Opinion
No. 03-00-00468-CV
Filed: March 29, 2001
Appeal from the District Court of Travis County, 201st Judicial District No. GN001361, Honorable Ernest C. Garcia, Judge Presiding
Affirmed
Before Justices KIDD, B. A. SMITH and YEAKEL.
The Texas Department of Insurance and Jose Montemayor, Commissioner of Insurance, (collectively "TDI") bring this interlocutory appeal from the district court's denial of their plea to the jurisdiction. See Tex. Civ. Prac. Rem. Code Ann. § 51.014(a)(8) (West Supp. 2001). We will affirm.
Factual Background
Our recitation of the facts comes from the first amended petition of appellee Fortis Benefits Insurance Company ("Fortis"). Fortis issued a long-term disability insurance policy to C T Financial Systems and its affiliates. On November 6, 1995, Fortis received a claim under the disability policy from Charles T. Terrell. Fortis concluded that Terrell was totally disabled under the "total disability" provisions of the policy and began paying Terrell $10,000 per month in benefits.
See Texas State Employees Union/CWA Local 6184 A.F.L.C.I.O. v. Texas Workforce Comm'n, 16 S.W.3d 61, 65 (Tex.App.-Austin 2000, no pet.) (plaintiff's allegations taken as true for jurisdictional purposes unless defendant pleads and proves fraud to confer jurisdiction).
In February 1998 Fortis informed Terrell that, under the terms of the policy, he would be subject to a second definition of "total disability" effective July 4, 1998. Fortis also informed Terrell that it would investigate to determine his status. Fortis's investigation disclosed that Terrell had returned to work sometime before May 2, 1996. When Terrell failed to respond to requests for updated medical information, Fortis suspended benefit payments in April.
In May Terrell's attorney began sending letters to Fortis with copies to Elton Bomer, then the commissioner of insurance, accusing Fortis of "bad faith and misconduct" in the handling of Terrell's claim. On June 11 Fortis received from TDI a copy of a letter sent directly to Bomer by Terrell's attorney. After receipt of the June 11 letter, Fortis received a notice from the commissioner's administrative staff to attend a meeting on June 24. Representatives from Fortis attended the meeting along with Bomer, four members of his staff, including TDI's general counsel, another legal-department representative, two insurance complaints investigators, Terrell, and his attorney. Bomer informed Fortis that he considered the Terrell matter "one of personal interest and that he personally intended to be involved in any decisions regarding Fortis's handling of Terrell's claim."
At the meeting, Fortis tendered to Terrell the benefits it had been withholding. Bomer accused Fortis of "grandstanding," asked Fortis to pay interest and attorney's fees, and advised Fortis that he was "going to start an investigation into Fortis's claims practices." Bomer warned that if any wrongdoing was found he would act "swiftly and severely." Fortis was not allowed an opportunity to explain its reason for withholding benefits. Bomer asked Fortis to handle Terrell's claim "as it would any other claim but to keep TDI informed."
Shortly after the meeting, TDI informed Fortis that it planned to perform a market-conduct examination. The stated purpose of the examination was to verify compliance with the Texas Insurance Code to determine if operations were consistent with the public interest. The examination involved "specific attention . . . toward compliance with contract provisions, timeliness and accuracy of payments, supporting documentation, general claim handling and compliance with Article 21.21-2 of the [Texas Insurance] Code." After conducting the examination, TDI determined that no violations had occurred and did not pursue any action against Fortis based on the examination. Subsequently, Bomer ordered the TDI legal and compliance division to initiate an investigation to determine whether Fortis was "in compliance with its obligations under the Texas Insurance Code."
During its investigation of Terrell's disability status, Fortis had continued to pay Terrell benefits of $10,000 per month. After receiving income-tax information from Terrell, Fortis concluded, in the spring of 1999, that it had overpaid benefits by almost $30,000. Fortis advised Terrell the overpayment would be recouped by withholding from future payments. In early fall 1999, TDI's enforcement section commenced an investigation of Terrell's claim and, according to Fortis, began a "fishing expedition" for documents and information. When Fortis asked TDI to limit the scope of the requests, TDI asked Fortis to attend another meeting with TDI representatives. At the meeting, TDI representatives questioned Fortis's interpretation of Terrell's disability policy. Fortis informed TDI that based on its investigation Terrell had been substantially overpaid.
Jose Montemayor replaced Elton Bomer as commissioner of insurance on January 11, 1999.
Two days after the meeting, TDI told Fortis that it disagreed with Fortis's conclusion regarding Terrell's disability and that it intended to "continue to examine any action taken by Fortis, with regards to this case."
