J. LEON HOLMES, District Judge.
Kathy Roberts and Karen McShane bring this action against Unimin Corporation seeking a declaratory judgment that a mineral lease entered into by the parties' predecessors in interest in 1961 is terminable at will or, in the alternative, is unconscionable. The plaintiffs also allege that Unimin has been unjustly enriched and they seek restitution in excess of $75,000. This Court has diversity jurisdiction under 28 U.S.C. § 1332. Unimin has filed a motion to dismiss for failure to state a claim. For the following reasons, the motion to dismiss is denied.
In 1918, J.W. Williamson and Lizzie Williamson entered into a lease that granted Odell-Daly Material Company the right to mine certain property for siliceous materials for a term of twenty years.
Document #1 at 31-32.
In 1934, J.W. Williamson entered into another lease for the property with similar royalty language: "Five cents (5¢) per ton on all material shipped, whether in crude form or shipped in milled or pulverized form." Document #1 at 40. When J.W. Williamson died in 1943, he left the property to his two sons, Ray Williamson and Collie Williamson. Then in 1961, after Collie Williamson's death, a new lease was entered into between Ray Williamson and the devisees of Collie Williamson, as lessors, and the Silica Products Company, Inc. Unimin is the successor in interest to Silica.
The 1961 lease provides for the following royalty structure:
Document #1 at 6 and 20.
The provision establishing the term of the 1961 lease states:
Document #1 at 7 and 19.
Kathy Roberts and Karen McShane now own the subject property and are assignees of the 1961 lease. Document #1 at 2 ¶ 9. Their complaint alleges three counts. Count I seeks a declaratory judgment that after January 31, 2007, the 1961 lease became terminable-at-will upon reasonable notice because the term of the lease became indefinite. Document #1 at 8-9. Count II seeks a declaratory judgment that royalty and term provisions of the 1961 lease are unconscionable because the royalty is grossly inadequate and the term indefinite.
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the complaint must set forth "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). The court must accept as true all of the factual allegations contained in the complaint, Twombly, 550 U.S. at 572, 127 S. Ct. at 1975, and must draw all reasonable inferences in favor of the nonmoving party. Gorog v. Best Buy Co., Inc., 760 F.3d 787, 792 (8th Cir. 2014). The complaint must contain more than labels, conclusions, or a formulaic recitation of the elements of a cause of action, which means that the court is "not bound to accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555, 127 S. Ct. at 1965.
Unimin argues that the plaintiffs' claims are not plausible because the lease has a definite term and is, therefore, not terminable at will. Again, the lease term was from March 1, 1961, until January 31, 2007, and "as long thereafter as mining and/or mining operations are prosecuted." Document #1 at 7 and 19. Unimin argues that this language creates a term for a definite period of time, whereas the plaintiffs argue that this provision creates an indefinite term and is terminable at will.
A lease for an indefinite term is unenforceable. Coley v. Westbrook, 206 Ark. 1111, 178 S.W.2d 991, 992-93 (Ark. 1944). "A lease for an indefinite term, with monthly rent reserved creates a tenancy from month to month." Id. at 993 (quoting 35 C.J. 1106). Cf. Magic Touch Corp. v. Hicks, 99 Ark.App. 334, 335, 260 S.W.3d 322, 324 (2007) (a contract for an indefinite term is terminable at will).
The Eighth Circuit, applying Missouri law, found that "a lease which is to end upon the happening of an event certain to occur but uncertain as to the time when it will occur, does not create a valid tenancy for years." National Bellas Hess, Inc. v. Kalis, 191 F.2d 739, 741 (8th Cir. 1951). Likewise, the Alabama Supreme Court held that a provision stating the lease may be renewed "so long as there is recoverable coal remaining in the lands leased hereby" was so incapable of ascertainment that it rendered the lease void as a tenancy for years and a tenancy-at-will was created. Linton Coal Co., Inc. v. South Central Resources, Inc., 590 So.2d 911, 912 (Ala. 1991).
