Gulf Island-IV, Inc. v. Blue Streak-Gulf Is Ops ( 1994 )

United States Court of Appeals,
Fifth Circuit.
No. 93-3539.
GULF ISLAND-IV, INC. and Gulf Island IV a/k/a La Prt, Plaintiffs-
Appellants,
v.
BLUE STREAK-GULF IS OPS a/k/a Blue Streak Inc., et al. and Lloyds
Underwriters of London, Underwriters at Lloyds, London subscribing
to policy No. MC9792SAH, Defendants-Appellees.
July 5, 1994.
Appeals from the United States District Court for the Eastern
District of Louisiana.
Before REAVLEY, JONES and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
The appellants, "Gulf Island," appeal from the district
court's entry of summary judgment based upon res judicata. The
appeal involves an attack on the district court's application of
the doctrine of res judicata. We reverse.
I. FACTS AND PROCEDURAL HISTORY
In June 1985, the vessel L/B GULF ISLAND IV capsized in the
Gulf of Mexico and suffered severe damage. In October 1985, after
the vessel had been repaired, Hurricane Juan overturned it, and the
vessel suffered additional damage. According to the parties on
appeal, a partnership known as Blue Streak Gulf Island Operations
(BS-GIO) was operating the vessel when it collapsed.1 The entity
1
The court below found that the vessel was operated by and
under the exclusive control of: Blue Streak Marine, Inc.; Blue
Streak Offshore, Inc.; Blue Streak-Gulf Island Marine
Operations, a partnership also known as Blue Streak/Gulf Island
Marine Operations, Inc.; and Blue Streak Operations, Inc. April
1
of BS-GIO has dissolved.
The two appellants, Gulf Island IV, a Louisiana partnership
and owner of the vessel, and Gulf Island IV, Inc., the managing
partner of Gulf Island IV, are referred to as "Gulf Island."2 The
three appellees collectively referred to as "Blue Streak" are Blue
Streak Operations, Inc., Blue Streak Marine, Inc. and Blue Streak
Offshore, Inc. Underwriters at Lloyd's, London (Underwriters) had
underwritten an umbrella liability insurance policy for Blue Streak
and is now the fourth appellee.
In December of 1985, Gulf Island IV filed the first lawsuit,
alleging diversity and admiralty and maritime jurisdiction, against
their own insurance carriers, Wausau and American Marine
Underwriters, Inc. (AMU), seeking damages due to the failure to pay
benefits under the hull policy for physical damage to the vessel as
a result of both of the above-described 1985 casualties and for
downtime of the vessel occurring after the damage wrought by
Hurricane Juan. The vessel was covered by two insurance policies,
a hull and machinery policy and a protection and indemnity policy,
which were issued by Wausau. Both policies listed the named
assured as: Gulf Island Marine; Blue Streak Gulf Island Marine
Operations, Inc. (Operator); and Oceanic Fleet, Inc. Ultimately,
the parties advised the court that the action had been settled,
and, as a result, the court, on September 29, 1986, issued a
30, 1993 Order at 1.
2
Gulf Island Marine, Inc., a general partner of Gulf Island
IV, is not a party to the case at bar.
2
sixty-day order of dismissal, expressly allowing the right to
reopen the action if the settlement had not been consummated. It
is undisputed that Gulf Island never moved to reopen the 1985 suit.
Additionally, while that suit was pending, it was consolidated
with several other suits, including a suit brought by Hope
Contractors, Inc. In the Hope suit, the plaintiff-contractors
named, among others, the following defendants, Gulf Island IV, Gulf
Island IV, Inc., Gulf Island Marine, Inc., and Blue Streak/Gulf
Island, which was identified as a Louisiana partnership. The Hope
contractors sought payment on an account for post-casualty salvage
and repairs to the vessel. Gulf Island impleaded AMU3 and Wausau,
seeking coverage under the hull and machinery policy for the
salvage and repairs performed by the Hope contractors.
In June of 1988, Gulf Island brought the instant admiralty and
maritime suit against Blue Streak Marine, Inc., Blue Streak
Offshore, Inc., and Employers Insurance of Wausau4 for negligence,
breach of warranty of workmanlike performance in regard to both of
the 1985 casualties, and for losses due to downtime of the vessel.
