Court Opinion

ID: 9891380
Source: CourtListenerOpinion
Date Created: 2023-10-18 15:01:29.121419+00
Date Added: 2024-06-11T13:47:20.265253
License: Public Domain

USCA11 Case: 22-12264     Document: 57-1       Date Filed: 10/18/2023   Page: 1 of 13

                                                      [DO NOT PUBLISH]
                                      In the
                 United States Court of Appeals
                          For the Eleventh Circuit

                            ____________________

                                   No. 22-12264
                            Non-Argument Calendar
                            ____________________

        CAMILO K. SALAS, III,
        as Trustee of the Salas Children Trust,
                                                         Plaintiﬀ-Appellant,
        versus
        COMMONWEALTH LAND TITLE INSURANCE COMPANY,

                                                       Defendant-Appellee.

                            ____________________

                  Appeal from the United States District Court
                      for the Northern District of Florida
                   D.C. Docket No. 3:21-cv-00890-MCR-HTC
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        2                       Opinion of the Court                   22-12264

                              ____________________

        Before WILLIAM PRYOR, Chief Judge, ABUDU, Circuit Judge, and
        BARBER,* District Judge.
        PER CURIAM:
               Plaintiﬀ-Appellant Camilo K. Salas, III, as Trustee (the “Trus-
        tee”) of the Salas Children Trust (the “Trust”), appeals the grant of
        summary judgment in favor of Defendant-Appellee, Common-
        wealth Land Title Insurance Company (“Commonwealth”), in a
        declaratory judgment action arising out of a title insurance policy
        the Trust purchased from Commonwealth.
               For the reasons set forth herein, we aﬃrm the judgment of
        the district court.
               I.     FACTUAL BACKGROUND & PROCEDURAL
                                  HISTORY
               In 2009, the Trust purchased property in Alys Beach, Florida
        (the “Lot”) from a developer, Ebsco Gulf Coast Development, Inc.
        (“Ebsco”). The Trustee—on behalf of the Trust—and Ebsco en-
        tered into a Purchase and Sales Agreement (the “Purchase Agree-
        ment”) for the Lot. The Purchase Agreement contained a clause
        that required the Trust to build on the Lot within two years of pur-
        chase. If the Trust failed to build on the Lot within the mandatory
        two-year period, the Purchase Agreement provided Ebsco a

        * Honorable Thomas P. Barber, United States District Judge for the Middle
        District of Florida, sitting by designation.
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        22-12264               Opinion of the Court                        3

        repurchase option and the ability to recover fines and monthly liq-
        uidated damages.
               After closing on the Lot, Commonwealth issued a Florida
        Owner’s Title Policy (the “Policy”) to the Trust, providing insur-
        ance coverage for the Trust’s title to the Lot. The Policy contained
        a standard exclusion provision (“Standard Exclusion 3(a)”) that ex-
        cluded from coverage “[d]efects, liens, encumbrances, adverse
        claims or other matters . . . created, suffered, assumed or agreed to
        by the insured claimant.” The Policy also exempted from coverage
        any losses or damages related to the Declaration of Covenants,
        Conditions and Restrictions for the Neighborhood of Alys Beach
        (the “Declaration of Covenants”) and the Warranty Deed, both of
        which were documents specifically identified in Schedule B of the
        Policy. The Declaration of Covenants and the Warranty Deed con-
        tained the same two-year construction requirement and repur-
        chase option as the Purchase Agreement, but they did not contain
        a liquidated damages provision. Commonwealth knew of the Pur-
        chase Agreement when it issued the Policy to the Trust. The Pur-
        chase Agreement, however, was not identified as an exception to
        coverage in Schedule B.
              The Trust failed to build on the lot within the mandatory
        two-year period, and Ebsco sued the Trustee for breach of the Pur-
        chase Agreement, the Declaration of Covenants, and the Warranty
        Deed (“the Ebsco Lawsuit”). After almost three years of litigation,
        Ebsco and the Trustee settled. The Trustee, however, incurred
        nearly a million dollars of fees and costs in defending the Ebsco
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        4                      Opinion of the Court                 22-12264

