Bairon Israel Morales v. Michelin North America, Inc. ( 2011 )

OPINION
No. 04-10-00704-CV
Bairon Israel MORALES,
Appellant
v.
MICHELIN NORTH AMERICA, INC.,
Appellee
From the 229th Judicial District Court, Jim Hogg County, Texas
Trial Court No. CC-07-59
Honorable Alex William Gabert, Judge Presiding
Opinion by: Rebecca Simmons, Justice
Sitting: Catherine Stone, Chief Justice
Sandee Bryan Marion, Justice
Rebecca Simmons, Justice
Delivered and Filed: August 3, 2011
AFFIRMED AS MODIFIED
Bairon Israel Morales appeals an agreed final judgment that dismissed with prejudice all
of Morales’s and intervenor Texas Mutual Insurance Company’s claims against defendants
Michelin North America and Discount Tire Company of Texas. We modify the trial court’s
judgment and reduce the defendant’s payment of $118,486.21 from the settlement proceeds to
Texas Mutual in satisfaction of its Workers’ Compensation lien by $27,754.17, which is Texas
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Mutual’s proportionate share of expenses, for a modified payment amount of $90,732.04, and
affirm the judgment as modified.
BACKGROUND
Bairon Morales and Rodolfo Regalado worked for K&K Repair Service, LLC. On
September 12, 2005, Regalado was driving a company truck, with Morales as a passenger, when
a rear tire blew out, the vehicle rolled over, and Morales was injured. Texas Mutual Insurance
Company, K&K’s workers’ compensation insurance carrier, paid Morales $177,729.31 in
medical and income benefits. Morales sued the tire manufacturer, Michelin North America, Inc.;
the tire seller, Discount Tire Company of Texas; his employer, K&K; and the driver, Regalado.
Texas Mutual intervened and asserted its subrogation rights. Morales nonsuited K&K and
Regalado; Michelin designated them as responsible third parties.
In September 2009, Morales settled with the remaining defendants, Michelin and
Discount Tire, for $375,000.00 under an agreement in which Michelin and Discount Tire
disclaimed any liability for the accident and alleged that K&K was solely responsible. Texas
Mutual did not participate in the negotiations.
After Morales offered Texas Mutual $15,000.00 as payment in full of its subrogation lien,
Texas Mutual moved for summary judgment to recover the $177,729.31 it paid Morales, less the
statutory maximum of one-third for Morales’s attorney’s fees. The trial court granted the motion
by (1) declaring that “Texas Mutual is entitled to first dollar reimbursement on its subrogation
lien,” (2) limiting Morales’s attorney’s fees to “one-third of Texas Mutual’s recovery,” and (3)
effectively denying Morales a proportionate share of expenses and a reduction in Texas Mutual’s
recovery based on K&K’s percentage of responsibility. Later, the court signed an agreed final
judgment that dismissed with prejudice Morales’s and Texas Mutual’s claims against Michelin
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and ordered Morales to pay Texas Mutual $118,486.21—the subrogation lien amount less one-
third for Morales’s attorney’s fees. Morales appeals the agreed final judgment solely on the
issues of Texas Mutual’s proportionate share of expenses and the employer’s percentage of
responsibility.
STANDARD OF REVIEW
“We review the trial court’s decision to grant summary judgment de novo. . . . Statutory
construction is a question of law, which we [also] review de novo.” Tex. Mun. Power Agency v.
Pub. Util. Comm’n, 253 S.W.3d 184, 192 (Tex. 2007); see City of Garland v. Dallas Morning
News, 22 S.W.3d 351, 357 (Tex. 2000).
PROPORTIONATE SHARE OF EXPENSES
In his first issue, Morales asserts that Texas Labor Code section 417.003(a) requires the
trial court to award not only his attorney a reasonable fee but also a proportionate share of the
litigation expenses. Texas Mutual agreed to pay Morales’s attorney the statutory maximum
attorney’s fee, but denies that it owes Morales’s attorney a proportionate share of expenses
because section 417.003(c), not (a), applies and subsection (c) does not require the court to
apportion litigation expenses.
