United States Court of Appeals
For the First Circuit
No. 01-1133
ALTERNATIVE ENERGY, INC.,
BEAVER-CADILLAC, G.P., INC.,
BEAVER PLANT OPERATIONS, INC.,
CHRISTOPHER HUTCHINS,
Plaintiffs, Appellants,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. D. Brock Hornby, U.S. District Judge]
Before
Boudin, Chief Judge,
Gibson,* Senior Circuit Judge,
and Torruella, Circuit Judge.
Jeffrey Bennett, with whom The Bennett Law Firm, P.A., Daniel G.
Lilley and Daniel G. Lilley Law Offices, P.A., were on brief, for
appellants.
Richard A. Simpson, with whom Lynda Guild Simpson, Jeffrey J.
Ward, Ross, Dixon & Bell, L.L.P., Karen Frink Wolf and Friedman Babcock
& Gaythwaite, were on brief, for appellee.
* Hon. John R. Gibson, of the Eighth Circuit, sitting by designation.
October 11, 2001
-2-
TORRUELLA, Circuit Judge. Appellants filed professional
malpractice suits in Maine state court against attorneys John
Lightbody, Peter Murray, and their law firm Murray, Plumb & Murray
("MPM Law Firm"), which was insured by appellee St. Paul Fire & Marine
Insurance Company ("St. Paul"). St. Paul settled at least some of
these claims in a 1998 settlement agreement. Appellants then filed a
second claim against St. Paul, arising out of alleged malpractice by
attorney Murray, under the theory that this claim was not covered by
the 1998 agreement with St. Paul. The district court, based on its
interpretation of the 1998 agreement, dismissed appellants' suit for
failure to state a claim upon which relief can be granted. For the
reasons discussed below, we affirm.
BACKGROUND
In May 1997, appellants Alternative Energy, Inc., Beaver
Cadillac, G.P., Inc., Beaver Plant Operations, Inc., and Christopher
Hutchins brought legal malpractice and other claims in Cumberland
County Superior Court (the "Maine lawsuit") against the MPM Law Firm
and one of its attorneys, John Lightbody. Peter Murray, another
attorney of the MPM Law Firm, was added as a defendant to the Maine
lawsuit in August 1998. The claim against Murray did not arise until
the summer of 1993.
Murray practiced law with the MPM Law Firm until May 1,
1993, when he established his own firm, Peter L. Murray Law Offices
-3-
("Murray Law Offices"). In addition, Murray remained "of counsel" to
the MPM Law Firm after opening his own firm. Murray represented the
appellants in two different capacities relevant to the Maine lawsuit:
as "of counsel" to the MPM Law Firm and as an attorney of Murray Law
Offices.
St. Paul was the professional liability insurer for the MPM
Law Firm and its employees, and Zurich American Insurance Company
("Zurich") issued professional liability insurance for Murray Law
Offices. Thus, two separate policies covered Murray, depending upon
which hat he was wearing at the time of his actions.
In November 1998, appellants and St. Paul entered into a
General Release and Indemnity Agreement ("1998 Settlement Agreement").
The 1998 Settlement Agreement provided that the appellants released all
claims they had against "John C. Lightbody, Peter L. Murray, Murray,
Plumb & Murray and its past and present officers, directors,
stockholders, partners, and employees, and its insurer, St. Paul. . .
except as provided below." The 1998 Settlement Agreement then stated
that the appellants:
expressly reserve and do not release any and all
claims, causes of action, or actions against
Peter L. Murray, Peter L. Murray Law Offices, and
their insurer, Zurich-American Insurance Company,
with respect to any acts or omissions committed
or performed by him in his legal representation
of the Releasors [appellants], or any of them,
from the date of May 1, 1993 to the present
including, without limitation, all claims, causes
-4-
of action or actions for professional malpractice
arising out of the representation of the
Releasors, or any of them, by Peter L. Murray and
Peter L. Murray Law Offices....
In April 2000, appellants entered into an agreement with
Zurich ("Zurich Agreement") to settle the malpractice claims under
Zurich's coverage. The Zurich Agreement settled claims against Murray
Law Offices and Peter Murray, as attorney for Murray Law Offices, for
actions taken on or after May 1, 1993.