The lease term here — "as long thereafter as mining and/or mining operations are prosecuted" — is similar to the lease terms in these two cases. In Linton Coal, the lease was to end when there was no longer recoverable coal. In National Bellas, the lease was to end when a treaty of peace was signed at the end of World War II. Here, the lease would end when mining or mining operations cease. No one knows when that will occur.
In the cases that Unimin cites to support its position, the issue was not whether the lease term was indefinite. Unimin argues that Mooney v. Gantt should apply and that it is fatal to the plaintiff's claim. 219 Ark. 485, 243 S.W.2d 9 (1951). However, the plaintiffs in Mooney argued the lease lacked mutuality of obligation and consideration, not that the lease was for an indefinite term. 219 Ark. at 487, 243 S.W.2d at 10. In Smith v. Long the issue was whether the lessee was in default for not engaging in production when it would have been unprofitable. 40 Colo. App. 531, 533, 578 P.2d 232, 234 (Colo. App. 1978). And in Bodcaw Oil Co. v. Atlantic Refining Co., the issue was whether the term — "for so long as oil and gas, or either of them, is being produced from the other lands" — were sufficient consideration to support an agreement. 217 Ark. 50, 59, 228 S.W.2d 626, 632 (Ark. 1950).
The plaintiffs' claim for a declaration that the lease is terminable at will is a plausible claim.
The Honorable Kristine G. Baker recently explained Arkansas law with respect to a claim that a contract is unconscionable:
Hanjy v. Arvest Bank, 94 F.Supp.3d 1012, 1032 (E.D. Ark. 2015).
Here, the complaint alleges facts to support both the procedural and the substantive elements of a claim of unconscionability. As to procedural unconscionability, the contract alleges that the lease was negotiated shortly after the death of Collie Williamson, while the family was still recovering from the turmoil of his death, and it was negotiated with his children who had no experience in handling similar affairs and therefore relied upon the integrity of Silica Products Company, Inc., to determine a fair royalty price. The complaint further alleges that Silica took advantage of the situation to include a royalty price that was far below the market value as of 1961, which Silica was able to do because of the inexperience and circumstances of the persons with whom Silica was negotiating. These allegations meet the Twombly pleading standard.
Next, Unimin argues that the unjust enrichment claim fails because an unjust enrichment claim is not a viable theory where the parties have a contract. Unjust enrichment is an equitable doctrine based on the notion that a person should not become unjustly enriched at the expense of another and should be required to make restitution for the unjust enrichment received. See Campbell v. Asbury Auto., Inc., 2011 Ark. 157, at 21, 381 S.W.3d 21, 36; Pro-Comp Mgmt., Inc. v. R.K. Enters., LLC, 366 Ark. 463, 469, 237 S.W.3d 20, 24 (2006). "[A]n action based on unjust enrichment is maintainable where a person has received money or its equivalent under such circumstances that, in equity and good conscience, he or she ought not to retain." Campbell, 2011 Ark. 157, at 21, 381 S.W.3d at 36. Pleading unjust enrichment as an alternative to a breach-of-contract claim is allowed in appropriate circumstances under Arkansas law. See, e.g., Klein v. Arkoma Prod. Co., 73 F.3d 779, 786 (8th Cir. 1996); Friends of Children, Inc. v. Marcus, 46 Ark.App. 57, 61, 876 S.W.2d 603, 605-06 (1994); 1 Howard W. Brill, Arkansas Law of Damages § 31:2 (5th ed. 2004).
