     Case: 18-30858      Document: 00514911302         Page: 1    Date Filed: 04/10/2019




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit


                                      No. 18-30858
                                                                                 FILED
                                                                             April 10, 2019
                                                                            Lyle W. Cayce
BRADLEY W. SMITH,                                                                Clerk

              Plaintiff–Appellant

v.

SHELTER MUTUAL INSURANCE COMPANY,

              Defendant–Appellee.




                   Appeal from the United States District Court
                       for the Middle District of Louisiana
                             USDC No. 3:15-CV-357


Before STEWART, Chief Judge, and DAVIS and ELROD, Circuit Judges.
PER CURIAM:*
       Plaintiff Bradley Smith contends that the district court erred by granting
Defendant Shelter Mutual Insurance Company’s summary judgment motion
based on res judicata. After considering the record and applicable law, we
affirm the district court’s judgment.




       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                    No. 18-30858
                                           I.
      This is the second time the parties have appeared before us. 1 The prior
panel, in Smith I, gave a cogent statement of the facts and background, which
we reproduce here:
            In 2001, Paul Babin, whom Shelter insured, hit Smith while
      driving his car. After the incident, Smith sued Babin in state
      court. Babin then brought a cross-claim against Shelter alleging
      that Shelter had refused to defend or indemnify him in bad faith
      and     seeking     damages      for     Shelter’s   alleged    policy
      misrepresentations. Following a bifurcated trial in state court, the
      court found that (1) Shelter did not have a duty to defend Babin
      and that (2) “Shelter was not . . . in any way in bad faith in making
      its decision that it did not have coverage. . . . [, as] there was no
      failure in any part of the duties of the insurer.” Accordingly, the
      court ordered that “with respect to the cross[-]claims of Paul A.
      Babin, the claims for duty to defend against Shelter Mutual
      Insurance Company be and hereby are dismissed, with prejudice.”
      The court further ordered that “with respect to the cross-claim of
      Paul Babin, the claims for bad faith insurance practices under La.
      R.S. 22:1892 and 1973 against Shelter Mutual Insurance Company
      be and hereby are dismissed, with prejudice.” Babin appealed, and
      the Louisiana First Circuit Court of Appeal affirmed the trial
      court’s judgment in full. 2

      After the state court proceedings concluded, 3 Smith brought the instant
action in federal court against Shelter on an assignment of Babin’s rights.
Smith, standing in Babin’s shoes, sought to recover bad faith damages and the
excess amount of the state court judgment beyond Babin’s insurance policy
limits, alleging that Shelter (1) misrepresented its policy and (2) unreasonably
failed to settle. The district court initially dismissed Plaintiff’s policy
misrepresentation claim based on res judicata and denied summary judgment



      1 Smith v. Shelter Mut. Ins. Co., 688 F. App’x 313 (5th Cir. 2017) (Smith I).
      2 Id. at 313 (bracket insertions original).
      3 Smith v. Babin, No. 2015 CA 1029, 2016 WL 1535692 (La. Ct. App. 1st Cir. 2016).

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                                       No. 18-30858
as to the excess judgment liability claim. 4 The parties cross-appealed those
rulings; we dismissed this earlier appeal in Smith I for lack of jurisdiction
because, at that point, there was no final judgment. 5
       After discovery, Shelter re-filed a motion for summary judgment—again
grounded on res judicata—seeking dismissal of the remaining failure to settle
claim. Agreeing that res judicata principles applied, the district court granted
Shelter’s Rule 56 motion and dismissed this suit. Smith timely appealed. We
now have jurisdiction under 28 U.S.C. § 1291 and consider the issues below.
                                             II.
       “This court reviews the res judicata effect of a prior state court judgment
de novo.” 6 We apply the preclusion law of the state that rendered the initial
judgment—that is, here, Louisiana. 7
       “The purpose of res judicata is to promote judicial efficiency and final
resolution of disputes by preventing needless relitigation.” 8 To bolster this
policy, Louisiana amended its res judicata statute in 1990 to include collateral
estoppel for the first time. 9 The Louisiana statute now provides that both
claim preclusion and issue preclusion (i.e., res judicata and collateral estoppel)
will apply in the following situations:
       Except as otherwise provided by law, a valid and final judgment is
       conclusive between the same parties, except on appeal or other
       direct review, to the following extent:

       4  The district court initially denied summary judgment for Smith’s excess judgment
liability claim because Shelter’s motion did not properly address this issue. See Smith v.
Shelter Mut. Ins. Co., No. CV 15-357-JJB-RLB, 2016 WL 8710435, at *2 (M.D. La. Aug. 19,
2016).
        5 Smith I, 688 F. App’x at 314.
        6 E.E.O.C. v. Jefferson Dental Clinics, PA, 478 F.3d 690, 693 (5th Cir. 2007).
        7 Weaver v. Tex. Capital Bank N.A., 660 F.3d 900, 906 (5th Cir. 2011); Hogue v. Royse

