future events' rule [that] arises if the promisor, at the time of making the promise, has no intention to carry it out." Trakru v. Mathews, 2014 Ark. App. 154, 434 S.W.3d 10, 17 (2014). "[A] statement of future events may constitute fraud if the statement is false and the person making the representation or prediction knows it to be false at the time it is made." SeeMorrison v. Back Yard Burgers, Inc., 91 F.3d 1184, 1187 (8th Cir. 1996) (citing Delta Sch. of Commerce, 766 S.W.2d at 426-27 ). The exception "requires actual knowledge of falsity." Id. The District did not allege that ACI always knew the roof could not be repaired or that ACI had no intention of carrying out its promises to repair or replace the roof. The amended complaint alleged that ACI had discovered...