Appellants then filed a First Amended Complaint for
Declaratory Judgment against St. Paul for malpractice and other claims
arising out of representation by Peter Murray in his "of counsel"
capacity after May 1, 1993. Appellants sought a declaratory judgment
that St. Paul, appellee, had a duty to defend and indemnify Murray with
respect to these claims, and sought monetary damages arising out of St.
Paul's refusal to defend and indemnify Murray.1 St. Paul removed the
action to federal court.
Appellee filed a Motion to Dismiss the Declaratory Judgment
Complaint for failure to state a claim upon which relief could be
granted and attached a copy of the 1998 Settlement Agreement. Appellee
claimed that the 1998 Settlement Agreement between appellants and
appellee released all claims against Murray covered by St. Paul's
1 Murray assigned to appellants all claims and causes of action against
St. Paul, arising on or after May 1, 1993, for defense and indemnity
coverage under policies issued to the MPM Law Firm.
-5-
insurance, including any claims against Murray in his "of counsel"
capacity to the MPM Law Firm on or after May 1, 1993.
The District Court for the District of Maine, finding that
the 1998 Settlement Agreement "unambiguously released St. Paul,"
granted appellee's motion to dismiss. On December 19, 2000, the court
entered judgment in favor of appellee. The district court determined
that the 1998 Settlement Agreement was "a broad and general surrender
of all claims against St. Paul and against Attorney Murray and the
Murray, Plumb & Murray firm for malpractice within St. Paul's
coverage." The express exception to the release, the court stated, did
not include claims against Murray under St. Paul's insurance coverage.
Rather, the district court asserted that "[t]he only reasonable reading
of the exception is that it saved claims for the plaintiffs to assert
against the Zurich-American coverage." The court reasoned that the
1998 Settlement Agreement demonstrated that St. Paul and appellants
"thought they were laying matters to rest." Otherwise, if St. Paul was
to remain subject to further liability, there would be no reason for
St. Paul to settle.
Appellants filed a timely notice of appeal on January 12,
2001. They argue that the district court erred in three ways. First,
the district court should not have considered the 1998 Settlement
Agreement in deciding appellee's Rule 12(b)(6) motion to dismiss,
because the agreement was not appended to or expressly incorporated in
-6-
the complaint. Second, the district court erred in determining that
the 1998 Settlement Agreement unambiguously released St. Paul, thereby
prohibiting appellants' suit. Third, the district court applied the
wrong legal standard in evaluating the motion to dismiss. We find
appellants' arguments unconvincing on all counts.
DISCUSSION
In an appeal from a district court's motion to dismiss under
Rule 12(b)(6), this Court applies de novo review. Beddall v. State St.
Bank & Trust Co., 137 F.3d 12, 16 (1st Cir. 1998). We first address
appellants' claim that the district court erred in not granting their
motion to strike the 1998 Settlement Agreement.
A. Consideration of the 1998 Settlement Agreement
In evaluating appellee's motion to dismiss for failure to
state a claim, the district court took into consideration an attached
copy of the 1998 Settlement Agreement, even though it was not appended
to or incorporated in appellants' complaint.
In ruling on a motion to dismiss, a court must accept as true
all the factual allegations in the complaint and construe all
reasonable inferences in favor of the plaintiffs. Id. Ordinarily, a
court may not consider any documents that are outside of the complaint,
or not expressly incorporated therein, unless the motion is converted
into one for summary judgment. Watterson v. Page, 987 F.2d 1, 3 (1st
Cir. 1993).
-7-
There is, however, a narrow exception "for documents the
authenticity of which are not disputed by the parties; for official
public records; for documents central to plaintiffs' claim; or for
documents sufficiently referred to in the complaint." Id. When the
complaint relies upon a document, whose authenticity is not challenged,
such a document "merges into the pleadings" and the court may properly
consider it under a Rule 12(b)(6) motion to dismiss. Beddall, 137 F.2d
at 17; accord Clorox Co. P.R. v. Proctor & Gamble Commercial Co., 228
F.3d 24, 32 (1st Cir. 2000) (considering advertising material outside
of the complaint in a motion to dismiss false advertising claim because
material was "integral" to assessing the complaint's allegations).