City, 939 F.2d 1249, 1252 (5th Cir. 1991).
        8 Leon v. Moore, 731 So. 2d 502, 504–05 (La. Ct. App. 1st Cir. 1999) (citing Avenue

Plaza, L.L.C. v. Falgoust, 676 So. 2d 1077, 1079 (La. 1996)).
        9 See Chaisson v. Cent. Crane Serv., 44 So. 3d 883, 886–87 (La. Ct. App. 1st Cir. 2010)

(describing history of the amendment).
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                                        No. 18-30858
              ....

              (2) [Claim Preclusion.] If the judgment is in favor of the
              defendant, all causes of action existing at the time of final
              judgment arising out of the transaction or occurrence that is
              the subject matter of the litigation are extinguished and the
              judgment bars a subsequent action on those causes of action.

              (3) [Issue Preclusion.] A judgment in favor of either the
              plaintiff or the defendant is conclusive, in any subsequent
              action between them, with respect to any issue actually
              litigated and determined if its determination was essential
              to that judgment. 10

                                              III.
       Plaintiff contends that the district court erred by dismissing his case
based on res judicata. Under Louisiana law, “[r]es judicata is [both] an issue
and claim preclusion device. . . .” 11 The district court granted Defendant’s
summary judgment motion primarily based on claim preclusion principles. 12
Though Plaintiff’s arguments on appeal mainly challenge such application, we
need not address claim preclusion as the basis for dismissal. Regardless of
that determination, we hold that issue preclusion bars this federal suit. 13 We
therefore resolve this appeal solely based on issue preclusion.




       10  LA. STAT. ANN. § 13:4231.
       11  Berthelot v. Brinkmann, 974 So. 2d 18, 21 (La. Ct. App. 2d Cir. 2007).
        12 Pursuant to La. Rev. Stat. § 13:4231, “a second action is precluded when . . . (4) the

cause or causes of action asserted in the second suit existed at the time of final judgment in
the first litigation; and (5) the cause or causes of action asserted in the second suit arose out
of the transaction or occurrence that was the subject matter of the first litigation.” Burguieres
v. Pollingue, 843 So. 2d 1049, 1053 (La. 2003); see Cooper v. WestEnd Capital Mgmt., LLC,
832 F.3d 534, 543 (5th Cir. 2016) (quoting Chauvin v. Exxon Mobil Corp., 158 So. 3d 761, 765
(La. 2004)).
        13 During the appeal, we requested supplemental letter briefs from the parties on

whether issue preclusion applies in this case. Our decision today has no bearing on the
correctness of the district court’s application of claim preclusion.
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                                         No. 18-30858
       Under La. Rev. Stat. § 13:4231(3), the three requirements for issue
preclusion are “(1) a valid and final judgment; (2) [same] identity of the parties;
and (3) an issue that has been actually litigated and determined if its
determination was essential to the prior judgment.” 14 The parties do not
dispute, and we agree, that the first two requirements are met here. Our focus
is therefore on the third factor. Under issue preclusion, “once a court decides
an issue of fact or law necessary to its judgment, that decision precludes
relitigation of the same issue in a different cause of action between the same
parties.” 15 At issue is whether the state court’s finding that Shelter did not
owe the insured a duty to defend necessarily found Shelter did not owe the
insured a duty to settle, which is the basis for an excess judgment liability
claim here.
       Though we have not found a Louisiana Supreme Court case directly on
point, we are guided by a state intermediate court and well-regarded insurance
law treatises. 16 The Louisiana Third Circuit’s decision in Robin v. Allstate
Insurance is instructive. 17 There, Plaintiff Mary Robin alleged that in a prior
suit involving an automobile accident, a judgment was awarded against her
husband in excess of the policy limits. 18 Plaintiffs Herbert and Mary Robin
then filed suit against Allstate alleging that Allstate unreasonably refused to



       14 Liberty Mut. Fire Ins. Co. v. Weaver, 219 So. 3d 442, 445–46 (La. Ct. App. 3d Cir.
2017) (quoting Horrell v. Horrell, 808 So. 2d 363, 373 (La. Ct. App. 1st Cir. 2000)).
       15 Schiff v. Pollard, 222 So. 3d 867, 875 (La. Ct. App. 4th Cir. 2017) (citation omitted).
       16 Generally, to determine Louisiana state law, “we look to the final decisions of the

Louisiana Supreme Court. In the absence of a final decision by the Louisiana Supreme Court,
we must make an Erie guess and determine, in our best judgment, how that court would
resolve the issue if presented with the same case.” In re Katrina Canal Breaches Litig., 495
F.3d 191, 206 (5th Cir. 2007) (citations omitted). “Because there is no Louisiana Supreme
Court precedent on point, we seek guidance by looking to the precedents established by
intermediate state appellate courts.” Howe ex rel. Howe v. Scottsdale Ins. Co., 204 F.3d 624,
628 (5th Cir. 2000) (citing Labiche v. Legal Sec. Life Ins. Co., 31 F.3d 350, 351 (5th Cir. 1994)).
       17 Robin v. Allstate Ins. Co., 844 So. 2d 41, 45–46 (La. Ct. App. 3d Cir. 2003).
       18 Id. at 43.

