### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE September 7, 2001 S ession YONA BOYD, ET AL 

### . v. DONALD BRUCE, M.D., ET AL 

### . Appeal from the Circuit Court for Davidson County No. 00C2059 Thomas W. Brothers, Judge

No. M2000-03211-COA-R3-CV - Filed November 2, 2001

This appeal arises from the third effort of the plaintiffs to obtain compensat ion and oth er employment

benefits from their former e mployer. The same claims were first filed in Chancery Courtagainst the doctor

and his management company, and the complaint was dismissed for failure to state a claim upon which relief can be granted and failure to join an indispensable party. Thereafter, the plaintiffs filed suit in Chancery Court against the company which s uppli ed the e mployee handbook and other services to the doctor. That case was dismissed on a motion for summary judgment. The plaintiffs then again filed suit against the doc

tor-employer in Ci

rcuit Court. The Circ uit Cour t dismissed the case by converting the doctor-employer’s motion for Rule 11 sanctions into a m otion to dismiss on the basis of res judicata . The plaintiffs now appeal that dismissal to this cour

t. We affirm the t

rial court’s dismis sal. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Affirmed and Remanded
P ATRICIA J. C OTTRELL , J. , delivered the opinion of the court, in which WILLIAM B. C AIN , J., and F RANK G. C LEMENT , J R ., S P
. J., joined. David E. Danner, Nashville, Tennessee, for the appellants, Yona Boyd and Brenda Collier.
T homas L. Whiteside, Nashville, Tennessee, for the appellees, Donald Bruce, M.D. and D& C Property Mgmt. Corporation.
OPINION
Because this case is brought before us on the issue of res judicata , the procedural history of this and related cases is relevant and, therefore, outlined below.
Yona Boy d and Brenda Collier (“Appellants”) filed suit against Donald Bruce, M.D. (“Bruce”) and D&C Property Mgmt., Corp. (“D&C”) (or collectively “Appellees”) on August 19, 1999, in the Chancery

Court for Davidson

County se eking compensation based on an alleged1 The un derlying facts of this ca se are not re levant to th is appeal.
2 The com plaint alleged that D& C was ow ned by D r. Bruce and tha t D&C w as the employ er of Appellan ts. -2- employer-employee

relationship. 1 In their complaint, Appellants relied on an employee handbook written by Prime Focus, Inc. (“Prime Focus” ), an Illinois

corporation that

administered Appe

llees’ pay roll and provided employee policies to Appellees, including the handbook outlining the right s and duties of employees. That case, Yona Boyd and Bre nda Col lie r v. Don ald Bru ce, M.D ., D &C Property Mgmt. Corp. , case no. 99-2350-II, will be referre d to as Case 1. On December 8, 1999, the Chancery Court ruled in Case 1 that

the Prime Focus employee handbook “unequivocally

establish[es] the exist

ence of an emplo

yer-emplo

yee relat ionship by and betweenthe [Appellants] and Prime Focus, I

nc.” and that “no employer- employee r

elationship existed betweenthe [Appellants] and [Bruce] and [D&C].” Further, thecourt found that Bruce and D&C 2 were clients

of Prime Focu s an d, c ons equ ent ly, P rim e Foc us w as an ind isp ens abl e par ty. Therefore, Case 1 was dismisse d by the cour

t for failure to jo

in an indispensable

party, Prime

Focus, and for failure to state a claim upon which relief can be granted. Appellants

did not appeal the Chancery Court’s decision,butinstead, after that dismissal was final, filed suit again

st Prime Focus in Cha

ncery Cour

t. That case, Yona Boyd and Brenda Collier v. Prime Focus, Inc. , case no. 99-3716-II, will be referre d to as Case 2.
After filing suit against Prime Focus in Case 2, Appellants filed a Motion to Set Aside the Judgmentunder Tenn. R. Ci v. P. 60.02 in Case 1 and to Consolidate Case 1 and Case 2. The Chance r y Court denied this Motion because “the [Appellants] did not file a notice of appeal from the Court Order [in Case

