Prospero Associates v. Burroughs Corp.

• Decision Date: 12 August 1983
• Docket Number: No. 81-1913,81-1913
• Citation: 714 F.2d 1022
• Parties: PROSPERO ASSOCIATES, a Colorado general partnership, Plaintiff-Appellant, v. BURROUGHS CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1022

714 F.2d 1022

PROSPERO ASSOCIATES, a Colorado general partnership, Plaintiff-Appellant, v. BURROUGHS CORPORATION, Defendant-Appellee.

No. 81-1913.

United States Court of Appeals, Tenth Circuit.

Aug. 12, 1983.

Laurence J. Kaiser, New York City (Adam Walinsky, New York City, with him on briefs), of Kronish, Lieb, Shainswit, Weiner & Hellman, New York City (Donald K. Bain and Jeffrey A. Chase of Holme Roberts & Owen, Denver, Colo., with them on briefs), for plaintiff-appellant.

Robert S. Slosky, Denver, Colo. (Ira C. Rothgerber, Denver, Colo., with him on briefs), for defendant-appellee.

Before McWILLIAMS, BARRETT and McKAY, Circuit Judges.

BARRETT, Circuit Judge.

Plaintiff-appellant Prospero Associates (Prospero) appeals from the district court's grant of summary judgment in favor of defendant-appellee Burroughs Corporation (Burroughs).

In 1974 Prospero contracted with the Redactron Corporation (Redactron) (predecessor in interest to Burroughs) for the sale by Redactron to Prospero of text-editing typewriter systems. At the start of the second contract year, Redactron anticipatorily breached the contract by refusing to make future sales. Pursuant to the 1974 agreement, Redactron repurchased equipment it had sold to Prospero during the first contract year. In 1978 Prospero was awarded a money judgment in Boulder County (Colorado) District Court against Redactron for breach of contract, and against Burroughs for tortious interference with a contract. Prospero thereafter filed this action (again in state court), seeking the costs it incurred relating to the repurchase of the equipment.

Burroughs removed this action to federal district court and moved to dismiss the complaint on grounds of res judicata, incorporating by reference the findings of fact, conclusions of law and judgment in the prior state court action. Alternatively, Burroughs moved to dismiss for failure to state a claim. Treating the motion to dismiss as one for summary judgment, the district court concluded that principles of res judicata barred this action, and dismissed the complaint. Prospero Associates v. Burroughs Corp., 517 F.Supp. 658 (D.Colo.1981).

I.

Prospero contends that the district court sua sponte converted Burroughs's motion to dismiss into one for summary judgment without formal notice to Prospero, thereby denying Prospero the right to present material pertinent to a motion for summary judgment. It is apparent from the record, and Burroughs does not contest, that the district court did not give formal notice to Prospero of the conversion. However, based on the following analysis of the facts and the law, we conclude that the trial court reasonably believed Prospero was treating the motion as one for summary judgment and waived any right to formal notice.

The general rule is that noncompliance with the time and notice provisions of Fed.R.Civ.P. 56(c) deprives the court of authority to grant summary judgment. Torres v. First State Bank of Sierra County, 550 F.2d 1255 (10th Cir.1977); Adams v. Campbell County School District, 483 F.2d 1351 (10th Cir.1973). However, it is equally true that "[u]nder proper circumstances these requirements of the Rule may be waived." Mustang Fuel Corp. v. Youngstown Sheet and Tube Co., 480 F.2d 607, 608 (10th Cir.1973). In Mustang Fuel Corp., the motion for summary judgment was filed by the defendant on December 29, 1971. On December 30, 1971, with no notice to plaintiff or a hearing, the trial court granted the motion and entered judgment for the defendant. Under those circumstances, we held that the procedural facts presented did not constitute a waiver.

Similarly, in Dolese v. United States, 541 F.2d 853 (10th Cir.1976), we found no waiver when plaintiff's counsel objected strenuously upon first learning of the trial court's intention to grant summary judgment in favor of the government. There the government had filed a motion for summary judgment, but the trial court set a date for trial. On the day of trial the court granted summary judgment, despite the existence of a pretrial order which indicated numerous contested issues of fact. We observed that the trial court "failed to follow the mandate or spirit of Rule 56(c) ...." Dolese, supra, 541 F.2d at p. 854, by denying the plaintiffs a hearing on the motion.

