Opinion
Civil Action Cause Number 2:04-CV-032-J.
January 13, 2005
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
Before the Court are Defendants and Plaintiffs' cross-motions for summary judgment on all claims asserted in this case. For the following reasons Defendants' motion is granted, Plaintiffs' motion is denied, and a final take-nothing judgment will be entered.
Factual Background
Plaintiff Bruce Burney sued Tom Stevenson in state court alleging that Stevenson intentionally engaged in a course of conduct to libel, slander and defame Burney and to interfere with and disparage his business relationships in order to destroy Burney's termite control business, take away his professional credentials, and injure Burney and his family. Burney alleged in state court that these intentional torts were done with malice and caused him to lose business income, caused economic harm to his business reputation, caused pain and anguish to him and his family, and caused his wife's untimely death. Burney sought compensatory and punitive damages from Stevenson.
Texas law defines libel as "a written or printed defamation which tends to injure the reputation of a living person and thus expose him to public hatred, contempt, ridicule, or financial injury, or impeach his honesty, integrity, virtue or reputation."Sellards v. Express-News Corp., 702 S.W.2d 677, 679 (Tex.Civ.App.-San Antonio 1985, writ ref'd n.r.e.). Slander is a defamatory statement orally communicated or published to a third person without legal excuse. Kelly v. Diocese of Corpus Christi, 832 S.W.2d 88, 91 (Tex.App.-Corpus Christi 1992, writ dism'd w.o.j.).
Stevenson's insurance carriers, Defendant Odyssey Re (London) Ltd. and Sphere Drake Ins. Co., decided that the libel and slander claims fell under the policies' "advertising injury" clause. The carriers initially tendered a defense in state court under a reservation of rights letter. Not satisfied with the quality of representation, the insurance carriers later decided to bring in a new defense firm. The carriers advised Stevenson that they were withdrawing their reservation of rights letter and providing an unqualified defense up to the limit of liability under the policies ($1 million per occurrence). The carriers, who are the Defendants in this federal lawsuit, further advised Stevenson that, as was their right under the policies, when an unqualified defense is tendered they had the right to chose, and had chosen, to turn the defense of the suit over to new counsel.
Stevenson refused to accept new counsel. In a series of letters the Defendants advised Stevenson that his refusal to accept new counsel, by signing off on a substitution of counsel motion and by cooperating with the new attorney, would jeopardize his continued unqualified coverage under the terms of the policies. Defendants advised Stevenson that he could, if he wished, utilize his current counsel at Stevenson's own expense, but that he must allow the substitution of new counsel and cooperate with the new attorney. In all, Stevenson was warned in writing three times that his refusal of substitution of new counsel and to cooperate with the new attorney would jeopardize his continued policy coverage by resulting in the Defendants rescinding coverage and no longer paying for his legal defense.
Defendants' letters cited the applicable policy provisions requiring Stevenson to cooperate with counsel in defense of the suit. The "cooperation clause" was virtually identical in the two insurance policies at issue in this lawsuit, which provided coverage for two successive years.
After being so advised, Stevenson continued to refuse to agree to letting new counsel take control of the suit. Stevenson never signed the substitution of counsel motion. After months of written correspondence and telephone conversations, the Defendants notified Stevenson that they would no longer provide a defense or indemnity for the claims brought by Burney because of Stevenson's violation of the "cooperation clause" within the insurance policies. After Stevenson's refusal the Defendants stopped paying for Stevenson's legal defense. Two months after coverage was rescinded, the case was called for trial.
The case was tried to a jury. After a six day trial the jury returned a plaintiff's verdict in Burney's favor on all submitted claims. Final judgment on that verdict was entered on November 26, 2001, awarding Burney $250,000 in punitive damages and $164,750 in actual damages, plus pre-judgment and post-judgment interest and costs.
Less than seventy-five days later, on February 6, 2002, the state court granted a new trial upon Stevenson's motion for a new trial on all issues or, in the alternative, a reduction in the judgment amount. A dispute arose as to whether the motion for a new trial initially granted by the state court was proper only as to damages. A subsequent motion for a new trial was granted on December 12, 2002, ordering a new trial on all issues. In August of 2003 that new trial commenced.
On August 25, 2003, after the second trial had begun and approximately eight months after granting the second new trial motion, Burney and Stevenson entered into an on-the-record settlement agreement. The agreement, which was recited into the record, purported to vacate the two orders granting a new trial, reinstate the original judgment as a final judgment, assigned to Burney all of Stevenson's rights to sue his insurance carriers, and forever relieved Stevenson of any and all liability for payment of any portion of the $450,000 judgment.
This federal lawsuit was then filed after Stevenson's insurance carriers, Defendant Odyssey Re (London) Ltd. and Sphere Drake Ins. Co., refused to pay the state court judgment.
