City of Houston v. Christopher A. Rhule ( 2012 )

Dissenting opinion issued June 7, 2012

In The

Court of Appeals

For The

First District of Texas

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NO. 01-09-01079-CV

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City of Houston, Appellant

V.

Christopher Rhule, Appellee

On Appeal from the 281st District Court

Harris County, Texas

Trial Court Case No. 0579440

DISSENTING OPINION*

          Christopher Rhule suffered a tragic injury in the line of duty serving as a City of Houston firefighter.  There is no dispute that for his sacrifice, Rhule justly deserved to be compensated.  There was, however, a dispute about the amount of workers’ compensation that would be paid to him, and that matter was resolved by a settlement agreement.  This appeal relates to subsequent disputes that arose with respect to medical treatment to be provided pursuant to the settlement. Rhule eventually filed suit against the City for breach of the settlement agreement.

          The City is immune from an employee’s suit claiming pain and suffering or mental anguish damages arising from an on-the-job injury.  The district court therefore lacked jurisdiction to the extent Rhule sought such remedies.  In addition, Rhule was required to present such claims for administrative resolution before filing suit in court.  Accordingly, Rhule’s failure to exhaust his administrative remedies constitutes a separate jurisdictional barrier to his claims.

I. Governmental immunity

          The City of Houston asserts partial immunity from Rhule’s suit, to the extent that it seeks monetary relief for physical pain and mental anguish resulting from the City’s breach of a settlement agreement.  Those categories of damages were not available among the statutory remedies for Rhule’s original workers’ compensation claim.  At the time of Rhule’s original claim, his sole remedies were (1) a percentage of his average weekly wage, up to a statutory maximum, for no more than 401 weeks, (2) reasonable and necessary medical expenses, and (3) attorney’s fees awarded as a percentage of any income benefits received.[1]

A municipality’s governmental immunity consists of both immunity from liability and immunity from suit.  See, e.g., Tooke v. City of Mexia, 197 S.W.3d 325, 332 (Tex. 2006).  The validity of a waiver of governmental immunity depends on the waiver being clear and unambiguous as to its scope.  See, e.g., Tex. Gov’t Code Ann. § 311.034 (West Supp. 2010); Travis Cent. Appraisal Dist. v. Norman, 342 S.W.3d 54, 58 (Tex. 2011).  In the case of the workers’ compensation system, the available remedies are limited and exclusive.  See, e.g., Tex. Lab. Code Ann. § 408.001(a) (West 2006); HCBeck, Ltd. v. Rice, 284 S.W.3d 349, 352 (Tex. 2009). Remedies not clearly and unambiguously included in the workers’ compensation system are therefore not included in the scope of the waiver of governmental immunity.  See, e.g., City of LaPorte v. Barfield, 898 S.W.2d 288, 297 (Tex. 1995) (“The rule that a waiver of immunity must be clear and unambiguous applies to both the existence and the extent of the waiver.”).

A governmental entity may settle a claim as to which its immunity has been waived; but by doing so, it does not expand the scope of the waiver.  This common-sense principle was a critical assumption underlying the decision in Texas A & M University-Kingsville v. Lawson, 87 S.W.3d 518 (Tex. 2002).  Lawson held that when the State enters into a settlement agreement to resolve a claim for which it has waived immunity, it cannot thereafter claim immunity from a suit for breach of the settlement agreement.  See id. at 522–23.  In holding that the “State should not regain waived immunity by settling a case,” a plurality of the Supreme Court of Texas noted that its holding assumed that “a governmental entity would not, in settling a suit for which immunity has been waived, undertake an obligation that exposes it to liability much greater or different than that which it faced from the original claim.”  Id. at 522.  Relying on that logic, our Court has previously held that there is no waiver of immunity to suit for a claimed breach of a settlement agreement when the State was immune from the settled claim.  See Porretto v. Patterson, 251 S.W.3d 701, 712 (Tex. App.—Houston [1st Dist.] 2007, no pet.).