A. Applicable Statute
Chapter 417 of the Texas Labor Code addresses third-party liability. Section 417.003
controls the award and apportionment of attorneys’ fees for representation of an insurance
carrier’s interest in a claim against a third-party. It states:
(a) An insurance carrier whose interest is not actively represented by an
attorney in a third-party action shall pay a fee to an attorney representing the
claimant in the amount agreed on between the attorney and the insurance carrier.
In the absence of an agreement, the court shall award to the attorney payable out
of the insurance carrier’s recovery:
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(1) a reasonable fee for recovery of the insurance carrier’s interest that
may not exceed one-third of the insurance carrier’s recovery; and
(2) a proportionate share of expenses.
....
(c) If an attorney actively representing the insurance carrier’s interest actively
participates in obtaining a recovery, the court shall award and apportion between
the claimant’s and the insurance carrier’s attorneys a fee payable out of the
insurance carrier’s subrogation recovery. In apportioning the award, the court
shall consider the benefit accruing to the insurance carrier as a result of each
attorney’s service. The total attorney’s fees may not exceed one-third of the
insurance carrier’s recovery.
TEX. LAB. CODE ANN. § 417.003 (West 2006).
B. Active Representation in a Third-Party Action
1. Active Representation
Subsection (a) applies to “[a]n insurance carrier whose interest is not actively represented
by an attorney in a third-party action.” TEX. LAB. CODE ANN. § 417.003(a) (West 2006); see
Hartford Accident & Indem. Co. v. Buckland, 882 S.W.2d 440, 446–47 (Tex. App.—Dallas
1994, writ denied) (applying an earlier version of the statute). More specifically, subsection (a)’s
applicability depends on what constitutes active representation in a third-party action. “Active
representation requires more than filing pleadings asserting the carrier’s subrogation interest.”
Hodges v. Mack Trucks Inc., 474 F.3d 188, 204 (5th Cir. 2006) (citing Hartford Ins. Co. v.
Branton & Mendelsohn, Inc., 670 S.W.2d 699, 702 (Tex. App.—San Antonio 1984, no writ)). A
carrier’s attorney actively represents its client when the attorney takes steps to participate in pre-
trial discovery and actively prepare for trial against the third-party defendant. See Rowan v.
Zurich Am. Ins. Co., 499 F. Supp. 2d 704, 707 (E.D. Tex. 2007); Hartford Ins. Co., 670 S.W.2d
at 701–02; cf. Buckland, 882 S.W.2d at 447 (“An attorney ‘actively represents’ and ‘actively
participates in obtaining a recovery’ when the attorney takes steps, adequate when measured by
the difficulty of the case, toward prosecuting the claim [against the third-party defendant].”
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(quoting Branton, 670 S.W.2d at 702)); City of Austin v. Janowski, 825 S.W.2d 786, 789 (Tex.
App.—Austin 1992, no writ). Such steps may include serving discovery requests, preparing and
delivering discovery products, deposing witnesses, hiring experts, participating in hearings,
preparing the charge, negotiating a settlement, and the like. See Buckland, 882 S.W.2d at 447
(noting the carrier “did not generate or send any written discovery or take any depositions” and
“did not participate in the hearings”); Janowski, 825 S.W.2d at 789; Branton, 670 S.W.2d at 702.
Intervention alone does not establish active representation as a matter of law. See
Janowski, 825 S.W.2d at 789–90 (agreeing that the employer was not actively represented even
though it filed a petition in intervention and attended a deposition); Branton, 670 S.W.2d at 702
(approving the trial court’s determination that the carrier was not actively represented although
its attorney had filed an original and two amended petitions in intervention); Univ. of Tex. Sys. v.
Melchor, 696 S.W.2d 406, 409 (Tex. App.—Houston [14th Dist.] 1985, no writ) (“Under the
circumstances of contested liability, the subrogation attorney does not fulfill his duty of actively
participating by simply filing the necessary papers for intervention and reviewing pleadings.”).
