United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
November 27, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
05-60582
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.
Appeal from the United States District Court for the
Southern District of Mississippi, Gulfport
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
1
The ten remaining claims were: Failure to Warn, Intentional
and/or Negligent Infliction of Emotional Distress, Nuisance,
Trespass, Injunctive Relief, Strict Liability, Negligence, Unjust
Enrichment, Medical Monitoring, and Punitive Damages. Three of
these claims—Unjust Enrichment, Medical Monitoring, and Strict
Liability—were later dismissed by way of a separate motion, and
they are no longer at issue. Our discussion of the traditional
tort claims is limited to the seven remaining claims.
2
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.
3
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
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(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. Af-Cap, 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
2
The court declined to consider the contents of the Second
Supplemental and Amending Complaint. Consequently, our review of
the fraud claim is limited only to the allegations contained in the
first two documents.
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a duty to do so.” Chiarella v. United States, 445 U.S. 222, 227–28
(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
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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
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there is a valid justification. See Foman v. Davis, 371 U.S. 178,
182 (1962) (listing several such reasons). The appellants do not
dispute that mootness is a valid basis for denying leave to amend;
they only argue that the court abused its discretion in this
instance.
The district judge’s order does not shed any light on the
reasoning behind his decision, but we have repeatedly held that
“[w]hen the reason for the denial is apparent,” a court’s failure
to give reasons is “‘not fatal to affirmance’ if the record
reflects ‘ample and obvious grounds for denying leave to amend.’”
Mayeaux v. Louisiana Health Svc. and Indem. Co., 376 F.3d 420, 426
(5th Cir. 2004) (citations omitted). In this case, the grounds do
appear ample and obvious.
The court was aware that the appellants had been attempting to
draft a sustainable complaint against this appellee in one court or
another since 2000. This case began on October 31, 2003, roughly
eighteen months before the district court ultimately dismissed the
fraud claim. During that time, the court granted the appellants
leave to file a First Supplemental and Amending Complaint and
instructed them to plead their fraud claim with greater
particularity, but the amended complaint was still woefully
inadequate. When the appellants then requested leave to file a
Second Supplemental and Amending Complaint, also for the purpose of
bolstering their fraud claim, the court agreed to review the
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proposed changes, but they were not presented to the court by the
specified deadline. In light of this history, we do not believe
that the district court abused its discretion in denying the
appellants leave to file another amended complaint. We AFFIRM.
V. THE VALIDITY OF INCORPORATION BY REFERENCE
In the first paragraph of their First Supplemental and
Amending Complaint, the appellants 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.”
They did not actually spell out these earlier claims in the
supplemental complaint.3 The only claims specifically mentioned in
the First Supplemental and Amending Complaint were the fraud claim,
which appellants were attempting to plead with greater
particularity, and a new claim for “Testing.” When Fort James
moved to dismiss the fraud and testing claims pursuant to Rule
12(b)(6), their motion made no mention of the traditional tort
claims. Similarly, when the court granted that motion on April 12,
2005, its order specifically addressed the fraud and testing
claims, but made no reference anywhere to the traditional tort
claims. The appellants now argue that the court’s action
constitutes a sua sponte dismissal without adequate fairness to the
3
As noted earlier, there were seven total claims, referred to
collectively by the appellants as “traditional tort claims,” that
were still viable at the time the First Supplemental and Amending
Complaint was filed. These are: Failure to warn, Intentional
and/or Negligent Infliction of Emotional Distress, Nuisance,
Trespass, Injunctive Relief, Negligence and Punitive Damages.
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parties. We agree with the appellants, and therefore REVERSE.
The Federal Rules of Civil Procedure specifically allow for
incorporation by reference in supplemental pleadings. Rule 10(c)
reads: “Statements in a pleading may be adopted by reference in a
different part of the same pleading or in another pleading or in
any motion.” See also King v. Dogan, 31 F.3d 344, 356 (5th Cir.
