[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
________________________ AUGUST 2, 2002
THOMAS K. KAHN
No. 01-14917 CLERK
________________________
D. C. Docket No. 01-00468 CV-ORL-31
TRUSTMARK INSURANCE COMPANY,
Plaintiff-Appellant,
versus
ESLU, INC., f.k.a. Excess &
Stop-Loss Underwriters, Inc.,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(August 2, 2002)
Before ANDERSON and MARCUS, Circuit Judges, and MIDDLEBROOKS*,
District Judge.
________________________
*Honorable Donald M. Middlebrooks, U.S. District Judge for the Southern District of Florida,
sitting by designation.
ANDERSON, Circuit Judge:
This opinion considers the viability of the second of two lawsuits filed by
Trustmark Insurance Company ("Trustmark") against ESLU, Inc. (“ESLU”) for
breach of contract. In 1994, Trustmark decided to expand its business and appoint
agents to sell its insurance policies. Accordingly, that same year Trustmark and
ESLU executed a contract, called the Managing General Underwriting Agreement
("MGUA"). Pursuant to the MGUA, ESLU would be Trustmark's managing
general agent and would sell "excess stop loss group insurance policies." MGUA
1(a). ESLU was also to underwrite these policies using the same procedures that
had been profitable for the company in the past.
The present controversy began when Trustmark determined that ESLU had
incorrectly calculated the deductibles for one of Trustmark’s insureds. In what we
will refer to as “Trustmark I,” Trustmark filed suit in September, 1999 against
ESLU, claiming breach of contract, negligence and breach of fiduciary duty.
Trustmark argued that ESLU breached the underwriting agreement by failing to
underwrite three policies in accordance with the contract. On January 25, 2000, the
trial judge set a scheduling order and the parties continued with discovery.
Trustmark learned that ESLU had incorrectly calculated at least two more
companies’ deductibles. Accordingly, on May 29, 2000, the date which the
scheduling order set as the deadline for any amendments, Trustmark amended its
2
complaint to add the facts relating to those two additional policies.
In March 2000, Trustmark began an audit of ESLU's work. Nine months
after the amendment period had passed, and two months after the discovery period
had ended, on February 27, 2001, Trustmark again moved to amend the complaint.
It moved to amend that complaint to add additional counts of breach of contract
relating to 42 separate insurance policies that Trustmark alleged were improperly
handled by ESLU. The court refused to allow that amendment, finding that
Trustmark had failed to show good cause. The court noted that Trustmark had
displayed excessive dilatoriness and a lack of diligence in complying with the
scheduling order. Trustmark proceeded with the original lawsuit, which ultimately
terminated when the jury returned a verdict in ESLU’s favor on the breach of
contract claims.
Upon the conclusion of Trustmark I, Trustmark filed the instant suit, a second
suit against ESLU which we will call “Trustmark II.” Trustmark again alleges that
ESLU had breached the MGUA, citing the 42 separate insurance policies which it
had attempted to include in the first action. ESLU moved to dismiss Trustmark II
pursuant to Fed. R. Civ. P. 12(b)(6), arguing that because the breach of the MGUA
was the subject of Trustmark I, the doctrine of res judicata prevented Trustmark
from relitigating claims which arose out of that contract.
3
When ESLU submitted its 12(b)(6) motion to dismiss Trustmark II, it
attached various documents in support. Trustmark attached further documentation
in its response. Without expressly excluding any of those documents, the district
court dismissed the suit; Trustmark appeals.
Trustmark argues that when the district court accepted all of the
documentation provided at the 12(b)(6) stage it considered matters outside the
pleadings, thus converting that motion into a motion for summary judgment.
Because a court converting a 12(b)(6) motion into a motion for summary judgment
must give the parties 10 days notice, and Trustmark was not given that notice,
Trustmark argues that the case should be reversed and remanded.
Whenever a judge considers matters outside the pleadings in a 12(b)(6)
motion, that motion is thereby converted into a Rule 56 Summary Judgment motion.