2. Apportioning Attorney’s Fee, Expenses
In cases where subsection (c) applies, the court takes a maximum of one-third of the
carrier’s recovery and apportions and awards it as attorneys’ fees according to “the benefit
accruing to the insurance carrier as a result of each attorney’s service.” TEX. LAB. CODE ANN.
§ 417.003(c) (West 2006); see Buckland, 882 S.W.2d at 447. Subsection (c) does not address
apportioning expenses. 1 However, if subsection (a) applies and the claimant’s attorney and the
carrier do not agree on the claimant’s attorney’s fee, the court has a mandatory duty to award to
1
See Caesar v. Bohacek, 176 S.W.3d 282, 285 n.3 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (“[S]ubsection (c)
does not provide for a claimant to recover litigation expenses from an insurance carrier.”). The legislature may have
assumed that if the carrier was “actively participat[ing] in obtaining a recovery,” the carrier and claimant would each
bear their own expenses.
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the claimant’s attorney both a reasonable attorney’s fee and “a proportionate share of expenses.”
TEX. LAB. CODE ANN. § 417.003(a) (West 2006); accord Buckland, 882 S.W.2d at 447.
C. Texas Mutual’s Representation
Morales asserts that because Texas Mutual was not actively represented in his third-party
action, subsection (a) applies, and his attorney should get a reasonable fee and a proportionate
share of litigation expenses. In response, Texas Mutual asserts that subsection (c) should apply
because Morales resisted paying first money as he was required to do. The record shows that
Texas Mutual filed an original and two amended petitions in intervention, but does not show that
Texas Mutual served any written discovery requests, conducted any depositions, hired any
experts, participated in the mediated settlement negotiations, 2 or shared in the expenses of
Morales’s suit against the third-party defendants. Texas Mutual concedes that intervention alone
does not constitute active representation and admits that it “never contended its attorneys
participated in obtaining the settlement from the third-party defendants—only that its attorneys
actively represented Texas Mutual’s interest in obtaining the subrogation recovery.”
Subsection (c) controls apportioning attorneys’ fees between the carrier and the claimant
when both are actively represented and both are actively participating in obtaining a recovery
from the third-party defendant. See Tex. Dep’t of Transp. v. Wilson, 980 S.W.2d 939, 942 (Tex.
App.—Fort Worth 1998, pet. denied). Subsection (c) does not apply to a contest between the
claimant and the carrier. If a claimant improperly resists paying the carrier its subrogation
interest, the carrier may seek to recover its attorney’s fees in a declaratory judgment action. See
Howell v. Tex. Workers’ Comp. Comm’n, 143 S.W.3d 416, 443 (Tex. App.—Austin 2004, pet.
denied); Univ. of Tex. Health Science Ctr. at San Antonio v. Mata & Bordini, Inc., 2 S.W.3d 312,
2
Texas Mutual asserts that it had less than one day’s notice of the mediation. The record also shows Texas Mutual
filed a motion for summary judgment against Morales and a reply to Morales’s response to its motion for summary
judgment.
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319 (Tex. App.—San Antonio 1999, pet. denied). In this case, Texas Mutual sought a
declaratory judgment against Morales for its attorney’s fees.
However, the relevant activities to determine active representation are the steps Texas
Mutual took in its joint action with Morales against the third-party defendants, not the steps in its
internecine conflict with Morales. It is undisputed that Texas Mutual intervened, but
intervention alone is not, as a matter of law, active representation. See Hartford Accident &
Indem. Co. v. Buckland, 882 S.W.2d 440, 447 (Tex. App.—Dallas 1994, writ denied); Hartford
Ins. Co. v. Branton & Mendelsohn, Inc., 670 S.W.2d 699, 701–02 (Tex. App.—San Antonio
1984, no writ). The only other steps Texas Mutual took were not directed towards the third-party
defendants, but were steps to secure payment of its subrogation lien from Morales. Such steps
do not satisfy subsection (c)’s requirement for the carrier to “actively participate[] in obtaining a
recovery” from the third-party defendant. See TEX. LAB. CODE ANN. § 417.003(c) (West 2006).
