Jerry Friedman v. Kelly Farmer

United States Court of Appeals
For the Eighth Circuit
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No. 14-2575
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Jerry Friedman; FM Service Equipment Group, Inc.
lllllllllllllllllllll Plaintiffs - Appellants
v.
Kelly Farmer, individually and in his capacity as an officer of Arkat Nutrition,
Inc.; John Farmer, individually and in his capacity as an officer of Arkat Nutrition,
Inc.
lllllllllllllllllllll Defendants - Appellees
Arkat Nutrition, Inc.
lllllllllllllllllllll Defendant
Ainsworth Pet Nutrition, Inc.; John Doe
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the Eastern District of Arkansas - Pine Bluff
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Submitted: April 14, 2015
Filed: June 11, 2015
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Before MURPHY, COLLOTON, and KELLY, Circuit Judges.
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KELLY, Circuit Judge.
Jerry Friedman, a California resident, and FM Service Equipment Group, Inc.,
a California corporation,1 sued two Arkansas corporations and two employees of one
of those corporations for breach of contract, promissory estoppel, unjust enrichment,
conversion, and other tort claims. See 28 U.S.C. § 1332. The district court2 granted
summary judgment in favor of the defendants, and Friedman appeals. We affirm the
judgment.3
I. Background
The following facts are recounted in the light most favorable to Friedman, the
non-moving party. See Jackson v. Allstate Ins. Co., — F.3d ----, 2015 WL 2115528,
at *5 (8th Cir. May 7, 2015). Kelly Farmer is the founder of Arkat Nutrition, Inc.
(Arkat Nutrition), an Arkansas Corporation formed in 1989. Arkat Nutrition owned
a feed mill in Arkansas known as Plant One. Kelly’s son, John Farmer, worked at
Arkat Nutrition and was in charge of overseeing production of milling operations at
Plant One. Arkat Land Company (Arkat Land) is a limited liability company also
located in Arkansas. Arkat Land owned a separate feed mill known as Plant Two,
though it leased Plant Two to Arkat Nutrition, which used both plants to produce
animal feed.
1
Friedman formed FM Service Equipment Group, Inc., for the purposes of
completing the oral contract that is the basis of this lawsuit. Thus, for ease of
understanding, we will refer to the plaintiffs collectively as “Friedman.”
2
The Honorable J. Leon Holmes, United States District Judge for the Eastern
District of Arkansas.
3
We have jurisdiction over this appeal under 28 U.S.C. § 1291.
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In February 2007, a tornado damaged Plant One. Arkat Nutrition decided not
to repair the plant because the equipment inside had little useful life left. A
third-party company cleaned up the debris from the tornado but left some scrap with
potential value. Later in 2007, Friedman made an oral deal with the Farmers: He
would act as a broker for Arkat Nutrition to solicit offers for the remaining equipment
from Plant One. According to Friedman, any sale amount he brokered above
$1.9 million would go to him as a broker’s fee. Friedman says he “had the exclusive
right to contact all potential buyers”; Arkat Nutrition says Friedman was a
“non-exclusive broker” and that “it was understood that Arkat Nutrition could also
continue to attempt to find a buyer on its own.” Friedman successfully sold some of
the equipment to Mid America Pet Food, LLC, and received a commission of
$25,000. Friedman also alleged that he purchased a palletizer4 from Arkat Nutrition
for $1000. He dismantled the palletizer and left it at Plant One, where it remained for
at least two years.