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                                      No. 18-30858
settle in the prior action against them within the policy limits. 19 Though only
Mr. Robin was named in the prior suit, Mrs. Robin claimed that she was
entitled to damages because the excess judgment exposed their marital
community property to liability. 20 Allstate filed an exception of no right of
action asserting that Mrs. Robin’s claims against Allstate were barred. The
trial and appellate courts agreed. 21 The Third Circuit reasoned: “Mr. Robin
was the only party sued in the underlying tort suit. [Despite being an insured,]
Mrs. Robin was never a party to that litigation.” 22 Therefore, the court held
that “Allstate did not have an obligation to defend or settle the claim on behalf
of Mrs. Robin.” 23 In so holding, the state intermediate court recognized “that
the insurer’s obligation to exercise good faith in defending the insured also
include[d] a duty to settle within policy limits if necessary to protect the
insured’s financial interests against excess damages beyond the insurance
coverage.” 24 Because Allstate did not owe Mrs. Robin a duty to defend, it also
did not owe her a duty to settle. 25
      Applying Robin to the instant case, Plaintiff’s excess judgment liability
claim is barred under issue preclusion doctrine because Shelter’s obligation to
exercise good faith in defending Babin also included its duty to settle within
policy limits. 26 The state court dismissed Babin’s claims for duty to defend and
found no bad faith. Specifically, the state court reasoned:
      When I read the four corners of the petition and the facts that are
      alleged, and I read the policy, clearly and unambiguously
      intentional acts are the facts that are being alleged. At the time


      19 Id. at 45.
      20 Id.
      21 Id. at 44–45.
      22 Id. at 46.
      23 Id.
      24 Id. (citing Smith v. Audubon Ins. Co., 679 So. 2d 372 (La. 1996)).
      25 See id.
      26 Id.

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                                      No. 18-30858
       the decision was made, there was no duty to defend. There was no
       coverage. . . . Shelter was not arbitrary, capricious, or in any way
       in bad faith making its decision that it did not have coverage, nor
       did it have a duty to defend. . . . [T]here was no failure in any part
       of the duties of the insurer. The four corners of the petition and in
       the policy clearly were met. They were within their right to deny
       coverage and deny counsel and representation. 27

The state court formally confirmed these findings in its written judgment,
holding that both “[Babin’s] claims for duty to defend” and “the claims for bad
faith insurance practices under La. R.S. 22:1892 and 1973 against Shelter
Mutual Insurance Company be and hereby are dismissed, with prejudice.”
       Under issue preclusion doctrine, we find that the Louisiana trial court’s
judgment in Smith v. Babin, et al. 28 bars this subsequent federal suit. Robin
found that an insurer’s obligation to exercise good faith in defending the
insured also includes the duty to settle. 29 And this decision in Robin comports
with general understanding of insurance law: “[T]he insurance contract
contains an implied term that an insurer that undertakes to defend its insured
must make the determination whether to settle the case in good faith and
without negligence.” 30 So the state court’s ruling—that Shelter did not violate
its duty to defend—also then necessarily decided that Shelter did not violate
its duty to settle. Accordingly, we hold that issue preclusion forecloses Smith’s
instant case.




       27 Smith, No. 2015 CA 1029, 2016 WL 1535692 at *10.
       28 Case No. 498177, Div. 22, 19th Judicial District Court (Kelley, J., presiding).
       29 Robin, 844 So. 2d at 46.
       30 16 WILLISTON ON CONTRACTS § 49:107 (4th ed. Nov. 2018 updated) (emphasis

added)); see also William Shelby McKenzie & H. Alston Johnson, III, 15 LA. CIV. L. TREATISE,
INSURANCE LAW & PRACTICE § 7:9 (4th ed.) (noting that Louisiana courts consider the same
set of factors in determining whether an insurer violates duty to defend and duty to
compromise). These factors, though not exclusive, derive from Cousins v. State Farm, 294
So. 2d 272, 275 (La. Ct. App. 1st Cir. 1974).
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                          No. 18-30858
                          *     *        *
 Based on issue preclusion, we AFFIRM the district court’s judgment.
 AFFIRMED.




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