Massey v. Congress Life Insurance

United States Court of Appeals,

Eleventh Circuit.

No. 96-6635.

James D. MASSEY; Robert A. Massey, Plaintiffs-Appellees,

v.

CONGRESS LIFE INSURANCE COMPANY; Insurers Administrative Corporation,
Defendants-Appellants.

July 10, 1997.

Appeal from the United States District Court for the Northern District of Alabama. (No. CV-95-G-
1405-S), J. Foy Guin, Jr., Judge.

Before BLACK, Circuit Judge, and FAY and ALARCON*, Senior Circuit Judges.

BLACK, Circuit Judge:

The present case arises out of the termination of health insurance policies held by James D.

Massey and Robert A. Massey for failure to pay the premiums prior to the due date or expiration of

the grace period. The insurance policies at issue were underwritten by Congress Life Insurance

Company (Congress) and administered by Insurers Administrative Corporation (IAC). After

termination of the policies, the Masseys sued Congress and IAC for breach of contract, fraud, bad

faith, outrage, and negligence in the United States District Court for the Northern District of

Alabama. The district court granted in part a motion by Congress and IAC for summary judgment,
but also granted summary judgment sua sponte in favor of the Masseys on a breach of contract

claim. To remedy the perceived breach, the court awarded the Masseys injunctive relief, including

immediate reinstatement of their policies. Congress and IAC then took the instant interlocutory

appeal wherein they contend that the district court erred by partially denying its motion for summary

judgment and then granting summary judgment on the breach of contract claim to the Masseys. We

reverse because the district court failed to afford adequate notice prior to the sua sponte grant of

summary judgment.

*
Honorable Arthur L. Alarcon, Senior U.S. Circuit Judge for the Ninth Circuit, sitting by
designation.
 I. BACKGROUND

James and Robert Massey are brothers and the sole shareholders in Massey Amoco, Inc.

(Massey Amoco), the corporate owner of a service station in Birmingham, Alabama. In late 1992

or early 1993, the Masseys explored the possibility of obtaining health insurance for themselves and

two full-time employees. Subsequently, all four individuals elected to purchase health insurance

policies underwritten by Appellant Congress and administered by Appellant IAC.

As administrator of the policies, IAC handled collection of premiums and processing of

claims on behalf of Congress. On approximately October 15, 1994, in accordance with its standard

practice, IAC mailed James and Robert Massey their monthly premium statements at the Massey

Amoco service station. Each statement specified that payment of the monthly premium was due on

November 1, 1994, and warned that "IF PREMIUMS ARE NOT RECEIVED WITHIN 31 DAYS

OF THE DUE DATE, COVERAGE WILL CEASE AS OF THE DUE DATE FOR NON-

PAYMENT OF PREMIUM." Massey Amoco failed to pay the monthly premiums on or before the

November 1, 1994, due date and still had not paid those premiums when IAC mailed the December

statements to policyholders on or about November 15, 1994.

In late November 1994, Massey Amoco received from IAC the premium statements for the

month of December. The statements indicated that the premiums for the month of November were

past due. Near the bottom of each statement, a delinquency notice appeared in bold type set off in

an enclosed box. The notice stated that "THE PAST DUE AMOUNT MUST BE RECEIVED

WITHIN 31 DAYS OF THE DUE DATE FOR THE MONTH IN WHICH IT WAS DUE TO

AVOID LAPSE OF COVERAGE." The statement also contained the standard recitation that

coverage under the policy would cease as of the due date unless premiums were received within 31

days of the due date. On December 9, 1994, IAC received a check from Massey Amoco purporting

to pay the premiums that had been due November 1, 1994. The envelope containing the payment

was postmarked December 5, 1994. Explaining that their insurance policies had lapsed on

December 2, 1994, in accordance with the terms of their insurance certificates, IAC returned the

check to the Masseys.
 On June 2, 1995, the Masseys sued Congress and IAC in the United States District Court for

the Northern District of Alabama. The complaint advanced state law causes of action for breach of

contract, bad faith, fraud, outrage, and negligence. In its answer, Congress and IAC maintained that

the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461, preempted the

Masseys' claims. On February 27, 1996, Appellants Congress and IAC filed a motion for summary

judgment arguing both ERISA preemption and, in the alternative, the merits of the Masseys' claims.

