Camilo Salas, III v. Commonwealth Land Title Insurance Company

[DO NOT PUBLISH]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
B ARBER ,* 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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IV. CONCLUSION
Based on the foregoing, we AFFIRM the district court’s
grant of summary judgment in favor of Commonwealth.
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