Nancy Donald v. Texas Farmers Insurance Company ( 1994 )

donald IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,

AT AUSTIN













NO. 3-93-397-CV







NANCY DONALD,

APPELLANT

vs.





TEXAS FARMERS INSURANCE COMPANY,

APPELLEE

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT

NO. 92-02292, HONORABLE F. SCOTT MCCOWN, JUDGE PRESIDING

This is an appeal from a summary judgment rendered in favor of appellee Texas Farmers Insurance Company ("Texas Farmers"). Appellant Nancy Donald argues that the trial court erred in granting Texas Farmers' motions for summary judgment because (1) her claims are not barred by the compulsory counterclaim rule, and (2) her pleadings state a cause of action for negligence, breach of contract, and violations of the insurance code. We will affirm.

BACKGROUND

Nancy Donald and her children, Dustin Blair and Valerie Kirby, were involved in a two-vehicle accident. Donald was driving one automobile in which her children were passengers. Reyes Hernandez was driving the second automobile in which the vehicle's owner Edward Garza and Edward's son, Ricardo, were passengers.

Edward Garza had liability insurance coverage through an automobile policy purchased from Texas Farmers. This policy covered Garza as the named insured; it also covered Hernandez because he was a permissive user of Garza's truck. The policy provided that Texas Farmers would pay damages for bodily injury up to a maximum liability limit of $20,000 per person and $40,000 per accident. Travelers Insurance Company ("Travelers") was the underinsured motorist insurance carrier on Donald's vehicle.

Donald, Blair, and Kirby asserted a claim for negligence arising out of the accident, alleging that Hernandez negligently operated the truck and that Garza negligently entrusted the truck to Hernandez. Their claims, combined with the claims of Edward and Ricardo Garza, exceeded Texas Farmers' maximum insurance benefits of $40,000.

In June 1989, counsel for Donald, Blair, and Kirby apparently wrote a letter to Texas Farmers and Travelers offering to settle Kirby's and Blair's ⁽¹⁾ claims against Hernandez in exchange for $20,000 each, a total of $40,000. As to Donald, the letter allegedly stated:

Nancy Donald hereby offers unconditionally to settle any and all claims she has against Travelers Insurance Company for damages owed to her by Reyes Patino Hernandez for personal injuries and punitive damages, and to give Travelers a full, final and unqualified release and assignment of her rights of action against Mr. Hernandez, in exchange for the payment of $20,000 . . . . We are aware that this offer creates, on the part of the liability carrier at least, a potential problem with respect to its duties toward Mr. Garza. Please be advised that we will not accept a settlement offer that would require a release of Mr. Garza. Instead, we have resolved to pursue Mr. Garza for all the full damages he caused our clients to sustain, and we intend to collect those damages from his personal estate.

Texas Farmers responded by interpleading the remaining $34,300 into the registry of the court and filing a request for declaratory judgment as to its duty to its insureds. The trial court refused to grant the requested relief and Texas Farmers appealed that ruling; however, Texas Farmers voluntarily dismissed that appeal in April 1991.

In November 1990, the underlying claims were tried to a jury, resulting in a judgment in favor of Donald, Blair, and Kirby against both Garza and Hernandez for which they were jointly and severally liable. ⁽²⁾

On May 28, 1991, Texas Farmers filed its "First Amended Original Petition For Declaratory Judgment And Interpleader." Texas Farmers sought a declaration on how to distribute the interpleaded $40,000 ⁽³⁾ insurance proceeds among the judgment creditors Donald, Blair, and Kirby and asked the court to declare how to credit the $40,000 payment between the debtors Garza and Hernandez. On July 5, 1991, the trial court signed an order permitting the interpleaded funds to be withdrawn and disbursed equally to Blair and Kirby pursuant to an agreement among Donald, Blair, and Kirby. None of the tendered money was disbursed to Donald.

In an order dated August 21, 1991 (the "turnover order"), the court awarded Donald all causes of action or claims that Garza and Hernandez owned against any liability insurance carrier which might protect them from claims arising out of the collision.