1] which [Appellant] no

w seeks to set aside.” Further, the Court found that since Appellants “failed

to take the necessary legal steps to protect their own interest in this matter they are precluded from relief under Tenn. R. Civ. P. 60.02. ” Appellants did not appeal this second order in Case 1.
In their suit again

st Prime Focus, Cas

e 2, Appellants

attempted to

amend their compl

aint to add Bruce and D&C. In granting a motion for Rule 11 sanc tions, the trial court struck the amended complaint which, in the words of the court, “asserted previously l

itigated claims. ” Further, in Cas e 2 Prime Focus filed

a Mo tion for S ummary Judgment based on the fact that Prime Focus was not Appellants’ employer. The Chancer y Court granted

Prime Focus’s moti

on and found that A

ppellants were not employed by Prime Focus. The cour t found that Prime Focus was an employee leasing firm, primarily for purposes of consolidating employ ees of small businesses fo

r purchasing he

alth insurance, and that “Prime Focus exercise[d] no control over the hiring, firing or compensation procedures or policies of its small business customers [such as Appellees].” Based upon theloaned servant doctrine, the court determined that Appellants “must be dealt with as the servants of the one to whom they were lent , Bru ce/D&C.” The Appellants appealed this decision; argument on that appeal was heard on July 10, 2001.-3-

On October 20, 2000,

Appellants

then filed a Motion to Amend Order in Case 1, the second motion they

filed pursuant to T

enn. R. Civ. P. 60.02 in Case1. In that motion Appellants requested that the court delete thephrase “failur e to state a claim u

pon which relief

can be grante

d” because it was a “conclusor

y misnomer.”

Appellants arg

ued that the delet

ion of this phrase would no longer make the order an adjudication on the merits. This motion was denied on January 8, 2001, an d Appellants filed a notice that stated that they “hereby a ppeal . . . the order . . . denying the motion to amend the court’s prior order of December 8, 1999, announced in ope n court on November 3, 2000.” That appe

al is set to be hear

d on a later docke

t of this court.
Prior to filing the motion to amend the order in Case 1 in

Chancery Court, Appellants filed suit against Bruce

and D&C in

Circuit Court for

Davidson County, in Case 3. In this most recent suit, Appellants claimed that they were third-party

beneficiaries

of the contract b

etween Prime

Focus and Bruce and D&C and that Appellees are liable under a loaned servant doctrine. Appellants filed a Motion for Summary Judgment. In response, Appellees filed, among other things, a Motion for Sanctions pursuant to Tenn. R. Civ. P. 11.
The Circuit Co urt, aft er hearing arguments of counsel entered a final order finding that Appellees’ “Motion for

Rule 11 Sanctions [was] in essence a Motion to Dismiss . . . predicated on the ground that the plaintiffs’ current action is barred by the doctrine of res judic

ata .” The Court found that Appellants’ c

ase should be invol

u nt arily dismiss

ed on the basis that res judicata bars Appellants’ action. Appellants appealed from this dismissal of Case 3, and that is the subject of the case before us

. The complaint in Case 3 r ecited the history

of the earlier li

tigation in

this dispute; attached to the complaint were the complaints which had been filed in Cases 1 and 2 as well as theChancery Court’s final orde

rs. The complaint (

in Case 3) states:
A court of competent jurisdiction has ruled that (A) no employ er
employee relationsh

ip existed between the parties in the instant action [citing the attached

final order in Case 1], (B) the employer-employee relationship

ex i sted between Plaintiffs and Prime Focus [citing the attached final order in Case 2], (C) Prime Foc us is not liable to Plaint iffs be cause the loane d servant doctrin

e made the Defe

ndants in the instantcause liable to c ompensate

Plaintiffs. Thus, a court of competent

jurisdiction has ruled that the Defendants in the instant case are liable to compensat e Plaintiffs although no employeremployee relationship existed between them [quoting and citing the final order in Case 2]. Appellants

filed a Motion for Summary J

udgment, and Appellees responded with a Motion for Rule 11 Sanctions, attaching the letter sent to Appellants’ counsel in accordance with Tenn. R. Civ. P. 11.03(1)(a), giving counsel twenty-one days to withdraw th e complaint in Case

