Twin City Fire Insurance Company v. Hartman, Simon & Wood, LLP ( 2015 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-12219
________________________
D.C. Docket No. 1:13-cv-01608-MHS
TWIN CITY FIRE INSURANCE COMPANY,
Plaintiff - Appellant,
versus
HARTMAN, SIMONS & WOOD, LLP, GIL Y. BURSTINER, AND
STEPHANIE B. SKIDMORE,
Defendants - Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(April 15, 2015)
Before MARCUS and ROSENBAUM, Circuit Judges, and FRIEDMAN, * District
Judge.
PER CURIAM:
*
Honorable Paul L. Friedman, United States District Judge for the District of Columbia, sitting
by designation.
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Twin City Fire Insurance Company (“Twin City”) seeks recoupment of
some or all of a $10 million settlement that it paid on behalf of its insured, the law
firm of Hartman, Simons & Wood, LLP (“Hartman Simons”). The district court
dismissed Twin City’s complaint and then denied Twin City’s motion for
reconsideration of the dismissal. Twin City appeals both of the district court’s
orders, arguing that it was error to conclude that the lawsuit was barred by two
affirmative defenses: waiver and voluntary payment. Because the face of Twin
City’s complaint does not clearly demonstrate the applicability of these bars, we
conclude that the dismissal of Twin City’s complaint was improper. Accordingly,
we vacate the district court’s orders in part, affirm them in part, and remand so that
Hartman Simons may answer Twin City’s complaint and the parties may proceed
to discovery.
I.
The complaint sets forth the following factual allegations. Twin City issued
two professional liability insurance policies to Hartman Simons, the first covering
the period from December 31, 2008, to December 31, 2009, and the second
covering December 31, 2009, to December 31, 2010. The policies insured the law
firm against malpractice liabilities in excess of a $100,000 per claim deductible, up
to $10 million. Under the policies, Twin City’s duty to provide coverage depended
in part on the law firm’s having provided timely notice to Twin City of any claim
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or reasonably foreseeable claim. In addition, Twin City had no duty to provide
coverage if, at the inception date of a policy, Hartman Simons had knowledge of
facts that reasonably could form the basis for a malpractice claim against it.
In September of 2009, the Bank of North Georgia (“the Bank”) retained
Hartman Simons in connection with a real estate transaction with Northside
Guaranty, LLC (“Northside”). The Bank planned to release Northside from its
guaranty on a loan related to a property called Lost Creek, in exchange for the
release of a second mortgage held by Northside’s principal, John Williams, on a
separate piece of real property. Two Hartman Simons attorneys — partner Gil
Burstiner and associate Stephanie Skidmore — sent a draft release to counsel for
Northside and Mr. Williams. Northside returned the draft with a new paragraph
added to it, and Mr. Burstiner and Ms. Skidmore approved the change. The Bank
signed the release on October 23, 2009, and the deal closed.
On November 11, 2009, the Bank informed Mr. Burstiner and Ms. Skidmore
of Mr. Williams’ contention that the agreement, as amended, released him and his
affiliated companies not only from Northside’s guaranty related to Lost Creek, but
from all of their financial obligations to the Bank. One month later, Mr. Burstiner
and Ms. Skidmore were further notified that the Bank had received a letter from a
representative of Mr. Williams, taking the position that the agreement released at
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least 58 affiliated individuals and entities of their obligations to the Bank and the
Bank’s corporate parent.
About six months later, Northside and its associated entities brought an
action in Georgia state court, seeking a declaration that the October 23 agreement
fully relieved them of their obligations to the Bank. A week later, on June 24,
2010, the Bank demanded indemnification from Hartman Simons for any losses it
might sustain as a result of the Northside entities’ claims. Three weeks after that,
on July 14, 2010, Hartman Simons notified Twin City of the Bank’s
indemnification claim. 1
Nearly three years later, in April of 2013, the Bank offered to settle its claim
against Hartman Simons and tendered a $10 million time-limited settlement
demand to Twin City. Hartman Simons demanded that Twin City accept the
Bank’s offer by the close of business on May 10, 2013, because it was to expire on
that date. But Hartman Simons rejected Twin City’s request that the law firm
agree to an allocation of the settlement payment between covered and noncovered
amounts. Twin City then notified Hartman Simons that it intended to pay the
settlement under a full reservation of rights regarding whether the Bank’s claim
was covered under the insurance policies.
1
Although Twin City’s complaint states that the Bank had actually filed suit against Hartman
Simons, the parties’ briefs on appeal make clear that this factual allegation is erroneous.