While the general rule is that "[t]here can be no `unjust enrichment' in contract cases," Lowell Perkins Agency, Inc. v. Jacobs, 250 Ark. 952, 958, 469 S.W.2d 89, 92 (1971), numerous exceptions to this rule exist. If, for instance, the contract was rescinded, the contract was discharged by frustration of purpose or impossibility, or the parties made a fundamental mistake about something in the contract, a party may seek recovery on a theory of unjust enrichment. See Friends of Children, Inc., 46 Ark. App. at 61, 876 S.W.2d at 605 (holding that an unjust enrichment claim was not barred where the parties had effectively rescinded their contract). In determining what the general rule means and whether it applies, the rule's purpose is instructive:
Campbell, 2011 Ark. 157, at 23, 381 S.W.3d at 37 (quoting United States v. Applied Pharmacy Consultants, Inc., 182 F.3d 603, 609 (8th Cir. 1999)). When a contract is void or does not provide an answer to or fully address the issue at hand, a party may assert unjust enrichment. Id. (citing Brill, Arkansas Law of Damages § 31.2).
According to the Restatement (Third) of Restitution and Unjust Enrichment, the majority view in the United States is that a plaintiff can recover the value of contractual performance through an unjust enrichment claim even if the plaintiff is not entitled to enforce the contract by an action for damages or specific performance:
Restatement (Third) of Restitution and Unjust Enrichment pt. II, ch. 4, introductory note (2011); see also Robert Stevens, When and Why Does Unjustified Enrichment Justify the Recognition of Proprietary Rights?, 92 B.U. L. Rev. 919, 919 (2012) ("A Restatement's central purpose is not to explain why the law is as it is, but rather to restate the law in as clear and coherent a manner as possible."). But see Ernest J. Weinrib, The Structure of Unjustness, 92 B.U. L. Rev. 1067, 1079 (2012) ("Despite the outstanding accomplishment of Andrew Kull and his colleagues in the American Law Institute in drawing up the Restatement (Third) of Restitution and Unjust Enrichment, unjust enrichment is still the least developed area of private law.").
Here, if the plaintiffs prevail on their claim that the 1961 lease is unconscionable, the written contract will be set aside, and in that instance, the general rule that there can be no unjust enrichment in contract cases would not apply.
Unimin argues that the plaintiffs do not have standing because there is no active controversy between the parties. Document #13 at 9. The Declaratory Judgment Act requires "a case of actual controversy." 28 U.S.C. § 2201(a). The court "may declare the rights and other legal relations of any interested party seeking such declaration." Id. Unimin argues that no controversy currently exists because it is not in default on any provision in the lease and, even if it were, the plaintiffs have failed to give notice of a default and an opportunity to cure it, as required by the lease. That argument misses the mark because the plaintiffs are not arguing that the contract was breached. They are seeking a declaration that the lease became terminable-at-will after the initial term of the lease expired in 2007. Unimin denies that the lease is terminable-at-will, which creates an actual controversy.
Unimin also argues that the plaintiffs' claims are barred by res judicata. On September 23, 2011, the plaintiffs' predecessors, William Self and Richard Williamson, commenced an action against Unimin in the Circuit Court of Izard County, Arkansas, alleging that Unimin had breached the 1961 lease by failing to make reports required by the lease, had committed fraud,
On October 31, 2013, John William Williamson commenced an action against Unimin in the Circuit Court of Izard County, Arkansas, reasserting the claims that had been dismissed without prejudice and adding new claims. The new complaint included a separate count alleging that the royalty and term provisions of the 1961 lease were so unjust as to constitute fraud. Similarly, the new complaint included a count for rescission, alleging that the royalty and term provisions of the 1961 lease were so ambiguous as to require termination of the lease. In addition, the new complaint included a count for reformation on the ground that the instrument did not reflect the terms intended by the parties. Unimin again removed the action to this Court, where it was docketed as John William Williamson v. Unimin Corp., E.D. Ark. No. 1:13CV00103 BSM. On December 12, 2013, Judge Miller dismissed the complaint with prejudice. Document #12-4. In the order of dismissal, Judge Miller stated that although Williamson had responded to the motion for summary judgment filed in the 2011 action, his response did not comply with the Federal Rules of Civil Procedure or the local rules and did not set forth specific facts showing that there was an issue for trial. Without mentioning the new claims, Judge Miller granted Unimin's motion for summary judgment and dismissed the 2013 action with prejudice. Id.