In 2010, Arkat Nutrition and Arkat Land transferred most of their assets to a
newly formed company, Arkat Animal Nutrition, LLC (Arkat Animal Nutrition), the
equity interests of which would then be sold to Dad’s Products Company, Inc. (Dad’s
Products). Dad’s Products, however, was not to be responsible for any investor
claims or third-party claims for which Arkat Animal Nutrition was liable. According
to the Farmers, that sale had been contemplated since 2002, long before Friedman’s
oral deal. The sale was completed in February 2010, and shortly after Dad’s Products
changed its name to Ainsworth Pet Nutrition, Inc. (Ainsworth). After the sale,
Ainsworth hired a third-party company to remove any remaining scrap from Plant
One; that company paid Ainsworth less than $10,000 to keep the scrap. Arkat
Nutrition continued to exist only to collect proceeds from an earlier sale of some
4
A palletizer is a piece of equipment that Arkat Nutrition used to stack bags of
animal feed onto pallets.
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Plant One equipment not sold by Friedman. Arkat Animal Nutrition also briefly
continued to exist as a subsidiary of Ainsworth before merging into it.
After the sale to Ainsworth, Friedman brought this lawsuit. He alleged that he
had “expended considerable resources” to find potential buyers for the Plant One
equipment and had offered “all of the equipment” to one potential buyer for
$2.9 million. Friedman said he did not learn until December 2010 that Arkat
Nutrition had been sold. He also asserted, however, that the deal was modified so
that he would receive any amount paid above $1.5 million, though he did not say
when that modification occurred. He alleged claims for breach of contract, tortious
interference with a contract, unjust enrichment, promissory estoppel, and conversion
(for the palletizer, which he alleges wrongly was sold to Ainsworth). He sought
declaratory judgment and $1 million in owed commission.
Friedman later moved to amend the complaint to add claims against Arkat
Land. Ainsworth cross-claimed for indemnity and contribution against the Farmers
and Arkat Nutrition, who together filed their own cross-claim for the same against
Ainsworth. Each defendant also moved for summary judgment on all of Friedman’s
claims.
The district court denied Friedman’s motion to amend because the proposed
amended complaint did not add Arkat Land as a plaintiff but added only allegations
regarding that company. Those added allegations, the court ruled, “fall far short of
alleging facts” showing that Arkat Land is the “alter ego” of Arkat Nutrition. The
court noted that, if properly alleged, the alter-ego theory could have justified holding
Arkat Land liable for the wrongdoing of Arkat Nutrition; but the amended complaint
failed to assert this theory in even a conclusory form. And even if Friedman had
properly alleged claims against Arkat Land as a separate entity, the court explained,
those claims would be untimely, and the amendment would be futile.
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The district court later ruled on the defendants’ motions for summary judgment.
The court granted summary judgment in part and denied it in part for Arkat Nutrition
on the claims for breach of contract and promissory estoppel; but the court granted
judgment in full for the Farmers on these claims and on Friedman’s claim for tortious
interference with contract. The court ruled in favor of all defendants on the claims
of unjust enrichment and conversion.5
The district court then set a trial date for Friedman’s breach of contract and
promissory estoppel claims against Arkat Nutrition. Instead of pursuing those claims,
however, Friedman jointly moved with Arkat Nutrition to dismiss with prejudice the
claims against Arkat Nutrition, rendering the court’s summary judgment order final
and appealable. Ainsworth also moved to dismiss its cross claims against Arkat
Nutrition for indemnity. The district court granted both motions and, pursuant to that
order and its earlier order granting summary judgment in part, dismissed all claims
by all parties.
II. Discussion
Friedman appeals the grant of summary judgment for the defendants. In
October 2014, Arkat Nutrition moved to dismiss itself and any adverse claims from
this appeal because Friedman had dismissed his claims against that corporation in the
district court. We granted that motion. This appeal, thus, concerns Friedman’s
claims against only the Farmers and Ainsworth, and he also has abandoned some of
those claims.
5
The district court also granted Ainsworth’s cross claim for summary judgment
against Arkat Nutrition on its indemnity claims.
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a. Summary Judgment Claims
This court reviews the grant of summary judgment de novo. Swift & Co. v.
Elias Farms, Inc., 539 F.3d 849, 851 (8th Cir. 2008). Summary judgment is
inappropriate only if there is an “outcome determinative” dispute of fact producing
an issue appropriate for trial. Reuter v. Jax Ltd., Inc., 711 F.3d 918, 920 (8th Cir.