Fed. R. Civ. P. 12(b); Concordia v. Bendekovic, 693 F.2d 1073, 1075 (11th Cir.
1982). But see Homart Devel. Co. v. Sigman, 868 F.2d 1556 (11th Cir. 1989)
(interpreting conversion rule in concert with Fed. R. Civ. P. 10(c) which states that
documents attached to pleadings is a part thereof; thus contract was properly
considered part of pleadings). When that conversion occurs, the district court must
comply with the requirements of Rule 56. Jones v. Auto. Ins. Co., 917 F.2d 1528,
1532 (11th Cir. 1990). The district court is required to notify the parties that the
4
motion has been converted, and give the parties 10 days in which to supplement the
record. Herron v. Beck, 693 F.2d 125, 126 (11th Cir. 1982).
This Circuit has consistently interpreted the notice rules strictly. Finn v.
Gunter, 722 F.2d 711, 713 (11th Cir. 1984). On the other hand, we recognized a
limited exception in Property Management & Investments, Inc. v. Lewis, 752 F.2d
599 (11th Cir. 1985). Property Management involved two lawsuits comprised of
the same parties. In the first action, the Florida Comptroller’s Office sued Property
Management & Investments (“PMI”) in Florida state court for violations of Florida
securities laws. Id. at 601. That suit was settled, with both parties signing a
stipulation agreement in which PMI agreed not to sue Comptroller Lewis or any of
the employees of the Comptroller’s Office for injuries arising out of the first
lawsuit. Id. Shortly after the conclusion of the first action, however, PMI filed for
bankruptcy. Id. at 602. PMI then sued Comptroller Lewis and other employees of
the Comptroller’s Office, claiming that they defamed PMI and used their power to
destroy the company. Id. The defendants filed a 12(b)(6) motion, claiming that the
stipulation agreement barred the lawsuit. Id. The defendants attached a copy of
both the state order and the stipulation. Id. In response, PMI submitted a copy of
the stipulation and an additional one page addendum that the defendants had
omitted. Id. The court did not give specific notice that it was converting the motion
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to a summary judgment motion, but clearly considered the stipulation and the
addendum. Id. at 604-05. PMI claimed that because it was not given notice that the
court had converted the motion to a summery judgment motion, the court had
committed reversible error. Even recognizing the strict interpretation afforded
notice violations, after carefully reviewing the record this court determined that “all
of the parties were well aware that the judge was converting this 12(b)(6) motion
and that the parties made all the arguments and submitted all the documents that
they would have presented had they received the notice to which they were
entitled.” Id. at 605. In a situation in which the parties fully understand the true
nature of the motion and have presented all available arguments, any error in the
notice afforded the parties is harmless.
The harmless error exception detailed in Property Management is a limited
exception which we will not often recognize. See, e.g., Jones, 917 F.2d at 1534-35
(refusing to apply exception because nonmovant had not proffered all evidence or
made all arguments in his favor; thus, not harmless error); Donaldson v. Clark, 819
F.2d 1551, 1555 (11th Cir. 1987) (affording parties one week, rather than 10 days
provided in rules, not harmless error under Property Management). However, we
have applied the exception in those cases which we have deemed “unique.” Those
cases include Peterson v. Atlanta Housing Authority, 998 F.2d 904, 913 (11th Cir.
6
1993); Denis v. Liberty Mutual Insurance Co., 791 F.2d 846, 850 (11th Cir. 1986)
(concluding that when motion to reconsider filed by non-movant stated that it raised
a “genuine issue of material fact,” it is clear that the non-movant himself considered
the motion to reconsider as converting the 12(b)(6) motion, and thus non-movant
cannot contest notice when his own pleadings prove his knowledge); and
Washington v. Office of Comptroller of Currency, 856 F.2d 1507, 1511 (11th Cir.