In March 2000 after several months of investigation, TDI prepared a consent order for Fortis to sign and "indicated that it would commence in [sic] enforcement action against Fortis if it did not sign a consent order." The consent order dealt solely with Fortis's dispute with Terrell. Six of nine conclusions in the proposed consent order reject Fortis's interpretation of its policy, substitute TDI's interpretation, and allege insurance-code violations if Fortis failed to follow TDI's interpretations. In a letter dated March 21, Terrell's attorney demanded that Fortis pay the claim and threatened litigation. Terrell's attorney sent copies of the demand letter to Montemayor, the new commissioner of insurance, as well as Bomer. As required under ERISA, Terrell's claim was reviewed by Fortis benefits disability claims appeals committee and denied. On May 1 TDI gave Fortis notice of the commencement of a contested case against Fortis.
TDI alleged Fortis violated sections 4(1), 4(11)(b) and 4(11)(c) of article 21.21 and section 2(b)(1) of article 21.21-2 of the insurance code and sections 21.3 21.4(3) of chapter 28 of the administrative code when it:
(1) failed to define the term "gainful occupation" within its policy limits. Fortis's definition, outside the policy language, was detrimental to the insured. Failure to define the term within the policy language was misleading.
(2) identified that "commissions . . . from any gainful work in which the Person Insured actually engages" would apply to commissions earned prior to onset of disability.
(3) failed to define "gainful work" within its policy limits. Fortis's definition, outside the policy language, was detrimental to the insured. Failure to define the term within policy language was misleading.
(4) applied the "administrative 100% return to work period" to the insured's claim.
TDI alleged Fortis violated section 4(10)(i) of article 21.21:
(1) when it misrepresented the policy provisions by failing to define "gainful occupation," "commissions," and "gainful work."
(2) when it applied the "100% administrative return to work" policy to the insured's claim by not representing that it would apply to any level of work activity.
TDI alleged that Fortis violated section 2(b)(4) of article 21.21-2 of the insurance code and section 21.203 of chapter 28 of the administrative code when it withheld disability payments in April and May of 1998.
"ERISA" refers to the federal Employee Retirement Income Security Act.
On May 9 Fortis filed its original petition for declaratory judgment and injunctive relief. By an amended petition, Fortis sought a declaratory judgment that TDI lacked "authority to adjudicate or determine a claims dispute or to use its investigative authority to coerce or influence the outcome of a claims dispute." Fortis also sought a declaration that article 21.21-2(b)(1) and sections 4(1), 4(10)(i), 4(11)(b), and 4(11)(c) of article 21.21 of the insurance code are unconstitutional if they "authorize TDI to adjudicate policy claims." Finally, Fortis sought temporary and permanent injunctive relief against TDI from "interfering with the coverage dispute between Fortis and Terrell." Fortis also sought attorney's fees. TDI filed a plea to the jurisdiction, which was denied by the district court. TDI appeals the district court's order.
Discussion
Because subject-matter jurisdiction presents a question of law, we review the district court's decision de novo. Rylander v. Caldwell, 23 S.W.3d 132, 135 (Tex.App.-Austin 2000, no pet.). In reviewing a trial court's ruling on a plea to the jurisdiction, we do not look at the merits of the case. Id. We construe the pleadings in favor of the plaintiff and accept the plaintiff's allegations as true. Id. We examine a plaintiff's good faith allegations to determine whether the district court has jurisdiction. Brannon v. Pacific Employers Ins. Co., 224 S.W.2d 466, 469 (Tex. 1949). Unless the face of the petition affirmatively demonstrates a lack of jurisdiction, the district court must liberally construe the allegations in the petition in favor of the plaintiff and in favor of jurisdiction. Peek v. Equipment Serv. Co., 779 S.W.2d 802, 804 (Tex. 1989). The trial court may consider evidence in deciding subject-matter jurisdiction when necessary to resolve the jurisdictional issues raised. Bland ISD v. Blue, 34 S.W.3d 547, 555 (Tex. 2000).
A district court is a court of general jurisdiction with exclusive, appellate, and original jurisdiction of all actions, proceedings, and remedies except where exclusive, appellate, or original jurisdiction may be conferred by the Texas Constitution or other law on some other court, tribunal, or administrative body. Tex. Const. art. V, § 8; see also Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71, 75 (Tex. 2000). Courts of general jurisdiction are presumed to have subject-matter jurisdiction unless a contrary showing can be made. Dubai, 12 S.W.3d at 75. Thus, all claims are presumed to fall within the jurisdiction of the district court unless the legislature or Congress has provided that a claim must be heard elsewhere. Id.
