Court Opinion

ID: 6516
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:18:16+00
Date Added: 2024-06-11T16:46:11.011286
License: Public Domain

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

                                    4
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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