        Lawsuit. During the Ebsco Lawsuit, the Trustee sought defense
        and indemnification from Commonwealth pursuant to the Policy.
        Commonwealth denied coverage.
                To enforce coverage pursuant to the Policy, the Trustee in-
        itially filed suit against Commonwealth in Louisiana state court,
        but Commonwealth removed the action to federal court, and that
        federal court transferred the action to the Northern District of Flor-
        ida. The Trustee then filed an amended complaint. In lieu of an
        answer, Commonwealth filed a motion to dismiss the amended
        complaint. On February 15, 2022, the Trustee filed a 64-page mo-
        tion for summary judgment that included 29 exhibits. The follow-
        ing day, Commonwealth filed an omnibus motion. In that motion,
        Commonwealth moved to stay the action and reset the scheduling
        order or, alternatively, supplement its motion to dismiss which the
        district court could then construe as a motion for summary judg-
        ment. Commonwealth sought to supplement its motion to dismiss
        with the Trustee’s deposition transcript as an exhibit. During his
        deposition, the Trustee testified that he read the Purchase Agree-
        ment and, at the time that he signed it, he understood that he com-
        mitted the Trust to the terms of the Purchase Agreement, includ-
        ing the liquidated damages clause.
               Commonwealth also filed a response in opposition to the
        Trustee’s motion for summary judgment and included the Trus-
        tee’s deposition transcript as an exhibit to its response. On March
        2, 2022, the Trustee filed a response opposing Commonwealth’s
        motion to supplement and provided two exhibits in support of its
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        22-12264                 Opinion of the Court                           5

        position. Additionally, the Trustee filed a reply in support of its
        motion for summary judgment and failed to make any arguments
        relating to the deposition transcript.
               Over a month later, on April 5, 2022, the magistrate judge
        granted Commonwealth’s request to supplement the motion to
        dismiss with the Trustee’s deposition transcript as an exhibit. That
        same day, the magistrate judge issued a report and recommenda-
        tion (“R&R”), recommending that the district court treat Com-
        monwealth’s motion to dismiss as a motion for summary judg-
        ment, grant Commonwealth’s motion for summary judgment, and
        deny the Trustee’s motion for summary judgment. The magistrate
        judge also recommended that Florida law applied; Standard Exclu-
        sion 3(a) barred coverage; and no abstractor liability applied.
               On April 19, 2022, the Trustee filed an objection to the R&R,
        arguing that the district court should reject the magistrate judge’s
        recommendation to convert Commonwealth’s motion to dismiss
        into a motion for summary judgment without providing proper
        notice. On June 9, 2022, the district court adopted the R&R in its
        entirety and entered judgment in favor of Commonwealth the next
        day.
                           II.     STANDARD OF REVIEW
               We review a district court’s adoption of a magistrate judge’s
        R&R for abuse of discretion, Stephens v. Tolbert, 471 F.3d 1173, 1175
        (11th Cir. 2006), but we review a grant of summary judgment de
        novo, St. Charles Foods, Inc. v. Am.’s Favorite Chicken Co., 198 F.3d 815,
        819 (11th Cir. 1999). Summary judgment is appropriate when the
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        6                      Opinion of the Court                  22-12264

        evidence, viewed in the light most favorable to the nonmoving
        party, presents no genuine issue of material fact and compels judg-
        ment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp. v.
        Catrett, 477 U.S. 317, 322–23 (1986).
                                 III.    DISCUSSION
               The Trustee presents four arguments on appeal: (1) the dis-
        trict court erred when it converted Commonwealth’s motion to
        dismiss into a motion for summary judgment because it did so
        without providing fair notice; (2) the district court erred in conclud-
        ing that the Policy’s Standard Exclusion 3(a) precluded coverage;
        (3) by failing to list the Purchase Agreement in Schedule B, Com-
        monwealth demonstrated that it was aware of the liquidated dam-
        ages clause and agreed to insure over that risk; and (4) the district
        court improperly analyzed the abstractor liability claim.
                               A. 12(b)(6) Motion Conversion
                Federal Rule of Civil Procedure 12(d) requires a district
        court to convert a Rule 12(b)(6) motion to dismiss into one for sum-
        mary judgment under Rule 56 when matters outside the pleadings
        are presented to and not excluded by the court. A court has discre-
        tion to consider matters outside the pleadings. Prop. Mgmt. & Invs.,
        Inc. v. Lewis, 752 F.2d 599, 604 (11th Cir. 1985). However, once a
        court decides to consider such matters, “it must convert the motion
        to dismiss into one for summary judgment.” Id. (citing Carter v.
        Stanton, 405 U.S. 669, 671 (1972)).
              Whenever a court converts a 12(b)(6) motion to dismiss into
        one for summary judgment, it must give the parties 10 days’ notice
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        22-12264              Opinion of the Court                        7

