Trustmark Ins. Co. v. Eslu, Inc.

• Citation: 299 F.3d 1265
• Decision Date: 02 August 2002
• Docket Number: No. 01-14917.,01-14917.
• Parties: TRUSTMARK INSURANCE COMPANY, Plaintiff-Appellant, v. ESLU, INC., f.k.a. Excess & Stop-Loss Underwriters, Inc., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1265

299 F.3d 1265

TRUSTMARK INSURANCE COMPANY, Plaintiff-Appellant, v. ESLU, INC., f.k.a. Excess & Stop-Loss Underwriters, Inc., Defendant-Appellee.

No. 01-14917.

United States Court of Appeals, Eleventh Circuit.

August 2, 2002.

Wendy L. Furman, Jay S. Blumenkopf, Proskauer, Rose, Goetz & Mendelsohn, LLP, Boca Raton, FL, for Plaintiff-Appellant.

Shelley H. Leinicke, Wicker, Smith, Tutan, O'Hara, McCoy, Graham & Ford, PA, Fort Lauderdale, FL, for Defendant-Appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before ANDERSON and MARCUS, Circuit Judges, and MIDDLEBROOKS^*, District Judge.

ANDERSON, Circuit Judge:

This opinion considers the viability of the second of two lawsuits filed by Trustmark Insurance Company ("Trustmark") against ESLU, Inc. ("ESLU") for breach of contract. In 1994, Trustmark decided to expand its business and appoint agents to sell its insurance policies. Accordingly, that same year Trustmark and ESLU executed a contract, called the Managing General Underwriting Agreement ("MGUA"). Pursuant to the MGUA, ESLU would be Trustmark's managing general agent and would sell "excess stop loss group insurance policies." MGUA 1(a). ESLU was also to underwrite these policies using the same procedures that had been profitable for the company in the past.

The present controversy began when Trustmark determined that ESLU had incorrectly calculated the deductibles for one of Trustmark's insureds. In what we will refer to as "Trustmark I," Trustmark filed suit in September 1999 against ESLU, claiming breach of contract, negligence and breach of fiduciary duty. Trustmark argued that ESLU breached the underwriting agreement by failing to underwrite three policies in accordance with the contract. On January 25, 2000, the trial judge set a scheduling order and the parties continued with discovery. Trustmark learned that ESLU had incorrectly calculated at least two more companies' deductibles. Accordingly, on May 29, 2000, the date which the scheduling order set as the deadline for any amendments, Trustmark amended its complaint to add the facts relating to those two additional policies.

In March 2000, Trustmark began an audit of ESLU's work. Nine months after the amendment period had passed, and two months after the discovery period had ended, on February 27, 2001, Trustmark again moved to amend the complaint. It moved to amend that complaint to add additional counts of breach of contract relating to 42 separate insurance policies that Trustmark alleged were improperly handled by ESLU. The court refused to allow that amendment, finding that Trustmark had failed to show good cause. The court noted that Trustmark had displayed excessive dilatoriness and a lack of diligence in complying with the scheduling order. Trustmark proceeded with the original lawsuit, which ultimately terminated when the jury returned a verdict in ESLU's favor on the breach of contract claims.

Upon the conclusion of Trustmark I, Trustmark filed the instant suit, a second suit against ESLU which we will call "Trustmark II." Trustmark again alleges that ESLU had breached the MGUA, citing the 42 separate insurance policies which it had attempted to include in the first action. ESLU moved to dismiss Trustmark II pursuant to Fed.R.Civ.P. 12(b)(6), arguing that because the breach of the MGUA was the subject of Trustmark I, the doctrine of res judicata prevented Trustmark from relitigating claims which arose out of that contract.

When ESLU submitted its 12(b)(6) motion to dismiss Trustmark II, it attached various documents in support. Trustmark attached further documentation in its response. Without expressly excluding any of those documents, the district court dismissed the suit; Trustmark appeals.

Trustmark argues that when the district court accepted all of the documentation provided at the 12(b)(6) stage it considered matters outside the pleadings, thus converting that motion into a motion for summary judgment. Because a court converting a 12(b)(6) motion into a motion for summary judgment must give the parties 10 days notice, and Trustmark was not given that notice, Trustmark argues that the case should be reversed and remanded.

