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holding that because "promissory estoppel [i]s more like a contract action . . . no individual liability attached because [defendant] was an agent for a disclosed principle" and that "[t]his is a common principle in contract law, and those courts to address the issue have extended this rule to promissory estoppel actions"
Summary of this case from Inoff v. Craftex Mills, Inc.Opinion
Case No. 1:04-CV-00004-WRW.
May 19, 2004
ORDER
Pending is Plaintiffs' Motion to Remand (Doc. No. 9) and Supplemental Motion to Remand (Doc. No. 11). Defendants have responded (Doc. No. 13), and the parties have filed requested supplemented letter briefs. Also pending is Defendants' Motion to Compel Arbitration and Stay Proceedings (Doc. No. 7), to which Plaintiffs have responded (Doc. No. 12). For the following reasons, Plaintiffs' Motion to Remand is DENIED, and Defendants' Motion to Compel Arbitration and Stay Proceedings is GRANTED. Defendants' Motion for Rule 16(b) Conference (Doc. No. 16) is DENIED as MOOT.
I. BACKGROUND
Plaintiffs filed this action in the Circuit Court of Stone County, Arkansas, alleging that Defendants "by and through their actions and statements of the agents, servants, and employees of Defendants, all of whom were working within the scope of their agency and/or employment . . . approached the Plaintiffs about updating their poultry barns." Specifically, Plaintiffs allege that, in 1999, "in the scope and in the course of his employment, Jim Nesbitt, ConAgra Field Representative, informed Plaintiffs that they would have to install new ventilation systems or they would receive no more birds." Although Plaintiffs complied with this demand, ConAgra stopped supplying birds. Plaintiffs sued, alleging a single claim for promissory estoppel.
Am. Compl. at ¶ 7.
Id. at ¶ 9.
Defendants removed this case to federal court, asserting that diversity jurisdiction exists because this "is an action between citizens of different states and the matter in controversy exceeds $75,000, excluding interests and costs." Although Plaintiffs alleged that each Plaintiff, as well as Defendant Jim Nesbitt, are residents of Arkansas, Defendants contend that Defendant Nesbitt was fraudulently joined in order to defeat diversity jurisdiction; therefore, his citizenship should be disregarded for the purpose of determining diversity jurisdiction.
Doc. No. 1.
See Reeb v. Wal-Mart Stores, Inc., 902 F. Supp. 185, 186 (E.D. Mo. 1995).
Plaintiffs subsequently filed their Motion to Remand, contending that this Court lacks jurisdiction over this case because "Plaintiffs properly alleged a cause of action against . . . Defendants for promissory estoppel and, whether Defendant Nesbitt was acting within the scope of his authority is a question of fact and should not be decided in a Petition for Removal."
II. MOTION TO REMAND
A defendant in a state case is entitled to remove the case to federal court if the defendant can demonstrate that the federal court has original jurisdiction over the case. "[F]ederal courts, as opposed to state trial courts of general jurisdiction, are courts of limited jurisdiction marked out by Congress." Federal courts are required to strictly construe the federal removal statute, and any ambiguities about federal jurisdiction are to be resolved in favor of remand In a case where a plaintiff's pleadings do not allege a federal question claim, federal jurisdiction requires that "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different states." The party seeking removal and opposing remand has the burden of proving federal court jurisdiction by clear and convincing evidence.
Aldinger v. Howard, 427 U.S. 1, 2 (1976).
Transit Casket Co. v. Certain Underwriters at Lloyd's of London, 119 F.3d 619, 625 (8th Cir. 1997).
In re Business Men's Assurance Company of America, 992 F.2d 181, 183 (8th Cir. 1993); see also Capehart-Creager Enterprises, Inc. v. O'Hara Kendall Aviation, Inc., 543 F. Supp. 259 (W.D. Ark. 1982).
