Russell v. SunAmerica Securities, Inc.

• Decision Date: 15 June 1992
• Docket Number: No. 91-1371,91-1371
• Parties: Othar RUSSELL, et al., Plaintiffs-Appellants, v. SUNAMERICA SECURITIES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1169

962 F.2d 1169

22 Fed.R.Serv.3d 1262

Othar RUSSELL, et al., Plaintiffs-Appellants, v. SUNAMERICA SECURITIES, INC., Defendant-Appellee.

No. 91-1371.

United States Court of Appeals, Fifth Circuit.

June 15, 1992.

Rehearing Denied July 17, 1992.

J. Brad Pigott, Maxey, Pigott, Wann & Begley, Jackson, Miss., for plaintiffs-appellants.

Jeffrey E. Livingston, Gilbert, Segall & Young, New York City, for defendant-appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before KING, JOHNSON, and DAVIS, Circuit Judges.

KING, Circuit Judge:

Plaintiffs Othar Russell, Donna Russell, Bobby Joe Russell, Carolyn Russell, Charles H. Sheffield, Margaret Sheffield, and Bonnie S. Brooks appeal from the district court's grant of summary judgment against them in favor of SunAmerica Securities, Inc. The district court found that a release signed by Plaintiffs and Southmark Financial Services, Inc., a corporation whose assets were purchased by SunAmerica, also released SunAmerica. We find that Plaintiffs' action is foreclosed by the doctrine of res judicata, and affirm the judgment of the district court on this ground.

I. FACTS AND PROCEDURAL HISTORY

In 1988, Plaintiffs brought an action against Southmark Financial Services, Inc. ("Southmark"), Equivest, Inc., and D. Andrew Pickens in the Southern District of Mississippi, Jackson Division ("1988 action"), alleging causes of action for violation of state and federal securities laws, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964, and for common law fraud, breach of contract, and gross negligence. Southmark was a broker-dealer registered under the Securities Exchange Act of 1934 and licensed by the National Association of Securities Dealers, Inc. Plaintiffs alleged that Pickens, in his capacity as branch manager for and agent of Southmark, induced Plaintiffs to transfer money to him based upon fraudulent representations that the money would be used to purchase securities which he recommended to them for investment purposes. Plaintiffs averred that Pickens failed to invest any of the money as promised, and instead wrongfully converted and embezzled the money for his own and Southmark's benefit. Southmark, argued Plaintiffs, was vicariously liable for Pickens' wrongdoing and was liable for its own gross negligence in failing to supervise and investigate its operations so as to discover Pickens' activities.

On March 24, 1989, SunAmerica Securities, Inc. ("SunAmerica") entered into an asset purchase agreement with Southmark. Under this agreement, SunAmerica acquired Southmark's contract rights with registered sales representatives, various books and records, furniture, and fixtures, in return for which SunAmerica paid a sum of cash and a portion of its income derived from activities of the registered representatives over a two-year period. According to the agreement, SunAmerica did not assume any of Southmark's liabilities.

Ultimately, Plaintiffs entered into a settlement agreement with Southmark. The parties executed a release, which provided that for $105,000, Plaintiffs released Southmark from "any and all past, present, or future claims." The Plaintiffs expressly did not release Pickens or Equivest, Inc. On the basis of this release, Southmark was dismissed as a defendant by an agreed order of dismissal with prejudice and consent judgment entered by the district court on April 30, 1990.

Shortly thereafter, on July 10, 1990, Plaintiffs brought the present action in the Southern District of Mississippi, Eastern Division, against SunAmerica and Pickens. Plaintiffs' complaint in the instant action contained allegations essentially identical to those in the 1988 action, together with allegations that SunAmerica, by virtue of its having acquired the assets of and continued operation of Southmark, is liable as a successor corporation to Southmark for the torts and debts of Southmark. The release of Southmark did not release SunAmerica, Plaintiffs argued, because it did not specifically provide for the release of SunAmerica, and the parties did not intend for the release to affect SunAmerica. They also alleged that SunAmerica's purchase of Southmark's assets was fraudulent, and designed to remove funds that might have been available to pay Plaintiffs' claims. Alternatively, Plaintiffs contended that the release was only partial and did not preclude further litigation.

On October 19, 1990, SunAmerica moved in the Eastern Division to transfer the case to the Jackson Division (where the 1988 action against Pickens was still pending), consolidate the two cases, or dismiss the instant action for failure to state a claim. Alternatively, SunAmerica moved for summary judgment, arguing that it could not be liable as the successor to Southmark because its purchase of Southmark's assets left Southmark with sufficient assets to pay Plaintiffs' claims. Next, it argued that its purchase of assets was in no way fraudulent. Finally, SunAmerica argued that the release signed in April 1990 precluded relitigation of Plaintiffs' claims.

