Carroll v. Fort James Corp.

• Citation: 470 F.3d 1171
• Decision Date: 27 November 2006
• Docket Number: No. 05-60582.,05-60582.
• Parties: Gerald CARROLL, individually and on behalf of his minor child, Nicholas Carroll; Kimberly Pizzuto; Robert Pizzuto; Robert Pizzuto, Jr.; Kyle Moran; et al., Plaintiffs-Appellants, v. FORT JAMES CORP., as the Successor-In-Interest of Crown Zellerbach Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

470 F.3d 1171

Gerald CARROLL, individually and on behalf of his minor child, Nicholas Carroll; Kimberly Pizzuto; Robert Pizzuto; Robert Pizzuto, Jr.; Kyle Moran; et al., Plaintiffs-Appellants, v. FORT JAMES CORP., as the Successor-In-Interest of Crown Zellerbach Corporation, Defendant-Appellee.

No. 05-60582.

United States Court of Appeals, Fifth Circuit.

November 27, 2006.

Gregg L. Spyridon (argued), Spyridon, Koch, Palermo & Dornan, Metairie, LA, for Plaintiffs-Appellants.

Joe Sam Owen, Owen & Galloway, Gulfport, MS, J. Kevin Buster (argued), Carmen Rosario Toledo, King & Spalding, Atlanta, GA, for Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before JOLLY, DAVIS and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

The appellants challenge the lower court's dismissal of their suit on several grounds. First, they dispute the court's ruling that they failed to plead fraud with sufficient particularity. Second, they argue that the court abused its discretion in denying their motion for leave to amend. Third, they argue that the court dismissed several tort claims sua sponte without providing adequate fairness to the parties. We AFFIRM in part, and REVERSE in part.

I. A BRIEF HISTORY OF THE CASE

This case concerns a 78-acre tract of land located outside Poplarville, Mississippi, in an area known as "Serenity Lane." The property was owned between 1963 and 1984 by Crown Zellerbach Corporation ("Crown Zellerbach"), and later passed to appellee Fort James Corporation ("Fort James"). Fort James sold this land in 1990 to a developer who proceeded to subdivide the property for home sites. The present appellants are homeowners who eventually bought these sites. They allege that Crown Zellerbach once used the land as a dump for hazardous waste, and that neither Crown nor Fort James, its successor-in-interest, ever adequately disclosed this fact to the appellants. The appellants maintain that the contents of the dump have begun to surface, and that they have suffered health consequences as a result.

The appellants filed their original complaint in Mississippi state court on October 31, 2003, alleging eleven claims against Fort James. The first of these was a fraud claim. The appellants refer to the remaining ten claims collectively as "traditional tort claims."¹ After removing the case to federal court, the appellee moved to dismiss the fraud claim or, in the alternative, to require appellants to replead that claim with greater specificity pursuant to Rule 9(b). The district court granted the appellants leave to amend their pleading accordingly.

On November 17, 2004, the appellants filed their First Supplemental and Amending Complaint. The appellants included in this new complaint several new paragraphs about their fraud claim. They also added a new claim for "Testing," which would require the appellee to conduct appropriate environmental tests of the land in question. In addition, this First Supplemental and Amending Complaint purported to "reurge and reallege all of the allegations as set forth and contained in their original complaint as if copied herein in extenso and in toto." The First Supplemental and Amending Complaint did not actually spell out these earlier claims, but the appellants argue that this language clearly incorporates the traditional tort claims from the original complaint.

Fort James moved to dismiss the fraud and testing claims pursuant to Rule 12(b)(6). That motion was granted on April 12, 2005. The court issued an order giving its reasons for dismissing the fraud and testing claims, and ultimately concluded that the appellants' case was dismissed. The court made no specific reference anywhere in the order to the seven additional tort claims remaining from the original complaint. The parties immediately disagreed—and still do—about the effect of that dismissal on those earlier claims.

Appellants filed a motion pursuant to Rule 59(e) and Rule 60 arguing that the court either overlooked the traditional tort claims or, in the alternative, that they were dismissed sua sponte without providing adequate notice to the parties, and should be reinstated. Appellee responded that the First Supplemental and Amending Complaint actually superseded the original complaint, and that the appellants' attempt to incorporate all earlier allegations by reference was void, and that the appellants had effectively abandoned their traditional tort claims. The district court denied the appellants' post-dismissal motions in a brief order that did not clarify that court's view of the issue. This appeal followed.