Texas Farmers' declaratory judgment and interpleader action was tried on September 30, 1991, and the court rendered judgment on the same day, denying Texas Farmers' petition for declaratory judgment. ⁽⁴⁾

Thereafter, on October 7, 1991, by virtue of the turnover order, Donald, on behalf of Hernandez, filed a first amended original answer and counterclaim. In the post-judgment counterclaim, Donald alleged that Texas Farmers breached its common law duty of good faith and fair dealing in connection with its investigation, processing, defense, and payment of the claims against Hernandez as a result of the collision. Donald further alleged that Texas Farmers breached its insurance contract and violated article 21.21 of the Texas Insurance Code. Tex. Ins. Code Ann. art. 21.21 (West 1981 & Supp. 1994). ⁽⁵⁾

On February 21, 1992, Donald filed this cause against Texas Farmers, alleging the same claims as in her October 7, 1991, counterclaim, except that the claims were alleged on behalf of both Hernandez and Garza. On February 11, 1993, Texas Farmers moved for summary judgment, arguing that Donald's claims were barred by the compulsory counterclaim rule ("the Rule"). See Tex. R. Civ. P. 97a. ⁽⁶⁾ On March 10, 1993, Texas Farmers filed a second motion for summary judgment, arguing it was entitled to judgment as a matter of law on Donald's Stowers claim, see G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544, 545 (Tex. Comm'n App. 1929, holding approved), because Donald had failed to offer unconditionally to settle her claims against Texas Farmers' insureds within their policy's liability limits. On May 28, 1993, the trial court granted both of Texas Farmers' motions for summary judgment. Donald appeals.

STANDARD OF REVIEW

In an appeal from a summary judgment granted in the defendant's favor, we must determine whether the summary-judgment proof establishes as a matter of law that no genuine issue of fact exists as to one or more of the essential elements of the plaintiff's cause of action. Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex. 1970). In deciding whether a disputed material fact issue precluding summary judgment exists, we must take as true all evidence favoring the non-movant and indulge every reasonable inference and resolve every doubt in its favor. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex. 1985). If the moving party proves there is no genuine issue of material fact regarding an essential element of the non-movant's cause of action, the burden shifts to the non-movant to rebut this evidence with evidence of its own. See Tex. R. Civ. P. 166a(c); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979); Coan v. Winters, 646 S.W.2d 655, 658 (Tex. App.--Fort Worth 1983, writ ref'd n.r.e.).

DISCUSSION AND HOLDING

In her first point of error, Donald complains that the trial court erred in granting Texas Farmers' first motion for summary judgment on the basis that her claims were barred by the Rule. Donald asserts her claims are not barred by the Rule because (1) the Rule does not apply to a petition that fails to state a claim and (2) her claims are permissive rather than compulsory because they do not arise from the same transaction or occurrence that was the subject matter of Texas Farmers' declaratory-judgment action. ⁽⁷⁾

We first note that Donald did not raise her first argument, regarding Texas Farmers' failure to state a claim, at the trial-court level. "The non-movant must expressly present to the trial court, by written answer or response, any issues defeating the movant's entitlement [to summary judgment]." McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 343 (Tex. 1993). "Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal [of a summary judgment]." Tex. R. Civ. P. 166a(c). Thus, "[t]he written answer or response to the motion must fairly apprise the movant and the court of the issues the non-movant contends should defeat the motion." Clear Creek Basin Auth., 589 S.W.2d at 678. Accordingly, we do not consider Donald's argument that Texas Farmers failed to state a claim in its declaratory-judgment action.

We turn now to Donald's second argument. Donald argues that her claims are permissive rather than compulsory because they do not arise out of the "transaction or occurrence" that was the subject matter of Texas Farmers' earlier declaratory-judgment and interpleader action.

A counterclaim is compulsory if:

(1) it is within the jurisdiction of the court; (2) it is not at the time of filing the answer the subject of a pending action; (3) the action is mature and owned by the pleader at the time of filing the answer; (4) it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim; (5) it is against an opposing party in the same capacity; and (6) it does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction.