Legal Standards
The Court may terminate litigation by rendering a summary judgement where no genuine issue of material fact exists and the moving party is entitled to judgement as a matter of law.Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) (initial burden is on movant to show entitlement to summary judgment with competent evidence);Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (in diversity cases state law determines what are "material" facts, which are those facts that might affect the outcome of the suit). The party opposing judgment must point the Court to "specific facts with sufficient particularity to meet all the elements necessary to lay a foundation for recovery, including those necessary to negate the defense" or defenses offered by the movants. Brown v. Texas AM University, 804 F.2d 327, 333 (5th Cir. 1986).If a rational trier of fact based upon the record as a whole could not find for the non-moving party, there is no genuine issue for trial. Amoco Prod. Co. v. Horwell Energy, Inc., 969 F.2d 146, 147-48 (5th Cir. 1992). Such a finding may be supported by the absence of evidence necessary to establish an essential element of the non-moving party's case. Celotex Corp. v. Cartrett, 477 U.S. 317, 322, 106 S.Ct. 82, 121 L.Ed.2d 265 (1986). "Finally, where the non-moving party has presented evidence to support the essential elements of its claims but that evidence is merely colorable, or is not significantly probative, summary judgement may be granted." Anderson, 477 U.S. at 249-250, 106 S.Ct. at 2510-11 (citations omitted). Legal conclusions and general allegations do not satisfy this burden. Id., 477 U.S. at 250, 106 S.Ct. at 2511; Lechuga v. Southern Pacific Transp. Co., 949 F.2d 790, 798 (5th Cir. 1992) (conclusory statements and testimony based on conjecture alone is insufficient to raise an issue to defeat summary judgment); Galindo v. Precision Am. Corp., 754 F.2d 1212, 1216 (5th Cir. 1985) (party statements setting forth only ultimate or conclusory facts are insufficient to either support or defeat a motion for summary judgment).
Discussion and Analysis
Defendants move for judgment on all of Plaintiffs' remaining claims. Defendants argue that these claims are barred on several grounds. First, because Stevenson's continued refusal to cooperate as required under the terms of the policies permitted them to rescind policy coverage, which they did. Second, because the state-court judgment entered against Stevenson is unenforceable against them under Texas law. Third, because even if not rescinded the policies at issue do not cover knowingly-made false statements, intentionally inflicted injuries, or exemplary/punitive damages. All of these liability defenses are meritorious.
Plaintiffs' abandoned their causes of action brought under 1) §§ 17.50(a)(4) and 17.46(b)(12) of the Texas Deceptive Trade Practices Act and 2) the common law duty of good faith and fair dealing, and those causes of action were dismissed with prejudice by an earlier court order.
The Policies were Rescinded for Non-cooperation
Plaintiffs have not come forward with evidence that Stevenson did not refuse to cooperate in the substitution of new counsel. Put another way, Plaintiffs have not come forward with evidence that Stevenson agreed to substitution of new counsel, executed the substitution motion or any exhibit thereto, and cooperated with the new attorney selected by his insurance carriers. The record before the Court is that Stevenson refused new counsel because he was satisfied with the effectiveness of the attorney he had selected, whom his insurers had initially agreed to and paid. However, the policies at issue required Stevenson to cooperate with his insurers, the Defendants. State Farm Fire Cas. Co. v. S.S., 858 S.W.2d 374, 385 (Tex. 1993). This record is clear that he did not.
See Defendants' Summary Judgment Exhibits I, J, and K.
See Defendants' Summary Judgment Exhibits H, at p. 17, and K.
Texas law gives an insurance company the right to control ligitation against its insured. In Texas a liability policy may grant the insurer the right to take "complete and exclusive control" of the insured's defense. A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544, 547 (Tex. Comm'n App. 1929, holding approved); Continental Cas. Co. v. Huizar, 740 S.W.2d 429, 434 (Tex. 1987). The policies here provide that the insurer will settle or defend as it considers appropriate any covered claim or suit. Under such a clause, "[t]he insurer's control of the insured's defense under this policy thus includes authority to accept or reject settlement offers and, where no conflict of interest exists, to make other decisions that would normally be vested in the client, here the insured" Stevenson.State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 627 (Tex. 1998). That includes the right to select trial counsel.See id.
There is no evidence that in this case the Defendants refused to defend until after Stevenson had refused to cooperate in substituting new counsel. The carriers agreed to Stevenson's selection of trial counsel when defending under a reservation of rights letter, and Plaintiffs have come forward with no evidence that the Defendants did not pay for all of the litigation expenses they were obligated to pay up to the time the policy was rescinded for non-cooperation. The evidence in this record is that the bills of Stevenson's trial counsel were paid by the Defendants until the date the policy was rescinded, whether those bills were incurred under the reservation of rights letter or after that was waived and an unconditional defense was tendered. Plaintiffs have brought forth no competent summary judgment evidence of, and have not alleged, any damages recoverable in this case for unpaid litigation expenses incurred before the unqualified coverage was rescinded.
