in Re Farmers Insurance Exchange and Texas Farmers Insurance Company ( 2014 )

NUMBER 13-14-00330-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
IN RE FARMERS INSURANCE EXCHANGE
AND TEXAS FARMERS INSURANCE COMPANY
On Petition for Writ of Mandamus.
MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Garza and Benavides
Memorandum Opinion by Justice Garza
Relators, Farmers Insurance Exchange and Texas Farmers Insurance Company
(collectively “Farmers”), have filed a petition for writ of mandamus contending that the
Honorable Angelica Hernandez, presiding judge of the 105th Judicial District Court of
Nueces County, Texas, abused her discretion, leaving Farmers without an adequate
appellate remedy, by rendering an “Order Granting Application for Post-Judgment Relief”
on May 30, 2014 in trial court cause number 09-6360-D. On June 18, 2014, we
temporarily stayed enforcement of the challenged order and directed real parties in
interest, Larry Bos, Mary Bos, Craig S. Smith, individually and as next friend of M.W.F.S.,
C.S.S., J.E.S., and V.A.S., minors, and William R. Edwards, to file any response to the
petition for writ of mandamus. Smith filed a response and relators filed a reply thereto.
Having fully considered the petition, response, reply, and the record documents provided
by the parties, we find that the petition is meritorious. Accordingly, we will conditionally
grant mandamus relief.
I. BACKGROUND
Smith filed suit against the Boses and Marlon Bruno on December 17, 2009 (the
“underlying suit”), alleging defamation, fraud, intentional infliction of emotional distress,
and interference with the possessory right of a child. See TEX. FAM. CODE ANN. § 42.002
(West, Westlaw through 2013 3d C.S.). The Boses were represented by counsel
provided by Farmers, the Boses’ umbrella liability insurer. Despite providing
representation for the Boses, Farmers disputed whether the Boses’ policy covered the
events made the subject of the underlying suit. Therefore, Farmers brought a separate
action in the same court on April, 22, 2013 (the “coverage suit”), seeking a declaratory
judgment that it was not obligated under the policy to defend or indemnify the Boses as
to the underlying suit. The coverage suit is still pending.
On May 8, 2014, after a bench trial, the trial court in the underlying suit rendered
final judgment finding the defendants jointly and severally liable to Smith for $10,736,000
in damages.
Subsequently, on May 30, 2014, Smith filed an “Application for Post Judgment
Relief” in the underlying suit. The application stated that the Boses “own non-exempt
property that cannot readily be attached or levied on by ordinary legal process. This
property includes causes of action arising from the Personal Umbrella insurance policy
currently being litigated in this Court. . . .” The application contained the following request:
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[Smith] move[s] this Court to find and conclude:
1. Mary and Larry Bos have a right to indemnity from Farmers
Insurance Exchange because the Final Judgment is based on
covered claims, which are not excluded;
2. Plaintiffs tendered Farmers Insurance Exchange settlement offers
within policy limits, offered a complete release, and Farmers
Insurance Exchange unreasonably denied the settlement offers;
3. Farmers Insurance Exchange is liable for the resulting judgment and
is liable under the plain language of the policy, the Stowers
doctrine,[1] the duty [of] good faith and fair dealing, and the Insurance
Code. [Case law citations omitted.]
The trial court granted the application for post-judgment relief on the same day it
was filed. The order granting the application contained, verbatim, the three findings and
conclusions requested by Smith as set forth above. The order further stated, in relevant
part:
lT IS THEREFORE ORDERED, ADJUDGED AND DECREED that all
assignable claims or causes of action owned by Mary Bos or Larry Bos
against Farmers Insurance Exchange, or any other indemnitor that could be
litigated in [the coverage suit] are now held in custodia legis of this Court.
The Court hereby appoints William Edwards . . . receiver. The receiver has
the power to litigate these claims and pay recovered funds into the registry
of this Court. Distribution to Judgment Creditors shall occur only after notice
and hearing to all interested parties.
Farmers then filed this original proceeding, claiming that the trial court erred by granting
Smith’s application for post-judgment relief.2
1 Under the Stowers doctrine, an insurer who unreasonably rejects an injured party’s offer of
settlement within policy limits will be held liable for the entire amount of damages eventually assessed
against the insured, regardless of policy limits. See, e.g., G.A. Stowers Furniture Co. v. Am. Indem. Co.,
15 S.W.2d 544, 547 (Tex. Comm’n App.1929, holding approved).
2 On November 24, 2014, Farmers filed a motion for emergency relief seeking a stay of proceedings
in the coverage suit. In light of our conclusion herein that the order on appeal is void, we hereby deny the
motion as moot.