2013) (quotation omitted). Because this is a case under diversity jurisdiction, we
apply the substantive law of the forum state (Arkansas). Ashley County, Ark. v.
Pfizer, Inc., 552 F.3d 659, 665 (8th Cir. 2009).
1. Unjust Enrichment
Friedman first argues that the district court improperly granted summary
judgment for the Farmers on his claim of unjust enrichment because Friedman had a
contract with Arkat Nutrition. Although he acknowledges the general rule that “there
can be no unjust enrichment in contract cases,” he says this case meets the
“impossibility” exception to that rule because the Farmers made completion of the
contract impossible.
To be unjustly enriched under Arkansas law, “a party must have received
something of value, to which he or she is not entitled and which he or she must
restore.” Campbell v. Asbury Auto., Inc., 381 S.W.3d 21, 36 (Ark. 2011). The
benefitted party must have acted or intended “to make the enrichment unjust and
compensable.” Id. In other words, a person must have “received money or its
equivalent under such circumstances that, in equity and good conscience, he or she
ought not to retain.” Id. Although an express contract generally precludes an action
for unjust enrichment, that claim may be maintained, for example, when “a contract
has been discharged by impossibility or frustration of purpose.” United States v.
Applied Pharmacy Consultants, Inc., 182 F.3d 603, 607 (8th Cir. 1999) (quoting
Friends of Children, Inc. v. Marcus, 876 S.W.2d 603, 605 (Ark. Ct. App. 1994)).
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It is disputed whether the Farmers gave Friedman an exclusive or
non-exclusive right to broker deals for the Plant One equipment. And Friedman may
be right that this situation would meet an exception to the prohibition of unjust
enrichment in contract cases because the oral contract no longer can be completed.
But there is no evidence in the record that the Farmers received “money or its
equivalent” in an unjust fashion. Friedman does not say what the unjustly received
thing was; he simply asserts that the Farmers “benefitted individually, and unjustly
from the actions of the Plaintiff.” Ainsworth paid Arkat Animal Nutrition a
considerable sum for the assets of Arkat Nutrition and Arkat Land. But there is no
evidence of the worth of the equipment specifically from Plant One; by the alleged
terms of the oral agreement, that equipment would have to have been sold for more
than $1.5 million for Friedman to have a claim to any commission. The company that
removed the Plant One equipment paid less than $10,000 for it, suggesting its worth
was nowhere near $1.5 million. Moreover, Ainsworth paid Arkat Animal Nutrition
for the assets including Plant One, and Arkat Animal Nutrition is not a party in this
suit.
Even assuming Arkat Nutrition improperly sold its rights in the Plant One
equipment to Ainsworth, and assuming that sale provided an unjust enrichment of
some kind, the only claim would be against Arkat Nutrition (the corporation) and not
the Farmers, who are only agents of Arkat Nutrition. As agents of the corporation,
the Farmers cannot be liable to Friedman on the oral brokering contract. See Grayson
& Grayson, P.A. v. Couch, 388 S.W.3d 96, 104 (Ark. Ct. App. 2012) (“[A]n agent
cannot be held personally liable to a third person on a contract for a disclosed
principal.”). Thus, the district court properly granted summary judgment for the
Farmers on this claim.
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2. Promissory Estoppel
Friedman next argues that summary judgment was improper on his claim for
promissory estoppel. He says there is a dispute of fact whether the Farmers acted
with the actual authority of Arkat Nutrition. If either Farmer lacked the authority to
make the brokerage promise with Friedman, he says, then the agreement between
Friedman and the Farmers “would be a new or different contractual obligation
binding them as an agent acting outside the scope of authority.”