Whenever a judge considers matters outside the pleadings in a 12(b)(6) motion, that motion is thereby converted into a Rule 56 Summary Judgment motion. Fed.R.Civ.P. 12(b); Concordia v. Bendekovic, 693 F.2d 1073, 1075 (11th Cir.1982). But see Homart Dev. Co. v. Sigman, 868 F.2d 1556 (11th Cir.1989) (interpreting conversion rule in concert with Fed. R.Civ.P. 10(c) which states that documents attached to pleadings is a part thereof; thus contract was properly considered part of pleadings). When that conversion occurs, the district court must comply with the requirements of Rule 56. Jones v. Auto. Ins. Co., 917 F.2d 1528, 1532 (11th Cir.1990). The district court is required to notify the parties that the motion has been converted, and give the parties 10 days in which to supplement the record. Herron v. Beck, 693 F.2d 125, 126 (11th Cir.1982).

This Circuit has consistently interpreted the notice rules strictly. Finn v. Gunter, 722 F.2d 711, 713 (11th Cir.1984). On the other hand, we recognized a limited exception in Property Management & Investments, Inc. v. Lewis, 752 F.2d 599 (11th Cir.1985). Property Management involved two lawsuits comprised of the same parties. In the first action, the Florida Comptroller's Office sued Property Management & Investments ("PMI") in Florida state court for violations of Florida securities laws. Id. at 601. That suit was settled, with both parties signing a stipulation agreement in which PMI agreed not to sue Comptroller Lewis or any of the employees of the Comptroller's Office for injuries arising out of the first lawsuit. Id. Shortly after the conclusion of the first action, however, PMI filed for bankruptcy. Id. at 602. PMI then sued Comptroller Lewis and other employees of the Comptroller's Office, claiming that they defamed PMI and used their power to destroy the company. Id. The defendants filed a 12(b)(6) motion, claiming that the stipulation agreement barred the lawsuit. Id. The defendants attached a copy of both the state order and the stipulation. Id. In response, PMI submitted a copy of the stipulation and an additional one page addendum that the defendants had omitted. Id. The court did not give specific notice that it was converting the motion to a summary judgment motion, but clearly considered the stipulation and the addendum. Id. at 604-05. PMI claimed that because it was not given notice that the court had converted the motion to a summary judgment motion, the court had committed reversible error. Even recognizing the strict interpretation afforded notice violations, after carefully reviewing the record this court determined that "all of the parties were well aware that the judge was converting this 12(b)(6) motion and that the parties made all the arguments and submitted all the documents that they would have presented had they received the notice to which they were entitled." Id. at 605. In a situation in which the parties fully understand the true nature of the motion and have presented all available arguments, any error in the notice afforded the parties is harmless.

The harmless error exception detailed in Property Management is a limited exception which we will not often recognize. See, e.g., Jones, 917 F.2d at 1534-35 (refusing to apply exception because nonmovant had not proffered all evidence or made all arguments in his favor; thus, not harmless error); Donaldson v. Clark, 819 F.2d 1551, 1555 (11th Cir.1987) (affording parties one week, rather than 10 days provided in rules, not harmless error under Property Management). However, we have applied the exception in those cases which we have deemed "unique." Those cases include Peterson v. Atlanta Housing Authority, 998 F.2d 904, 913 (11th Cir.1993); Denis v. Liberty Mutual Insurance Co., 791 F.2d 846, 850 (11th Cir.1986) (concluding that when motion to reconsider filed by non-movant stated that it raised a "genuine issue of material fact," it is clear that the non-movant himself considered the motion to reconsider as converting the 12(b)(6) motion, and thus non-movant cannot contest notice when his own pleadings prove his knowledge); and Washington v. Office of Comptroller of Currency, 856 F.2d 1507, 1511 (11th Cir.1988) (concluding that because all of the parties were aware that administrative record was necessary to determine outcome in the case, the district court's consideration of that record was harmless in "this very unique case").

Although the Property Management exception is limited, after having conducted a careful review of the record in this case, we believe that the case before us is sufficiently "unique" that the exception applies. To explain why, we turn to the rationale underlying the exception. "[T]he purpose of the rule is to notify the parties that the court may dispose of the case by summary judgment so that `the nonmoving party will have an opportunity to marshal its resources and ... rebut[ ] the motion for summary judgment with every factual and legal argument available.'" Denis, 791 F.2d at 850. When a party proves through its actions that it has notice of the conversion, any failure to notify the party is rightly deemed harmless. For example, in Denis v. Liberty Mutual, this court found harmless error when in the non-movant's motion to reconsider it stated that it had raised a "genuine issue of material fact." Id. Recognizing that the non-movant had set forth the legal standard for summary judgment, rather than judgment on the pleadings, the court was confident that the non-movant had treated the motion as a motion for summary judgment. Therefore, any error in not notifying the non-movant of that conversion was harmless.

Similarly, in this case, Trustmark moved for an extension of time in which to file its response to th...