According to the Eighth Circuit, "joinder designed solely to deprive federal courts of jurisdiction is fraudulent . . . will not prevent removal. Fraudulent joinder exists if, on the face of the plaintiff's state court pleadings, no cause of action lies against the resident defendant." When determining whether a joinder is fraudulent, I must determine whether there is a possibility that the plaintiffs have stated a cause of action against the party who is allegedly fraudulently joined. If so, then remand is proper.
Anderson v. Home Ins. Co., 724 F.2d 82, 84 (8th Cir. 1983)
Barnes v. Southwestern Bell Tele. Co., 596 F. Supp. 1046, 1049-50 (W.D. Ark. 1984); see also Kohl v. Am. Home Prods. Corp., 78 F. Supp.2d 885, 889 (W.D. Ark. 1999).
Barnes, 596 F. Supp. at 1049; see also Draper v. Castle Home Sales, Inc., 711 F. Supp. 1501 (E.D. Ark. 1989).
Defendants contend that Nesbitt was fraudulently joined because "Plaintiffs have not alleged that [he] made any promise or representation to plaintiffs in his individual capacity." Instead, Defendants contend that Plaintiffs have only alleged that Nesbitt made representations to them in his official capacity, as ConAgra's Field Representative. Because Plaintiffs' claims concern actions taken by Nesbitt in his official capacity, and because an agent acting on behalf of a disclosed principal may not be held personally liable under a contract theory, Defendants contend that Plaintiffs have failed to state a claim against Defendant Nesbitt, and removal is proper.
Doc. No. 1.
However, Plaintiffs maintain that they have alleged a claim of promissory estoppel, not one arising from any contract. Because promissory estoppel is not a contract action, Defendants' agency arguments are unavailing. Alternatively, Plaintiffs argue that whether Defendant Nesbitt acted within the scope of his authority is a question of fact. If not, then Defendant Nesbitt may be held personally liable under a theory of promissory estoppel, and remand is appropriate. Plaintiffs have cited authorities that suggest that promissory estoppel may be treated as a tort. After reviewing all the papers submitted by the parties, I hold that Defendant Nesbitt cannot be held personally liable for the promises he may have made on behalf of Defendant ConAgra Poultry, and removal is proper.
Plaintiffs also contend that promissory estoppel is a tort, rendering Defendants' agency arguments inapplicable. Plaintiffs have cited no authority for this proposition, and I find this argument unpersuasive.
I base this conclusion, in part, on the undisputed fact that "promissory estoppel" is listed in the Arkansas Model Jury Instructions under the chapter entitled "Contracts." Second, this cause of action is derived from the Restatement (Second) of Contracts at section 90, rather than the Restatement of Torts. Third, Professor Howard Brill, in his treatise on Arkansas's damages law, also lists promissory estoppel under section 17-14 of his chapter on Contracts. Next, other courts have recognized that "promissory estoppel is a quasi-contractual claim, which is an equitable remedy that permits recovery where, in fact, there is no contract, but where circumstances are such that justice warrants a recovery as though there had been a promise."
AMI 3044.
The Supreme Court has quoted the Restatement with approval in Reynolds v. Texarkana Constr. Co., 237 Ark. 583, 584-85, 374 S.W.2d 818, 819-20 (1964); see also Superior Fed. Bank v. Mackey, 129 S.W.3d 324, 341 (Ark.App. 2003). In Rigby v. Rigby, 2004 WL 352523 (Ark. Feb. 26, 2004), the Arkansas Supreme Court recognized that the Restatement (Second) of Contracts defines promissory estoppel as "a promise which the promisor should reasonably expect to induce action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires."
Although Professor Brill did not specifically say that promissory estoppel is a quasi-contract theory, but he does write that, "[t]he recovery under a promissory estoppel claim should, as with other contract claims, give the claimant his expectation from the promise. In other words, the damages should be what he would have received, or what be would have avoided, if the promises had been carried out." BRILL, ARK. LAW OF DAMAGES (3d ed.), § 17.14.