Friedman is correct that, if the Farmers were acting outside the scope of their
authority as agents for Arkat Nutrition, they could be liable for the promise. But there
is no evidence to support that claim. The Farmers provided affidavits swearing that,
relevant to this case, they acted only within the scope of their authority as agents for
Arkat Nutrition. Friedman did not provide counter affidavits but, instead, disagreed
with various paragraphs from Kelly Farmer’s affidavit. He points to one of those
contested paragraphs, and his disagreement with it, as the only support for his
argument that the Farmers were acting outside their authority. That paragraph refers
to the “Board Minutes of Arkat Nutrition,” but those minutes are not in the record.
A disagreement about those Board minutes is not a material dispute warranting
reversal of the district court’s judgment. See Torgerson v. City of Rochester, 643
F.3d 1031, 1052 (8th Cir. 2011) (noting that “a disputed fact alone will not defeat
summary judgment, rather there must be a genuine issue of material fact”); Lower
Brule Sioux Tribe v. State of S.D., 104 F.3d 1017, 1021 (8th Cir. 1997) (“[I]t is not
enough that there are factual disputes between the parties, the disputes must be
outcome determinative under prevailing law.” (quotation omitted)). Nor does this
disagreement create a genuine dispute of fact whether the Farmers were acting within
the scope of their authority as agents of Arkat Nutrition. As agents of the
corporation, the Farmers are not liable for the contract between Friedman and Arkat
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Nutrition. See Grayson & Grayson, P.A., 388 S.W.3d at 104. The district court
properly granted the Farmers summary judgment on the promissory estoppel claim.
3. Conversion
Last, Friedman argues that the district court improperly granted summary
judgment to the defendants on his claim for conversion. He asserts that he never
abandoned the palletizer, despite leaving it in Arkansas for at least two years.
Friedman asserts that, at the least, there is a question of fact whether Ainsworth
converted the palletizer.
To establish liability for conversion under Arkansas law, a plaintiff must prove
that the defendant wrongfully took control of another’s property and denied the owner
his rights to that property. Hatchell v. Wren, 211 S.W.3d 516, 521 (Ark. 2005). The
control over the property can be for the benefit of that defendant or the benefit of
another. Id. Abandonment, however, is a complete defense to conversion. Schmidt
v. Stearman, 253 S.W.3d 35, 42 (Ark. Ct. App. 2007). For property to be considered
abandoned, there must be “a manifest act” of the owner showing intent “to forsake
his or her property.” Id. “Property is abandoned when it has been thrown away or
its possession voluntarily forsaken by the owner.” Id.
We believe the district court properly granted summary judgment to the
defendants on this claim. There is no evidence that any defendant except Ainsworth
possessed the palletizer after Friedman bought it from the Farmers, and there is ample
evidence that Friedman abandoned it. After buying and disassembling the palletizer
sometime in 2009, Friedman did nothing with it: He did not check on it or move it to
California but, instead, left it in Arkansas until at least December 2011. And though
Friedman testified that he still cared about the palletizer, he left it outside (2,000
miles away in Arkansas) and allowed the disassembled pieces to rust. Moreover,
Friedman never told anyone at Ainsworth, before the sale or after, that the palletizer
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was his or that he eventually would remove it, even though he communicated with
Ainsworth employees as early as January and February 2010. Friedman’s silence
about the palletizer, despite learning that Ainsworth had purchased Arkat Nutrition
and everything left at Plant One, is strong evidence that he manifested an intent to
abandon it. Cf. Omni Holding & Dev. Corp. v. C.A.G. Invs., Inc., 258 S.W.3d 374,
381 (Ark. 2007) (finding no clear error in trial court’s conclusion that former lessee
abandoned personal property left in building when lessee traveled to Greece instead
of retrieving property within one-week time period given by court). We think no
reasonable jury would find differently.
b. Motion to Amend Complaint
In the proposed amended complaint, as the district court noted, Friedman does
not name Arkat Land as a party or add any new claims. Instead, he simply inserts
Arkat Land into three paragraphs of his original complaint without describing how
that entity purportedly is related to this action. He refers to “Arkat” many other times
throughout the amended complaint, but he attributes that shorthand to only Arkat
Nutrition. Friedman does not refer to Arkat Land anywhere else in the complaint, not
even in his claims or his prayer for relief. Friedman attempted to justify the
amendment by explaining that Arkat Land was the “alter ego” of Arkat Nutrition; that
is the same argument he used (unsuccessfully) to explain why the amendment should
relate back and not be untimely.