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Before the close of business on May 10 — and shortly before making the
settlement payment to the Bank — Twin City filed its complaint in the present
action, seeking a declaratory judgment that it has no coverage obligations under
either insurance policy because Hartman Simons allegedly failed to timely notify
Twin City of the likelihood that the Bank would assert a claim against the law
firm. 2 Twin City also asserted claims for “allocation” and for “recoupment.” The
allocation claim sought “a declaration of the appropriate allocation,” as between
Twin City and Hartman Simons, of the defense and indemnity costs related to the
Bank’s claim. Under its claim for recoupment, Twin City contended that “[t]o the
extent Twin City has no coverage obligations for [the Bank’s claim], [Hartman
Simons] will be unjustly enriched by Twin City’s payment of the Bank of North
Georgia’s settlement demand, and Twin City is entitled to recoup some or all of
that payment from [Hartman Simons].” Federal jurisdiction was predicated on
diversity of citizenship, and Georgia law governed all of the claims.
Hartman Simons moved to dismiss Twin City’s complaint. With respect to
the claim for a declaratory judgment of noncoverage, the law firm argued that
Twin City lacked standing because it faced no imminent threat of future harm. As
2
More specifically, Twin City alleges that it bears no coverage obligation under the December
31, 2008, to December 31, 2009, policy because Hartman Simons failed to provide timely notice
to Twin City after learning in November 2009 of facts that reasonably could lead to a claim
against the law firm. Twin City alleges that it bears no coverage obligation under the second
policy, running from December 31, 2009, to December 31, 2010, because Hartman Simons was
aware of those same facts prior to the inception of that policy.
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for allocation and recoupment, Hartman Simons maintained that these claims
should be dismissed for failure to state a claim because: (1) Twin City failed to
properly reserve its right to seek recoupment and that right therefore had been
waived; (2) Twin City’s settlement with the Bank was a “voluntary payment”; and
(3) Twin City had no contractual right to seek allocation or recoupment of the
settlement payment.
The district court granted Hartman Simons’ motion and dismissed Twin
City’s complaint with prejudice. Twin City Fire Ins. Co. v. Hartman, Simons &
Wood, LLP, Civil Action No. 1:13-cv-1608-MHS, 2013 WL 8368744 (N.D. Ga.
Nov. 25, 2013). The court first agreed that Twin City lacked standing to pursue
declaratory relief. Id. at *3. With respect to the allocation and recoupment claims,
the district court concluded that Twin City had “waived these claims by failing to
properly reserve its rights before agreeing to pay out its policy limits.” Id. at *4.
The court declined to address Hartman Simons’ other two arguments for dismissal.
Id. at *4 n.2. Twin City then filed a motion for reconsideration of the court’s
decision. The district court denied the motion, reaffirming its conclusion that Twin
City had waived any claim to recoup from Hartman Simons some or all of the
settlement payment. Twin City Fire Ins. Co. v. Hartman, Simons & Wood, LLP,
Civil Action No. 1:13-cv-1608-MHS, 2014 WL 1800868, at *3-4 (N.D. Ga. Apr.
21, 2014). The court further held that, “apart from waiver, Twin City’s complaint
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is also subject to dismissal under Georgia’s voluntary payment doctrine,” id. at *4,
a ground it had not addressed in its earlier order granting the motion to dismiss.
This appeal followed.
Although the district court purported to dispose of the case under Rule
12(b)(6) of the Federal Rules of Civil Procedure, the parties’ briefs on appeal give
the impression that this case comes before us after a grant of summary judgment.
The procedural peculiarity of the appeal stems from the parties’ having submitted
to the district court a large number of extra-complaint documents, most of which
were filed in connection with Twin City’s motion for reconsideration. To be sure,
a court may consider an extra-complaint document in deciding a motion to dismiss
without converting the motion into a motion for summary judgment, where the
document is (1) central to the plaintiff’s claim and (2) its authenticity is not
challenged. Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005). Other than the
two insurance policies themselves, however, we decline to consider any of the
documents submitted by the parties, nor do we pay mind to the various arguments
made in reliance on them. Even if some of these documents may satisfy the two
criteria noted above, it is apparent that they reveal disputed issues of fact that
cannot be resolved on a motion to dismiss. Although the parties wrangle over a
number of these fact-dependent legal issues, which may become relevant should
this case reach the summary judgment stage, they are not properly before us now.
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Our review, therefore, is strictly limited to assessing the viability of Twin City’s
complaint and the propriety of the district court’s dismissal of it.
II.
