Cavender v. State Mut. Ins. Co.

• Decision Date: 05 November 1999
• Citation: 748 So.2d 863
• Parties: Philip M. CAVENDER et al. v. STATE MUTUAL INSURANCE COMPANY. Aubrey Wayne Tidmore et al. v. State Mutual Insurance Company.
• Court: Alabama Supreme Court

748 So.2d 863

Philip M. CAVENDER et al. v. STATE MUTUAL INSURANCE COMPANY.

Aubrey Wayne Tidmore et al. v. State Mutual Insurance Company.

1980345, 1980346, 1980637, and 1980638.

Supreme Court of Alabama.

November 5, 1999.

Charles A. Graddick of Graddick & Belser, P.C., Mobile; Steve Olen and Steven L. Nicholas of Olen & Nicholas, P.C., Mobile; and Michael S. McGlothren, Daphne, for appellants Philip M. Cavender, Grover Craig Gilchrist, Mary Theresa Gilchrist, Steven L. Nicholas, and Michael S. McGlothren.

Frank Hilton-Green Tomlinson and Alexander W. Jones, Jr., of Pritchard, McCall & Jones, L.L.C., Birmingham, for the Tidmore plaintiffs.

Donald V. Watkins, Montgomery; and H. Lewis Gillis and Paul C. Williams of Thomas, Means, Gillis, Devlin, Robinson & Seay, P.C., Montgomery, for appellee.

HOUSTON, Justice.

The Circuit Court of Greene County, on November 11, 1998, entered a final judgment in two consolidated class actions styled Tidmore v. State Mutual Insurance Co. et al. (CV-95-066) and Bell v. State Mutual Insurance Co. et al. (CV-96-040) (hereinafter "the Tidmore-Bell actions"). That judgment was based upon a settlement entered in those class actions. After the Greene Circuit Court had entered its final judgment in the Tidmore-Bell actions, three persons who had been members of the Tidmore-Bell class, Philip M. Cavender, Grover Craig Gilchrist, and Mary Theresa Gilchrist (hereinafter, "the Cavender plaintiffs"), acting by their attorneys Steven L. Nicholas and Michael S. McGlothren (hereinafter, "the Cavender attorneys"), filed an action in the Circuit Court of Mobile County (that action is hereinafter referred to as "the Mobile action"). The defendants in the Mobile action were State Mutual Insurance Company (which had been a defendant in the Tidmore-Bell actions) and certain individuals, Delos Yancey, Jr., Delos Yancey III, Ann Rodgers, and Rodney Hale (hereinafter, "the individual defendants"). The plaintiffs in the Mobile action alleged that the individual defendants had fraudulently, wantonly, negligently, or intentionally breached their fiduciary duty to State Mutual policyholders by self-dealing and conspiring to obtain illegal profits. State Mutual and the individual defendants removed the Mobile action to the United States District Court for the Southern District of Alabama.

State Mutual then filed a motion in the Greene Circuit Court, to enforce the terms of the class-action settlement in the Tidmore-Bell actions. The Greene Circuit Court enjoined the Cavender plaintiffs and the Cavender attorneys from prosecuting the Mobile action and imposed sanctions on them in the amount of $236,360. The imposition of sanctions was based on the Greene Circuit Court's conclusion that the Cavender plaintiffs and their attorneys, in filing the Mobile action, had violated the final judgment entered in the Tidmore-Bell actions. The Cavender plaintiffs and the Cavender attorneys appeal (the appeal relating to the Tidmore action (CV-95-066) is case no. 1980345, and the appeal relating to the Bell action (CV-96-040) is case no. 1980346).¹ After the Cavender plaintiffs and the Cavender attorneys had filed their appeals the Tidmore plaintiffs filed appeals, also directed toward the trial court's ruling imposing sanctions and enjoining the Cavender plaintiffs and the Cavender attorneys; they ask this Court to declare whether the claims of the Cavender plaintiffs were precluded. However, because the injunction and sanction order issued by the Greene Circuit Court in no way pertained to the Tidmore plaintiffs, the Tidmore appeals (cases 1980637 and 1980638, relating to CV-95-066 and C96-040) are dismissed for lack of standing. In case no. 1980345 and case no. 1980346 (the appeals by the Cavender plaintiffs and attorneys), we reverse and remand.

In the Mobile action, the Cavender plaintiffs alleged that in December 1995, State Mutual sold Atlas Life Insurance Company, an Oklahoma-based stock insurance company, to North American Financial Services for a grossly understated value. North American Financial Services was formed and was controlled by the chairman of the board of State Mutual, Yancey, Jr.; the president of State Mutual, Yancey III; and the other individual defendants. In July 1998, a month after the settlement was reached in the Tidmore-Bell actions, and with no apparent material change in the economic circumstances of Atlas Life, North American Financial Services, controlled by the individual defendants, sold Atlas Life for $31.5 million, which was several times the amount for which North American Financial Services had purchased it.