Sometime in 2013, McShane brought an action in the Circuit Court of Izard County, Arkansas, against John William Williamson and Kathy Roberts. The only document in this Court's file regarding that action is the final order. Document #12-6. According to that order, Sand Dollar Mining, LLC, was established on July 13, 2012, and dissolved on September 13, 2012. At the time of the dissolution, three persons — McShane, Roberts, and John William Williamson — owned equal shares. On September 24, 2012, Sand Dollar Mining assigned its lease ownership to Roberts and John William Williamson. The circuit court declared that assignment to be void because not all of the owners participated in the assignment, and the court ordered the execution of a new assignment from Sand Dollar Mining to McShane, Roberts, and John William Williamson, with each to receive one-third of the assets in the assignment of the lease. According to Unimin's brief, the lease that was the subject of the Izard Circuit Court order is the lease at issue here, and Richard Williamson's assignment to his children flowed through Sand Dollar Mining. Document #13 at 13 n.1.
Because this is a diversity action, Arkansas law governs the res judicata analysis. C.H. Robinson Worldwide, Inc. v. Lobrano, 695 F.3d 758, 764 (8th Cir. 2012). The Arkansas courts use the term res judicata to refer both to issue preclusion and claim preclusion. Ruth R. Remmel Revocable Trust v. Regions Financial Corp., 369 Ark. 392, 402, 255 S.W.3d 453, 461 (2007); Huffman v. Alderson, 335 Ark. 411, 414, 983 S.W.2d 899, 901 (1998). Unimin's motion does not specify whether it is asserting that the plaintiffs' claims are barred by issue preclusion, claim preclusion, or both.
In Arkansas, issue preclusion requires four elements: (1) the issue to be precluded must be the same issue as in the prior litigation; (2) the issue must have been actually litigated; (3) the issue must have been determined by a final and valid judgment; and (4) the issue must have been essential to the judgment. Stephens v. Jessup, 793 F.3d 941, 944 (8th Cir. 2015) (citing Beaver v. John Q. Hammons Hotels, L.P., 355 Ark. 359, 363, 138 S.W.3d 664, 666 (2003)). A person who was not a party to the first action may assert issue preclusion, but the party against whom it is asserted must have had a full and fair opportunity to litigate the issue in the first action. Stephens, 793 F.3d at 944 (citing Craven v. Fulton Sanitation Serv., Inc., 361 Ark. 390, 394, 206 S.W.3d 842, 844 (2005)).
Issue preclusion does not bar the plaintiffs' claims here. Whether the 1961 lease became terminable at will after January 31, 2007, because the term was indefinite from that point forward was not actually litigated in the 2013 case, nor were the issues of whether the royalty and term provisions were unconscionable and whether Unimin had been unjustly enriched by virtue of them.
Claim preclusion in Arkansas bars a claim in a second suit when five elements are present:
Stephens, 793 F.3d at 944 (quoting Ark. Office of Child Support Enf't v. Williams, 338 Ark. 347, 351, 995 S.W.2d 338, 339 (1999)). Claim preclusion is broader than issue preclusion in that it bars not only claims that were actually litigated in the first suit, but also claims that could have been litigated. Huffman, 335 Ark. at 415, 983 S.W.2d at 901. "Where a case is based on the same events as the subject matter of a previous lawsuit, res judicata will apply even if the subsequent lawsuit raises new legal issues and seeks additional remedies." Id.
Here, the 2013 action resulted in a final judgment on the merits; the Court had jurisdiction of the parties and the subject matter; and the 2013 action was fully contested in good faith. Whether claim preclusion bars this action depends on whether this action and the 2013 action involved the same claim or cause of action and whether both actions involved the same parties or their privies.