See, e.g., Odyssey Travel Center, Inc. v. RO Cruises, Inc., 262 F. Supp.2d 618, 626 (D. Md. 2003).
Although I find these authorities persuasive, I am most persuaded by Defendants' agency arguments. It is well-settled in Arkansas that "an agent is not personally liable on contracts made for a disclosed principal in the absence of an express agreement to be bound." Although Arkansas has not addressed whether this same principle applies to promissory estoppel claims, other courts that have done so have concluded that "promissory estoppel claims are not viable against an agent for a disclosed principal."
McCullough v. Johnson, 307 Ark. 9, 11, 816 S.W.2d 886, 888 (1991); see also Ferguson v. Huddleston, 208 Ark. 353, 357, 186 S.W.2d 152 (1945).
Odyssey Travel Center, 262 F. Supp.2d at 626 n. 6 (citing Zimmerman v. First Fed. Savings Loan Ass'n of Rapid City, S.D., et al., 848 F.2d 1047 (10th Cir. 1988); Degen v. Am. Ass'n of Oral Maxillofacial Surgeons, 1994 WL 13754 (N.D. Ill. 1994); Froelich v. Aspenal, Inc., 369 N.W.2d 37 (Minn.Ct.App. 1985); RESTATEMENT (SECOND) OF AGENCY § 320; and Riddle v. Lacey Jones, 135 Mich. App. 241, 351 N.W.2d 916 (Mich.Ct.App. 1984)). See also Croft v. Inlight Risk Managment, Inc., 2002 WL 31010830 (N.D. Ill. 2002) and Braun v. CMGI, Inc., et al., 2001 WL 921170 (S.D.N.Y. 2001).
If Mr. Nesbitt acted outside his authority, or exceeded the scope of his authority, then he could be held personally liable. In the Amended Complaint, however, Plaintiffs have alleged that Nesbitt made representations to them in his official capacity, as ConAgra's Field Representative. It appears that Plaintiffs believed Mr. Nesbitt served as ConAgra's agent, and that ConAgra was a disclosed principal. At no point in the Amended Complaint do Plaintiffs allege that Mr. Nesbitt might have exceeded his authority. Based on the allegations of the Amended Complaint, Mr. Nesbitt cannot be held personally liable under a promissory estoppel theory, the only theory set forth in the Amended Complaint. Accordingly, Defendants' Motion to Remand is DENIED.
The Arkansas Supreme Court has held that "one who purports as agent to enter into a contract, upon which the principal is not bound because of the fact that the agent has contracted without authority or in excess of his authority, is personally liable for the damage thus occasioned to the other contracting party." See Barnes, 596 F. Supp. at 1050 (citing Dale v. Donaldson Lumber Co., 48 Ark. 188, 2 S.W.2d 703 (1886) and Little Rock Furniture Mfg. Co. v. Kavanaugh, 111 Ark. 575, 164 S.W. 289 (1914).
III. MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS
Defendants contend that, if this Court has jurisdiction over this case, it must compel Plaintiffs to arbitrate their claims, as required the Broiler Grower contracts ("the Contracts") entered into by each Plaintiff. Defendants also assert that the parties have each agreed to waive their respective rights to have any dispute arising out of or relating to their agreements to grow birds for ConAgra adjudicated by a court of law. Because this case arises from the contracts, and because the arbitration provisions in the contracts are valid and irrevocable agreements to arbitrate and the claims asserted by Plaintiffs fall within the scope of the arbitration provision, Defendants maintain that arbitration must be compelled.
Copies of the contracts are attached to the Motion to Compel Arbitration and are identified as Exhibits A and B.
According to Defendants, the arbitration provisions in the respective contracts are governed by the Federal Arbitration Act ("FAA") because each clause constitutes a "contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising. . . ." Courts have recognized that the FAA reflects a "liberal policy favoring arbitration agreements." Before determining whether the FAA applies, I must determine whether the arbitration agreement is valid and enforceable. When evaluating an arbitration provision, according to the Eighth Circuit, the Court is only allowed to consider: (1) whether the parties have entered into a valid agreement to arbitrate; and (2) whether the dispute falls within the coverage of the agreement.
