Court Opinion

ID: 6738
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:20:44+00
Date Added: 2024-06-11T13:28:37.303259
License: Public Domain

UNITED STATES COURT OF APPEALS
                        FOR THE FIFTH CIRCUIT

                          _____________________

                               No. 93-3731
                          _____________________

                       TRAVELERS INSURANCE COMPANY,

                                                     Plaintiff-Appellee,

                                    VERSUS

           ST. JUDE HOSPITAL OF KENNER, LOUISIANA, INC.,

                                                    Defendant-Appellant.

      ____________________________________________________

           Appeal from the United States District Court
               for the Eastern District of Louisiana

      _____________________________________________________
                        (October 25, 1994)

Before HIGGINBOTHAM, JONES, and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

     St. Jude Hospital of Kenner, Louisiana, Inc. (SJH), one of

several defendants in an earlier action by Travelers Insurance

Company   in   which    liability   was   imposed   against   the   limited

partnership for which SJH was the general partner, but not imposed

against SJH, challenges on res judicata grounds an adverse summary

judgment for its secondary liability, as general partner, for the

judgment against the partnership.            It asserts primarily that,

because it was a defendant in the first action, it was necessary

for Travelers to press the secondary liability claim then, or be

barred by res judicata from making it later.         We AFFIRM.
                                          I.

      In June 1990, Travelers filed a multi-count complaint (the

Partnership Litigation) against, inter alia, St. Jude Medical

Office Building Limited Partnership (Partnership) and SJH, its

general partner.        One of the counts sought judgment against the

Partnership on its promissory note to Travelers.                      That note was

secured by a mortgage on the property on which the Partnership's

St. Jude     Medical    Office    Building        (the    building)     stood.      The

hospital's (SJH's) property was adjacent to that of the building.

      The 12-count complaint concerned five distinct transactions:

1)   the   Partnership's       default    on     the   promissory     note;    2)   the

collateral assignment right of leases in the building to Travelers

as part of the security for the promissory note; 3) the threat by

various defendants to terminate water and sewerage service to the

building; 4) the removal of furniture, fixtures, and equipment from

the building; and 5) environmental damage to the property.                          The

claims against SJH arose only out of either its ownership of the

property     adjacent     to     the     building        (the   third    and     fifth

transactional areas), or its participation in the removal of

furniture, fixtures, and equipment from the building (the fourth

transactional area).           No reference was made to SJH's secondary

liability for any judgment rendered against the Partnership.

      In answer to the complaint, however, SJH and the limited

partners raised the secondary liability defense of discussion "in

                                         - 2 -
response to the claims asserted against them by [Travelers]."1

But, SJH failed otherwise to pursue the issue.2

     The jury trial resulted in a judgment against the Partnership.

Travelers did not prevail on any of its claims against SJH.

     When efforts to collect the judgment from the Partnership

failed, Travelers filed this action against SJH, the Partnership's

general partner, in order to do so (the SJH Litigation).3       Both

1
     Discussion is "the right of a secondary obligor to compel the
creditor to enforce the obligation against the property of the
primary obligor or, if the obligation is a legal or judicial
mortgage, against other property affected thereby, before enforcing
it against the property of the secondary obligor." La. Civ. Proc.
art. 5151.
2
     Article 5155 of La. Civ. Proc. provides that:

               In pleading discussion, the secondary obligor
          shall:

               (1) Point out by a description sufficient to
          identify it, property in the state belonging to the
          primary   obligor,   or    otherwise   subject   to
          discussion, which is not in litigation, is not
          exempt from seizure, is free of mortgages and
          privileges, and is worth more than the total amount
          of the judgment or mortgage; and

               (2) Deposit into the registry of the court,
          for the use of the creditor, an amount sufficient
          to defray the costs of executing the judgment or
          enforcing the mortgage against the property
          discussed.
3
     This action is part of the continuing litigation between
Travelers and John and Robert A. Liljeberg. See, e.g., Travelers
Ins. Co. v. Liljeberg Enters., Inc., 7 F.3d 1203 (5th Cir. 1993),
aff'g in part, rev'g in part 799 F. Supp. 641 (E.D. La. 1992)
(summary judgment declaring obligation of building lessee to enter
into lease with Travelers); Travelers Ins. Co. v. Liljeberg
Enters., Inc., Nos. 93-3832, 93-3833, 93-3891 (5th Cir. argued Aug.
30, 1994) (appeal of the district court's denial of Rule 60(b)(6)
motions); Travelers Ins. Co. v. St. Jude Hospital of Kenner, La.,
Inc., No. 94-30272 (5th Cir. argued Aug. 30, 1994) (appeal of the
district court's quantification of attorneys' fees); Travelers Ins.

