New England Ins. Co. v. Barnett
| Decision Date | 06 March 2012 |
| Docket Number | No. 11-30348,11-30348 |
| Parties | NEW ENGLAND INSURANCE COMPANY, Plaintiff—Appellee v. RICHARD D. BARNETT, Defendant—Appellant |
| Court | U.S. Court of Appeals — Fifth Circuit |
NEW ENGLAND INSURANCE COMPANY, Plaintiff—Appellee
v.
RICHARD D. BARNETT, Defendant—Appellant
No. 11-30348
UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
March 6, 2012
Before KING, WIENER, and HAYNES, Circuit Judges.
PER CURIAM:*
After nearly two decades of litigation in state court, Richard Barnett settled his dispute against Ernest Parker, who was insured by New England Insurance Company. Barnett and Parker entered into a settlement and Consent Judgment, to which New England was not a party. New England then brought suit in federal court, seeking a declaration that the Consent Judgment was not enforceable against it. Barnett sought a contrary declaration, and also brought a counterclaim under the Louisiana Direct Action Statute and a bad faith claim.
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On New England's motions, the district court held that the Consent Judgment was unenforceable against New England, and dismissed Barnett's direct action and bad faith claims. On appeal, we affirm the judgment of the district court.
In 1991, Defendant—Appellant Richard Barnett ("Barnett") and his company, Marsh Engineering, Inc., filed suit in Louisiana state court against Ernest Parker ("Parker"), Barnett's former attorney and business partner. The suit alleged that after Barnett began to experience financial problems in February 1986, Parker persuaded Barnett to sign over Barnett's twenty-five percent share in a co-owned company, Campbell Wells. Parker had promised to hold the shares "in trust" as part of an "asset protection" strategy and return them to Barnett at a later date. Instead, Parker retained the shares and later sold them for a large profit. Barnett asserted claims of breach of contract, breach of fiduciary duty, failure of consideration, detrimental reliance, and nullity. Although Barnett initially included fraud allegations, he later amended his complaint to remove such allegations.
Protracted litigation in state court ensued. During this time, Plaintiff—Appellee New England Insurance Company ("New England") agreed to defend Parker pursuant to a full reservation of rights. Thereafter, in December 1993, Parker filed a third party demand against New England in the state court litigation, requesting that New England be held liable to pay any sums due to Barnett.
This lawsuit came before the Louisiana Third Circuit Court of Appeal on two occasions. First, in Marsh Engineering, Inc. v. Parker, 688 So. 2d 1042 (La. App. 3d Cir. 1996) ("Marsh I"), the Louisiana Third Circuit reversed the lower court's dismissal of Barnett's lawsuit. It concluded that Barnett's lawsuit was not barred by a one-year peremptive period for legal malpractice claims that had been established by the 1990 enactment of Louisiana Revised Statute Section
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9:5605. Id. at 1048. The court reasoned that the peremptive period in Section 9:5605 did not apply retroactively to bar any of Barnett's claims, which had accrued prior to enactment of the statute. Instead, the suit was timely under a ten-year prescriptive period that was applicable before Section 9:5605 was enacted. Id. Although a 1992 amendment to Section 9:5605 clearly expressed the legislature's intent to apply Section 9:5605 retroactively, the court concluded that "this declaration came too late to bar Barnett from filing his claims," as his suit was filed in November 1991. Id.1 The case was remanded for further proceedings in the trial court.