D. Proportionate Share of Expenses
In its summary judgment pleadings, Texas Mutual asked the trial court to find that
section 417.003(c) applies, but if the court found that section 417.003(a) applies, asked the court
to determine its proportionate share of expenses to be $27,754.17. The trial court’s May 7, 2010
order granting Texas Mutual’s motion for summary judgment found that section 417.003(c)
applies and recognized Texas Mutual’s subrogation lien in the amount of $177,729.13. 3 In the
agreed final judgment, the trial court ordered Morales to pay Texas Mutual $118,486.21 in
satisfaction of its subrogation lien. The ordered amount appears to be the entire subrogation lien
less one-third for an attorney’s fee without any reduction for a proportionate share of expenses.
3
Morales’s attorneys claimed $59,051.44 in expenses. Texas Mutual calculated its proportionate share by dividing
its subrogation lien of $177,729.31 by Morales’s recovery of $375,000.00 and rounding to 47.00%. It calculated its
47% share of expenses as $27,754.17. Assuming section 417.003(a) applies, neither party disputes $27,754.17 as
Texas Mutual’s proportionate share of expenses.
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Because Texas Mutual was not actively represented in the third-party action, the trial court erred
in applying section 417.003(c) rather than 417.003(a). See TEX. LAB. CODE ANN. § 417.003(c)
(West 2006); Branton, 670 S.W.2d at 702–03; see also Caesar v. Bohacek, 176 S.W.3d 282, 285
(Tex. App.—Houston [1st Dist.] 2004, no pet.) (noting the legislature’s intent in enacting section
417.003 was to keep carriers from free-riding on claimant’s case). Under section 417.003(a), the
court was required to award Morales a proportionate share of expenses. See TEX. LAB. CODE
ANN. § 417.003(a); Buckland, 882 S.W.2d at 447. We sustain Morales’s first issue.
DETERMINATION OF PERCENTAGE OF RESPONSIBILITY
In his second issue, Morales asserts he is entitled to have the fact-finder determine his
employer’s percentage of responsibility for his injuries so the carrier’s recovery may be reduced
accordingly.
A. Background
After Morales was injured, he sued Michelin, Discount Tire, his employer, K&K, and the
driver, Regalado. Each defendant answered and Texas Mutual intervened. Michelin moved to
designate K&K and Regalado as responsible third parties and noted that Morales had nonsuited
them. Subsequently, Morales settled with Michelin and Discount Tire. The settlement
agreement dismissed with prejudice all of Morales’s and Texas Mutual’s claims against Michelin
and Discount Tire. After the settlement, Texas Mutual filed a second amended petition in
intervention. Texas Mutual sought a declaratory judgment that it was “entitled to first dollar
reimbursement of its subrogation claim,” arguing that section 417.003(c) applied, and thus its
subrogation interest could not be reduced based on K&K’s alleged negligence, and sought
reimbursement of its attorney’s fees. In response, Morales asserted that he is entitled to reduce
his reimbursement of Texas Mutual’s subrogation interest by a proportionate share of expenses
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and by K&K’s percentage of responsibility for his injuries. On appeal, Morales asserts that the
trial court abused its discretion because it did not allow the “trier of fact” to determine the
employer’s percentage of responsibility.
B. Controlling Law
An insurance carrier’s subrogation interest may be reduced by an amount “based on the
[employer’s] percentage of responsibility [as] determined by the trier of fact under Section
33.003, Civil Practice and Remedies Code.” See TEX. LAB. CODE ANN. § 417.001(b) (West
2006). The fact-finder determines the percentage of responsibility for each claimant, defendant,
settling person, and properly designated responsible third-party. See id. (citing TEX. CIV. PRAC.