We normally review the denial of a motion to amend a complaint for abuse of
discretion; but because the court denied the motion on the basis of futility, the court’s
legal conclusions are reviewed de novo. See Zutz v. Nelson, 601 F.3d 842, 850 (8th
Cir. 2010). A district court “should freely give leave [to amend] when justice so
requires.” Fed. R. Civ. P. 15(a). But leave may be denied for many reasons,
including “undue prejudice to the non-moving party, or futility of the amendment.”
Hammer v. City of Osage Beach, 318 F.3d 832, 844 (8th Cir. 2003) (quotation
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omitted). This court previously has upheld the denial of a motion to amend when the
motion was filed 14 months after the original complaint and six days after the
discovery cutoff date. Williams v. Little Rock Mun. Water Works, 21 F.3d 218,
224–25 (8th Cir. 1994) (noting that addition of new defendants would cause undue
prejudice and that litigant failed to justify “belatedness of her motion”).
We see no abuse of discretion or error of law here. Friedman filed the motion
to amend more than 14 months after he filed the original complaint, though discovery
was still open. But the amended complaint added new allegations regarding different
equipment located on a different piece of land (Plant Two) and owned by a different
entity (Arkat Land). Friedman did not add Arkat Land as a new defendant and
instead attempted to pull in that entity, and the Plant Two equipment, into his oral
contract by alleging Arkat Land’s involvement with the Farmers. Though Friedman
testified that the “oral deal” involved only Plant One, he later asserted that John
Farmer “modified” the deal to encompass any equipment at any plant, even though
those plants were owned by different entities. But the original complaint says nothing
about Plant Two or Arkat Land.
The new facts alleged are not relevant to those asserted in the original
complaint (regarding Plant One and Arkat Nutrition); instead they relate to a separate
entity not mentioned in the original complaint. See Fed. R. Civ. P. 15(c)(1)(C)
(allowing relation back if new party was related to claim set out in original complaint
and had notice of the action or should have known about the action but for the
naming mistake). If Friedman always believed that John Farmer had “modified” the
agreement to include Plant Two, then he should have alleged that in his original
complaint to put Arkat Land on notice of the suit. He did not do that. Instead, he
specified that the deal applied to only the equipment in the plant damaged by
tornado—Plant One.
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Nor does the amended complaint contain sufficient information to meet the
alter-ego rationale for allowing the amendment. Friedman does not allege that Arkat
Land was controlled by Arkat Nutrition “to the extent that it has independent
existence in form only,” or that the corporate veil was abused “to defeat public
convenience, to justify wrong, or to perpetuate a fraud.” Greater Kan. City Laborers
Pension Fund v. Superior Gen. Contractors, Inc., 104 F.3d 1050, 1055 (8th Cir.
1997). Because the claims do not relate back, they would be untimely under
Arkansas’s three-year statute of limitations for each of Friedman’s claims. See Ark.
Code Ann. § 16-56-105(1), (6). The sale to Ainsworth occurred in February 2010;
the amended complaint was filed March 4, 2014. We thus agree with the district
court that the amendment would be futile. See Enervations, Inc. v. Minn. Mining &
Mfg. Co., 380 F.3d 1066, 1069 (8th Cir. 2004) (“The proposed amendment was futile
because, even if so amended, Count II would still be time-barred.”). The court thus
properly denied the motion to amend.
III. Conclusion
For the reasons discussed above, we affirm the grant of summary judgment for
the defendants and the denial of the motion to amend.
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