9 U.S.C. § 2.
Lyster v. Ryan's Family Steak House, Inc., 239 F.3d 943, 945 (8th Cir. 2001).
Tyson Foods, Inc. v. Archer, ___ Ark. ___, ___ S.W.3d ___ (2004).
Gannon v. Circuit City Stores, Inc., 262 F.3d 677, 680 (8th Cir. 2001).
A. Validity of Agreements
I must first determine whether the parties have entered into a valid agreement to arbitrate, a determination which is based on Arkansas law, according to the grower contracts. Under Arkansas law, "arbitration is simply a matter of contract between the parties." Thus, "the question of whether a dispute should be submitted to arbitration is a matter of contract construction." The Arkansas Supreme Court has explained that:
The same rules of construction and interpretation apply to arbitration agreements as apply to agreements generally, thus we will seek to give effect to the intent of the parties as evidenced by the arbitration agreement itself. It is generally held that arbitration agreements will not be construed within the strict letter of the agreement but will include subjects within the spirit of the agreement. Doubts and ambiguities of coverage should be resolved in favor of arbitration.
Id.
I am also required to apply Arkansas's "rules of contract construction to determine whether the language of the arbitration provision constitutes a valid contract to arbitrate." The essential elements of a contract are: (1) competent parties; (2) subject matter; (3) legal consideration; (4) mutual agreements; and (5) mutual obligations. Mutuality means that "an obligation must rest on each party to do or permit to be done something in consideration of the act or promise of the other; that is, neither party is bound unless both are bound." Thus, a "contract . . . that leaves it entirely optional with one of the parties as to whether or not he will perform his promise would not be binding on the other."
Id.
See Casteel v. Clear Channel Broad, Inc., 254 F. Supp.2d 1081, 1088 (W.D. Ark. 2003).
The Money Place, LLC v. Barnes, 349 Ark. 411, 414, 78 S.W.3d 714, 716-17 (2002).
Tyson Foods, ___ Ark. at ___, ___ S.W.3d at ___.
The Contracts at issue in this Motion provide, in relevant part, that:
Grower and ConAgra agree that any controversy or claim arising out of or relating to this Contract or the breach thereof, that is not satisfactorily resolved to the mutual agreement of the parties, shall be settled by binding arbitration . . . this section shall not apply to a claim by either party seeking specific performance, injunctive relief, or any other equitable remedy.
* * *
A. This agreement to arbitrate shall continue in full force and effect despite the expiration, rescission, or termination of this Contract. By entering into the Contract, the parties agree that they have waived their right to have the dispute adjudicated by a court of law.
Ex. A at ¶ 20, Ex. B at ¶ 20.
Neither party challenges the presence of these elements in this case, and I hold that the arbitration provision is valid. To the extent that Plaintiffs suggest that mutuality of obligation is lacking, I hold that under the language of the contract provisions cited above, both Plaintiffs and ConAgra are required to arbitrate claims arising out of or relating to the contracts; therefore, mutuality of obligation does exist.
B. Coverage of Agreements
The parties dispute whether Plaintiffs' claims fall within the coverage of the arbitration provisions in the Grower Contracts. The United States Supreme Court has recognized that "where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." The Court added that "doubts should be resolved in favor of coverage." The Arkansas Supreme Court, too, has recognized that "arbitration agreements will not be construed within the strict letter of the agreement but will include subjects within the spirit of the agreement. Doubts and ambiguities of coverage should be resolved in favor of arbitration."
AT T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986).
Id.
Id.
