Court Opinion

ID: 2793873
Source: CourtListenerOpinion
Date Created: 2015-04-15 15:01:15.173094+00
Date Added: 2024-06-11T11:14:37.498261
License: Public Domain

Case: 14-12219       Date Filed: 04/15/2015      Page: 1 of 15

                                                                     [DO NOT PUBLISH]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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