The Cavender plaintiffs are policyholders of State Mutual, a mutual insurance company. They alleged in the Mobile action that the sale of Atlas Life constituted an illegal self-dealing by corporate insiders; that the proper procedures were not followed in the sale to North American Financial Services; and that proper disclosures regarding the sale had not been made to the policyholders. Whether the Cavender plaintiffs, as individuals, have standing to bring the Mobile action is not an issue in this appeal. The issues before us are whether the Mobile action was barred by the doctrine of res judicata or the release agreed to by the Tidmore-Bell plaintiffs, which was incorporated into the final judgment in the Tidmore-Bell actions, and whether the sanctions against the Cavender plaintiffs and their attorneys were proper.

The Tidmore-Bell actions were class actions filed by State Mutual policyholders against State Mutual, alleging fraud. The Tidmore-Bell plaintiffs sought relief on the basis that State Mutual had made fraudulent misrepresentations to them to entice them to purchase their policies. Specifically, the policies they purchased were known as "vanishing-premium" policies, because dividends generated by the policies were supposed to reduce the policyholders' future premium payments. The Tidmore-Bell actions alleged that the actual performance of the policies did not match the projections used to entice the plaintiffs to purchase the policies. The parties in the Tidmore-Bell actions reached a settlement. As part of the settlement agreement, the class representatives signed a release. The Greene Circuit Court incorporated that settlement and release into a final judgment on November 11, 1998. The release covered all members of the Tidmore-Bell class, which included the Cavender plaintiffs.

State Mutual argues that the claims made in the Mobile action were adjudicated in the Tidmore-Bell actions and that the Mobile action is therefore barred by the doctrine of res judicata. The doctrine of res judicata prohibits the relitigation of any cause of action that has been litigated in a prior action or that could have been litigated in the prior action. Carroll v. Buttram, [Ms. 1971292, June 11, 1999], ___ So.2d ___ (Ala.1999); Century 21 Preferred Properties, Inc. v. Alabama Real Estate Comm'n, 401 So.2d 764 (Ala.1981). Four elements are necessary for the doctrine of res judicata to bar a subsequent action: (1) a prior judgment on the merits, (2) rendered by a court of competent jurisdiction, (3) with substantial identity of parties, and (4) with the same cause of action in both lawsuits. Equity Resources Mgmt. v. Vinson, 723 So.2d 634 (Ala.1998). "If these elements are present, then any issue that was, or could have been, adjudicated in the prior action is barred from further litigation." Croft v. Pate, 585 So.2d 799, 800 (Ala.1991). The individual defendants were not parties in the Tidmore-Bell actions. However, the Cavender plaintiffs and State Mutual were parties in the Tidmore-Bell actions; it is not necessary to decide whether this fact satisfies the substantial-identity-of-parties element of res judicata, because the Mobile action was not based on the same cause of action that the Tidmore-Bell actions were based on. The Tidmore-Bell plaintiffs sought relief based on allegations of fraudulent misrepresentations by State Mutual. The Cavender plaintiffs individually seek damages based on allegations of illegal self-dealing by corporate insiders. These are not the same causes of action. There is no res judicata bar to the Mobile action because the fourth element required for the operation of the doctrine of res judicata is not present in the Mobile action.

Did the trial court err when it held that the Tidmore-Bell settlement and the Tidmore-Bell release precluded the Mobile action?

We review the release in its entirety, together with the written notice given to the Tidmore-Bell class members; that notice was incorporated by reference as an exhibit to the settlement, before the settlement was entered and the release executed. The settlement agreement, which we do not find to be ambiguous, describes a number of specific types of claims (none of which includes the cause of action on which the Mobile action was based) and then includes a catch-all paragraph 5, which reads:

"In connection with this Release, Plaintiffs and the Class Members acknowledge that they are aware that they may hereafter discover claims presently unknown or unsuspected, or facts in addition to or different from those which they now know or believe to be true with respect to the matters released herein. Nevertheless, it is the intention of Plaintiffs and the Class Members in executing this Release fully, finally, and forever to settle and release all such matters, and all claims relating thereto, which exist, hereafter may exist, or might have existed (whether or not previously or currently asserted in any Actions)."

(Emphasis added.)

State Mutual contends that the following two provisions of the release cover the claim presented in the Mobile action: (1) a provision reading, "[This release covers] any or all acts, omissions, facts, matters, transactions, occurrences or oral or written statements or representations in connection with or directly or indirectly relating to the Settlement of the...