Blue Streak then filed a third-party complaint naming Underwriters
and seeking coverage under its umbrella policy. Blue Streak also
filed a cross-claim against Wausau seeking coverage under its own
protection and indemnity insurance policy, alleging that the policy
3
AMU is not a party to the case at bar.
4
The court below granted Wausau's motion for summary
judgment on the ground that the Protection and Indemnity policy
did not provide coverage for damage to Gulf Island IV because it
is a scheduled vessel. Wausau is not a party to this appeal.
3
required Wausau to protect and indemnify Blue Streak from the
claims asserted by Gulf Island. Gulf Island later supplemented its
complaint to name Underwriters as a defendant seeking the benefits
of coverage under Blue Streak's umbrella policy.
Blue Streak and Underwriters both filed motions for summary
judgment, arguing that res judicata applied as a bar to the
proceedings against them on the basis of the court's September 29,
1986 order of dismissal in the prior suit. The district court
agreed and granted summary judgment for Underwriters and Blue
Streak. Gulf Island now appeals, arguing that the district court
erred in finding that res judicata barred the instant claims
against both underwriters and Blue Streak.
II. STANDARDS OF REVIEW
When a summary judgment is appealed, this Court evaluates a
district court's decision to grant summary judgment by reviewing
the record under the same standards that the district court applied
to determine whether summary judgment was appropriate. Herrera v.
Millsap, 862 F.2d 1157, 1159 (5th Cir.1989). Therefore, the
summary judgment will be affirmed only when this Court is
"convinced, after an independent review of the record, that "there
is no genuine issue as to any material fact' and that the movant is
entitled to judgment as a matter of law." Id. (quoting Brooks,
Tarlton, Gilbert, Douglas & Kressler v. United States Fire Ins.
Co., 832 F.2d 1358, 1364 (5th Cir.1987) and Fed.R.Civ.P. 56(c)).
Fact questions must be considered with deference to the nonmovant.
Herrera v. Millsap, 862 F.2d at 1159. Questions of law are
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reviewed de novo. Id.
As previously set forth, the district court found that the
claims were barred by res judicata. Federal law determines the res
judicata effect of a prior federal court judgment. Russell v.
SunAmerica Securities, Inc., 962 F.2d 1169, 1172 (5th Cir.1992).
In order for res judicata to apply, the following four requirements
must be met. First, the parties in the instant action must be the
same as or in privity with the parties in the prior action in
question. United States v. Shanbaum, 10 F.3d 305, 310 (5th
Cir.1994). Second, the court that rendered the prior judgment must
have been a court of competent jurisdiction. Id. Third, the prior
action must have terminated with a final judgment on the merits.
Id. Fourth, the same claim or cause of action must be involved in
both suits. Id.
III. BLUE STREAK'S CLAIM OF RES JUDICATA
Regarding the first requirement, Blue Streak argues that it
did not have to be a party (or in privity with a party) to the 1985
action. Instead, Blue Streak argues that only the party against
whom the plea of res judicata is asserted (in this case Gulf
Island) must be a party to the prior action. Contrary to Blue
Streak's assertion, both parties must be identical to or in privity
with the parties in the prior suit for res judicata to apply.
In support of the proposition that it did not have to be a
party to or in privity with a party to the prior action, Blue
Streak cites Blonder-Tongue Lab., Inc. v. University of Illinois
Foundation, 402 U.S. 313, 91 S. Ct. 1434, 28 L. Ed. 2d 788 (1971).
5
Blue Streak's reliance on Blonder-Tongue is misplaced. In Blonder-
Tongue, the Supreme Court "eliminated the requirement of mutuality
in applying collateral estoppel to bar relitigation of issues
decided earlier in federal-court suits." Allen v. McCurry, 449
U.S. 90, 94-95, 101 S. Ct. 411, 415, 66 L. Ed. 2d 308 (1980) (emphasis
added). As this Court has recognized, the doctrine of res
judicata, in its broadest sense, encompasses two distinct
preclusion concepts, claim preclusion (res judicata) and issue
preclusion (collateral estoppel). United States v. Shanbaum, 10
F.3d at 310. "Unfortunately, the terminology used in this area of
the law often breeds confusion." Id. Thus, although the Blonder-
Tongue opinion recites the term "res judicata," it apparently is
using it in its broad sense. As the Supreme Court stated in Allen
v. McCurry, supra, it was the mutuality requirement in the context
of collateral estoppel that was eliminated.