There are several issues now before us. First, we consider whether the appellants pled their fraud allegation with enough specificity to satisfy Rule 9(b). Second, we consider whether the district court abused its discretion in denying the appellants' motion for leave to amend. Third, we turn to the incorporation by reference, and decide whether it validly preserved and presented the traditional tort claims included in the original complaint.

II. STANDARD OF REVIEW

We review a dismissal pursuant to 12(b)(6) or 9(b) de novo. Herrmann Holdings Ltd. v. Lucent Technologies, Inc., 302 F.3d 552, 557 (5th Cir.2002). The dismissal "will be upheld only if `it appears beyond doubt that the plaintiff can prove no set of facts that would entitle him to relief.'" Herrmann, 302 F.3d at 558 (citing U.S. ex rel. Thompson v. Columbia HCA/Healthcare Corp., 125 F.3d 899, 901 (5th Cir.1997)). We review denial of leave to amend a complaint for abuse of discretion. Herrmann, 302 F.3d at 558 (citing Lewis v. Fresne, 252 F.3d 352, 356 (5th Cir.2001)). Finally, the validity of the incorporation by reference is purely a matter of law, so we consider it de novo. AfCap, Inc. v. Republic of Congo, 462 F.3d 417, 423 (5th Cir.2006) (citations omitted).

III. PLEADING FRAUD WITH PARTICULARITY

The appellants readily concede that they did not acquire their land from Fort James, that they never had any interaction with Fort James whatsoever, and that Fort James never made any affirmative misrepresentations to them. They assert, however, that Fort James' failure to disclose the alleged dumping was an omission constituting fraud. The district court reviewed the original and the First Supplemental and Amending Complaint,² and found that the appellants had failed to allege enough facts to satisfy the particularity requirements of Rule 9(b). We agree.

"At common law, misrepresentation made for the purpose of inducing reliance upon the false statement is fraudulent. But one who fails to disclose material information prior to the consummation of a transaction commits fraud only when he is under a duty to do so." Chiarella v. United States, 445 U.S. 222, 227-28, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980). Unfortunately for the appellants, they failed to allege any facts that, if true, would give rise to a duty of disclosure running from Fort James to them. At most, they have offered conclusory allegations that such a duty existed, and that Fort James breached it. Even if this were enough to satisfy Rule 12(b)(6), it is certainly not sufficient to satisfy the heightened particularity requirements of Rule 9(b).

Rule 9(b) requires that plaintiffs plead enough facts to illustrate "the `who, what, when, where, and how' of the alleged fraud." Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 453 (5th Cir.2005) (quoting United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997)). "In cases concerning fraudulent misrepresentation and omission of facts, Rule 9(b) typically requires the claimant to plead the type of facts omitted, the place in which the omissions should have appeared, and the way in which the omitted facts made the representations misleading." United States ex rel. Riley v. St. Luke's Episcopal Hospital, 355 F.3d 370, 381 (5th Cir.2004) (citing 2 JAMES W. MOORE, ET AL., MOORE'S FEDERAL PRACTICE § 9.03[1][b] at 9-18 through 9-19 (3d ed.2003)). The appellants' two complaints clearly fail to indicate "the place in which the omissions should have appeared." Riley, 355 F.3d at 381. They allege no facts showing when, if ever, it was incumbent upon Fort James, which never had any dealings with these appellants, to disclose any information to them at all, nor how Fort James should have done so. Therefore, we are satisfied that the appellants failed to make out a fraud claim that could satisfy Rules 12(b)(6) and 9(b), and we AFFIRM the district court's dismissal of that claim.

IV. DENIAL OF THE MOTION FOR LEAVE TO FILE A SECOND AMENDED COMPLAINT

While the motion to dismiss the First Supplemental and Amending Complaint was still pending, the appellants filed a new motion for leave to file a Second Supplemental and Amending Complaint. The court ordered the appellants to file the proposed Second Supplemental and Amended Complaint by April 4, 2005. The court did not receive the filing by that deadline, and on April 12, 2005, the court granted the appellee's motion to dismiss and judged all remaining pending claims moot, including the appellants' Motion for Leave to File a Second Supplemental and Amending Complaint. The appellants now argue that this denial of their Motion for Leave was an abuse of discretion.

Under Federal Rule of Civil Procedure 15(a), after a party has already amended its complaint once, it may amend again "only by leave of the court or by written consent of the adverse party; and leave shall be freely given when justice so requires." This standard "evinces a bias in favor of granting leave to amend. The policy of the Federal Rules is to permit liberal amendment . . . ." Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 597-98 (5th Cir.1981). Nevertheless, leave to amend can be properly denied where there is a valid justification. See Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) (listing several...