3. The basis for the sanctions

motion was that the c

omplaint in Case

3 included no factual basis which had not3 In a prior hol ding this court st ated:

The rule [of res judicata ] require s that t he whole subjec

t of the l itigat ion be brought f

orward by the parties, and the judgment concludes all matt ers, whether

of action o r defense , legally pertaining to t hat subject whi

ch, by the exe

rcise of reasonable

diligenc e, might have be

en brought forwar

d.

McKin ney v. W idner, 746 S.W.2d 69 9, 705 (Tenn. Ct. App. 198 7). -4- b een raised in Case 1 for liability of Bruce and D&C as employers. These mat ters having bee n previously

litigated, Appelle

es asserted Appe

llants’ claims in

Case 3 werebarred by the doctrine of res judicata

. In response to the Rul

e 11 m otion, Appellants asserted that such sanctions were not warranted because theorder in Case 1 wa s not a final adjudi

cation on the meri

ts, but also

asserted that the order in Case

2 was res judicata

on the issu e of which parties were the employers of Appellants

. The response also asserted the

Rule 11 motion was fi

led in an attempt to o

btain dismissal prior to de

termination of App

ellants’ pending M

otion for Summary Ju

dgment.
The trial court determined that, contrary to Appe llants’ assertions, Case 1 had been dismissed for failure to state a

claim upon which r

elief can be gra

nted as well as fa

ilure to join an indis

pensable party; it was bound by the Chancery Court order explic itly stating Case 1 was dismissed for failure to state a claim; that the dismissal of Case 1 was with prejudice; and that Appellants’ claims were barred by the doctrine of res judicata since Appellants had “previously litigated this matter.”
Res judicata

is a claim preclusion doctrine that promotes finality in litigation. Lien v. Couch , 993 S.W.2d 53, 55 (Tenn. Ct. App. 1998). The doctrine bar s a second suit

between the same parties on the same caus e of action as to all issues which were or could have been litigated in the former suit. Richardson v. Tenn

essee Bd. of Denti

stry , 913 S.W.2d 446, 459 (Tenn. 1995); Massengill v. Scott , 738 S.W.2d 629, 631 (Tenn. 1987).
The principle

of claim p reclusion preve nts parties from sp

litting their cause

of action; it requires parties to raise i n a single lawsuit a

ll the grounds for r

ecovery arising

from a single transaction. 3 Lien , 993 S.W.2d at 56. Consequently, the doctrine of res judicata bars the litigation notonly of those matte

rs actually dete

rmined in the prior

action, but also

those that reasonably coul

d have been litigated in the prior action. Brown v. Brown , 29 S.W.3d 491, 495 (Tenn. Ct. App. 2000).
It has long bee n the rule in this sta te that not only issue

s which were ac

tually determined, but all

claims and issues which are relevant and whi

ch could reasona

bly have been litigated in a prior action, are foreclosed by the judgment therein.
American Nat’l Bank and Trust v . Clark , 586 S.W.2d 825, 826 (Tenn. 1979). Where all “claims and the ories” asserted in the later litigation had accrued and were available for litigation in the prio r action, res judicata

applies. Id . at 827. Thus, the f ormer judgment is c

onclusive “not only

as to4 The complaint al leged the pr

ocedural hi story of t

he liti gation over t

his disput

e, but no fur

the r dea lings between the parties. -5- matters actually put at issue, but equally to those which by d ue dilig ence of the litigant . . . might have been put in issue and determined.” Brown , 29 S.W.3d at 496 (quoting Hayes v. Civil S erv . Comm’n. of Metro. Gov’t , 907 S.W.2d 826, 828 (Tenn. Ct. App. 199