In this case, the arbitration provision at issue applies to "any controversy or claim arising out of or relating to this Contract or the breach thereof." The contracts contain the terms under which Plaintiffs agreed to grow chickens for Defendants. Although not specifically set forth in the complaint, Plaintiffs assert that, throughout the years, Defendants have required them to meet certain conditions to receive more chickens. The performance of the various obligations are closely tied to the contract and arise out of or relate to the contracts. Even though Plaintiffs couch their Amended Complaint in terms of promissory estoppel, the wrongdoing complained of by Plaintiffs clearly concern ConAgra's agreement to supply, and Plaintiffs' agreement to grow, chickens, which is the subject of the Grower Contracts.
Ex. A, B at ¶ 20.
This conclusion is supported by Plaintiffs' allegations that "[t]he remedy granted for breach may be limited as justice requires." Am. Compl. at ¶ 19. The Amended Complaint also provides that "Plaintiffs sustained damages as a result of the causes of action . . ., [and] considerable expense as a result of the tortious actions on the part of the Defendants and as a result of the breach of contract on the part of the Defendants." Id. at ¶ 21 (emphasis added). Plaintiffs also allege that they are "entitled to attorney's fees by reason of the breach of the contract on the part of the Defendants." Id.
However, the contract also provides that the arbitration provision does not apply to a claim by either party seeking specific performance, injunctive relief, or any other equitable remedy. Plaintiffs have alleged promissory estoppel and seek damages in an amount "in excess of the minimal requirement for federal court jurisdiction." These damages stem from: (1) the substantial expense incurred in obtaining equipment and other items necessary to perform the renovations; (2) mental anguish and pain and suffering; (3) the fact that Plaintiffs' credit was affected by Defendants' conduct. Plaintiffs also seek punitive damages and attorney's fees and "other damages that will be more particularly described in the course of the litigation."
Am. Compl. at ¶ 22.
Id. at ¶ 21.
In the Amended Complaint, Plaintiffs seek monetary damages for the renovations they performed in anticipation of receiving more chickens. At this time, no equitable remedies are sought, such as injunctive relief or specific performance. Accordingly, this provision does not remove Plaintiffs' claims from the coverage of the arbitration provision in the Grower Contracts.
Finally, Plaintiffs contend that their claim of promissory estoppel is a tort and does not arise from the contract. This argument is unavailing. Courts have long recognized that non-contract claims may fall within the scope of a broad arbitration provision, as long as the claim relates to or arises from the subject matter of the agreement. I have held that this claim arises from the contract entered into by the party, and that the arbitration provision therefore applies. Even if I agreed that promissory estoppel is a tort, this would not change that conclusion. Accordingly, Defendants' Motion to Compel Arbitration and Stay Proceedings is GRANTED.
Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907 (7th Cir. 1999) (holding that tortious interference with a contract claim was within the scope of an arbitration agreement); see also LCA, Inc. v. Sharp Elec. Corp., 2000 WL 1222044 (N.D.Ill. August 22, 2000) (holding a promissory estoppel claim to be within the scope of an arbitration agreement).
I also agree with Defendants that the arbitration provisions in the contracts are governed by the Federal Arbitration Act because each clause constitutes a contract evidencing a transaction involving commerce.
IV. CONCLUSION
Plaintiffs allege that Mr. Nesbitt acted in his official capacity as ConAgra's representative and have alleged that Mr. Nesbitt's representations give rise to a claim of promissory estoppel. Because Mr. Nesbitt served as an agent for a disclosed principal, he cannot be held personally liable under the single theory of promissory estoppel and Plaintiffs' Motion to Remand is, therefore, DENIED (Doc. No. 9, 11). I also hold that the arbitration provision in the Grower Contracts is valid and enforceable and applies to Plaintiffs' claims, which arise from or grow out of the Grower Contracts. Therefore, Defendants' Motion to Compel Arbitration is GRANTED (Doc. No. 7). Finally, Defendants' Motion for Rule 16(b) Conference (Doc. No. 16) is DENIED as MOOT.IT IS SO ORDERED.