1988) (concluding that because all of the parties were aware that administrative
record was necessary to determine outcome in the case, the district court’s
consideration of that record was harmless in “this very unique case”).
Although the Property Management exception is limited, after having
conducted a careful review of the record in this case, we believe that the case before
us is sufficiently “unique” that the exception applies. To explain why, we turn to
the rationale underlying the exception. “[T]he purpose of the rule is to notify the
parties that the court may dispose of the case by summary judgment so that ‘the
nonmoving party will have an opportunity to marshal its resources and . . . rebut[]
the motion for summary judgment with every factual and legal argument available.”
Denis, 791 F.2d at 850. When a party proves through its actions that it has notice of
the conversion, any failure to notify the party is rightly deemed harmless. For
example, in Denis v. Liberty Mutual, this Court found harmless error when in the
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non-movant’s motion to reconsider it stated that it had raised a “genuine issue of
material fact.” Id. Recognizing that the non-movant had set forth the legal standard
for summary judgment, rather than judgment on the pleadings, the court was
confident that the non-movant had treated the motion as a motion for summary
judgment. Therefore, any error in not notifying the non-movant of that conversion
was harmless.
Similarly, in this case, Trustmark moved for an extension of time in which to
file its response to the 12(b)(6) motion, stating: “ESLU’s Motion is a
comprehensive dispositive motion seeking judgment on Trustmark’s Complaint on
the grounds of collateral estoppel, res judicata, and impermissible claim splitting.
Substantial legal and factual issues are involved and require research by
Trustmark’s counsel, including review of pleadings, motions, and discovery in the
predecessor to this case, . . . Trustmark I.” 1-15 (emphasis added). As in Denis,
Trustmark’s statement that this was a “comprehensive dispositive motion” which
required a review of both the facts and the law shows that it believed the motion to
involve both legal and factual arguments. Motions under 12(b)(6) presume the facts
as alleged in the complaint. Only a summary judgment motion could involve
“substantial legal and factual issues.”
Also significant is the fact that when ESLU filed its 12(b)(6) motion it
8
attached eight exhibits.1 When Trustmark filed its response to the 12(b)(6) motion
it attached twelve exhibits, denoted as Exhibits A-L.2 In other words, Trustmark
itself attached to its response the same kinds of information that ESLU attached to
its motion. By doing so, it was inviting the district court to consider the same, a
position inconsistent with its position on appeal.
Although pressed to do so at oral argument, Trustmark has been unable to
show that it would have proffered additional evidence beyond exhibits A through L
which it did attach to its response in the court below. Considering all of these
factors–Trustmark’s express acknowledgment that the motion was a dispositive
motion involving substantial legal and factual issues about the scope of the prior
litigation; the fact that Trustmark followed ESLU’s lead and attached to its own
response the evidence from the prior litigation that it deemed relevant; and the fact
1
Those exhibits were all documents from the Trustmark I record, including
the complaint, the answer and motion to dismiss, the scheduling order by the court,
the motion to amend the complaint and the order permitting that amendment, the
pretrial statement by the parties, the order granting ESLU final summary judgment,
and the final judgment in favor of ESLU.
2
Those exhibits included either documents from the Trustmark I record or
documents relating to that litigation, including the district court’s order from
Trustmark I, the plaintiff’s motion and amended motion for extension of discovery,
the magistrate’s ruling on those motions, a letter from one of the attorneys to the
other, a motion to file a second amended complaint, the contract, objections to the
magistrate’s order denying Trustmark’s motion for extended discovery and
corresponding affidavits in support, and a joint pretrial statement.
9
that it cannot now identify any additional evidence that it would have proffered--we
determine that this case is sufficiently unique that even if the district court did
convert the 12(b)(6) into a motion for summary judgment any error is harmless.
Thus, we need not remand this case, but instead decide the merits of the res judicata
claim at this time.