Wyatt v. Shaw Plumbing Co., 760 S.W.2d 245, 247 (Tex. 1988) (emphasis added). "If a claim meets these elements, it must be asserted in the initial action. A defendant's failure to assert a compulsory counterclaim precludes its assertion in later actions." Id.

Federal courts utilize four different tests for distinguishing between compulsory and permissive counterclaims based on the "same transaction or occurrence" factor. The four tests are:

(1) Are the issues of fact and law raised by the claim and counterclaim largely the same?

(2) Would res judicata bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule?

(3) Will substantially the same evidence support or refute plaintiff's claim as well as defendant's counterclaim?

(4) Is there any logical relation between the claim and the counterclaim?

6 Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure § 1410 (1990) [hereinafter "Wright"]. Donald contends that under each of these four tests, her claims are merely permissive.

In recent years, several Texas courts of appeals have held that the proper test for determining whether two causes of action arise from the same transaction or occurrence is the last test listed above, known as the "logical-relationship" test. Jones v. First Nat'l Bank, 846 S.W.2d 107, 109 (Tex. App.--Eastland 1992, no writ); Tindle v. Jackson Nat'l Life Ins. Co., 837 S.W.2d 795, 798 (Tex. App.--Dallas 1992, no writ); see Lesbrookton, Inc. v. Jackson, 796 S.W.2d 276, 281 (Tex. App.--Amarillo 1990, writ denied); White v. Rupard, 788 S.W.2d 175, 178 (Tex. App.--Houston [14th Dist.], writ denied). It has been stated that the hallmark of the logical-relationship test is its flexibility, and that "of the four judicially formulated standards, the logical relation test has by far the widest acceptance among the courts." Wright, § 1410.

Regarding the legislature's objectives in implementing the Rule, the Texas Supreme Court has stated:

It has long been the policy of the courts and the legislature of this state to avoid a multiplicity of lawsuits. The need for judicial economy has recently become more acute because the dockets of our trial courts are overburdened, and litigants must wait far too long for their cases to be heard. In keeping with the policy to avoid multiple lawsuits, Texas Rule of Civil Procedure 97(a) was promulgated.

Wyatt, 760 S.W.2d at 246-47. In furtherance of these objectives, and in harmony with our sister courts of appeals, we, too, adopt the broad logical-relationship test for the purposes of distinguishing between permissive and compulsory counterclaims.

Applying the logical-relationship test to this set of facts, we conclude that the claim Donald presented in the instant cause arose out of the same transaction or occurrence that was the subject of Texas Farmers' declaratory-judgment action. By virtue of the August 21, 1991, turnover order, Donald acquired any claims Garza or Hernandez may have had against Texas Farmers relating to the insurance contract. She stood in their shoes for the purpose of asserting those claims. Donald sued Texas Farmers, alleging, essentially, a negligent failure to accept a settlement offer from Donald within the liability limits of the policy. In Texas Farmers' action for interpleader and declaratory judgment, Texas Farmers was seeking a declaration as to how to distribute the $40,000 proceeds, and how such payments should be credited between Garza and Hernandez.

We agree that Donald's claims against Texas Farmers were logically related to the claims Texas Farmers asserted in its interpleader and declaratory-judgment action. See Tindle, 837 S.W.2d at 800 (compulsory counterclaim rule barred action by beneficiary of life insurance policy for negligence, misrepresentation, and breach of contract against insurance company who issued policy because such claims should have been brought in insurance company's previous interpleader action for division of insurance proceeds). Both sets of claims arose from the same insurance policy, both are based on the same automobile accident, and both concern Texas Farmers' duties under that contract and in its status as insurer for Garza and Hernandez. Thus, Donald should have raised her present claims against Texas Farmers in its interpleader and declaratory-judgment action. Accordingly, we hold that the trial court did not err in granting summary judgment in favor of Texas Farmers on the basis of the compulsory counterclaim rule. Donald's first point of error is overruled.