In two issues on appeal, TDI argues that the district court lacks jurisdiction over Fortis's petition, and thus erred in denying TDI's jurisdictional plea. In support of its issues, TDI raises three arguments. By its first argument, TDI contends that the agency has primary jurisdiction over enforcement actions. The test for determining primary jurisdiction is whether any part of the suit is within the exclusive jurisdiction of the agency. American Pawn Jewelry, Inc. v. Kayal, 923 S.W.2d 670, 674 (Tex.App.-Corpus Christi 1996, writ denied). However, courts may intervene in the administrative process when an agency exercises authority beyond its statutorily conferred powers. Id. Construing Fortis's allegations as true, as we must, the underlying dispute appears to be a coverage issue between Fortis and Terrell. Although TDI has exclusive jurisdiction over enforcement actions, Fortis has alleged that TDI acted beyond its authority. Such allegations support a finding of jurisdiction in the district court.
By its second argument, TDI asserts that the district court is without jurisdiction because Fortis failed to exhaust its administrative remedies. The doctrine of exhaustion of administrative remedies does not apply when an agency acts outside its statutory authority. Westheimer ISD v. Brockette, 567 S.W.2d 780, 785 (Tex. 1978); Public Util. Comm'n v. Allcomm Long Distance, Inc., 902 S.W.2d 662, 666 (Tex.App.-Austin 1995, writ denied). When an agency acts beyond the scope of its statutory authority, an aggrieved party may bring suit for declaratory or injunctive relief. Allcomm Long Distance, 902 S.W.2d at 666. Fortis alleged that TDI's actions were beyond the scope of its statutory authority. This allegation supports the district court's jurisdiction.
A number of courts have addressed declaratory-judgment or injunctive-relief actions in the face of pending administrative proceedings. For example, in Texas Department of Human Services v. ARA Living Centers of Texas, Inc., when the department assessed monetary penalties for violations of quality standards against a nursing home operated by ARA, ARA requested an administrative hearing before the department and also brought suit in district court seeking a declaratory judgment concerning the department's authority to assess monetary penalties. 833 S.W.2d 689, 691 (Tex.App.-Austin 1992, writ denied). The department challenged the trial court's jurisdiction, alleging ARA failed to exhaust its administrative remedies and that the department had primary jurisdiction. Id. at 692. This Court rejected the department's arguments and held that the trial court had jurisdiction. We concluded that an action for declaratory relief is permissible during the pendency of an administrative proceeding when the issue is whether the agency is exercising authority beyond its statutorily conferred powers. Id. (citing City of Sherman v. Public Util. Comm'n, 643 S.W.2d 681, 683 (Tex. 1983)). This Court further concluded that determining whether an agency is exercising authority beyond its statutorily conferred powers is an exception to the primary jurisdiction doctrine. Id. at 693.
In Benavides Independent School District v. Guerra, Guerra sought a temporary injunction after the school district modified his employment contract. 681 S.W.2d 246, 248 (Tex.App.-San Antonio 1984, writ ref'd n.r.e.). The school district argued that the trial court erred in granting injunctive relief because Guerra, inter alia, failed to exhaust his administrative remedies. Id. On appeal, the court affirmed the injunctive relief. Id. at 250. The court noted that a recognized exception to the general rule requiring the exhaustion of administrative remedies is if the agency acts without express or implied statutory authority or in contravention of a statute. Id. at 249. In that case, the act is void and a direct appeal to court is appropriate without first exhausting an appeal to the school authorities. Id. ,
See also Texas Dep't of Pub. Safety v. Martin, 882 S.W.2d 476, 482 (Tex.App.-Beaumont 1994, no writ) (trial court had jurisdiction to consider whether agency officials engaged in unauthorized practices during pending agency proceeding when injunctive relief sought); Pasadena ISD v. Emmons, 586 S.W.2d 151, 152 (Tex.App.-Houston [1st Dist.] 1979, writ dism'd) (trial court had jurisdiction over temporary restraining order during pendency of administrative appeal when agency lacked power to issue injunction).
This Court has previously addressed a jurisdictional challenge involving TDI's predecessor, the State Board of Insurance. In Westland Film Industries v. State Board of Insurance, Westland appealed to the board when the Texas Catastrophe Property Insurance Association ("Association") failed to accept its proof of loss. 697 S.W.2d 621 (Tex.App.-Austin 1985), rev'd, 705 S.W.2d 695 (Tex. 1986). This Court noted that it is generally agreed that administrative agencies are not authorized to adjudicate contractual rights and obligations between parties. Id. at 623. We concluded that the board did not have jurisdiction over Westland's contractual dispute with the Association. Id. The supreme court reversed our decision because we reversed a summary judgment on grounds not raised in the trial court and not presented on appeal. Westland, 705 S.W.2d at 696.