Recently, in Russell v. SunAmerica Securities, Inc., 962 F.2d
at 1172-76, this Court addressed the question whether res judicata
should have barred the suit against a defendant-appellee that had
not been a party to the prior suit. Addressing the identity of
parties requirement of res judicata, this Court explained that "[a]
non-party defendant can assert res judicata so long as it is in
"privity' with the named defendant." Id. at 1173. Blue Streak
thus cannot dispense with the requirement that "the parties must be
identical in the two suits." Id. at 1172.
Gulf Island argues that neither Blue Streak nor Underwriters
was ever a party to the prior 1985 suit. Gulf Island admits that
6
"Blue Streak/Gulf Island" was named in the Hope action that was
later consolidated with Gulf Island's 1985 action. However, it is
undisputed that Blue Streak/Gulf Island was neither served nor
appeared in the 1985 suit. This Court has explained "that
"parties' for purposes of res judicata does not mean formal, paper
parties only, but also includes parties in interest, that is, that
persons whose interests are properly placed before the court by
someone with standing to represent them are bound by the matters
determined in the proceeding." Latham v. Wells Fargo Bank, N.A.,
896 F.2d 979, 983 (5th Cir.1990) (emphasis in original) (internal
quotation marks and citations omitted). Therefore, assuming
arguendo that Blue Streak is in privity with the named but unserved
defendant (Blue Streak/Gulf Island) in the prior 1985 suit, because
that entity never was properly before the court in the prior suit,
the identity of parties requirement has not been satisfied.
Alternatively, Blue Streak argues that it was in privity with
Wausau, the insurer that Gulf Island sued in the 1985 suit. "A
non-party ... is adequately represented where a party in the prior
suit is so closely aligned to her interests as to be her virtual
representative. [citations omitted] This requires more than a
showing of parallel interests—it is not enough that the non-party
may be interested in the same questions or proving the same facts."
Eubanks v. F.D.I.C., 977 F.2d 166, 170 (5th Cir.1992) (citation
omitted). Gulf Island sued Wausau in the 1985 action not as a
third party complaining of the negligence of Blue Streak, but
rather as a named insured under its Wausau policy. Although
7
Wausau's interest in certain respects may have been parallel to
Blue Streak's in the prior suit, Wausau was not standing in the
shoes of Blue Streak, and its interests were not aligned with those
of Blue Streak as they conceivably would be in a third-party
action.5 Rather, Wausau was protecting itself in a hull and
machinery insurance policy coverage dispute with one of its own
insureds. Consequently, the district court erred in finding that
Blue Streak satisfied the identity of parties requirement of res
judicata. Because Blue Streak does not meet the first requirement
of res judicata, it is unnecessary to review the arguments
presented by the parties as to the other requirements of res
judicata.
IV. UNDERWRITERS' CLAIM OF RES JUDICATA
Finally, it must be determined whether Gulf Island's claims
against Underwriters were barred by res judicata. Underwriters
concedes that it was not a named party defendant to the prior 1985
suit. Nevertheless, Underwriters argues that it is entitled to
assert the defense of res judicata because Blue Streak is its
insured, and thus, it stands in the shoes of Blue Streak.6
Underwriters correctly states the proposition that "the direct
action insurer stands as a party-litigant in exactly the same shoes
as the assured." Ex parte Tokio Marine & Fire Ins. Co., 322 F.2d
5
In the court below Blue Streak filed a cross-claim against
Wausau, indicating the parties' interests were not identical.
6
Both Underwriters and the court below have expressly
recognized that Underwriters' liability is predicated solely on
the liability of its assured, Blue Streak.
8
113, 116 (5th Cir.1963); Federal Deposit Ins. Corp. v. Mmahat, 960
F.2d 1325, 1330 n. 10 (5th Cir.1992). However, this argument
offers Underwriters no succor in that this Court has determined
that Blue Streak was not entitled to summary judgment on the basis
of res judicata. Because res judicata does not bar the suit
against Blue Streak, it does not bar the suit against its insurer,
Underwriters. Thus, Underwriters' assertion of res judicata must
also fail.
V. CONCLUSION
For the reasons set forth above, we REVERSE the district
court's summary judgment and REMAND the case for further
proceedings.
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