As to the question of whether both suits involve the same claim or cause of action, the complaint in the 2013 action did not allege that the 1961 lease was terminable at will because the term became indefinite after January 31, 2007, nor did that complaint allege that the royalty and term provisions of the 1961 lease were unconscionable or that Unimin had been unjustly enriched by virtue of them. But the complaint in the 2013 action did allege that the royalty and term provisions of the 1961 lease were so unfair as to constitute fraud, and that complaint sought to terminate the lease because of those provisions. While the complaint in this action identifies different legal theories, it asserts essentially the same claims. In this action, the complaint seeks to terminate the 1961 lease based upon the indefiniteness of its term; the complaint alleges that the royalty and term provisions are so unfair as to be unconscionable; and the complaint alleges that Unimin has been unjustly enriched because of the unfairness of the royalty and term provisions in the 1961 lease. Thus, the claims in this action are based on the same provisions of the 1961 lease as the claims asserted in the 2013 action, and this action seeks the same relief as the 2013 action, which is to terminate the 1961 lease. The 2013 action and this action therefore involve the same claims, though under the guise of different legal theories. "A party may not litigate a claim and then, upon an unsuccessful disposition, revive the same cause of action with a new theory." Roach v. Teamsters Local Union No. 688, 595 F.2d 446, 450 (8th Cir. 1979).
In Arkansas, privity exists
Crockett v. C.A.G. Invs., Inc., 2011 Ark. 208, 10-11, 381 S.W.3d 793, 799-800 (2011).
Although Arkansas law casts a wide net when it comes to defining privies, no Arkansas case has specifically decided the issue of whether joint ownership of property, without more, creates privity. The general rule is that it does not. See RESTATEMENT (SECOND) OF JUDGMENTS § 54 (1982). A leading treatise explains:
18A Charles Alan Wright, Arthur R. Miller, and Edward H. Cooper, Federal Practice and Procedure: Jurisdiction § 4461 (2nd ed. 2002). These two reasons apply here, at least as to McShane. John William Williamson, who obtained the dismissal of the 2011 action and unsuccessfully sued Unimin in the 2013 action, had no authority to represent McShane in transactions with outsiders, such as Unimin. Moreover, there was a conflict of interest between them at the time. As noted above, on October 25, 2012, Richard Williamson, John William Williamson, and Kathy Roberts represented to the Court that Richard had assigned his interest in the 1961 lease to his children, John William Williamson and Kathy Roberts. That representation omitted the fact that the assignment went through Sand Dollar Mining; and that McShane was an equal owner in Sand Dollar Mining; and that she had not been a party to the assignment pursuant to which John William Williamson and Roberts claimed their interests in the 1961 lease. Furthermore, while John William Williamson was pursuing claims against Unimin, he was represented by the same lawyer who represented him (and Kathy Roberts) in the litigation against McShane in the Circuit Court of Izard County.
Arkansas has not expressly adopted Restatement (Second) of Judgments § 54, which articulates the general rule that concurrent ownership of property, without more, does not create privity, but in cases too numerous to cite the Arkansas courts have followed the Restatement of Judgments, and this Court is satisfied that Arkansas would do so here. Here, specific facts indicate that while John William Williamson was pursuing the 2013 action he had no authority to represent McShane and was, in fact, in a conflict with her at the time. McShane and Williamson were not in privity, so the judgment in the 2013 action does not bar McShane's claim.
The next issue is whether the statute of limitations has run on the claims. Because declaratory judgment is a procedural device, not a substantive claim, no general statute of limitations exists for declaratory judgment actions, so courts look to the substantive claim underlying the declaratory cause of action and apply the statute of limitations that governs the substantive claim. Gilbert v. City of Cambridge, 932 F.2d 51, 57-58 (1st Cir. 1991); In re Downingtown Indus. & Agric. Sch., 172 B.R. 813, 823 (Bankr. E.D. Penn. 1994). Accordingly, the threshold issue is which of the Arkansas statutes of limitations applies here. Unimin cites Arkansas's three-year statute of limitations that applies to most causes of action, Ark. Code Ann. § 16-56-105(3), the five-year statute of limitations for written contracts, Ark. Code Ann. § 16-56-111(a), the three-year statute of limitations for trespass actions, Ark. Code Ann. § 16-56-105(4), and the seven-year statute of limitations for adverse possession actions, Ark. Code Ann. § 18-61-101(a)(1). Document #13 at 15-16. Despite citing this litany of statutes of limitations, Unimin does not specify particular statutes of limitations that it contends applies here.