                              - 3 -
parties sought summary judgment. Travelers asserted that Louisiana

law required a partner to pay the debts of its partnership; SJH,

that, because of the Partnership Litigation, Travelers' claim was

barred by res judicata.   Primarily, SJH asserted that, because it

was a defendant in the Partnership Litigation, Travelers was

required to assert all claims against it in that litigation,

including any for secondary liability on a judgment against the

Partnership.    The district court awarded summary judgment to

Travelers.

                                II.

     It goes without saying that we review a summary judgment de

novo.   E.g., King v. Provident Life and Accident Ins. Co., 23 F.3d
926, 928 (5th Cir. 1994).   Here, there is no dispute of material

fact.   At issue is whether the district court erred, especially in

light of the fact that SJH was a defendant in the Partnership

Litigation, in holding that res judicata does not bar Travelers, as

a judgment creditor of the Partnership, from pursuing that judgment

against SJH based on its secondary liability.4   Although this is a

diversity action, federal res judicata rules apply in resolving the

Co. v. St. Jude Medical Office Bldg. Ltd. Partnership, 843 F. Supp.
138 (E.D. La.) (denying motion to recuse, revoking fraudulent
conveyances, and awarding sanctions), amended and supplemented, 154
F.R.D. 143 (E.D. La. 1994) (quantifying sanctions); Travelers Ins.
Co. v. St. Jude Hospital of Kenner, La., Inc., ___ F.R.D. ___, No.
CIV.A. 93-0173, 1994 WL 500939, 1994 U.S. Dist. LEXIS 13085 (E.D.
La. Sept. 9, 1994) (quantifying sanctions).
4
     In addition, SJH moved unsuccessfully to have Rule 11
sanctions imposed against Travelers on the ground that it brought
this action in the face of the claimed res judicata bar; it presses
that issue here. Obviously, in light of our affirmance, this issue
is moot.

                               - 4 -
preclusive effect of the Partnership Litigation, also a diversity

action.   Sidag Aktiengesellschaft v. Smoked Foods Prods., 776 F.2d
1270, 1273 (5th Cir. 1985); Seven Elves, Inc. v. Eskenazi, 704 F.2d
241, 244 n.2 (5th Cir. 1983).

     In this circuit, an action is barred by the doctrine of res

judicata if: 1) the parties are identical in both actions; 2) the

prior judgment was rendered by a court of competent jurisdiction;

3) the prior judgment was final on the merits; and 4) the cases

involve the same cause of action.         Nilsen v. City of Moss Point,

Miss., 701 F.2d 556, 559 (5th Cir. 1983) (en banc) (quoting Kemp v.

Birmingham News Co., 608 F.2d 1049, 1052 (5th Cir. 1979)).           At

issue is only the last factor: whether both cases involve the same

cause of action.

     To determine whether the same cause of action is involved, our

court utilizes a transactional test.           E.g., Agrilectric Power

Partners, Ltd. v. General Elec. Co., 20 F.3d 663, 665 (5th Cir.

1994); Matter of Howe, 913 F.2d 1138, 1144 (5th Cir. 1990);

Robinson v. National Cash Register Co., 808 F.2d 1119, 1124-25 (5th

Cir. 1987).    Under this test,

            the critical issue is not the relief requested or
            the theory asserted but whether [the] plaintiff
            bases the two actions on the same nucleus of
            operative facts.   The rule is that res judicata
            "bars all claims that were or could have been
            advanced in support of the cause of action on the
            occasion of its former adjudication, ... not merely
            those that were adjudicated."

Howe, 913 F.2d at 1144 (quoting Nilsen, 701 F.2d at 560) (footnotes

omitted).

                                  - 5 -
     Louisiana recognizes a partnership as a separate entity;

initially, a creditor of a partnership must bring suit against the

partnership, but can join the partners in that action.             See La.

Code Civ. Proc. art. 737;5 State v. Morales, 240 So. 2d 714, 716

n.3 (La. 1970); Falcon Drilling Co. v. Transamerica Energy, Ltd.

II, 622 So. 2d 745, 747 (La. App. 3d 1993) (partner may be joined

as   a   party    defendant   in   the   original   action    against    the

partnership). And, under Louisiana's entity theory of partnership,

the creditor of a partnership should seek recovery first against

the partnership.      See La. Civ. Code art. 2817;6 Koppers Co. v.

Mackie Roofing & Sheet Metal Works, 544 So. 2d 25, 26 (La. App. 4th

1989) (intent of the law is that recovery be sought first against

the primary debtor, the partnership); see also Federal Deposit Ins.

Corp. v. Mmahat, 960 F.2d 1325, 1328-29 (5th Cir. 1992) (general

discussion   of    actions    against    a   partnership,    including   the

partner's secondary liability), cert. denied, ___ U.S. ___, 113 S.

Ct. 1044 (1993).

5
     La. Code Civ. Proc. art. 737 provides:

                A partnership has the procedural capacity to
           be sued in its partnership name.