        to allow them to supplement the record. Trustmark Ins. Co. v.
        ESLU, Inc., 299 F.3d 1265, 1267 (11th Cir. 2002). We acknowledge
        a limited exception to the notice requirement in unique circum-
        stances where “all of the parties were well aware that the judge was
        converting th[e] 12(b)(6) motion and . . . 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 enti-
        tled.” Prop. Mgmt. & Invs., 752 F.2d at 605.
               Here, the district court erred in failing to provide the 10
        days’ notice. Nevertheless, such error does not require us to re-
        verse and remand because the limited exception presented in Prop-
        erty Management applies. Commonwealth sought to supplement
        the motion to dismiss after the Trustee had presented all the argu-
        ments it sought to present in a 64-page motion for summary judg-
        ment and had submitted 29 exhibits in support of its arguments.
               Further, Commonwealth sought to supplement the motion
        to dismiss with one document—the Trustee’s deposition tran-
        script. Significant, however, is the fact that Commonwealth also
        provided a copy of the Trustee’s deposition transcript—the very
        document with which it sought to supplement the motion to dis-
        miss—as an exhibit to its response in opposition to the Trustee’s
        motion for summary judgment. In the reply brief supporting the
        Trustee’s motion for summary judgment, the Trustee did not even
        address the deposition transcript let alone present any arguments
        as to why the Trustee’s statements should not be considered in
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        8                      Opinion of the Court                22-12264

        support of either Commonwealth’s motion to dismiss or converted
        motion for summary judgment.
                The Trustee had more than “a reasonable opportunity” to
        submit additional documents in support of its position and in op-
        position to Commonwealth’s converted motion for summary
        judgment. Fed. R. Civ. P. 12(d). Two months elapsed between the
        magistrate judge’s recommendation to convert Commonwealth’s
        motion to dismiss and the district court’s adoption of that recom-
        mendation. The record clearly shows that the Trustee actively par-
        ticipated in the motions practice, submitted over 40 documents in
        support of and opposition to the parties’ positions, was not prohib-
        ited from submitting additional documents prior to the deadline
        for responding to Commonwealth’s motion, and had ample oppor-
        tunities to challenge reliance on Commonwealth’s exhibits, includ-
        ing the Trustee’s admittedly damaging deposition testimony. After
        reviewing all the arguments and documents submitted by the par-
        ties and considering materials outside the pleadings, Rule 12(d)
        mandated that the district court convert the 12(b)(6) motion to dis-
        miss into a motion for summary judgment. Thus, this case repre-
        sents the very “unique” circumstance where the district court’s fail-
        ure to notify the parties before it converted the motion to dismiss
        into a motion for summary judgment was harmless. Therefore,
        we need not remand this case, but instead decide it on the merits
        at this time.
               As a preliminary matter, because the insurance contract was
        issued by an agent in Florida and the issues the parties ask us to
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        22-12264                Opinion of the Court                           9

        resolve are ones of contract construction, Florida law governs the
        interpretation of the Policy and its application here.
                Florida law construes insurance policy exclusions narrowly
        and resolves any ambiguity in the contract against the insurer and
        in favor of coverage for the insured. State Farm Fire & Cas. Co. v.
        Metro. Dade Cnty., 639 So. 2d 63, 65 (Fla. Dist. Ct. App. 1994).
        “[W]here the language of a policy is clear and unambiguous on its
        face, the policy must be given full effect.” Id. (quoting Am. Motorists
        Ins. Co. v. Farrey’s Wholesale Hardware Co., 507 So. 2d 642, 645 (Fla.
        Dist. Ct. App. 1987)).
                Generally, a title insurer cannot avoid liability for a defective
        condition not exempted from coverage. Laws. Title Ins. Corp. v.
        D.S.C. of Newark Enters., Inc., 544 So. 2d 1070, 1072 (Fla. Dist. Ct.
        App. 1989). Florida courts, however, “loathe to impose liability on
        a title insurer for a condition of which the insured had actual, ex-
        press knowledge.” Id. at 1073. Therefore, “conditions that are ex-
        pressly assumed by the insured” are exempted from coverage. Id.
        at 1072 (emphasis added).
                Florida law determines an insurer’s duty to defend “solely
        on the facts and legal theories alleged in the pleadings and claims
        against the insured.” Laws. Title Ins. Corp. v. JDC (Am.) Corp., 52
        F.3d 1575, 1580 (11th Cir. 1995) (citing Nat’l Union Fire Ins. Co. v.
        Lenox Liquors, Inc., 358 So. 2d 533, 536 (Fla. 1977)). The duty to
        defend is trigged “when the relevant pleadings allege facts that
        ‘fairly and potentially bring the suit within policy coverage.’” Ste-
        phens v. Mid-Continent Cas. Co., 749 F.3d 1318, 1323 (11th Cir. 2014)
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        10                     Opinion of the Court                  22-12264