5)). A prior judgme

nt does not, however, operate to prohibit the later consideration of rights that had not accrued at the time of the earlier proceeding or the re-examination of the same que stio n between the same parties when the facts have changed or

new facts have o

ccurred that ha

ve altered the pa

rties’ legal righ

ts and relations. Lien , 993 S.W.2d at 56; White v. White , 876 S.W.2d 837, 839-40 (Tenn. 1994).
The party asserting the defense must demonstrate: (1) that the underlying judgment was rendered by a court of comp

etent jurisdiction ; (2) that the same parties were inv

olved in both suits; (3) that the same cause of action wa s involved in both suits; and (4) that the underlying judgment was final andon the merits. Lien , 993 S.W.2d at 56; Collins v. Greene Co. Bank , 916 S.W.2d 941, 945 (Tenn. Ct. App. 1995).
The prior case upon which the claim of res judicata rests herein is the original action brought by Appellants in Chancery Court against the same defendants, Case 1. The Chancery Court was a court of competent jurisdiction. Chan cery Court had jurisdiction over the parties, and the parties were clearly the same.
Bothlawsuits involve Appellants’ atte mpts to collect addition

al compensation on

the basis of terms of employment they allege were set out in the employee handbook. Both lawsuits involve the same dates of employment. App ellant s’ employment was t erminated in 1999,

prior to their bringing Case 1; no new facts occurringsince that time hav e been alleged in

the complaint in

Case 3. 4 We conclude both Case 1 and Case 3 involve the same cause of action. Appellants argue that facts revealed

in subsequent lawsuits regarding who was the real employer and the decisions of the court thereon have changed the cause of action. We disagree. A chang e in Appellants’ theory of liability does not create a new cause of action. Tennessee law is clear that res judicata bars the litigation of all issues that could have been

litigated and all f

acts pertaining to

those issues that c

ould have been brought for

ward. “The fac

t that [plaintiff] has identified an other argument to

support his constitutional challenge does not alter the fact that the issue

was resolved in th

e first . . . proceeding.” Richardson , 913 S.W.2d at 461.
The final requirement for application of the doctrine of res judic ata i s that the underlying judgmentmust have been a final adjudication on the merits. Roy v. Diamond , 16 S.W.3d 783, 787 (Tenn. Ct. App. 1999). It must have been final and must have concluded t

he rights of the pa

rty against whom the res judicata

defense is asserted. Richardson , 913 S.W.2d at 459. In Tennessee, a judgment is final “when it decides and disposes of the whole merits of the case leaving nothing for the further judgment of the court.” Richardson , 913 S.W.2d at 460 (quo ting Saunders v. Metropolitan Gov’t of Nashville & Davidson County , 214 Tenn. 703, 383 S.W.2d 28, 31 (1964)).5 Although “where the former suit is still pendin g, a judgm ent rende red therein is not res judicat a,” McBurney
v. Aldrich , 816 S.W.2d 30, 34 (Tenn. Ct . App. 1991), a nd the ap peal of the denial of th e second Rule 60 .02 mo tion is still pending b efore this court, the cou rt’s final order in Case 1 is st ill f inal for purposes of res judicata . Tenn. R. Ci v. P. 60.02 states:

A motion und er this Rul e 60.02 does not

affect t he finali ty of a judgment

or suspend i

ts operat ion, but the court may enter an order suspending the operation of t he judgment upon such terms as to bond and no tice as to it shall see m pro per pen ding the h earing of such m otion.