Based upon the record, we find that the district court also correctly
determined that the second lawsuit was barred by res judicata. A party seeking to
invoke res judicata must show that the prior decision (1) was rendered by a court of
competent jurisdiction; (2) was final; (3) involved the same parties or their privies;
and (4) involved the same causes of action. In re Piper Aircraft Corp., 244 F.3d
1289, 1296 (11th Cir. 2001). Neither party contests the first three elements.
Instead, Trustmark contends that even though in both the first and second lawsuits it
based its claim on breaches of the same contract, the lawsuits did not involve the
same “causes of action” under the rule.
Claims are part of the same “cause of action” when they “arise out of the
same transaction or series of transactions.” Piper, 244 F.3d at 1297. Under the
current analysis we make a fact-based inquiry into whether the cases are based on
the same factual predicate or came from the same nucleus of operative fact. If they
did, they are the “same” for the purposes of res judicata. Id. The doctrine is
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concerned with the substance, and not the form, of the proceedings. Id. “It is now
said, in general, that if a case arises out of the same nucleus of operative fact, or is
based upon the same factual predicate, as a former action, that the two cases are
really the same ‘claim’ or ‘cause of action’ for purposes of res judicata.” Id.
(citation omitted). Thus, we look to the factual issues that must be resolved by the
litigation and ask whether those facts arise out of the same transaction or series
thereof. Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235, 1239 (11th Cir. 1999). In so
doing we ask whether the plaintiff could, or rather should, have brought the second
claim with the first lawsuit. Id.
Now to compare Trustmark I and Trustmark II. The parties cannot dispute
that both lawsuits allege breach of the MGUA. However, Trustmark attempts to
circumvent this problem by arguing that the second lawsuit involves the 42 different
policies. Each individual error, Trustmark claims, is separate and distinct; thus the
claims are not the same, but are instead 42 separate wrongs. Although Trustmark
points out the individual errors made by ESLU, that is not dispositive. A series of
breaches of the same contract, all occurring before filing suit, should be brought in
that suit. See, e.g., Restatement (Second) of Judgments § 24 cmt. d (1982) (“When
a defendant is accused of successive but nearly simultaneous acts, or acts which
though occurring over a period of time were substantially of the same sort and
11
similarly motivated, fairness to the defendant as well as the public convenience may
require that they be dealt with in the same action.”); Prime Mgmt. Co., Inc. v.
Steinegger, 904 F.2d 811, 816 (2d Cir. 1990) (holding that “res judicata will
preclude the party’s subsequent suit for any claim of breach that had occurred prior
to the first suit; it will not, however, bar a subsequent suit for any breach that had
not occurred when the first suit was brought,” and citing Klein v. John Hancock
Mut. Life Ins. Co., 683 F.2d 358 (11th Cir. 1982), which involved a similar ruling
in the context of a prior suit ending in a settlement and release).
The similarities between the two lawsuits are clear. Both involve breaches of
the same contract, committed by the same party and involving the same general
type of conduct. Trustmark itself attempted to amend its complaint to add the
claims to the first lawsuit. In so doing, it stated that the claims in the second
complaint were “related to the same basic set of circumstances presented in both
the initial and Amended Complaint.” Trustmark also must admit that some of the
same witnesses will be called to explain Trustmark II as were called in Trustmark I.
In this situation, where the second lawsuit alleges a breach of the same contract that
was breached in the first, by the same party, in the same general manner, those
actions constitute the factual predicate, and any claims relating to that contract
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should be brought in the same lawsuit.3
Trustmark also argues that under the operation of the delayed discovery
doctrine, the claims alleged in Trustmark II could not have been brought when
Trustmark I was brought because they had not yet "accrued." According to the
argument, because Trustmark could not have known about the breaches of contract
at the time it filed Trustmark I, it should not be barred by res judicata.