The case returned to the Louisiana Third Circuit in 2003, after Barnett amended his petition to add as defendants New England, the Law Firm of Bean and Parker ("the Law Firm"), the Estate of James Wesley Bean (Parker's former law partner), and Bean's widow and heirs. Marsh Eng'g, Inc. v. Parker, 883 So. 2d 1119, 1121-22 (La. App. 3d Cir. 2004) ("Marsh II"). Barnett's amended petition asserted claims of legal malpractice against Parker and Bean, individually, and the Law Firm. Barnett "asserted that both attorneys and the Law Firm breached the standard of care owed him as their client in a number of particulars, including the assertions that neither Parker nor Bean properly disclosed to him the relevant aspects of the [1986] transactions, the alleged conflicts of interest of the Law Firm, or of Barnett's need for independent counsel." Id. at 1122. Barnett claimed that the Law Firm, the Estate, and the heirs were solidarily and vicariously liable to him for the legal malpractice of Parker and Bean, and New England was liable to him under the malpractice insurance policy it issued to Parker, Bean, and the Law Firm. Id.
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New England sought to dismiss all claims against the new defendants, arguing that the claims were perempted under the one-year period established in Louisiana Revised Statute Section 9:5605. The trial court agreed. On appeal, the Third Circuit in Marsh II affirmed. It reasoned that Barnett's legal malpractice claims against Bean, the Law Firm, the Estate, the heirs, and New England, which were separate from those claims against Parker, were perempted under the 1992 amendment to Section 9:5605, which established September 7, 1993, as a deadline for the filing of lawsuits based upon events that occurred prior to September 7, 1990. Id. at 1125-26. Because Barnett's claims against the new defendants accrued before enactment of Section 9:5606, but his lawsuit was not filed until after the 1992 amendment to Section 9:5605, the court concluded that Section 9:5605 barred Barnett's claims against the new defendants. Id. at 1126. Neither side sought review from the Louisiana Supreme Court.
Barnett settled with Parker in 2006. The terms of the settlement called for Parker to pay $100, assign to Barnett his rights against New England, and agree to entry of a Consent Judgment for about $4 million, from which Parker was released from liability beyond $100 (the "Consent Judgment"). The Consent Judgment was filed in state court on February 6, 2006, in the amount of $4,024,655.21. New England had attended the settlement conference between Barnett and Parker, but had rebuffed Barnett's proposed $2,000,000 settlement, and instead offered only $200,000. The final settlement between Barnett and Parker was completed without New England's consent.
Soon after the Consent Judgment was entered, New England filed the instant lawsuit in federal court, seeking a declaration that it was not liable to Barnett under the Consent Judgment. Barnett filed a counterclaim in which he sought a declaration of his right to enforce the Consent Judgment against New England and brought claims against New England under Louisiana's Direct
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Action Statute, LA. REV. STAT. § 22:1269. Barnett later added a bad faith claim, seeking to recover damages in excess of the Consent Judgment.
New England filed three separate dispositive motions. The district court granted New England's motion to dismiss Barnett's bad faith claim, and granted summary judgment for New England with respect to Barnett's direct action claim. Finally, the district court concluded that the Consent Judgment was not enforceable against New England. Barnett timely filed a notice of appeal.
This court reviews a district court's grant of summary judgment de novo, applying the same standard as the district court. Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007). Summary judgment is proper only if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a).
This court reviews a district court's dismissal under Rule 12(b)(6) de novo, "'accepting all well-pleaded facts as true and viewing those facts in the light most favorable to the plaintiffs.'" Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008) (quoting Stokes v. Gann, 498 F.3d 483, 484 (5th Cir. 2007)). To survive dismissal pursuant to Rule 12(b)(6), plaintiffs must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555 (citations omitted); see Cornerstone Christian Schs. v. Univ. Interscholastic League, 563 F.3d 127, 133 (5th Cir. 2009).
A. The Consent Judgment is not Enforceable against New England
Barnett challenges the district court's conclusion that certain provisions in New England's insurance policy prevent Barnett from enforcing the Consent
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Judgment. Like the district court, we conclude that these clauses preclude Barnett's enforcement of the Consent Judgment against New England.
New England's insurance policy contains two clauses that are relevant to the enforcement of the Consent Judgment. The first, the "consent to settle" clause, provides:
The Insured may effect settlement of any claim, the subject of the coverage afforded hereunder within the limits of liability of this policy, with the written consent of the Company, such consent not to be unreasonably...
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