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II. DISCUSSION
A. Standard of Review
Mandamus is appropriate when the relator demonstrates that the trial court clearly
abused its discretion and the relator has no adequate remedy by appeal. In re Reece,
341 S.W.3d 360, 364 (Tex. 2011) (orig. proceeding); In re Prudential Ins. Co. of Am., 148
S.W.3d 124, 135–36 (Tex. 2004) (orig. proceeding). A trial court clearly abuses its
discretion if it reaches a decision that is so arbitrary and unreasonable that it amounts to
a clear and prejudicial error of law or if it clearly fails to analyze the law correctly or apply
the law correctly to the facts. In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382
(Tex. 2005) (orig. proceeding) (per curiam). The adequacy of an appellate remedy is
determined by balancing the benefits of mandamus review against the detriments. In re
Team Rocket, L.P., 256 S.W.3d 257, 262 (Tex. 2008) (orig. proceeding).
B. Applicable Law
A turnover order is a statutory procedural device through which judgment creditors
may reach assets of a judgment debtor that are otherwise difficult to attach or levy by
ordinary legal process. See TEX. CIV. PRAC. & REM. CODE ANN. § 31.002 (West, Westlaw
through 2013 3d C.S.); Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 224 (Tex. 1991).
The turnover statute is “purely procedural in nature.” Beaumont Bank, N.A., 806 S.W.2d
at 227; see Europa Int’l, Ltd. v. Direct Access Trader Corp., 315 S.W.3d 654, 656 (Tex.
App.—Dallas 2010, pet. denied). To obtain relief under the statute, a judgment creditor
must prove: (1) the judgment debtor owns property, including present or future rights to
property; (2) the property is not exempt from attachment, execution, or seizure; and (3)
the property “cannot readily be attached or levied on or by ordinary legal process.” TEX.
CIV. PRAC. & REM. CODE ANN. § 31.002; see Europa Int’l, Ltd., 315 S.W.3d at 656.
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Upon finding that the elements of section 31.002(a) are satisfied, a trial court has
discretion to issue a range of remedies, including ordering the judgment debtor to turn
over non-exempt property that is in the debtor’s possession or is subject to the debtor’s
control to a designated sheriff or constable for execution, or “appointing a receiver with
the authority to take possession of the non-exempt property, sell it, and pay the proceeds
to the judgment creditor to the extent required to satisfy the judgment.” TEX. CIV. PRAC.
& REM. CODE ANN. § 31.002(b). However, the turnover statute may not be used to
determine substantive rights. See Partain v. Maples, 438 S.W.3d 69, 71 (Tex. App.—
Corpus Christi 2013, no pet.); D & M Marine, Inc. v. Turner, 409 S.W.3d 853, 857 (Tex.
App.—Fort Worth 2013, no pet.); Cross, Kieschnick & Co. v. Johnston, 892 S.W.2d 435,
438 (Tex. App.—San Antonio 1994, no writ); see also In re Old Am. Cnty. Mut. Fire Ins.
Co., No. 13-14-00231-CV, 2014 WL 4795923, at *5 (Tex. App.—Corpus Christi Sept. 25,
2014, orig. proceeding) (mem. op.).
Although the turnover statute is generally not applied to parties who are not
judgment debtors, Beaumont Bank, 806 S.W.2d at 227, “under certain circumstances an
action under the turnover statute may be brought against parties other than the judgment
debtor in order to assist the judgment creditor in subjecting the judgment debtor’s non-
exempt property to satisfaction of the underlying judgment.” Int’l Paper Co. v. Garza, 872
S.W.2d 18, 19 (Tex. App.—Corpus Christi 1994, orig. proceeding) (citing Schultz v. Fifth
Judicial Dist. Ct. of Appeals, 810 S.W.2d 738, 739 n.3 (Tex. 1991), abrogated on other
grounds by In re Sheshtawy, 154 S.W.3d 114 (Tex. 2004) (per curiam)). In particular, a
turnover order may issue against a third party where the third party retains non-exempt
property that is owned by a judgment debtor and is subject to the debtor’s possession or
control. See, e.g., Barrera v. State, 130 S.W.3d 253, 259–60 (Tex. App.—Houston [14th
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Dist.] 2004, no pet.); Dale v. Fin. Am. Corp., 929 S.W.2d 495, 498 (Tex. App.—Fort Worth
1996, writ denied); Norsul Oil & Min. Ltd. v. Commercial Equip. Leasing Co., 703 S.W.2d
345, 349 (Tex. App.—San Antonio, 1985 writ denied).
An unadjudicated cause of action is generally considered “property” that may be
the subject of an order under the turnover statute. See Assoc. Ready Mix, Inc. v. Douglas,
843 S.W.2d 758, 762 (Tex. App.—Waco 1992, orig. proceeding).3
C. Analysis
The turnover order at issue explicitly concluded that the Boses’ insurance policy
with Farmers covered the events made the subject of Smith’s underlying suit, that the
Boses “have a right to indemnity from Farmers” because of that fact, and that Farmers
unreasonably rejected settlement offers tendered by Smith. In other words, the turnover
order purported to adjudicate the merits of the very issues before the trial court in the
coverage suit. This was manifestly improper. See, e.g., Partain, 438 S.W.3d at 71 (noting
that turnover proceedings may not be used to determine substantive rights).