Other cases have concluded that the failure of a party to exhaust administrative remedies defeats a trial court's jurisdiction. In Ford Motor Co. v. Butnaru, the Butnarus sued Graf Ford, Ford Motor Company and others alleging breach of contract, breach of purchase and sale agreements, and tortious interference with an agreement. 18 S.W.3d 762, 764 (Tex.App.-San Antonio 2000, pet. granted). They also sought a declaration of the parties' rights under the purchase and sale agreements. Ford challenged the trial court's jurisdiction. The court of appeals concluded that the trial court had jurisdiction over the Butnarus' claims that were not based on violations of the Motor Vehicle Commission Code, including their request for declaratory relief. Id. at 768-69. The trial court did not have jurisdiction over the Butnarus' claims based on code violations. Id. at 769.
Similarly, in American Pawn Jewelry, Inc. v. Kayal, the Kayals sued American Pawn when the pawn shop lost jewelry they had pledged as collateral for a loan. 923 S.W.2d at 672. American Pawn challenged the trial court's jurisdiction arguing that the Kayals failed to pursue the administrative remedies provided in the consumer-credit statutes. The Kayals argued that their breach-of-contract and tortious-conversion-of-personalty claims were inherently judicial in nature. Id. at 674. The statute, however, explicitly granted jurisdiction to the agency for disputes involving a breached pawn agreement. Id. The court held that the consumer credit commissioner had primary jurisdiction to resolve the dispute. Id. at 675.
See also Sells v. Roose, 769 S.W.2d 641, 643 (Tex.App.-Austin 1989, no writ) (trial court lacked jurisdiction because plaintiffs failed to follow explicit statutory procedure for obtaining certificate from county clerk).
These cases finding that the trial court lacked jurisdiction, however, involve a dispute with a third party as opposed to an agency. There the doctrines of exhaustion of administrative remedies and primary jurisdiction defeat a trial court's jurisdiction if a plaintiff fails to follow applicable administrative procedures. In those cases, the particular agency was a neutral unbiased entity capable of resolving the dispute. On the other hand, where the dispute is with the agency itself, trial courts have jurisdiction over declaratory or injunctive actions in the face of a pending administrative proceeding if the plaintiff asserts good-faith allegations that the agency acted beyond its statutory authority or the agency's conduct implicates constitutional issues. In such cases, the plaintiff is challenging an agency's right to do certain acts or is challenging the constitutionality of a statute involving an agency. The agency is a party to the dispute and cannot be viewed as an independent dispute-resolution body.
The case at bar is more closely aligned with the latter cases. According to Fortis's pleadings, both TDI and the commissioner of insurance have been intimately involved with the dispute involving Fortis and Terrell. After Terrell's attorney copied the commissioner on his correspondence with Fortis, TDI injected itself into the Fortis-Terrell dispute. Under the facts alleged by Fortis, TDI clearly attempted to induce Fortis into paying Terrell's claim. Because of TDI's involvement, Fortis had no neutral and unbiased agency to turn to for resolution of its dispute. It would have been futile for Fortis to pursue the administrative dispute-resolution process before TDI in light of TDI's alignment with Terrell in the controversy. Accordingly, we reject TDI's first and second arguments that the doctrine of primary jurisdiction and the failure to exhaust administrative remedies defeat the district court's jurisdiction.
Finally, TDI argues that the declaratory judgments act does not confer jurisdiction and that Fortis failed to plead waiver of sovereign immunity. We disagree. A plaintiff is not required to obtain consent before suing the State for a declaratory judgment. Caldwell, 23 S.W.3d at 136. The declaratory judgments act provides a procedural device for a cause of action already within the court's jurisdiction. State v. Morales, 869 S.W.2d 941, 947 (Tex. 1994). As we have stated above, under Fortis's pleadings, the district court has jurisdiction over actions alleging a state agency has exceeded its authority. Because the district court has jurisdiction, Fortis may seek a declaratory judgment. An action to determine or protect a private party's rights against a state official who has acted without legal or statutory authority is not barred by sovereign immunity. Federal Sign v. Texas S. Univ., 951 S.W.2d 401, 404 (Tex. 1997). We overrule TDI's issues.
Conclusion
We affirm the district-court order denying TDI's plea to the jurisdiction.