Conagra Inc v. Country Select

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED, MAY 28, 2004
UNITED STATES COURT OF APPEALS January 29, 2004
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
______________________________ Clerk
No. 03-60246
______________________________
CONAGRA, INC.
Plaintiff-Appellant,
versus
COUNTRY SKILLET CATFISH COMPANY, ET AL.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Mississippi,
Greenville Division
No. 4:00CV246-M-B
Before GARWOOD, JONES, and STEWART Circuit Judges.
EDITH H. JONES, Circuit Judge:*
This case arises from the sale of a Mississippi catfish
business to a group of investors. In conjunction with the sale,
ConAgra also temporarily “leased” certain employees to the divested
subsidiary. ConAgra filed suit for breach of these agreements.
The district court, however, found primarily against ConAgra. For
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.
the reasons set forth below, we affirm in part and reverse in part
the district court’s judgement.
I. BACKGROUND
From 1971 through 1990, ConAgra owned a catfish
processing business in Mississippi and operated the business
through an unincorporated division known as Country Skillet Catfish
Company (“Country Skillet”).1 From 1991 until December 18, 1996,
ConAgra operated the catfish processing business as a joint venture
between its subsidiary, Country Skillet, and Fishco, Inc.
(“Fishco”). This joint venture was operated through a company
known as Confish, Inc. (“Confish”).2 Confish’s profits and losses
were shared equally between Country Skillet and Fishco throughout
the course of the joint venture.
During that time, ConAgra paid the payroll and benefits
expenses for Confish’s salaried and hourly employees, which Confish
regularly reimbursed. Although this arrangement was informally
referred to between the parties as a “lease” of the employees, no
lease agreement, written or otherwise, ever existed. Additionally,
from 1971 until December 18, 1996, ConAgra provided pension
benefits to its salaried employees, but not to its hourly
employees. On December 18, 1996, ConAgra sold 100% of its Country
1
In 1991, Country Skillet was incorporated as a wholly-owned
subsidiary of ConAgra.
2
Confish is now known as Consolidated Catfish Companies, LLC, and
Country Skillet has changed its name to Country Select Catfish Company. However,
for clarity’s sake, we refer to these companies collectively as Confish.
2
Skillet stock to Richard Stevens, Tom Reed, and Mitchell Pearson
pursuant to a Stock Sale Agreement (“Sale Agreement”). The parties
also entered into a formal employee leasing agreement (“Leasing
Agreement”), which was incorporated into the terms of the Sale
Agreement.
The Leasing Agreement had a maximum three-year term and
provided that all of the Confish personnel, both salaried and
hourly, would remain ConAgra employees for its duration. In the
Leasing Agreement, Confish agreed to reimburse ConAgra for certain
employee-related expenses, including employee compensation and the
“costs” of fringe benefits. The Leasing Agreement also permitted
the parties to terminate the agreement early.3 Both the Sale and
Leasing Agreements were negotiated primarily between Dwight Goslee,
a senior executive at ConAgra, and Stevens.
Simultaneously, ConAgra was also negotiating a new
Collective Bargaining Agreement (“CBA”) for the Confish hourly
employees with the local United Food & Commercial Workers union
(“UFCW”). During the course of these negotiations, Tom
Baumgardner, ConAgra’s union negotiator, contacted Don Winters,
3
The Leasing Agreement provided:
It is specifically understood and agreed that Lessor shall have the
right to immediately terminate this Agreement in the event Country
Skillet defaults under the Promissory Note or defaults under or
breaches any terms or conditions provided herein. In the event of
any such termination, this Agreement will continue to govern the
parties’ rights and obligations with respect to services performed
prior to the date of termination.
3
ConAgra’s Director of Employee Benefits, regarding a proposal to
include past and current pension benefits to the Confish hourly
employees in the new CBA. Winters investigated the cost of
providing these benefits and provided the information to
Baumgardner. On March 19, 1997, Confish and UFCW executed a CBA
that included past and current pension benefits for the hourly
employees.