          This is not a case in which a governmental entity would reclaim waived immunity by asserting immunity from a suit for breach of a settlement agreement.  From the outset, there has been no waiver of the City’s immunity from suit for claims of pain and suffering or mental anguish.  The City was therefore immune from a suit asserting such claims.  In settling a workers’ compensation claim, no rational governmental entity would agree to provide greater remedies than those available through the workers’ compensation system and for which immunity already had been waived.  And a rational governmental entity would only agree in settlement to provide a remedy within the universe of outcomes available in the workers’ compensation process (or of equivalent or lesser value). 

The majority’s holding may lead state governmental entities to be reluctant to agree to provide lifetime medical benefits to workers’ compensation claimants for fear that a future dispute over the provision of such benefits could expose the entity to mental anguish damages and other remedies that would not be available to the claimant so long as the government simply litigates the claim to the conclusion of the administrative and legal process.  In this case, the City agreed to provide a remedy that could have resulted from the workers’ compensation claim resolution process (i.e., lifetime medical benefits and a fixed amount of cash).  Only the fact of a settlement agreement is now alleged to support Rhule’s claim for pain and suffering and mental anguish damages.  The fact of a settlement agreement with Rhule should not subject the City to responding to a suit alleging theories of recovery from which it would be immune if it had refused to settle and the outcome of the claims process had been the same.  The law of governmental immunity does not permit this undesirable result.  

Moreover, to the extent that a workers’ compensation claimant may assert a claim in connection with the care, skill, or reasonable expedience and faithfulness with which a claim is paid by a workers’ compensation carrier,[2] that claim properly arises not under the statutory workers’ compensation scheme, but instead under an independent common-law duty of good faith and fair dealing recognized by the Supreme Court of Texas in Aranda v. Insurance Company of North America, 748 S.W.2d 210, 212–13 (Tex. 1988).[3] A municipality is immune from suit for torts committed in the performance of its governmental functions,[4] including the provision of workers’ compensation benefits.[5]  The Legislature has specified that in the context of providing workers’ compensation benefits, “[a]n action against a governmental entity or unit or an employee of a governmental entity or unit for a breach of the duty of good faith and fair dealing is governed by Chapters 101 and 104, Civil Practice and Remedies Code.”  Tex. Lab. Code Ann. § 416.002(b) (West 2006).  Those statutory provisions, however, do not waive a municipality’s immunity from an Aranda claim.[6]  Even if an Aranda claim could be asserted against a governmental entity under Chapters 101 and 104, such a claim would be subject to limitations on damages recoverable under those statutory provisions.[7]

Courts traditionally defer to the Legislature on the waiver of governmental immunity, assuming it to be “better suited to balance the conflicting policy issues associated with waving immunity.”  Norman, 342 S.W.3d at 58 (quoting Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 695 (Tex. 2003)).  Permitting Rhule to proceed with his suit and to ultimately recover damages for physical pain and mental anguish in the guise of a contract claim disrupts the balance struck by the Legislature through the enactment of Labor Code section 416.002(b), both by improperly subjecting the governmental entity to responding to and defending the suit, and also, to the extent suit is permitted, by circumventing statutory limitations to permit the recovery of unrestricted tort-type damages, free from the limitations applied by the Legislature when tort damages are recoverable against a governmental entity.[8]  Accordingly, the City’s plea to the jurisdiction should have been granted.

II. Exhaustion of administrative remedies

          After we originally decided this appeal, the City presented a new argument that the trial court lacked jurisdiction over this case because Rhule failed to exhaust his administrative remedies.  The argument is premised upon the accurate characterization of Rhule’s contract claim concerning payment for medical services or treatment as a dispute arising from a workers’ compensation compromise settlement agreement approved by the Industrial Accident Board and implemented by an agreed judgment approved by a court.[9]  The original petition specifically alleged that the City “has continued to deny necessary and reasonable medical care and treatment, as well as the provision of medications . . . in clear and direct breach of the agreed judgment . . . .”  The fact that Rhule’s claim was not first presented for administrative resolution is an additional reason why the trial court’s judgment should be vacated and the case should be dismissed.