In this case, the district court properly took into
consideration the 1998 Settlement Agreement in ruling on defendant's
motion to dismiss.2 The First Amended Complaint for Declaratory
Judgment refers to the 1998 Settlement Agreement or its terms numerous
times. Moreover, appellee's alleged liability under the complaint
depends directly upon whether the "of counsel" claims are interpreted
to have been released under the 1998 Settlement Agreement. Although
2 St. Paul attached three documents to its motion to dismiss: the May
1997 complaint against the MPM Law Firm and Lightbody, the 1998
Settlement Agreement, and a St. Paul policy. The district court
granted plaintiffs' motion to strike with respect to all but the 1998
Settlement Agreement. Since there is no appeal as to the other two
documents, consideration of these documents is not before this Court.
-8-
appellants challenge the relevancy of the agreement to their motion,3
they do not dispute its authenticity.
Under First Circuit precedent, when "a complaint's factual
allegations are expressly linked to--and admittedly dependent upon--a
document (the authenticity of which is not challenged)," then the court
can review it upon a motion to dismiss. Beddall, 137 F.3d at 17.
Since the appellants' complaint fails to state a claim unless appellee
retains some measure of liability, which depends upon the
interpretation of the 1998 Settlement Agreement, the district court
properly considered the agreement in granting defendant's motion to
dismiss.
Having determined that the 1998 Settlement Agreement became
part of the pleadings for the motion to dismiss, we next address the
meaning of the release.
B. Interpretation of the 1998 Settlement Agreement
Under Maine law, whether contract language is ambiguous is
a question of law to be decided by the court. Lidstone v. Green, 469
A.2d 843, 846 (Me. 1983). A contract is ambiguous when the language
"is reasonably susceptible of different interpretations." Id. (quoting
Portland Valve, Inc. v. Rockwood Sys. Corp., 460 A.2d 1383, 1387 (Me.
3 Appellants argue that the 1998 Settlement Agreement is not relevant
to St. Paul's motion without the St. Paul policies to which the
agreement applies. Appellants allege in their complaint that the "of
counsel" claims against Murray are covered by "one or more" St. Paul
policies.
-9-
1983)) (internal quotations omitted). Ambiguity is to be determined
from the perspective of an ordinary or average person. Nautilus Ins.
Co. v. Jabar, 188 F.3d 27, 30 (1st Cir. 1999) (finding that a pollution
exclusion clause was ambiguous as to whether it excluded only
environmental pollution or also fumes discharged by products used by
insured); American Employers' Ins. Co. v. DeLorme Publ'g Co., Inc., 39
F. Supp. 2d 64, 76-77, 82 (D. Me. 1999) (finding that the word
"misappropriate" was not ambiguous and citing its ordinary meaning).
The district court determined as a matter of law that the
1998 Settlement Agreement was unambiguous because it was reasonably
susceptible to only one interpretation: it released St. Paul from
liability for all claims against the MPM Law Firm and its employees,
including those against Murray in his "of counsel" status. The 1998
Settlement Agreement provides that the Releasors (appellants):
release, acquit, and forever discharge John C.
Lightbody, Peter L. Murray, Murray, Plumb &
Murray. . . and its insurer, St. Paul Fire &
Marine Insurance Company (hereinafter "the
Releasees"), of and from any and all claims,
causes of action, or actions which any of the
Releasors has against any of the Releasees,
except as provided below.
The release then states:
the Releasors expressly reserve and do not
release any and all claims, causes of action, or
actions against Peter L. Murray, Peter L. Murray
Law Offices, and their insurer, Zurich-American
Insurance Company, with respect to any acts or
omissions committed or performed by him in his
-10-
legal representation of the Releasors, or any of
them, from the date of May 1, 1993 to the
present....
(emphasis added).