Surprisingly, Goslee never contacted Winters about the
impending sale of Country Skillet, nor did he offer the ConAgra
employee benefits department the opportunity to review its terms.
Thus, the district court concluded that Baumgardner and Winters
remained unaware of Goslee’s negotiations and the sale’s
implications as to ConAgra’s future pension liabilities. The
district court also found, and the parties do not dispute, that the
subject of continuing pension liabilities for hourly employees,
post-termination of the Lease Agreement, was never broached during
the negotiations, much less specifically negotiated between Goslee
and Stevens.4
On December 31, 1998, approximately one year early, the
parties mutually terminated the Lease Agreement. At that point,
ConAgra approached Confish concerning its responsibility under the
4
Conversely, during the negotiations, Goslee and Stevens did negotiate
post-termination liability for workers’ compensation benefits and the potential
cost of WARN Act liabilities. Confish agreed to fund those future costs and
paid, pursuant to the Lease Agreement, a $250,000 deposit to secure that
obligation.
4
Lease Agreement for reimbursement of post-termination pension
costs. Confish took the position that the Lease Agreement did not
contemplate transfer of these post-termination pension costs.
Moreover, Confish disputed any liability to ConAgra for pension
costs incurred and paid during the term of the Lease Agreement,
which ConAgra billed, as it had in the past, in accordance with
Financial Accounting Standards Board Statement No. 87 (“FAS 87").
Consequently, on January 11, 2000, ConAgra filed suit in
federal court against Confish for breach of the Lease Agreement.
ConAgra sought money damages for previously incurred pension costs,
a declaration that Confish was obligated to reimburse ConAgra for
post-termination pension costs, and attorneys’ fees and expenses.
Confish initially made two arguments in defense: (1) that it did
not owe any previous or future pension costs; and (2) “costs” only
included “contribution” or “out-of-pocket” costs actually incurred
— not the amount calculated in accordance with FAS 87. Confish
also counterclaimed for breach of the Lease Agreement and asserted
that, during the Lease Agreement, it had overpaid ConAgra for
salaried employee pension costs by $43,286 through the use of FAS
87. Stevens also joined as a counterclaim plaintiff in an effort
5
to recover $50,000 he claimed Goslee promised upon early
termination of Lease Agreement.5
The parties waived a jury trial and a two-day bench trial
followed. At the conclusion of the trial, and after considering
the parties’ post-trial written submissions, the district court
held that: (1) the Leasing Agreement obligated Confish to reimburse
ConAgra for all pension costs incurred and paid by ConAgra during
the term of the Leasing Agreement; (2) the Leasing Agreement did
not obligate Confish to continue to reimburse ConAgra for post-
termination pension costs; (3) Confish was only obligated to
reimburse ConAgra for “contribution costs” and not pension costs as
calculated under FAS 87; (4) ConAgra should receive $49,630.20 for
past pension costs; and (5) Stevens should receive $50,000 on his
counterclaim.
The district court also denied ConAgra’s motion to amend
its complaint to add a claim for unjust enrichment and held, in the
alternative, that the claim could not be sustained. Last, the
district court determined that each party would bear its own
attorneys’ fees and expenses. ConAgra timely appealed the decision
to this court.
II. STANDARD OF REVIEW
5
On the eve of trial, Confish conceded that it owed ConAgra for past
pension costs in the amount of $94,802. This amount was arrived at by using the
“contribution costs” formula — not FAS 87. Moreover, Confish contended that it
only owed ConAgra the net amount of $49,630.20 after deducting non-pension
credits to which the parties had stipulated. ConAgra, of course, disputed the
calculation method, but otherwise agreed to the stipulations.
6
The district court’s legal conclusions are reviewed de
novo and its findings of fact are reviewed for clear error. In re
Liljeberg Enterprises, Inc., 304 F.3d 410, 423 (5th Cir. 2002).