1994) (noting that amended complaint supersedes original complaint
and renders it of no legal effect “unless the amended complaint
specifically refers to and adopts or incorporates by reference the
earlier pleading”) (citing Boelens v. Redman Homes, Inc., 759 F.2d
504, 508 (5th Cir. 1985)). The appellees note, however, that there
is a body of persuasive precedent indicating that such
incorporation must be done “with a degree of specificity and
clarity which would enable the responding party to easily determine
the nature and extent of the incorporation.” Wolfe v.
CharterForest Behavioral Health Sys., Inc., 185 F.R.D. 225, 228–29
(W.D. La. 1999)); see also 5 CHARLES ALLAN WRIGHT & ARTHUR R. MILLER, FED.
PRACTICE AND PROCEDURE: Civil 2d § 1326 (“[R]eferences to prior
allegations must be direct and explicit in order to enable the
responding party to ascertain the nature and extent of the
incorporation.”); Kolling v. Am. Power Conversion Corp., 347 F.3d
11, 17 (1st Cir. 2003) (same); Heintz & Co. v. Provident Tradesmans
Bank & Trust Co., 29 F.R.D. 144 (E.D. Pa. 1961) (same).
We have no reason to disagree with these courts on the
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principle at issue, but in this case we believe that the clause was
sufficiently specific, and the pleading history of the case
sufficiently simple, that the appellee could “easily determine the
extent and nature of the incorporation.” Wolfe, 185 F.R.D. at 229.
Unlike in Wolfe, where the plaintiffs had amended their complaint
three separate times, this clause was in the first amended
complaint. Moreover, it was filed pursuant to the district court’s
instruction that appellants plead their fraud claim with greater
particularity; its clear purpose was to satisfy the court’s
instruction and try to save the fraud claim, not to alter the other
allegations in any way. We also note that the First Supplemental
and Amending Complaint was on file with the court for months,
during which time neither the appellee nor the court appears to
have suggested the possibility that the blanket incorporation
clause was void and that the appellants’ seven tort claims were
suddenly abandoned. There is also no indication in the record that
either the defendant or the court was confused about the nature and
extent of the incorporation. Accordingly, we hold that the
incorporation by reference, though cumbersome, was nonetheless
sufficient to provide the appellee with ample notice of the claims
against it and is valid under Rule 10(c).
In light of this conclusion, we must also decide if the
court’s sua sponte dismissal of the incorporated claims was valid.
As a general rule, a district court may dismiss a complaint on its
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own for failure to state a claim. Shawnee Intern., N.V. v. Hondo
Drilling Co., 742 F.2d 234, 236 (5th Cir. 1984). However, we have
previously noted that the district court can only dismiss an action
on its own motion “‘as long as the procedure employed is fair.’”
Bazrowx v. Scott, 136 F.3d 1053, 1054 (5th Cir. 1998) (quoting 5A
WRIGHT & MILLER, FED. PRACTICE AND PROCEDURE § 1357, at 301 (2d ed.
1990)). We have further suggested that fairness in this context
requires “both notice of the court’s intention and an opportunity
to respond.” Bazrowx, 136 F.3d at 1054 (quoting Ricketts v.
Midwest Nat’l Bank, 874 F.2d 1177, 1185 (7th Cir. 1989)). This is
consistent with the view of three other circuits that district
courts should not dismiss claims sua sponte without prior notice
and opportunity to respond. See, e.g., Fredyma v. AT&T Network
Systems, Inc., 935 F.2d 368 (1st Cir. 1991); Thomas v. Scully, 943
F.2d 259 (2nd Cir. 1991); Smith v. Boyd, 945 F.2d 1041 (8th Cir.
1991). In this case, the court provided the parties with no notice
or opportunity to be heard as to the traditional tort claims before
issuing its order of dismissal. It did not even so much as mention
those claims in its order of dismissal, despite purportedly
disposing of them. This treatment of the case did not provide
adequate fairness to the appellants, and thus was reversible error.
VI. CONCLUSION
Based on the foregoing analysis, we AFFIRM in part and REVERSE
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in part, and REMAND this case to the district court for further
action consistent with this opinion.
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