                The partners of an existing partnership may
           not be sued on a partnership obligation unless the
           partnership is joined as a defendant.
6
La. Civ. Code art. 2817 states:

                A   partnership   as  principal  obligor   is
           primarily liable for its debts. A partner is bound
           for his virile share of the debts of the
           partnership but may plead discussion of the
           partnership.

                                   - 6 -
     The foregoing discussion of Louisiana partnership law is

simply a backdrop to controlling precedent in our circuit, Mmahat.

There, our court held implicitly that, under Louisiana law, a

judgment creditor's claim against a partner for his virile share of

a judgment against the partnership does not arise out of the same

nucleus of operative facts as the partnership's debt.    In Mmahat,

the Federal Savings and Loan Insurance Corporation (FSLIC) obtained

a judgment against Mmahat and the partnership of Mmahat & Duffy for

legal malpractice and breach of fiduciary duty (first action).

Subsequently, the FSLIC sued Duffy for his virile share of the

judgment against the partnership.

     Duffy asserted that res judicata barred the action against him

on the ground that it "arose from the same transaction as" the

first action and should have been included in it. 960 F.2d at

1329.   We held otherwise, reasoning that the action against Duffy

           does not rest on an identical obligation, nor does
           it require readjudication of the malpractice claim.
           [The first action] was based on the malpractice of
           Mmahat, committed as a partner of the firm.      In
           contrast, [the present action] is based on the pre-
           existing ... judgment against Mmahat and [the
           partnership] and Duffy's virile share of liability
           for that debt pursuant to Louisiana Civil Code
           Article 2817. Thus, the FDIC did not pursue a new
           theory of recovery in [the present action]; it
           sought merely to collect a pre-existing judgment in
           its favor. Obviously, res judicata would bar [the
           present action] if the FSLIC had lost in [the
           former action] because the FDIC would be seeking to
           relitigate the issue of liability.     However, res
           judicata does not bar the FDIC's suit against Duffy
           to collect the judgment it obtained against [his]
           firm.

                               - 7 -
Id. at 1329-30.7

     There is, however, one differing procedural aspect between

this action and Mmahat: unlike the partner (Duffy) in Mmahat, SJH

was a party in the underlying litigation.          As noted, SJH hangs its

hat primarily on this distinction.          In fact, it conceded at oral

argument   that,   had   it   not   been    a   party   in   the   Partnership

Litigation, it would have no basis for claiming res judicata.             (As

discussed, SJH was not sued in the Partnership Litigation for its

secondary liability as the general partner; instead, its presence

was based on its conduct as an adjacent landowner to the building

and its involvement in the removal of property from the building.)8

     SJH presents a distinction without a difference.              In essence,

it seeks to conflate the first (identical parties) and fourth (same

cause of action) factors in our res judicata analysis.                   But,

because we are dealing with the transactional test aspect (fourth

factor), SJH's presence in the Partnership Litigation is immaterial

in determining whether this action (the SJH Litigation) is barred.

The issue, in its simplest terms, is whether Travelers' claim

7
     The FSLIC instituted each action.     Subsequently, Congress
abolished the FSLIC; all of its assets, including the claims
against the partnership and Duffy, were transferred to the FSLIC
Resolution Fund. The Federal Deposit Insurance Corporation (FDIC),
as manager of this fund, became the real party in interest in the
action.   Mmahat, 960 F.2d at 1327 n.5.    Accordingly, the court
refers to the FDIC as the appellant in Mmahat, while the FSLIC was
the original plaintiff.
8
     SJH contends also that its secondary liability was raised and
litigated in the Partnership Litigation. But, although the facts
supporting SJH's secondary liability (i.e., the existence of the
Partnership's liability and SJH's status as its general partner)
arose during the Partnership Litigation, SJH's secondary liability
was not in issue.

                                    - 8 -
against   SJH   in   this   action   arises   from   the   same   nucleus   of

operative facts as in the Partnership Litigation.                 As stated,

pursuant to the holding in Mmahat, it does not.9

                                     III.

     For the foregoing reasons, the judgment is

                                 AFFIRMED.

9
     Our court noted in Kasper Wire Works, Inc. v. Leco Eng'g &
Mach., Inc., 575 F.2d 530, 535 (5th Cir. 1978), that "[t]he aim of
claim preclusion is ... to avoid multiple suits on identical
entitlements or obligations between the same parties, accompanied,
as they would be, by the redetermination of identical issues of
duty and breach." The SJH Litigation does not raise entitlement or
obligations which were identical to those litigated in the
Partnership Litigation.    Thus, SJH did not have to relitigate
issues from the Partnership Litigation; any repetition of effort
common to both actions would be de minimis. No doubt, economy and
efficiency would have been advanced by asserting in the Partnership
Litigation a claim against SJH for secondary liability; but, as
much as we counsel -- indeed, require -- judicial efficiency and
economy, they do not trump Travelers' right to bring this action,
in light of its not being barred by res judicata.

                                     - 9 -