“Under a clear error standard, this court will reverse only if, on
the entire evidence, we are left with the definite and firm
conviction that a mistake has been made.” Otto Candies, L.L.C. v.
Nippon Kaiji Kyokai Corp., 346 F.3d 530, 534 (5th Cir. 2003)
(citations and quotations omitted).
As a court sitting in diversity, we are Erie-bound to
apply Mississippi substantive law. In re Knight, 208 F.3d 514, 516
(5th Cir. 2000). The district court's interpretation of a contract,
including the initial determination whether the contract is
ambiguous, is a conclusion of law. Royer Homes of Miss., Inc. v.
Chandeleur Homes, Inc., 857 So. 2d 748, 751 (Miss. 2003)(citing
Mississippi Transp. Comm'n v. Ronald Adams Contractor, Inc., 753
So. 2d 1077, 1087 (Miss. 2000). “The subsequent interpretation of
the ambiguous contract presents a finding of fact . . . .” In re
Estate of Harris, 840 So. 2d 742, 745 (Miss. 2003). Last, the
district court’s decision to deny a motion to amend will not be
disturbed absent an abuse of discretion. See Nilsen v. City of
Moss Point, Miss., 621 F.2d 117, 122 (5th Cir. 1980).
III. DISCUSSION
ConAgra raises several arguments on appeal: (1) the
district court misconstrued Mississippi contract law; (2) Confish
7
is obligated to reimburse it for pension costs in accordance with
FAS 87; (3) Confish must continue to reimburse it for post-
termination pension costs; (4) the district court erred in refusing
to allow it to amend its complaint to add a claim for unjust
enrichment; (5) it could, if permitted, sustain an unjust
enrichment claim; and (6) it is entitled to attorneys’ fees and
expenses under the Lease Agreement. We address each argument in
turn.
A. Breach of Contract
The district court concluded that the Lease Agreement did
not obligate Confish to reimburse ConAgra for post-termination
pension costs. ConAgra offers two arguments on this point. First,
ConAgra argues that the district court misconstrued Mississippi
contract law, applying a heightened standard of review. Second,
ConAgra claims that the Lease Agreement and the evidence produced
at trial establish that the parties contemplated ongoing
reimbursement post-termination.
Properly viewed, the district court’s opinion did not
misstate Mississippi contract law. Its conclusions of law recite
various principles for the construction of contracts. As the
district court recognized, under Mississippi law, courts must
enforce unambiguous contracts as written. Royer Homes, 857 So. 2d
at 751. Therefore, the court must first look to the “four corners”
of the contract to determine the parties’ intent. Ivison v.
8
Ivison, 762 So. 2d 329, 335 (Miss. 2000). However, if the
agreement is ambiguous, the court should consider extrinsic or
parol evidence to ascertain the contract’s meaning. See Pursue
Energy Corp. v. Perkins, 558 So. 2d 349, 352 (Miss. 1990).
The district court, in refusing to grant summary
judgment, determined that the contract was ambiguous. On appeal,
the parties do not dispute this conclusion and we agree. Thus, the
district court properly looked to parole evidence to inform its
decision concerning this woefully vague agreement. Based on the
parties’ intent, the district court found that the post-termination
pension funding obligations were not transferred from ConAgra to
Confish, and that “these obligations cannot be shifted absent clear
contractual agreement.”
The court based its conclusion on the admissible record
evidence “and the applicable rules of contract interpretation.”
The court’s language about a clear contractual agreement does not
imply a “heightened” standard of contract interpretation, as
ConAgra insists. Instead, the court found that, viewed in context
of all the applicable rules of contract interpretation, there was
no agreement to transfer the ongoing funding obligations to Confish
after the Lease Agreement terminated.