        (quoting JDC (Am.) Corp., 52 F.3d at 1580).
                           B. The Policy’s Standard Exclusion 3(a)
               The Trustee argues that the district judge erred in conclud-
        ing that the Policy’s Standard Exclusion 3(a) precluded coverage for
        the liquidated damages and penalties that the Trust incurred.
                Standard Exclusion 3(a) bars coverage for “[d]efects, liens,
        encumbrances, adverse claims or other matters . . . created, suf-
        fered, assumed or agreed to by the insured claimant.” Here, the
        district court, in adopting the R&R, properly construed this provi-
        sion as precluding coverage if an insured failed to perform a con-
        tractual obligation that the insured “assumed or agreed to.” Dur-
        ing his deposition, the Trustee testified that, on behalf of the Trust,
        he reviewed the Purchase Agreement before signing it, and he was
        aware of the liquated damages clause that imposed penalties if the
        Trust failed to build on the Lot within the mandatory two-year pe-
        riod. By the Trustee’s admission, the Trust “assumed or agreed to”
        the terms of the Purchase Agreement. Any resultant harm, such as
        being subject to liquidated damages and penalties, that the Trust
        suffered was by its own doing.
                The plain language of Standard Exclusion 3(a) is clear and
        unambiguous, and it is susceptible to one reasonable interpreta-
        tion: it excludes coverage for the liquidated damages and penalties
        that the Trust incurred when it agreed to the terms of the Purchase
        Agreement and subsequently breached its contractual obligations.
        We reject any other interpretations. See Auto-Owners Ins. Co v. An-
        derson, 756 So. 2d 29, 33 (Fla. 2000) (stating that where “the policy
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        22-12264               Opinion of the Court                       11

        language is clear and unambiguous,” it “must be construed in ac-
        cordance with ‘the plain language of the polic[y] as bargained for
        by the parties.’” (alteration in original) (citation omitted)).
                                 C. Schedule B Exceptions
               The Trustee’s additional argument that Commonwealth’s
        failure to list the Purchase Agreement in Schedule B evinces that
        Commonwealth was aware of the liquidated damages clause and
        agreed to insure over that risk is unpersuasive. The record is clear
        that, when the Trust executed the Purchase Agreement, it had ac-
        tual knowledge that it would incur the penalty of paying monthly
        liquated damages to Ebsco if it failed to construct on the Lot within
        the mandatory two-year period. The Trustee has failed to present
        evidence that, despite the Trust’s assumption of the liquated dam-
        ages penalty, Commonwealth agreed to provide coverage for that
        risk. To adopt the Trustee’s position would contravene the pur-
        pose of title insurance, which is to protect real estate purchasers
        against title surprises and not to provide a windfall to purchasers
        who knowingly assume adverse conditions.
                The Trustee’s third argument is that even if Common-
        wealth had no duty to indemnify, it had a duty to defend the Trust
        in the Ebsco Litigation because the allegations set forth in the Eb-
        sco Litigation complaint brought that suit within the Policy’s cov-
        erage. Yet, the Trustee neglects to address how the Ebsco Litiga-
        tion fit within the scope of the Policy and thus gave rise to Com-
        monwealth’s duty to defend. As explained above, Ebsco sued the
        Trustee because of the Trust’s failure to construct on the Lot
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        12                     Opinion of the Court                 22-12264

        within the required two-year period—an express requirement of
        the Purchase Agreement. The Policy, however, does not provide
        coverage for the Trust’s breach of its contractual duties under the
        Purchase Agreement. Thus, because the Ebsco Litigation was con-
        ditioned solely upon the Trust’s breach of the Purchase Agree-
        ment, the Ebsco Litigation is not within the scope of the Policy’s
        coverage, and Commonwealth had no duty to defend.
                                D. Abstractor Liability Claim
                The Trustee’s fourth and final argument contends that the
        district court improperly analyzed its claim for abstractor liability.
        The Trustee argues that Commonwealth had a duty to investigate
        the title thoroughly and to inform the Trust that the Purchase
        Agreement imposed monthly liquidated damages and other penal-
        ties in the event of the Trust’s breach. In response, Common-
        wealth argues that the liquated damages clause in the Purchase
        Agreement is not a discoverable defect or an encumbrance to title
        that it had a duty to disclose.
                The parties dispute whether the liquated damages clause in
        the Purchase Agreement is an encumbrance or title defect. With-
        out deciding the issue of whether the liquated damages clause is a
        defect or an encumbrance to title, we conclude there is no abstrac-
        tor liability. As we have previously discussed, the Trust expressly
        “assumed or agreed to” the terms of the Purchase Agreement.
        Thus, the Trust was not “surprised” by the liquated damages
        clause, or any other penalties imposed against it when it breached
        its contractual duties under the Purchase Agreement.
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        22-12264            Opinion of the Court                   13

                             IV.   CONCLUSION
               Based on the foregoing, we AFFIRM the district court’s
        grant of summary judgment in favor of Commonwealth.