The rights and duties of the parties are determined by the provisions of the Workers’ Compensation Act applicable at the time of the accident.  See, e.g., Gibson v. Grocers Supply Co., 866 S.W.2d 757, 759 (Tex. App.—Houston [14th Dist.] 1993, no writ).  The exhaustion argument is based upon a workers’ compensation statute that was in effect at the time of Rhule’s injury in 1988.[10] Section 12b of former Article 8307 of the Revised Statutes provided:

Whenever in any compromise settlement agreement approved by the board or in any agreed judgment approved by the court, any dispute arises concerning the payment of medical [or] hospital . . . services . . . or treatment, or for medicines . . . for the injured employee . . . as provided in such compromise settlement agreements or agreed judgments, all such disputes concerning the payment thereof shall be first presented by any party to the Industrial Accident Board within six months from the time such dispute has arisen (except where “good cause” is shown for any delay) for the board’s determination.  A dispute arises when a written refusal of payment has been filed with the board. . . .  Any final ruling, decision, denial, or award of the board may be appealed by any party according to and under the provisions of Section 5 of Article 8307 of this Act.  The board, however, shall have no jurisdiction to rescind or set aside any compromise settlement agreement approved by the board or any agreed judgment approved by the court.[11]

The City argues that this statutory provision governs its compromise settlement agreement with Rhule, which was approved by the board and incorporated into an agreed judgment approved by the court.  Because Rhule failed to present the dispute to the board as required by the statute, he failed to exhaust his exclusive administrative remedy, and the trial court lacked jurisdiction.[12]  Like American Motorists Insurance Co. v. Fodge, 63 S.W.3d 801 (Tex. 2001), and unlike Texas Mutual Insurance Co. v. Ruttiger, No. 08-0751, 2011 WL 3796353 (Tex. Aug. 26, 2011), reh’g granted, No. 08-0751 (Tex. Feb. 17, 2012), at the time Rhule filed suit, a dispute still existed between Rhule and the City of Houston that had not been first presented for administrative resolution by the Division of Workers’ Compensation or any of its regulatory predecessors.  See Ruttiger, 2011 WL 3796353, at *5 (discussing Fodge, 63 S.W.3d at 803–04).  The panel majority has made no effort to explain why former Article 8307, section 12b, would not apply to this dispute over Rhule’s claim for breach of the compromise settlement agreement.  Instead, the majority relies exclusively upon other earlier-[13] or later-enacted[14] versions of the statutory scheme, and cases applying those enactments,[15] without substantively addressing the particular statute relied upon by the City.

          The panel majority also contends that the City is “estopped to deny the history of this case.”[16] But “subject-matter jurisdiction is a power that ‘exists by operation of law only, and cannot be conferred upon any court by consent or waiver.’”[17]  None of the authorities relied upon by the panel majority involve the invocation of estoppel to justify the exercise of subject-matter jurisdiction over a governmental entity.  The panel majority’s discussion of estoppel is dicta in light of its conclusion that Rhule was not required to exhaust his administrative remedies before filing suit to obtain medical services promised in a compromise settlement agreement pertaining to a workers’ compensation claim.  Nevertheless, the suggestion that jurisdiction over this case may be generated by estoppel is simply wrong.

The City’s plea to the jurisdiction should have been granted, and I respectfully dissent from the panel majority’s contrary conclusion.

                                                                        Michael Massengale

                                                                        Justice

Panel consists of Justices Keyes, Sharp, and Massengale.

Justice Massengale, dissenting.

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*         I withdraw my dissenting opinion of July 21, 2011, and I substitute this opinion in its place.