“We review de novo the dismissal of a complaint for failure to state a
claim.” Rosenberg v. Gould, 554 F.3d 962, 965 (11th Cir. 2009). “[W]e review
for an abuse of discretion the denial of a motion to reconsider, reviewing any
attendant question of law de novo.” Smith v. Casey, 741 F.3d 1236, 1241 (11th
Cir. 2014) (citations omitted). Likewise, “[w]e review de novo whether plaintiffs
have Article III standing.” Kawa Orthodontics, LLP v. Sec’y, U.S. Dep’t of the
Treasury, 773 F.3d 243, 245 (11th Cir. 2014).
III.
A.
The district court concluded that Twin City had waived any right it held to
recoup some or all of the settlement payment made to the Bank. Waiver is listed as
an affirmative defense under Rule 8 of the Federal Rules of Civil Procedure. FED.
R. CIV. P. 8(c)(1). A plaintiff is “not required to negate an affirmative defense in
[its] complaint.” LaGrasta v. First Union Sec., Inc., 358 F.3d 840, 845 (11th Cir.
2004) (quoting Tregenza v. Great American Commc’ns Co., 12 F.3d 717, 718 (7th
Cir. 1993)). Thus, “[g]enerally, the existence of an affirmative defense will not
support a motion to dismiss.” Quiller v. Barclays American/Credit, Inc., 727 F.2d
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1067, 1069 (11th Cir. 1984), en banc reh’g, 764 F.2d 1400 (11th Cir. 1985) (per
curiam) (reinstating panel opinion). A complaint may be dismissed, however,
when the existence of an affirmative defense “clearly appears on the face of the
complaint.” Id.; see also Bingham v. Thomas, 654 F.3d 1171, 1175 (11th Cir.
2011) (per curiam) (“A complaint may be dismissed if an affirmative defense . . .
appears on the face of the complaint.”) (citing Jones v. Bock, 549 U.S. 199, 215
(2007)).
In the district court’s view, waiver was evident because Twin City’s
complaint showed that it had been notified in 2010 of the Bank’s indemnification
claim against Hartman Simons, but then supposedly waited nearly three years to
reserve its rights and to seek declaratory relief regarding whether the claim was
covered by the insurance policies, Twin City Fire Ins. Co., 2013 WL 8368744, at
*5-7, despite having had “ample time to investigate any coverage issues and seek
declaratory relief before being presented with the Bank’s settlement demand.” Id.at 5 n.5. In deciding Twin City’s motion for reconsideration, the district court
reaffirmed “its ruling that Twin City was dilatory in reserving its rights and
seeking declaratory relief” because Twin City “could have unilaterally reserved its
rights and sought immediate declaratory relief” no later than July 2011, “but it
chose not to do so.” Twin City Fire Ins. Co., 2014 WL 1800868, at *3. By finding
that Twin City was “dilatory” in responding to the Bank’s claim against Hartman
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Simons, however, the district court necessarily relied on factual conclusions and
inferences, and, at least on the motion for reconsideration, extra-complaint
documents; this was inappropriate in deciding a motion to dismiss.
The complaint includes no factual allegations regarding what might have
occurred in the nearly three years between July 2010, when the Bank asserted its
claim, and April 2013 when it made its time-limited settlement demand.
Notwithstanding this silence, the district court concluded that Twin City had failed
to reserve its rights or to seek declaratory relief at any point prior to the day of
settlement, and the court therefore determined that Twin City’s conduct during the
three-year period was “dilatory.” The district court’s determination that “Twin
City waited nearly three years” to reserve its rights and to seek declaratory relief,
Twin City Fire Ins. Co., 2013 WL 8368744, at *5, rests on inferences as to what
did not occur during the period from 2010 to 2013 — in particular, an inference
that at no other time did Twin City attempt a reservation of rights that was rejected
by Hartman Simons. 3
In ruling on a motion to dismiss under Rule 12(b)(6), a court must construe a
complaint in the light most favorable to the plaintiff, not the other way around.
See Adinolfe v. United Techs. Corp., 768 F.3d 1161, 1169 (11th Cir. 2014). Twin
3
Even assuming that Twin City at some point became obliged to seek judicial resolution of the
coverage dispute — an issue which we need not decide now, as noted further below — such an
obligation could have arisen only after a refusal by Hartman Simons to accede to a reservation of
rights. See Kelly v. Lloyd’s of London, 336 S.E.2d 772, 775 (Ga. 1985).
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City’s complaint may have been sparely drafted, but Twin City was under no
obligation to anticipate the affirmative defense of waiver and to include factual
allegations responsive to that defense. The complaint’s silence regarding what
might or might not have happened between 2010 and 2013 did not give the district
court license to assume that Twin City had failed to take certain actions during that
period. Moreover, by concluding that Twin City was “dilatory,” the district court
implicitly found that Twin City’s conduct had prejudiced Hartman Simons. See
Kelly v. Lloyd’s of London, 336 S.E.2d 772, 775 (Ga. 1985). Whether or not
Hartman Simons suffered prejudice due to Twin City’s handling of the Bank’s
claim is quintessentially a question of fact as to which Twin City’s complaint
provides no answers. And the district court compounded these errors in its
decision denying Twin City’s motion for reconsideration, in which the court
looked well beyond the bounds of the complaint in reaffirming its conclusion on
waiver. See Twin City Fire Ins. Co., 2014 WL 1800868, at *2-3 (addressing
detailed factual contentions drawn from extra-complaint evidence submitted by the
parties).