This case presents a markedly different situation. Prospero filed a complaint in the district court for breach of contract, and attached thereto a rather lengthy purchase agreement with its attendant exhibits. Thereafter Burroughs filed a motion to dismiss on grounds of, inter alia, res judicata, and incorporated by reference the findings of fact, conclusions of law and judgment of the District Court of Boulder County in a prior state action allegedly based on the same contract. Burroughs attached a copy of the findings, conclusions and judgment to the motion to dismiss. Prospero then filed a brief in opposition to Burroughs's motion to dismiss, in which it stated:

The motion is also procedurally defective. The affirmative defense of res judicata does not appear on the face of the Complaint [sic], as confirmed by defendant's incorporation of and reference to a copy of the 76-page Findings of Fact, Conclusions of Law and Judgment from the prior state court action. [Emphasis in original]. To be considered at all, the motion would have to be treated as one for summary judgment. (Citations omitted). In any event and no matter how characterized, for the reasons set forth herein, the motion should be denied in all respects.

[R., Vol. I at p. 182 (emphasis supplied) ].

Burroughs responded with its reply brief, to which exhibits were attached. In this reply brief, Burroughs stated: "Defendant agrees with Plaintiff that Defendant's Motion should be considered as a Motion for Summary Judgment and submits this Brief in support of that Motion and in reply to Plaintiff's Brief." [R., Vol. II at p. 194].

Approximately five months later, during which period Prospero never objected to Burroughs's characterization that Prospero had suggested converting the motion into one for summary judgment, the trial court granted summary judgment for Burroughs. The trial court found that Prospero's claim was barred by the principles of res judicata. Prior to this ultimate finding, the district court stated:

Because defendant's motion to dismiss was accompanied by the judgment in the previous case, F.R.Civ.P. 12(b) requires me to treat the motion to dismiss as one for summary judgment. Both parties have stated in their briefs that the motion should be considered as one for summary judgment and, in accordance with this understanding, both parties have filed exhibits. The requirement of notice to treat a motion to dismiss as one for summary judgment has been met. Adams v. Campbell County School Dist., 483 F.2d 1351 (10th Cir.1973).

[R., Vol. II at p. 303]; 517 F.Supp. at p. 659 n. 2.

Prospero contends that the district court erred in stating that both parties had filed exhibits. This argument is curious because Prospero contends the only "exhibits" it filed were the two separate contracts, the Purchase Agreement and Repurchase Agreement, ¹ filed with the complaint. While Prospero did not file any exhibits with its brief in opposition to its motion to dismiss, it referred to the substance of the above documents in that brief and obviously intended that the court consider them in reference to the res judicata claim. Hence, this argument is specious.

The heart of the matter lies in the lack of formal notice by the court. Under the circumstances outlined above, we hold that the trial court reasonably believed Prospero was treating the motion as one for summary judgment. Prospero was the party first to mention summary judgment; Prospero had actual notice that Burroughs believed Prospero was treating the motion as one for summary judgment; Prospero had actual notice that Burroughs was treating the motion as one for summary judgment; and Prospero did not at any time lodge an objection with the trial court after it received actual notice. Prospero may not now be heard to say it was "surprised" by the trial court's grant of summary judgment. See Dayco Corp. v. Goodyear Tire & Rubber Co., 523 F.2d 389, 393 (6th Cir.1975) ("The 'reasonable opportunity' language of Rule 12(b) is designed to prevent unfair surprise to the parties."). The trial court did not violate either the mandate or spirit of rule 56(c) by its lack of formal notice. The facts and circumstances of this case dictate the conclusion that Prospero waived its right to formal notice, and we so hold.

II.

Prospero's second contention is that the district court erred in granting summary judgment for Burroughs on grounds of res judicata. Under 28 U.S.C.A. § 1738, we must accord the Boulder County District Court judgment "the same full faith and credit ... as [it has] by law or usage in the courts of [Colorado]." The question, then, is what effect the Colorado state courts would give to the prior state court judgment.

Collateral estoppel, or issue preclusion, is not applicable in this case. The issues relating to costs incurred as a result of the repurchase were not litigated in the state court action. The issue here regards claim preclusion. As the district court noted, "[c]laim preclusion ... prohibits a party from asserting any matter that might have been asserted in the previous cause of action, even if it was not actually asserted." 517 F.Supp. at p. 660. The question then becomes whether the prior state court action and this action are one or two causes of action. ²

In 1976, after Redactron anticipatorily breached the 1974 agreement, Prospero and Redactron arranged to have Redactron repurchase the equipment as provided by a clause in the 1974 agreement. A "Bill of Sale and Assignment of Lease" (Bill of Sale) was drawn up for this purpose. Prospero's argument against a res judicata bar to this action is that the 1974 agreement and the...