The State Court Judgment is Unenforceable
Plaintiffs' claim to a right to recovery under the state-court judgment is without merit. Under Texas law that judgment is unenforceable against these Defendants. In State Farm Fire Cas. Co. v. Gandy, 925 S.W.2d 696, 714 (Tex. 1996), the Texas Supreme Court held that an insured' "sweetheart" assignment of claims against his insurer is invalid and, further, that "in no event . . . is a judgment for plaintiff against defendant, rendered without a fully adversarial trial, binding on the defendant's insurer by plaintiff as defendant's assignee." The judgment entered here, even if it was legally "reinstated," was not the result of a trial that was fully and fairly litigated. The original judgment was twice set aside, both on damages and liability issues, because of errors which occurred in the course of the trial that warranted a completely new trial.
An issue which the Court questions but need not decide. See Ferguson v. Globe-Texas Co., 35 S.W.2d 688, 691-92 (Tex.App.-Amarillo 2000, pet. denied); Long John Silver's Inc. v. Martinez, 850 S.W.2d 733 (Tex.App.-San Antonio 1993, rehearing denied); Tex. R. Civ. Pro. 320 through 329b. See also the language of the August 27, 2003, Agreed Order by the 69th District Court judge which does not state that the state trial court ordered the 2001 Final Judgment reinstated, stating only that the trial court agreed that the parties' "agreed order" be "approved for entry."
By the parties' agreement to reinstate the vacated judgment and to allow Stevenson to assign his rights, if any, against his insurers, Burney obtained a favorable final judgment that by express stipulation and agreement would not and could not ever be enforced against Stevenson. This judgment, recreated by agreement, could only be enforced against Stevenson's insurers. As made clear by the statements of counsel at the second trial, this was an essential element of the settlement allowing Burney to prosecute Stevenson's claims against the Defendants but not collect from Stevenson or his business, regardless of the outcome of any future collection efforts against Stevenson's insurers.
See Burney's counsel's August 25, 2003, on-the-record stipulation and agreement in settlement of the second state-court trial that Burney would not execute on the judgment and that Burney would only seek to recover by assignment against Stevenson's insurers. Defendants' Exhibit 4 attached to Reply Brief filed January 10, 2005. That trial transcript also shows that the trial judge questioned his authority to do what the parties were proposing, resulting in an off-the-record discussion and the carefully crafted language of the state court's order. See also Footnote 7, infra.
That agreed judgment, sought to be enforced in this case, was not rendered as the result of a full and fair adversarial trial. The state court judgment is, in reality, an agreed judgment produced as a result of the announcement of a "sweetheart settlement agreement" ending the second trial. Under Texas law the resulting agreed judgment is not binding on the defendant's insurer by Plaintiffs as Stevenson's assignees. Id.
The Policies Exclude Coverage for the Damages Awarded
Further, Plaintiffs have submitted no evidence showing that the policies at issue cover intentional injuries such as those inflicted by the insured assignees' (Stevenson's) publishing of knowingly false and defamatory or disparaging statements. The policies at issue exclude coverage for such acts by Stevenson personally or through his business.Underlying the state-court judgment upon which Plaintiffs seek recovery was Burney's trial argument that Stevenson knowingly made false and defamatory and/or disparaging statements about Burney and his termite business practices, that Stevenson intentionally interfered with Burney's business contracts, and that Stevenson did so with malice. The jury obviously chose to believe Burney's contentions over Stevenson's asserted defenses. The jury awarded $250,00 in punitive damages which under Texas law were awarded for knowing, intentional and malicious conduct of the type pled and argued by Burney and found by the state court jury. See TEX. CIV. PRAC. REM. CODE § 41.001, 41.002, 41.003, 41.004, 41.011 41.012 (Vernon 1997) (Texas punitive damages standards); Defendants' Reply Exhibit #9 (the state court jury charge verdict). Damages caused by the insured's knowingly false statements and intentional torts, and exemplary damages, are expressly excluded from coverage under Stevenson's insurance policies.
See Defendants' Summary Judgment Exhibit O.
See Defendants' Reply Brief Exhibit #9 (the state court's jury charge verdict).
See Defendants' Summary Judgment Exhibit H at pages SPRDRK 00008, 000013-14, 000017, 000018, 000022, and 000040.
Plaintiffs have failed to come forward with competent summary judgment evidence necessary to show that the policies at issue, even if improperly rescinded, require payment for the $250,000 awarded as exemplary damages for intentional actions done with malice, or the $164,750 awarded as actual damages for intentional acts, even if one were to assume that the Plaintiffs have a legally enforceable final judgment and binding insurance coverage. There being no attorney's fees or costs that remain unpaid and owing after the effective date of rescission, there are no damages which can be recovered by Plaintiffs in this case.
For all of these reasons summary judgment is entered in favor of the Defendants.
Conclusions
For the reasons set forth above, summary judgment in favor of Defendants is granted on all claims asserted herein by Plaintiffs.
Final judgment will be entered accordingly.
It is SO ORDERED.