[1] Because Rhule’s injury occurred in 1988, his claim was governed by the “old” worker’s compensation act.  See generally Act of May 26, 1981, 67th Leg. R.S., ch. 861, § 1, 1981 Tex. Gen. Laws 3290, 3290 (formerly codified at Tex. Rev. Civ. Stat. art. 8306 § 10), repealed by Act of Dec. 12, 1989, 71st Leg., 2nd C.S., ch. 1, § 16.07(7), 1989 Tex. Gen. Laws 1, 114; Act of Mar. 6, 1969, 61st Leg. R.S., ch. 18, § 4, 1969 Tex. Gen. Laws 48, 49 (formerly codified at Tex. Rev. Civ. Stat. art. 8306, § 11), repealed by Act of Dec. 12, 1989, 71st Leg., 2nd C.S., ch. 1, § 16.01(7), 1989 Tex. Gen. Laws 1, 114; see also Act of Dec. 12, 1989, 71st Leg., 2d C.S., ch. 1, § 15.47, 1989 Tex. Gen. Laws 1, 113 (formerly codified as Tex. Rev. Civ. State. Art. 8309h, § 3), repealed by Act of May 12, 1993, 73rd Leg., R.S., ch. 269, 1993 Tex. Gen. Laws 987, 1250.  The Legislature codified the current worker’s compensation system in the Labor Code as the Texas Workers’ Compensation Act.  See Tex. Lab. Code Ann. §§ 401.001–419.007 (West 2006 & Supp. 2010); see also Tex. Lab. Code Ann. §§ 504.001–.073 (West 2006 & Supp. 2010) (providing for worker’s compensation insurance coverage for employees of political subdivisions). 

[2]         Rhule acknowledges that the City was self-insured. 

[3]         The continuing viability of Aranda has been called into doubt.  See Texas Mut. Ins. Co. v. Ruttiger, No. 08-0751, 2011 WL 3796353, at *23 (Tex. Aug. 26, 2011), reh’g granted, No. 08-0751 (Tex. Feb. 17, 2012).  Even if the Supreme Court of Texas ultimately determines that revisions to the workers’ compensation statutory scheme have obviated the need for Aranda-type claims, Rhule’s injury occurred under a prior statutory regime, see supra note 1, and Aranda presumably would still apply. 

[4]         See Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006).

[5]         See Jackson v. City of Galveston, 837 S.W.2d 868, 870–71 (Tex. App.—Houston [14th Dist.] 1992, writ denied) (characterizing the provision of workers’ compensation benefits as a governmental function).

[6]         See Tex. Civ. Prac. & Rem. Code Ann. § 101.021 (West 2011) (waiving governmental liability for “property damage, personal injury, and death proximately caused by the wrongful act or omission or the negligence of an employee acting within his scope of employment” if, among other conditions, the injury arises from “the operation or use of a motor-driven vehicle or motor-driven equipment” or “a condition or use of tangible personal or real property”); id. §§ 104.001, .002, .0035 (waiving governmental immunity from duty to indemnify certain persons for certain acts or omissions “by the person in the course and scope of the person’s office, employment, or contractual performance for or service on behalf of the agency, institution, or department”); see also Milner v. City of Leander, 64 S.W.3d 33, 40 (Tex. App.—Austin 2000, no pet.) (no statutory waiver of immunity for claims of bad-faith denial of workers’ compensation benefits by municipalities).

[7]         See Tex. Civ. Prac. & Rem. Code Ann. § 101.023 (limiting the amount of liability of governmental entities under the Texas Tort Claims Act, including maximum amount of $250,000 for each person for each single occurrence for bodily injury); id. § 101.024 (disclaiming authorization of exemplary damages under the Texas Tort Claims Act); id. § 104.003 (limiting the amount of recoverable damages pursuant to a governmental entity’s liability for indemnification under Chapter 104).

[8]         Although the panel majority finds this claim analogous to those permitted under Local Government Code section 271.153, the majority never explains how the remedy sought by Rhule is permitted under that provision’s limitations on the amount of money that can be awarded against a local governmental entity for the breach of a contract.  Under section 271.153, contract damages are limited to:

(1)  the balance due and owed by the local governmental entity under the contract as it may have been amended, including any amount owed as compensation for the increased cost to perform the work as a direct result of owner-caused delays or acceleration;

(2)  the amount owed for change orders or additional work the contractor is directed to perform by a local governmental entity in connection with the contract;

(3)  reasonable and necessary attorney’s fees that are equitable and just; and

(4)  interest as allowed by law, including interest as calculated under Chapter 2251, Government Code.