Because "[r]es judicata bars the filing of claims which were raised or could
have been raised in an earlier proceeding," relevant in this analysis is when the facts
3
We recognize also that Trustmark also sued ESLU for fraud and misrepresentation, claiming
that ESLU breached the Termination Amendment. The parties executed that Amendment to the MGUA
in order to terminate their relationship; the decision to terminate the relationship was caused by what
Trustmark believed were the repeated breaches of the MGUA by ESLU. Under the Termination
Amendment, ESLU was not allowed to offer renewal coverage to employers after August 1, 1998. ESLU
allegedly stated that two employers had accepted renewal coverage prior to that date so that it could
receive the benefit of that renewal. According to Trustmark, ESLU had not gotten written confirmation
of the renewal by those employers prior to August 1. Trustmark claims that the claims for negligent
misrepresentation and fraud that are based upon the Termination Amendment should remain.
Res judicata acts as a bar “to all legal theories and claims arising out of the same operative
nucleus of fact.” Pleming v. Universal-Rundle Corp., 142 F.3d 1354, 1356-57 (11th Cir. 1998) (quoting
Manning v. City of Auburn, 953 F.2d 1355, 1358-59 (11th Cir. 1992)). We have already determined that
the contract between the parties was the foundation of the factual predicate in this case. The so-called
“Termination Amendment” was an amendment to that contract–not a separate contract. It determined
when and how the contractual relationship would end. Thus it can fairly be said that it modified the
original contractual rights of the parties, but it cannot be fairly said that it was an entirely separate
contract for res judicata purposes. Accordingly, as long as the relevant claims had occurred prior to filing
the first lawsuit, Trustmark should have brought the negligent misrepresentation and fraud claims at that
time. Trustmark filed Trustmark I on September 22, 1999, over a year after the breach of which it now
complains. The claims for fraud and negligent misrepresentation were properly barred by res judicata.
We also note that in Trustmark I, ESLU counterclaimed for breach of the Termination
Amendment because it had not been compensated under that Amendment. At that time Trustmark
asserted, as a defense to the counter-claim, that ESLU had not performed. Had it so desired, Trustmark
clearly could have claimed a breach of the Amendment at that time. We conclude that this portion of the
contract, regardless of whether it is an amendment, arises out of the same nucleus of facts as Trustmark I.
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arose. Ragsdale, 193 F.3d at 1238. Here, the contract breaches upon which
Trustmark bases its second suit occurred well before it filed the first cause of action.
Trustmark argues, however, that the delayed discovery doctrine should apply
to this case. The delayed discovery rule prevents a cause of action from accruing
until the plaintiff either knows or reasonably should know of the act giving rise to
the cause of action. Hearndon v. Graham, 767 So. 2d 1179, 1184 (Fla. 2000)
(reasoning that statutes of limitations require assertion of claims within a certain
amount of time after notice has been given). The record belies Trustmark’s reliance
on the delayed discovery doctrine. Every alleged breach of contract that Trustmark
now seeks to litigate occurred long before Trustmark I was filed. Trustmark was
not obliged to wait for discovery available after filing suit, because Trustmark had a
contract right to audit ESLU at any time. Even after filing suit in September 1999,
and receiving the scheduling order on January 25, 2000, with its deadline date of
May 29, 2000, for any amendments, Trustmark failed to complete the audit it began
in March 2000 by the deadline date for amending to add the instant claims.
Trustmark does not explain why it did not attempt to investigate the claims earlier
or why it failed to timely complete the audit it began in March 2000. As the district
court noted in ruling on the instant case, the court had concluded, in denying leave
14
for Trustmark to amend to add these claims in the prior litigation, that Trustmark
had displayed excessive dilatoriness and lack of diligence in complying with the
scheduling order in the prior litigation. This is not a situation in which plaintiff had
no means of knowing that a party breached the contract. Rather, this is a situation
in which the plaintiff failed to investigate its claims in a timely manner in order to
present them in the first litigation.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
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Trustmark Insurance Company v. ESLU, Inc.
Court: Court of Appeals for the Eleventh Circuit
Date filed: 2002-08-02
Citations: 299 F.3d 1265
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