In Donald's second point of error, she contends the trial court erred in granting Texas Farmers' second motion for summary judgment which alleged she had not stated an enforceable Stowers claim. This point turns upon the contents of a purported settlement letter apparently dated June 9, 1989. Although both parties refer to the letter, quote liberally from the letter, and Texas Farmers attaches such a letter to its brief, we are unable to locate the letter in the appellate record. Appellant has the burden to present the appellate court with a complete record on which we can decide the case, and in the absence of doing so, cannot prevail on appeal. Tex. R. App. P. 50(d). Accordingly, we overrule Donald's second point of error. Nevertheless, if the letter were in the record, we would overrule point of error two for the following reasons.

First, Donald argues that her June 1989 letter "clearly constitutes an offer to settle and release Hernandez from liability," and, thus, there was a material fact issue as to whether she had an enforceable Stowers claim against Texas Farmers, precluding summary judgment. See G.A. Stowers Furniture Co., 15 S.W.2d at 545. Texas Farmers argues that the letter's language demonstrates that Donald did not offer to settle her claims against Hernandez or Garza. ⁽⁸⁾ Alternatively, Texas Farmers argues that, even if there were such an offer, it was conditional and thus could not support a Stowers claim. See Jones v. Highway Ins. Underwriters, 253 S.W.2d 1018, 1022 (Tex. Civ. App.--Galveston 1953, writ ref'd n.r.e.); Danner v. Iowa Mut. Ins. Co., 340 F.2d 427, 429 (5th Cir. 1964).

We agree with Texas Farmers that Donald made no offer to Texas Farmers to settle her own claims against Hernandez. ⁽⁹⁾ Nevertheless, even assuming the letter constituted such an offer, we conclude that any such offer was conditional and, thus, unable to support a Stowers cause of action. Jones, 253 S.W.2d at 1022; Danner, 340 F.2d at 429.

The doctrine of equitable subrogation is recognized in Texas. American Centennial Ins. v. Canal Ins., 843 S.W.2d 480, 482 (Tex. 1992); Employers Casualty Co. v. Transport Ins. Co., 444 S.W.2d 606, 610 (Tex. 1969). Under equitable subrogation principles, an "insurer paying a loss under a policy becomes equitably subrogated to any cause of action the insured may have against a third party responsible for the loss." American Centennial Ins., 843 S.W.2d at 482. Based on the language of Donald's June 1989 letter, if the parties had agreed to its terms, Travelers would have paid Donald $20,000 for her underinsured motorist claim and then would have become subrogated in that amount to Donald's claims against Hernandez. Although Travelers may have chosen not to pursue these claims, the relevant inquiry is whether it could have pursued such a claim. Because Travelers could have pursued such a claim, Hernandez was not fully released because the settlement offer was conditioned on Travelers' waiver of its subrogation claim. Thus, Donald's Stowers claim must fail. ⁽¹⁰⁾

Donald argues, however, that even if this Court finds the offer was conditional, her pleadings were broad enough to support more than just a negligent failure to settle pursuant to Stowers. See Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex. 1987). Donald contends that her claims also encompassed Texas Farmers' alleged failure to fully advise Hernandez of the ramifications of the offer in the June 1989 letter and to give him the opportunity to make the decision whether he was willing to accept it.

First, this argument assumes that such an offer was made in the first place, a contention we have already rejected. Futhermore, Donald never raised this issue in response to Texas Farmers' motion for summary judgment. Instead, Donald merely argued that there was a material fact issue as to whether she had a valid Stowers claim against Texas Farmers. "[I]ssues a non-movant contends avoid the movant's entitlement to summary judgment must be expressly presented by written answer to the motion or by other written response to the motion and are not expressly presented by mere reference to summary judgment evidence." McConnell, 858 S.W.2d at 341; see Tex. R. Civ. P. 166a(c) ("Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal."). We conclude Donald has waived any argument regarding Texas Farmers' alleged negligence outside of a Stowers claim. For these reasons, as well, we would overrule Donald's second point of error.

We affirm the trial court's judgment.

Marilyn Aboussie, Justice

Before Justices Powers, Aboussie and Jones

Affirmed

Filed: June 29, 1994

Do Not Publish

1.   Blair's settlement offer was complicated by the fact that Texas Farmers had already paid $5,700 to settle the claims of the Garzas against Hernandez, leaving a balance of only $34,300 available to settle the claims of Donald, Blair, and Kirby. Thus, the letter requested that Travelers give its written consent to the settlement with Hernandez and supplement Texas Farmers' payment in an amount sufficient to reach the $40,000 total. Blair's action against Hernandez would then be assigned to Travelers.