& REM. CODE ANN. § 33.003 (West 2008)). However, Texas courts may not issue advisory
opinions. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 444 (Tex. 1993)
(construing the Texas constitution’s “separation of powers article to prohibit courts from issuing
advisory opinions”). “The distinctive feature of an advisory opinion is that it decides an abstract
question of law without binding the parties.” Id.; see Robinson v. Alief Indep. Sch. Dist., 298
S.W.3d 321, 325 (Tex. App.—Houston [14th Dist.] 2009, pet. denied) (“A case becomes moot
when: (1) it appears that a party seeks to obtain a judgment upon some controversy, when in
reality none exists; or (2) a party seeks a judgment upon some matter which cannot have any
practical legal effect upon a then existing controversy.”); Lavely v. Heafner, 976 S.W.2d 896,
897 (Tex. App.—Houston [14th Dist.] 1998, no pet.) (“Where a live controversy ceases to exist
between the parties, any opinion a court might render would be strictly advisory.”). “[A]
decision that does not bind the parties is, by definition, an advisory opinion prohibited by Texas
law.” State Bar of Tex. v. Gomez, 891 S.W.2d 243, 245 (Tex. 1994) (citing Tex. Ass’n of Bus.,
852 S.W.2d at 444).
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C. Analysis
Morales initially sued four defendants. Sometime before October 2007, he nonsuited two
defendants, K&K and Regalado. Later, he settled with the two remaining defendants, Michelin
and Discount Tire. The parties’ mediated settlement agreement states that the parties “desire to
compromise and settle all claims and causes of action of any kind whatsoever which the parties
have or may have” stemming from the accident in which Morales was injured. The agreement
expressly releases Michelin and Discount Tire and dismisses with prejudice Morales’s and Texas
Mutual’s claims against the defendants. Morales does not dispute that he nonsuited K&K and
Regalado or that he settled with Michelin and Discount Tire. Further, the record clearly
establishes that Morales settled with the two remaining defendants before he obtained a
determination of the employer’s percentage of responsibility for his injuries.
When the trial court decided Texas Mutual’s motion for summary judgment, Morales had
already nonsuited or settled with all of the defendants. See generally TEX. CIV. PRAC. & REM.
CODE ANN. § 154.071 (West 2011) (describing the effect of a written settlement agreement). As
the Agreed Final Judgment states, “the matters in controversy between Plaintiff and Defendant
had been compromised and settled . . . [and] all releases had been executed between Plaintiff,
Defendant, and Intervenor.” See Mem’l Med. Ctr. of E. Tex. v. Keszler, 943 S.W.2d 433, 435
(Tex. 1997) (authorizing post-injury releases of even gross negligence). Once Morales settled all
of his claims with the only remaining defendants, there was no longer a live controversy between
Morales and the defendants on the matter of his injuries. See Robinson, 298 S.W.3d at 325
(mootness); Lavely, 976 S.W.2d at 897 (advisory opinions). The trial court could not have
properly rendered a decision on the employer’s percentage of responsibility because, without any
remaining defendants, its decision would not be binding on the parties. See Robinson, 298
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S.W.3d at 325; Lavely, 976 S.W.2d at 897. Thus, the trial court did not err by effectively
denying Morales’s request for a determination of his employer’s percentage of responsibility.
We overrule Morales’s second issue.
CONCLUSION
Because Texas Mutual was not actively represented in Morales’s claims against the
defendants he alleged were responsible for his injuries, section 417.003(a) is the applicable
provision, and the trial court erred when it applied section 417.003(c) and failed to reduce Texas
Mutual’s first money payment by the amount of its proportionate share of expenses. See TEX.
LAB. CODE ANN. § 417.003 (West 2006); Hartford Ins. Co. v. Branton & Mendelsohn, Inc., 670
S.W.2d 699, 701–02 (Tex. App.—San Antonio 1984, no writ). Therefore, we modify the trial
court’s judgment and reduce the defendant’s payment of $118,486.21 of the settlement proceeds
to Texas Mutual in satisfaction of its Workers’ Compensation lien by $27,754.17, which is Texas
Mutual’s proportionate share of expenses, for a modified payment amount of $90,732.04. See
TEX. R. APP. P. 43.2(b). Because Morales nonsuited or settled with all the defendants before he
obtained a determination of his employer’s percentage of responsibility for his injuries, we deny
his prayer to remand this case for such a determination. We affirm the judgment as modified.
Rebecca Simmons, Justice
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