In an order issued on May 29, 1996, the district court granted in part and denied in part Appellants'

motion for summary judgment. After rejecting the ERISA preemption argument, the district court

awarded Congress and IAC summary judgment on the outrage, negligence, and bad faith claims, but

denied summary judgment on the breach of contract and fraud claims. In addition, although the

Masseys had not moved for summary judgment, the district court granted them summary judgment

sua sponte on their breach of contract claim. The court then awarded the Masseys injunctive relief

for the perceived breach, ordering Congress and IAC to reinstate the Masseys' policies and to pay

any insurance claims that had accrued since cancellation. In addition, the court enjoined Congress

and IAC from canceling the medical policy of James Massey prior to the time "all of the benefits

have been paid for his terminal renal disease" up to the limits of the policy. On June 24, 1996,

Congress and IAC filed a notice of interlocutory appeal pursuant to 28 U.S.C. § 1292(a)(1).

II. DISCUSSION

A. Scope of Appellate Review.

Section 1292(a)(1) confers upon courts of appeals jurisdiction over appeals from

interlocutory district court orders "granting, continuing, modifying, refusing or dissolving

injunctions." As a general rule, when an appeal is taken from the grant or denial of an injunction,

the reviewing court will go no further into the merits than is necessary to decide the interlocutory

appeal. Callaway v. Block, 763 F.2d 1283, 1287 n. 6 (11th Cir.1985). Courts have adopted this

approach not out of jurisdictional necessity, but merely as a matter of sound judicial administration.

Id. As we perceive no justification for departing from these principles of sound judicial

administration in the instant case, we confine our analysis to the propriety of the district court's
breach of contract ruling, which constitutes the sole basis for the grant of injunctive relief.

B. The District Court's Sua Sponte Grant of Summary Judgment in Favor of the Non-Moving Party.

We initially consider the propriety of the district court's sua sponte grant of summary

judgment in favor of the Masseys. The critical question is not whether the district court had the

power to grant summary judgment sua sponte in favor of a nonmoving party. District courts

unquestionably possess the power to trigger summary judgment on their own initiative. See, e.g.,

Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986); Bosarge

v. United States Dep't of Educ., 5 F.3d 1414, 1416 n. 4 (11th Cir.1993), cert. denied, 512 U.S. 1226,

114 S.Ct. 2720, 129 L.Ed.2d 845 (1994); Lindsey v. United States Bureau of Prisons, 736 F.2d

1462, 1463 (11th Cir.), vacated on other grounds, 469 U.S. 1082, 105 S.Ct. 584, 83 L.Ed.2d 695

(1984); accord Jardines Bacata, Ltd. v. Diaz-Marquez, 878 F.2d 1555, 1560 (1st Cir.1989). At the

same time, however, district courts must temper their exercise of that power by the need to ensure

that the parties receive adequate notice that they must bring forward all of their evidence. See

Celotex Corp., 477 U.S. at 326, 106 S.Ct. at 2554. Accordingly, the central inquiry focuses upon

whether the district court provided sufficient notice prior to any sua sponte award of summary

judgment.

The restrictions upon the ability of the district court to award summary judgment sua sponte

emanate from Rule 56 of the Federal Rules of Civil Procedure. The Rule provides that motions for

summary judgment "shall be served at least 10 days before the time fixed for the hearing," and

expressly allows nonmovants to "serve opposing affidavits" at any time prior to the day of the

hearing. Fed.R.Civ.P. 56(c). We have recognized repeatedly that this notice provision is not an

unimportant technicality, but a vital procedural safeguard. National Fire Ins. v. Bartolazo, 27 F.3d

518, 520 (11th Cir.1994); Hanson v. Polk County Land, Inc., 608 F.2d 129, 131 (5th Cir.1979).

Most notably, the notice provision ensures that litigants will have at least ten days in which to

formulate and prepare their best opposition to an impending assault upon the continued viability of

their claim or defense. Stella v. Town of Tewksbury, 4 F.3d 53, 55 (1st Cir.1993); see Bartolazo,

27 F.3d at 520 (stating that the notice requirement ensures an adequate opportunity for litigants to
prepare a reasoned, complete response to the motion before the court).