2.   The parties dispute the terms of the jury verdict and we are unable to locate the verdict in the appellate record. The specific terms are not controlling; the parties agree that the judgment exceeds the policy coverage.

3.   Texas Farmers asserted in the petition that it had previously paid $5,700 to settle the Garzas' claims against Hernandez, leaving $34,300 available to settle the claims of Donald, Blair, and Kirby; the $34,300 had already been paid into the registry of the court in a previous related action. However, Texas Farmers agreed to treat the previously paid $5,700 as uninsured motorist coverage and thus tendered that amount into the registry in addition to the $34,300, for a total of $40,000.

4.   The trial court concluded that Texas Farmers' petition for declaratory judgment was moot because the division of the interpleaded funds had previously been decided by order of that court. It further concluded that until Hernandez or Garza actually made payments, the court was unable to determine whether one had paid a disproportionate share of the judgment. Texas Farmers appealed the denial to this Court, and we affirmed the trial court's judgment. Texas Farmers Ins. Co. v. Garza, No. 3-92-023-CV (Tex. App.--Austin Oct. 14, 1992, no writ) (not designated for publication).

5.   We note that Donald did not file her answer and counterclaim until after the trial court rendered judgment, which would have made the trial court's consideration of these pleadings improper. 2 R. McDonald, Texas Civil Practice in District and County Courts, § 10.12, at 500 (1992); see Briercroft Serv. Corp. v. Perez, 820 S.W.2d 813, 818 (Tex. App.--Corpus Christi 1990), aff'd in part and rev'd in part on other grounds, 809 S.W.2d 216 (Tex.); Morris v. Hargrove, 351 S.W.2d 666, 668 (Tex. Civ. App.--Austin 1961, writ ref'd n.r.e.). Nevertheless, after Donald filed a motion with the court on January 10, 1992, to sever her counterclaim from the declaratory-judgment action, the trial court purportedly dismissed the counterclaim without prejudice and denied the severance in an order signed April 7, 1992. However, we note that by this time, the court had lost plenary jurisdiction over the cause. See Tex. R. Civ. P. 329b(d).

6.   The Rule states in pertinent part:

A pleading shall state as a counterclaim any claim within the jurisdiction of the court, not the subject of a pending action, which at the time of filing the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. . . .

Tex. R. Civ. P. 97(a).

7.   We note that in response to Texas Farmers' motion for summary judgment in the court below, Donald also argued that her claims against Texas Farmers did not mature until after she filed her answer to Texas Farmers' declaratory-judgment action. However, because Donald does not raise that argument on appeal, we do not address it here.

8.   There does not seem to be any dispute that the June 1989 letter does not make an offer to settle any claims against Garza. The letter purportedly reads, "Please be advised that we will not accept a settlement offer that would require a release of Mr. Garza. Instead, we have resolved to pursue Mr. Garza for all the full damages he caused our clients to sustain, and we intend to collect those damages from his personal estate. . . ."

9.   The letter apparently states, "Nancy Donald hereby offers unconditionally to settle any and all claims she has against Travelers Insurance Company for damages owed to her by Reyes Patino Hernandez . . . and to give Travelers a full, final and unqualified release and assignment of her rights of action against Mr. Hernandez, in exchange for the payment of $20,000.00." (Emphasis added). By the clear terms of the language, this offer was made to Travelers, not Texas Farmers, and it was an offer to settle Donald's claims against Travelers, not Hernandez.

10.   We note that there were other conditions besides Travelers' waiver of its subrogation claim. Donald wanted a total settlement of $20,000 each for her and both of her children. Texas Farmers' policy limit was $20,000 per person and $40,000 per accident. Thus, the letter asked that Travelers agree to pay Donald $20,000 and Blair approximately $5,700 to bring Blair's settlement amount up to $20,000. It is unclear from the record whether the amount Travelers would have to pay to bring Blair's settlement up to $20,000 was $5,700 or $7,000.