Furthermore, the district court specifically found that
Stevens, acting for Confish, was unaware throughout the course of
the negotiations that retroactive pension benefits were being added
9
to the hourly employees’ new CBA. The issue was never the subject
of negotiation between the parties. ConAgra does not seriously
challenge these findings. Hence, we conclude that the district
court’s findings on this issue were not the product of clear error.
Accordingly, we affirm the district court’s ruling that the Lease
Agreement was ambiguous and that the parties, based upon the record
evidence, did not contemplate shifting post-termination pension
costs to Confish.6
B. Calculation of “Costs”
Next, ConAgra asserts that the district court erred in
its conclusion that the “costs” of pension benefits only included
actual contribution costs, and not the amount calculated in
accordance with FAS 87. The district court agreed with Confish’s
argument that “costs” meant “out-of-pocket” costs, which the court
determined was consistent with the term’s plain meaning.7 The
district court erred.
The Lease Agreement provides that: “Lessor shall invoice
costs of fringe benefits to Lessee no less frequently than on a
monthly basis . . . .” The Lease Agreement failed to define
“costs” and the parties agree that the definition cannot be
ascertained from the “four corners” of the document. Therefore, we
6
We also affirm the district court’s award of $50,000 to Stevens based
upon an oral contract. ConAgra does not dispute this aspect of the judgment.
7
On appeal, Confish refers to “actual contribution costs” as “out-of-
pocket costs.” These terms are interchangeable.
10
must look to parol evidence to ascertain the parties’ intent. See
Pursue Energy, 558 So. 2d at 351-53. In reaching its conclusion,
the district court found that the Restatement (Second) of Contracts
§ 201 specifically applied to this case.8 We agree. Section 201
states, in relevant part, that “where the parties have attached the
same meaning to a promise or agreement or a term thereof, it is
interpreted in accordance with that meaning.” (emphasis added); see
also Kight v. Sheppard Bldg. Supply, Inc., 537 So. 2d 1355, 1358
(Miss. 1989) (“[T]he construction which the parties have placed
upon the contract, or what the parties to the contract do
thereunder, is relevant extrinsic evidence, and often the best
evidence, of what the contract requires them to do.”) (citation
omitted).
In the present case, there is compelling record evidence
that the parties intended “costs” to be calculated in accordance
with FAS 87. First, during the course of the informal leasing
arrangement, in effect between 1991 and December 18, 1996, Confish
reimbursed ConAgra for pension costs for salaried workers according
to FAS 87. This fact is undisputed by the parties. Moreover,
Confish did not produce any evidence that the formal Lease
Agreement altered this particular arrangement or the parties’
understanding of the term “costs.” Second, Stevens testified at
8
As the district court recognized, Mississippi courts often look to
the Restatement in resolving contract disputes. See Warwick v. Matheney, 603 So.
2d 330, 335 (Miss. 1995).
11
trial that he was aware that ConAgra’s actuarial estimates of
pension costs were based on FAS 87. Third and perhaps most
importantly, during the Lease Agreement, Confish reimbursed ConAgra
for pension costs in accordance with FAS 87.
Taken together, these facts warrant the conclusion that
the parties understood “costs” to incorporate the FAS 87 standard.
The district court committed clear error in disregarding the
parties’ intent as to this contractual provision. Confish was
required to reimburse ConAgra for all pension costs incurred during
the Lease Agreement in accordance with FAS 87. Moreover, based on
our conclusion, Confish was not entitled to a credit for the
salaried employee pension benefits, which it had reimbursed ConAgra
during this period in accordance with FAS 87. Because we are
unable to glean from the record the precise amount owed to Conagra,
we remand to the district court for a proper calculation of
damages.
C. Unjust Enrichment
ConAgra also appeals the district court’s denial of its
motion to amend its complaint to add a claim for unjust enrichment.