Conversely, the plaintiffs do not cite any statute of limitations in their brief. Rather, they argue that there is no statute of limitations applicable to this action because there is no underlying cause of action (Document #20) and, in the alternative, that the action did not accrue until they decided in 2015 to invoke their right to terminate the lease at will. Document #20 at 11-12.
As explained above, the plaintiffs contend that the 1961 lease had a definite term through January 31, 2007, after which the terms became indefinite, which, as a matter of law, means that the lease became a month-to-month tenancy that is terminable at will upon reasonable notice. An action by a lessor seeking a declaration that a lease is terminated is, in effect, an action brought by a landlord against a tenant alleging that the tenant has remained on the premises beyond the expiration of the lease term, with the remedy being ejection of the tenant and regaining possession of the premises by the landlord. Arkansas has two potential statutes that could apply, Ark. Code Ann. § 18-61-101(a), which provides for a seven-year statute of limitations for recovery of any real property and Ark. Code Ann. § 18-61-103, which provides for a five-year statute of limitations for an action of ejectment when the plaintiff does not claim title to the land. Cf. Schwarz v. Colonial Mortg. Co., 326 Ark. 455, 460-61, 931 S.W.2d 763, 765-66 (1996).
Assuming that after January 31, 2007, the 1961 lease became a month-to-month tenancy which was terminable at will upon reasonable notice, the plaintiffs' cause of action accrued when they or their predecessors first sought to terminate the lease, eject Unimin and regain possession of the real property. So far as the record shows, that happened on September 23, 2011, when the plaintiffs' predecessors commenced the 2011 action in the Circuit Court of Izard County, Arkansas, seeking rescission of the 1961 lease. Although the complaint in that action did not assert that the 1961 lease had become a month-to-month tenancy, terminable at will, it did seek rescission of the lease, which is another way of saying that it sought to terminate the lease. "Generally, the running of a statute of limitations commences when the plaintiff has a complete and present cause of action." Riddle v. Udouj, 99 Ark.App. 10, 13, 256 S.W.3d 556, 558 (2007). Here, the lessors under the 1961 lease had a complete and present cause of action in 2011 when they demanded that the lease be terminated and Unimin refused to acquiesce. The fact that the plaintiffs' predecessors were ignorant of their right to terminate the lease at will upon reasonable notice does not prevent the cause of action from accruing. Wilson v. GECAL, 311 Ark. 84, 87, 841 S.W.2d 619, 620 (1992) ("No mere ignorance on the part of the plaintiff of his rights . . . will prevent the statute bar.")). This action was commenced within five years after September 23, 2011, so it is not barred by either of the potentially applicable statutes of limitations, Ark. Code Ann. § 18-61-101(a) or § 18-61-103.
As to the plaintiffs' unjust enrichment claim, the applicable statute of limitations is the three-year statute provided in Ark. Code Ann. § 16-56-105. Roach Mfg. Corp. v. Northstar Indus., Inc., 630 F.Supp.2d 1004, 1007 (E.D. Ark. 2009). The parties have not briefed the issue of whether all of the plaintiffs' unjust enrichment claims are barred because an unjust enrichment claim could have been asserted as early as September of 2011, or whether the application of the three-year statute of limitations means that the plaintiffs cannot recover damages that occurred more than three years before the commencement of this action.
For the reasons stated, Unimin Corporation's motion to dismiss is DENIED. Document #12.
IT IS SO ORDERED.
Brill, Arkansas Law of Damages § 13:6. As noted, the parties have not briefed the issue of whether this analysis, which governs contract actions, would apply in the unjust enrichment context.