Tenn. R. Civ. P. 60.02. -6- While denial of a motion to dismiss does not constitute a final judgment, id ., the grant of such a motion is a final judgment. The Chancery Court’s judgment in Case 1 entered on December 8, 1999, was a final adjudication, and that judgment was not appealed. 5
Whether a dismissal is a judgment which invokes the doctrine of res judicata depends upon whether the dismissal was made on the merits. Lewis v. Muchmore , 26 S.W.3d 632, 637 (Tenn. Ct. App. 2000); Hart v. Tourte , 10 S.W.3d 263, 267 (Tenn. Ct. App. 1999). In Tourte , t his court determinedthat dismissal of a p rior proceeding

because plaintif

f failed to atta

ch a properly authenticated

foreign judgment

to his petition for registration was dismissal on a non-merits ground and, therefore, res judicata did not preclude the second lawsuit. Tourte , 10 S.W.3d at 267. Similarly, in Muchmore , this cou rt determined that the record prevented us from determining whether the fi rst li tigation had been d ismissed because

of a procedura

l defect or on the

merits. Muchmore , 26 S.W.3d at

637. Because

the party asserting res judicata as a defense bears the burden to substantiate it, we held the later lawsuit was not barred. Id. Thus, dismissal for procedural defects is not a determination on the merits

so as to support a claim of res judicata . Where, however, a complaint has be en dismissed for fa

ilure to state a cl

aim
u pon which r elief can be gra nted, such a dismiss

al is considered a

n adjudication on th

e merits. Rampy v. ICI Acrylics, Inc ., 898 S.W.2d 196, 198 (Ten n. Ct . App. 1994); Rainey Brothers Construction Company, Inc. v. Memphis & Shelby County Bd. of Adjustment , 967 F.Supp. 998, 1003 (W.D. Tenn. 1997). This holding has tw o bases. First,
A rule 12.02(6) moti

on to dismiss, lik

e the demurrer under earlier Tennessee law, tests the l egal sufficiency of the party’s pleading. See Cornpropst v. Sloan , 528 S.W.2d 188, 190 (Tenn. 1975). In a case p redating R ule 12.02(6), the Tennessee Supreme Court held that the sustaining of a demurrer has the effect

of a decision on th e merits regardle

ss of whether the

factual allega

tions are suffici

ent to support a cause of action. Isham v. City of Harriman , 223 Tenn. 461, 447 S.W.2d 364 (1969). Dyer v. Itnera Corp. , 870 F.2d 1063, 1066 (6th Cir. 1989). Th e D yer court also found that Tenn. R. Civ. P. 12.02(6) is ba sed upon Fed. R. Civ. P. 12(b)(6) and that in federal courts a dismissal pursuant to that ru

le is considered “

a decision on the me

rits with full res judicata

effect.” Id.6 To the extent that Appell

ants’ re al complaint

is that the Chancery Court

inc orre ctly deci

ded Case 1, t

he correctness or i

ncorrectness of t

he former adjudicat

ion is not

before thi s court i

n this appe al. The prope r method for challengi

ng the correctness of that judg ment w as an app eal from it. Madyu n v. Ballard , 783 S.W.2d 946, 948 ( Tenn. Ct. App. 1989).

7 Appellees responded to Appellants’ s tatement of material

facts, and filed an unsigned affi davit of Dr. Bruce. -7- Since 1989, when the Dyer case was decided, Tennessee courts have reaffirmed that the purpose of a Rule 12.02(6) motion is to test the legal sufficiency of the complaint or petition. 421 Corp. v. Metropolitan Go v’t of Nashville

and Davidson Co. , 36 S.W.3d 469, 479 (Tenn. Ct. App. 2000); Harvey v. Ford Motor Credit Co. , 8 S.W.3d 273, 276 (Tenn. Ct. App. 1999); Rampy v. ICI Acrylic s, Inc ., 898 S.W.2d 196, 19 8 (Tenn. Ct. App. 19 94); Dobbs v. Guenther , 846 S.W.2d 270 , 273 (Tenn. Ct. App. 199