The district court also placed reliance on Facility Investments, LP v.
Homeland Ins. Co. of N.Y., 741 S.E.2d 228 (Ga. Ct. App. 2013) (physical
precedent only), a case with no precedential weight under Georgia law and which
has not yet been cited by any Georgia court. Although the district court found this
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decision persuasive, here we need not take a position on whether the Supreme
Court of Georgia would endorse it. Our vacatur of the district court’s orders is
warranted by that court’s reliance on factual conclusions that should not have been
reached in evaluating Twin City’s complaint. For the same reason, this appeal
presents no occasion to determine whether, or to what extent, existing Georgia law
regarding an insurer’s waiver of rights — including the doctrine established in
Richmond v. Georgia Farm Bureau Mut. Ins. Co., 231 S.E.2d 245 (Ga. Ct. App.
1976) — might bear on the time-limited settlement context. The district court
may, upon remand and after the development of a full record, have occasion to
address these questions. At the present moment, we conclude only that the district
court erred in finding waiver based on determinations of fact that did not flow
inevitably from the allegations of Twin City’s complaint.
B.
The district court’s alternative rationale — that the complaint was subject to
dismissal under Georgia’s voluntary payment doctrine — likewise implicated
factual findings that have no mooring in the bare face of the complaint. The
district court recognized that the voluntary payment doctrine, like waiver, is
considered an affirmative defense that can justify a complaint’s dismissal under
Rule 12(b)(6) of the Federal Rules of Civil Procedure only if the complaint shows
on its face that the defense applies. See Twin City Fire Ins. Co., 2014 WL
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1800868, at *4. Nonetheless, the court looked outside the complaint to find that
Twin City “was aware of all the material facts relating to its coverage defense at
the time it made the payment to the Bank.” Id. We fail to see how such a factual
finding could be made looking only at Twin City’s complaint, and without any
discovery yet having been taken on the issue.
In addition, Georgia law provides two recognized exceptions to the
voluntary payment doctrine. The court’s decision addressed one of these
exceptions — involving payments made under “urgent and immediate” necessity
— but its discussion shows that Twin City was burdened with demonstrating
affirmatively that the exception applied under the circumstances of this case. As
we already have explained, a plaintiff’s complaint need not anticipate and counter
affirmative defenses. Twin City was improperly put to the task at the motion to
dismiss stage of proving the applicability of the exception, where the question
should have been whether, looking only at the face of the complaint, it was plain
that the exception could not be invoked. Moreover, the question whether a
payment was made under an urgent and immediate necessity is one of fact. And
while Twin City also might have tenable policy-based arguments as to why the
voluntary payment doctrine should not apply in the circumstances presented by this
case, those circumstances must be defined by a full factual record rather than by
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the select allegations of a complaint. Upon remand and after the conduct of
discovery, these arguments may be more appropriately considered.
C.
Finally, we address Twin City’s claim for declaratory relief, which the
district court dismissed for lack of standing. Although Twin City arguably
possessed standing during the brief period following the filing of its complaint in
this action, its declaratory judgment claim plainly became moot as soon as Twin
City paid the $10 million settlement to the Bank later that same day. At that point,
a declaration could not have had any bearing on the parties’ future conduct; rather,
Twin City’s aim from that point forward was to recoup what it already had paid.
For the same reason, to the extent that the second count of Twin City’s complaint
seeks merely “a declaration of the appropriate allocation” of defense and indemnity
costs, that claim likewise is moot. Of course, the justiciability of any claims for
declaratory relief ultimately is not of practical significance, as Twin City itself
acknowledges. The relief that Twin City seeks is recoupment of some or all of the
$10 million it paid to the Bank, and any ultimate determination of its entitlement to
recoupment would entail a determination of coverage and, if appropriate,
allocation. We affirm the district court’s dismissal of Twin City’s declaratory
judgment claim.
IV.
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For the foregoing reasons, we vacate in part the district court’s two orders,
affirm the district court’s dismissal of the claim for a declaratory judgment, and
remand so that Hartman Simons may answer Twin City’s complaint and the parties
may proceed to discovery.
VACATED IN PART, AFFIRMED IN PART, AND REMANDED.
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