Appellants argue that, although the district court's
understanding is one reasonable interpretation of the 1998 Settlement
Agreement, it is not the only reasonable interpretation, so that the
contract language should be found to be ambiguous. Appellants assert
that the 1998 Settlement Agreement released St. Paul, except for any
claims that may be made against Murray, in any of his capacities,
arising on and after May 1, 1993. Appellants claim that the word "and"
in the reservation to the release means "or," see Black's Law
Dictionary 110 (3d ed. 1933), so that the 1998 Settlement Agreement
reserves all claims, arising on or after May 1, 1993, that could be
made against Peter Murray, Murray Law Offices, or Zurich. Under this
interpretation, appellants did not release Peter Murray, regardless of
the capacity in which he was working, from any claims arising on or
after May 1, 1993. Thus, appellants insist they have a valid claim
against St. Paul for actions arising from Murray's "of counsel" role
on or after May 1, 1993.
Appellants' proffered interpretation of the 1998 Settlement
Agreement, however, is not reasonable. "And" is not an ambiguous term.
Although "and" might, in rare circumstances, be construed to mean "or,"
see Black's Law Dictionary 86 (6th ed. 1990), to the ordinary or
-11-
average person "and" means "and." "And," in its conjunctive sense,
also appears to be the plain meaning in the 1998 Settlement Agreement.
Moreover, if appellants had intended to explicitly reserve
claims after May 1, 1993 against Murray in his "of counsel" capacity
(as insured by St. Paul), then appellants should have either included
St. Paul in the exception to the general release, or have circumscribed
the general release as it relates to claims insured by St. Paul. When
verbal acrobatics are required to reach the interpretation of the
settlement asserted by the appellants, we cannot say that the language
is "reasonably susceptible of different interpretations." Lidstone,
469 A.2d at 846 (emphasis added). "A contract need not negate every
possible construction of its terms in order to be unambiguous." Waxler
v. Waxler, 458 A.2d 1219, 1224 (Me. 1983) (finding that a divorce
settlement agreement, which did not specifically provide or exclude a
set-off against spousal payments, was unambiguous and clear on its
face). Therefore, the district court properly determined that the 1998
Settlement Agreement, which was clear on its face, was unambiguous.
When a contract is unambiguous, the interpretation of such
contract is left to the court. Lidstone, 469 A.2d at 846. The court
must construe the unambiguous language in accordance with its plain and
generally accepted meaning. Id. The 1998 Settlement Agreement
provides that all claims against Peter Murray or the MPM Law Firm that
are insured by St. Paul are released, and that appellants only reserved
-12-
claims against "Peter L. Murray, Peter L. Murray Law Offices, and their
insurer Zurich" (emphasis added). In accordance with the plain
conjunctive meaning of "and," appellants reserved only those claims
against Peter Murray, arising out of his work as an attorney for Murray
Law Offices, for which he was insured by Zurich. Thus, under the
unambiguous language of the 1998 Settlement Agreement, all claims
against Peter Murray in his "of counsel" capacity, since these would be
insured by St. Paul, were released.
C. Standard for Granting a Motion to Dismiss
The purpose of a motion to dismiss "is to determine whether
the complaint alleges facts sufficient to state a cause of action."
Beddall, 137 F.3d at 17. In deciding on the motion, the court is to
assume all plaintiffs' allegations are true and make all reasonable
inferences in favor of the plaintiffs. Id. at 16.
Appellants assert that the district court erred in granting
appellee's motion to dismiss because the complaint is legally
sufficient. In light of the 1998 Settlement Agreement, however, which
became part of the pleadings for the 12(b)(6) motion, as discussed
above, and the district court's finding that the agreement was
unambiguous and released St. Paul from liability as a matter of law,
appellee cannot be held liable by appellants for these claims.
Therefore, the plaintiffs' complaint did fail to state a claim upon
which relief could be granted.
-13-
CONCLUSION
We conclude that the district court properly granted
appellee's motion to dismiss under Rule 12(b)(6) based on the
unambiguous language of the 1998 Settlement Agreement releasing
appellee from liability. Affirmed.
-14-