Consistent with the importance of the procedural protection afforded by Rule 56(c), courts

have strictly enforced the requirement that a party threatened by summary judgment must receive

notice and an opportunity to respond. Bartolazo, 27 F.3d at 520 ("[T]he 10-day advance notice

requirement for all litigants is mandatory in this Circuit to satisfy the notice and hearing dictates of

Rule 56."); Milburn v. United States, 734 F.2d 762, 765 (11th Cir.1984) ("This circuit strictly

enforces the 10-day notice requirement for all litigants."); 11 James Wm. Moore, Moore's Federal

Practice § 56.10[2][b] (3d ed. 1997) ("A court may not enter summary judgment sua sponte without

providing a minimum of 10 days' notice to the parties as required by the Federal Rules of Civil

Procedure or its own local rules."); see also Lindsey, 736 F.2d at 1463 ("Because Fed.R.Civ.P. 56

requires that the party threatened by summary judgment be given notice and opportunity to respond,

courts must exercise great care to apprise the moving party that the court sua sponte is considering

entering judgment against him."). The notice provisions retain their mandatory character even when

the district court contemplates awarding summary judgment sua sponte against a party that itself had

moved for summary judgment. See Bartolazo, 27 F.3d at 520; accord Otis Elevator Co. v. George

Washington Hotel Corp., 27 F.3d 903, 910 (3d Cir.1994). In other words, parties who move for

summary judgment do not thereby waive their right to receive notice, and an adequate opportunity

to respond should the court sua sponte elect to test the strength of the movant's case under the

summary judgment standard. Congress and IAC therefore were entitled to an opportunity to marshal

their strongest evidence and legal arguments in opposition to summary judgment. As the district

court denied them that opportunity by failing to comply with the mandatory notice provisions of

Rule 56, we conclude the award of summary judgment was procedurally improper.

The district court's reliance on Black Warrior Electric Membership Corp. v. Mississippi

Power Co., 413 F.2d 1221 (5th Cir.1969), as support for its decision to grant summary judgment sua

sponte is misplaced. That decision has never been understood to confer upon a district court the

power to grant summary judgment without affording the party against whom summary judgment is

rendered a full and fair opportunity to meet the proposition that there is no genuine issue of material
fact to be tried. See Pollock v. Birmingham Trust Nat'l Bank, 650 F.2d 807, 810 (5th Cir. Unit B

July 1981). Moreover, the former Fifth Circuit predicated its decision in Black Warrior upon the

parties' acknowledgment that only a question of law remained in that case. Black Warrior, 413 F.2d

at 1226. By contrast, the issues upon which the district court in the instant case granted summary

judgment involved a question of fact. See, e.g., Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 266

(9th Cir.1991) (noting that the existence of an ERISA plan is a question of fact, to be answered in

light of all the surrounding facts and circumstances from the point of view of a reasonable person).

Equally unavailing is the Masseys reliance upon Lindsey v. United States Bureau of Prisons,

736 F.2d 1462 (11th Cir.), vacated on other grounds, 469 U.S. 1082, 105 S.Ct. 584, 83 L.Ed.2d 695

(1984), and Bosarge v. United States Department of Education, 5 F.3d 1414 (11th Cir.1993), cert.

denied, 512 U.S. 1226, 114 S.Ct. 2720, 129 L.Ed.2d 845 (1994), as support for the district court's

sua sponte grant of summary judgment. Those decisions merely endorse the unremarkable

proposition that district courts possess the power to award summary judgment in favor of a

nonmovant. See Bosarge, 5 F.3d at 1416 n. 4; Lindsey, 736 F.2d at 1463. Neither decision

suggests, however, that the existence of this power entitles district courts to disregard the mandatory

notice requirements imposed by the Federal Rules of Civil Procedure.

III. CONCLUSION

In accordance with the foregoing, we conclude that the district court's sua sponte grant of

summary judgment, without affording notice to Congress and IAC, contravenes both Rule 56 and

Eleventh Circuit precedent. We therefore reverse that portion of the district court's order granting

the Masseys' summary judgment on their breach of contract claim. In addition, we vacate the

injunction issued by the district court because it rested entirely upon the inappropriate grant of

summary judgment. We decline to address any other issues raised by the parties because the above

disposition conclusively resolves all issues necessary to decide the interlocutory appeal. We remand

the remainder of the case to the district court for further proceedings not inconsistent with this
opinion.1

REVERSED in part, VACATED in part, and REMANDED.

1
We further note that on remand the district court must satisfy itself that it has jurisdiction
over the present controversy. The parties represent that the district court had jurisdiction based
upon diversity of citizenship. See Appellants' Brief at 1; Appellees' Brief at viii. For a federal
court to have diversity jurisdiction, however, the plaintiff must allege a proper jurisdictional
basis in the complaint. Taylor v. Appleton, 30 F.3d 1365, 1367 (11th Cir.1994). In particular,
the plaintiff must allege that the plaintiff and defendants are citizens of different states and that
the amount in controversy exceeds $50,000, exclusive of interest and costs. 28 U.S.C. § 1332(a).
Based upon our review of the complaint, we harbor serious doubts regarding the sufficiency of
the Masseys' jurisdictional allegations.