Seventeen months before trial, ConAgra moved for leave to amend its
complaint to add a claim for unjust enrichment. The motion was
denied by a magistrate judge on May 29, 2001. ConAgra never
appealed this order to the district court pursuant to Uniform Local
Rule 72.2(A) for the United States District Court for the Northern
12
and Southern Districts of Mississippi. Instead, at trial, ConAgra
attempted to elicit an opinion from its expert regarding the
alleged savings Confish achieved by refusing to pay post-
termination pension costs. ConAgra then moved to amend its
complaint to add a claim for unjust enrichment based upon its
expert’s opinion.
Rule 15(a) of the Federal Rules of Civil Procedure
requires that leave to amend “be freely given when justice so
requires.” ConAgra may amend its complaint if Confish consented,
either expressly or impliedly, to trial of the issue. See Fed. R.
Civ. P. 15(a). Absent consent, the district court should have
considered in making its decision, inter alia, undue delay,
dilatory motive on the part of the movant, and undue prejudice to
the opposing party by virtue of allowing the amendment. See Moody
v. FMC Corp., 995 F.2d 63, 66 (5th Cir. 1993). Trial courts have
ample discretion in determining when justice requires permission to
amend. See Zenith Radio Corp. v. Hazeltine Research, Inc., 401
U.S. 321, 330, 91 S. Ct. 795, 802 (1971).
The district court concluded that Confish did not
consent, in any manner, to the trial of an unjust enrichment claim.
Further, the district court determined that, under the factors set
forth in Rule 15(a), it would not grant ConAgra’s request. ConAgra
never attempted to appeal the magistrate judge’s initial rejection
to the district court. Also, ConAgra did not raise the unjust
13
enrichment claim as an issue to be tried in the pretrial order,
which was entered one year before trial began. Accordingly, the
district court did not abuse its discretion.9
D. Attorneys’ Fees and Expenses
Last, ConAgra argues that it is entitled to attorneys’
fees and expenses under the Leasing Agreement. The Leasing
Agreement provides that: “In any action to enforce any of the
provisions of this Agreement, the party seeking to enforce this
Agreement shall be entitled to recover costs and expenses of any
such litigation, including reasonable attorneys’ fees, in addition
to all of the rights and remedies at law.”
Under Mississippi law, “[i]t is well settled that
attorney’s fees are not to be awarded unless a statute or other
authority so provides.” Miss. Dep't of Wildlife, Fisheries & Parks
v. Miss. Wildlife Enforcement Officers Ass’n, 740 So. 2d 925, 937
(Miss. 1999). “In breach of contract cases, attorney fees
generally are not awarded absent provision for such in the contract
or a finding of conduct so outrageous as to support an award of
punitive damages.” Garner v. Hickman, 733 So. 2d 191, 198 (Miss.
1999).
9
The district court alternatively held that ConAgra failed to state
a claim for unjust enrichment because there was an express written agreement
between the parties. However, having affirmed the district court’s denial of
ConAgra’s motion to amend its complaint, we need not reach this issue.
14
Here, the Lease Agreement specifically afforded
“reasonable attorneys’ fees” and “expenses” to the party seeking to
“enforce” the contract. ConAgra sought to enforce the Lease
Agreement, and it has prevailed on two of its substantive claims.
Consequently, it is entitled to recover reasonable attorneys’ fees
and expenses related to its successful enforcement efforts.
IV. CONCLUSION
For the foregoing reasons, we affirm the judgment of the
district court that the Lease Agreement did not contemplate post-
termination reimbursement of pension costs. We also affirm the
district court’s decision to prohibit ConAgra from amending its
complaint to add a claim for unjust enrichment, and its judgment in
favor of Stevens for $50,000. However, we reverse the district
court’s conclusion that “costs” referred to actual pension plan
contributions and not the FAS 87 standard. We also reverse the
district court’s denial of ConAgra’s request for reasonable
attorneys’ fees and expenses.
Therefore, we AFFIRM in part, REVERSE in part, and
REMAND, for a calculation of the allowable damages pursuant to FAS
87 and a determination of reasonable attorneys’ fees and expenses
pursuant to § 14 of the Lease Agreement.
15