Tex. Loc. Gov’t Code Ann. § 271.153 (West Supp. 2011).  Damages for pain and suffering and mental anguish are not contemplated by this provision, which specifies the exclusive remedies recoverable from a local governmental entity for breach of a contract.

[9]         The City thus treats Rhule’s cause of action as a contract claim, and it does not, as suggested by the panel majority, argue that “Rhule’s claim was not a claim for breach of contract, but instead was a claim for denial of benefits.”

[10]        The panel majority states that the City “does not present any argument or authority that would support ignoring sections 408.021, 408.005, and 408.011 of the Labor Code . . . [n]or does the City present any argument or authority that would support extending the doctrine of exhaustion of administrative remedies to claims of breach of a settlement agreement under the TWCA.”  This is not really an omission from the City’s briefing, because the City relied upon Revised Statutes Article 8307, § 12b, a statute that applied at the time of Rhule’s injury but has since been repealed.  It is the City’s contention that this statute applies to the parties’ compromise settlement agreement, yet the panel majority does not explain why § 12b does not apply.

[11]        Act of May 20, 1983, 68th Leg. R.S., ch. 501, § 1, 1983 Tex. Gen. Laws 2934–35 (formerly codified at Tex. Rev. Civ. Stat. art. 8307 § 12b)  (emphasis supplied), repealed by Act of Dec. 11, 1989, 71st Leg. 2nd C.S., ch. 1, § 16.01(10), 1989 Tex. Gen. Laws 114–15.

[12]        Cf. King v. Tex. Employers’ Ins. Ass’n, 716 S.W.2d 181, 183 (Tex. App.—Fort Worth 1986, no writ) (affirming dismissal of claim alleging breach of compromise settlement agreement relating to workers’ compensation benefits for want of jurisdiction, and noting that article 8307, § 12b, required the claimant to present her claim to the board before filing suit).

[13] The majority relies upon Barnes v. Bituminous Casualty Corp., 495 S.W.2d 5 (Tex. Civ. App.—Amarillo 1973, writ ref’d n.r.e.), which was decided 10 years before the 1983 enactment of the statute relied upon by the City, for the proposition that the Industrial Accident Board lost jurisdiction over a matter after the board approved the parties’ compromise settlement agreement.  The majority offers no explanation or support for its assertion that the language it relies upon from Barnes “is still good law today” despite the 1983 legislative changes invoked by the City, which specifically required disputes over compromise settlement agreements to be first presented to the board. 

[14]        The panel majority references the current version of section 408.005 of the Labor Code, which relates to settlements and agreements, but it provides no explanation of why this current statute governs Rhule’s claim arising from his 1988 injury and the breach of the compromise settlement agreement reached in 1990.  Nor does the panel majority explain why these provisions apply and the statute relied upon by the City does not.

[15]        The panel majority relies on Gregson v. Zurich American Insurance Co., 322 F.3d 883 (5th Cir. 2003), for the proposition that “breach of a settlement agreement reached under the TWCA is not treated like an initial claim for benefits for an on-the-job injury, for which administrative remedies must be exhausted.”  Gregson provides no guidance in this appeal because that case turned upon the inapplicability of the medical dispute resolution procedure of Labor Code section 413.031, see Gregson, 322 F.3d at 887–88, a matter that is not implicated by Rhule’s claim against the City.

[16]        Curiously, the panel majority incorrectly states that “the City presents no argument why it is not estopped to deny the history of this case,” when in fact the City filed a reply brief to respond to Rhule’s suggestion of estoppel.  In its reply, the City relied upon Tourneau Houston, Inc. v. Harris County Appraisal Dist., 24 S.W.3d 907, 910 (Tex. App.—Houston [1st Dist.] 2000, no pet.), for the proposition that “[n]o one is ever estopped from asserting lack of subject matter jurisdiction.  Subject matter jurisdiction cannot be conferred by consent, waiver, or estoppel at any stage of a proceeding.”

[17]        Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71, 76 (Tex. 2000) (quoting Fed. Underwriters Exch. v. Pugh, 141 Tex. 539, 174 S.W.2d 598, 600 (1943)).