On March 6, 1991, the district court granted SunAmerica's motion for summary judgment, reasoning that where liability is sought to be imposed against a successor corporation for the torts of its predecessor, the successor's liability, if any, derives exclusively from the liability to which the predecessor could have been subjected. Thus, continued the district court, SunAmerica could have no greater liability to Plaintiffs than did Southmark. With regard to Plaintiffs' claim that the release was only partial, the court disagreed. According to the court, "[g]iven the comprehensive nature of the language of the release, it strains credibility for plaintiffs to now take the position that they never intended to release all of their claims against Southmark relating to Pickens' activities." Because Southmark was completely released from liability, reasoned the court, SunAmerica was similarly released. A final order was entered in favor of SunAmerica on March 14, 1991. Plaintiffs timely filed a notice of appeal.

II. DISCUSSION

On appeal, Plaintiffs argue that the district court erred in holding that the release of Southmark necessarily released SunAmerica, inasmuch as the release did not specifically mention SunAmerica or manifest an intention by the parties to release any corporate successor to Southmark. Plaintiffs argue in the alternative that, even if the language of the release does include SunAmerica, the release itself is invalid because it was procured through the fraudulent misrepresentations of Southmark's attorneys that Southmark was insolvent and could not pay any more toward Plaintiffs' claims.

We need not address Plaintiffs' primary contention because we find that their relitigation of the claims against SunAmerica is barred by res judicata. We begin by noting that SunAmerica did not plead the doctrine of res judicata as an affirmative defense. Under Federal Rule of Civil Procedure 8(c), the doctrine must be affirmatively pled. Failure to so plead usually precludes the district court and appellate courts from considering the doctrine. Carbonell v. Louisiana Dep't of Health & Human Servs., 772 F.2d 185, 189 (5th Cir.1985). We have held, however, that we may raise the issue of res judicata sua sponte "as a means to affirm the district court decision below." United Home Rentals, Inc. v. Texas Real Estate Comm'n, 716 F.2d 324, 330 (5th Cir.1983), cert. denied, 466 U.S. 928, 104 S.Ct. 1712, 80 L.Ed.2d 185 (1984); see also Robertson v. Interstate Securities Co., 435 F.2d 784, 787 n. 4 (8th Cir.1971). In American Furniture Co. v. International Accommodations Supply, 721 F.2d 478, 482 (5th Cir.1981), we noted as follows:

We are cognizant that res judicata, as such, has not been specially pled. Fed.R.Civ.P. 8(c). In the posture of this case, however, where all of the relevant facts are contained in the record before us and all are uncontroverted, we may not ignore their legal effect, nor may we decline to consider the application of controlling rules of law to the dispositive facts, simply because neither party has seen fit to invite our attention to the issue by technically correct and exact pleadings. We do so sua sponte.

See also Nagle v. Lee, 807 F.2d 435, 438 n. 2 (5th Cir.1987); see generally Meza v. General Battery Corp., 908 F.2d 1262, 1274 (5th Cir.1990) (appellate court may affirm a summary judgment on grounds other than those relied upon by the district court when it finds in the record an adequate and independent basis for that result); Brown v. Southwestern Bell Tel. Co., 901 F.2d 1250, 1255 (5th Cir.1990) (same). In the instant case, the relevant facts are in the record before us and form an adequate basis for our invocation of res judicata.

Federal law determines the res judicata effect of a prior federal court judgment. Meza, 908 F.2d at 1265; In re Air Crash at Dallas/Ft. Worth Airport, 861 F.2d 814, 816 (5th Cir.1988). Application of res judicata is proper only if the following four requirements are met: (1) the parties must be identical in the two suits; (2) the prior judgment must have been rendered by a court of competent jurisdiction; (3) there must be a final judgment on the merits; and (4) the same cause of action must be involved in both cases. Meza, 908 F.2d at 1265; Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183, 188 (5th Cir.1990); Nilsen v. City of Moss Point, 701 F.2d 556, 559 (5th Cir.1983) (en banc). As to the second element, the parties do not question the jurisdiction of the Southern District of Mississippi in the first action. As to the third element, this court has long recognized that a consent judgment is a judgment on the merits, and is normally "given the finality accorded under the rules of claim preclusion." Kaspar Wire Works, Inc. v. Leco Eng'g & Mach., Inc., 575 F.2d 530, 538-39 (5th Cir.1978); see also Bradford v. Bronner, 665...