2). Therefore

, as a Rule 12.02(6

) motion tests

the legal sufficiency of

the complaint, a dismissal under that rule is an adjudication on the merits.
The second basis for the conclusion that a Tenn. R. Civ. P. 12.02(6) dismissal is a dismissal on the merits is foun

d in Rule 41.02(3) of

the Tennessee Ru

les of Civil Procedu

re, which states:
Unless the court in its order for dismissal otherwise

specifies, a dismi

ssal under this subdivision and any dismissal not provide d for in this Rule 41, other than a dismissal for lack of jurisdiction or for improper venue or for lack

of an indispensable party, operates as an a

djudication on the m

erits.
Because dismissal for failu

re to state a cla

im is not one of the excep tions listed, the pla

in language of this rule requires a conclusion that such a dismissal is an adjudication on the merits. The trial court in Case 1 did not specify that its decision was not to act as a final adjudication. Therefore, we hold that t

he dismi ssal of Appellants’ first case, Case 1, on the Rule 12.02(6) motion was an adjudication on the

merits. 6 Accordingly, we affirm

the trial court’s

dismissal of this law

suit because Appe

llants’ claims were barred by the doctrine of res judicata

. Appellants

also argue that the trial court should have granted their Motion for Summary Judgmentbecause Appellees did not respond to t he motion b y filing af

fidavits setting f

orth facts showing a genuine issue of fact. 7 However, this argument ignores one of the basic requirements for the grant of summ

ary judgme

nt: the filings must

show there is no genuine issue as to any material fact and the moving party must be entitled to

judgment as a matter

of law. Tenn. R. Civ. P. 56.04; Bain v. Wells , 936 S.W.2d 618, 622 (T enn. 1997); C

arve ll v. Bottoms , 900 S.W.2d 23, 26 (Tenn. 1995); Byrd v. Hall, 847 S.W.2d 208, 214 (T enn. 1993). Thus, s

ummary judg

me nt s hould be granted only when the

undisputed facts r

easonably support one concl

usion, namely

that the moving par ty is entitled to a judgment as a matter of law. McCall v. Wilder , 913 S.W.2d 150, 153 (Tenn. 1995).8 The motion for san ctions was based upon the prio r litigation between the p arties. In addition to sanction s,

the moti on requested tha

t Appell ants be preclu ded from as serti

ng a clai m against

Dr. Bruce

and D&C. -8- Obv iou sly, a party whose complaint fails to stat e a claim for relief is not entitled to a judgment as a matter of law. Ap pellants wer e properly denied summary

judgment becau

se their law sui t wa s pr ecl ude d by res judicata

. Appellants

also argue that the trial court improperly converted Appellees’ Rule 11 Motion for Sanctions as a Motio

n to Dismiss. 8 A trial court nee d not wait for a pa

rty to file a motion to dismiss under Rule 12.02( 6), for it possesses the authority to dismiss the petition sua sponte if the pleading fails to state a claim on which relief can be granted. Huckeby v. Spangler , 521 S.W.2d 568, 571 (Tenn. 1975); see also Lackey v. Carson , 886 S.W.2d 232, 232 (Tenn. Ct. App. 1994).
Defenses of failure to stat e a claim and the l

ack of jurisdictio

n of the court a

re not waivedby

filing an answe

r to the complaint. T

enn. R. Civ. Proc. 12.08. They may be raised at any

time even at a tria

l on the merits, id ., and the court ha s the authority to dismiss the complaint sua sponte.
Cockrill v. Everett, 958 S.W.2d 13 3, 135 (Tenn . Ct. App. 1 997) (citi ng Huckeby v. Spangler , 521 S.W.2d at 511).
We find that the trial

court appropria

tely used its authority to

dismiss Appellants’ case. The court’s action was in response to the motion for sanctions and was based uponthe history of prior litigation between the par ties as set out in the

complaint as well a

s in the motion for sa

nctions. Appellants

were certainly aware of the issues and argued in the co mpla int the reasons why res judicata did not preclude th

is lawsuit.
The judgme nt of t he trial court is affirmed. This cause is remanded to Circuit Court of Davidson County for any nec essary further

proceedings con

sistent with this opini

o n. Costs on appeal are taxe

d to Appellants.

___________________________________ PATRICIA J. COTTRELL, JUDGE