In his response to Farmers’ petition, Smith contends that Farmers failed to bring a
record sufficient for this Court to conduct an adequate review. In particular, Smith argues
that there is nothing in the record provided by Farmers showing: (1) that the trial court
“announced” that the coverage claims were not within the jurisdiction of the trial court in
the underlying suit, or (2) that the Boses declined to voluntarily assign their claims to
3 In Charles v. Tamez, we held that turnover relief was properly denied when the “property” sought
to be turned over was the judgment debtor’s unadjudicated cause of action for legal malpractice against his
attorneys. 878 S.W.2d 201, 208 (Tex. App.—Corpus Christi 1994, writ denied). We held that turnover
would have been improper because the judgment debtor “never attempted to assert any of the actions” for
which the judgment creditor sought turnover; in fact, the debtor “denied dissatisfaction with his
representation” by his attorneys. Id. at 207–08. Accordingly, the causes of action were “not assets subject
to turnover.” Id. at 208. We need not determine whether this ruling is apposite here because we find, in
any event, that the trial court’s order impermissibly determined Farmers’ substantive rights.
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Smith. We agree that the record does not substantiate these particular factual
allegations, but we do not agree that this makes Farmers’ position untenable. Whether
or not those factual allegations are true, it remains the case that the trial court lacked the
authority to determine Farmers’ substantive rights in the turnover proceeding. See
Partain, 438 S.W.3d at 71. Smith further points to the “clear” language of the policy in
arguing that the trial court did not abuse its discretion in determining that the judgment in
the underlying suit was covered by the policy. We disagree. The pleadings in the
underlying suit did not mention insurance coverage, and Farmers was not a party to those
proceedings. By ruling on the merits of the coverage dispute in the turnover order, the
trial court effectively found Farmers liable for the entire $10,736,000 judgment without
giving Farmers the opportunity to be heard, thus depriving Farmers of due process. See
Ex parte Swate, 922 S.W.2d 122, 125 (Tex. 1996) (Gonzalez, J., concurring) (“Whether
a turnover is enforceable by a contempt order directed to a stranger to the lawsuit is a
serious matter that goes to the very heart of due process.”); Gerjets v. Davila, 116 S.W.3d
864, 869 (Tex. App.—Corpus Christi 2003, no pet.).
The attempted addition of a non-party to a case after the rendition of judgment is
a jurisdictional issue. See Custom Corporates, Inc. v. Sec. Storage, Inc., 207 S.W.3d
835, 839 (Tex. App.—Houston [14th Dist.] 2006, no pet.) (combined appeal & orig.
proceeding) (concluding that the trial court lacked jurisdiction to enter a post-judgment
order after the expiration of plenary power adjudicating the expenses and fees of a non-
party to the judgment); see also In re Old Am. Cnty. Mut. Fire Ins. Co., 2014 WL 4795923,
at *6; In re Karlseng, No. 05-14-00049-CV, 2014 WL 1018321, at *2 (Tex. App.—Dallas
Feb. 12, 2014, orig. proceeding) (mem. op.). The trial court therefore exceeded its
jurisdiction by purporting to determine the coverage issue in its turnover order.
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Accordingly, the order is void and mandamus is proper. See In re Vaishangi, Inc., 442
S.W.3d 256, 261 (Tex. 2014) (noting that, when a trial court’s order is void, the relator
“need not show it did not have an adequate appellate remedy, and mandamus relief is
appropriate”) (citing In re Sw. Bell Tel. Co., 35 S.W.3d 602, 605 (Tex. 2000)); cf. Int’l
Paper Co., 872 S.W.2d at 19 (finding that relator, a third party who joined the underlying
suit as a party and specially excepted to the judgment creditor’s application for turnover
relief, had an adequate remedy by appeal).
III. CONCLUSION
We conditionally grant Farmers’ petition for writ of mandamus and direct the trial
court to vacate its “Order Granting Application for Post-Judgment Relief” dated May 30,
2014 in trial court cause number 09-6360-D. We emphasize that nothing in this opinion
shall be construed as precluding Smith from seeking, from the trial court, a new turnover
order that does not purport to adjudicate any party’s substantive rights. Further, nothing
in this opinion shall be construed as affecting the trial court’s jurisdiction to hear the issues
raised in the coverage suit.
The writ will issue only in the event the trial court fails to comply.
DORI CONTRERAS GARZA,
Justice
Delivered and filed the
4th day of December, 2014.
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