IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 97-41302
_______________
BECKY FERRELL,
Individually and as Next Friend for
Samuel Ryann Ferrell,
Shawna Renee Ferrell,
and
Steven Rae Ferrell, Jr., Minors;
and as Representative of the Estate of
Steven Rae Ferrell, Deceased; et al.,
Plaintiffs,
CLARENDON AMERICA INSURANCE COMPANY,
Intervenor
Plaintiff-Appellee,
VERSUS
THE CHARLES MACHINE WORKS INCORPORATED,
d/b/a DITCH WITCH,
Defendant-Appellant.
* * * * * * * * * * * * * * * *
_______________
No. 97-41354
_______________
BECKY FERRELL,
Individually and as Next Friend for
Samuel Ryann Ferrell,
Shawna Renee Ferrell,
and
Steven Rae Ferrell, Jr., Minors;
and as Representative of the Estate of
Steven Rae Ferrell, Deceased; et al.,
Plaintiffs,
CLARENDON AMERICA INSURANCE COMPANY,
Intervenor
Plaintiff-Appellant,
VERSUS
THE CHARLES MACHINE WORKS INCORPORATED,
d/b/a DITCH WITCH,
Defendant-Appellee.
_________________________
Appeals from the United States District Court
for the Eastern District of Texas
(2:96-CV-132)
_________________________
August 13, 1998
Before JOLLY, SMITH, and BARKSDALE, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
In this consolidated appeal, we review a summary judgment in
favor of Clarendon America Insurance Company (“Clarendon”) on its
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion
should not be published and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.
2
subrogation claim and a subsequent order denying its motion for
attorney's fees. We affirm the summary judgment and reverse and
remand the order denying fees.
I.
Steven Ferrell was killed by a defective Ditch Witch boring
machine while installing underground cables for his employer,
Utilities Installation of America (“UIA”), which paid his surviving
spouse and children $250,000 for Ferrell's accidental death
pursuant to the company's employee benefits package. Acceptance of
the benefit also entailed an agreement with UIA that if the
Ferrells collected from a third-party tortfeasor for the wrongful
death, UIA would have a claim of subrogation against the Ferrells
for the first $250,000 of the proceeds.
Clarendon reimbursed UIA for the $250,000 paid to the Ferrells
under the employee benefits package. UIA's policy with Clarendon
provided that in an accidental employment-related death, Clarendon
would pay UIA up to $250,000 for any death benefits that UIA paid
under the plan. Clarendon was subrogated to any recovery UIA
received as a result of the Ferrells' third-party recovery.
II.
After receiving the death benefits, the Ferrells sued UIA and
Ditch Witch in state court for the wrongful death. Clarendon
intervened in an attempt to recoup, from the Ferrells, the $250,000
it had previously paid to UIA. UIA then settled with the
3
plaintiffs, paying them another $240,000. Thereafter, the
plaintiffs nonsuited their state court claims against Ditch Witch
and refiled this diversity action in federal court.
There, the Ferrells, Ditch Witch, and Clarendon (again as
intervenor-plaintiff) reached a “Stipulation Agreement” in
connection with the Ferrells' settlement of their case against
Ditch Witch. The Stipulation Agreement provides that (1) Ditch
Witch will indemnify and hold harmless the Ferrells against
Clarendon's subrogation claims on the $250,000 original payment
from the UIA employee benefits plan; (2) Clarendon drops any claim
against the Ferrells for subrogation from their second settlement
with UIA (the $240,000 payment for which Clarendon also reimbursed
UIA under its insurance policy); (3) Clarendon retains its rights
to sue Ditch Witch (a right acquired from UIA when it tendered them
payment of the $250,000)1 to enforce the Ferrells' duty to
subrogate up to the amount of the original $250,000 payment from
the UIA employee benefits plan; and (4) Clarendon allows Ditch
Witch to assert all of its own rights and defenses as well as all
of the Ferrells' in the instant subrogation litigation.
The Ferrells having dropped out of the suit, both the insurer
and Ditch Witch moved for summary judgment. Ditch Witch claimed
that Clarendon could not sue for subrogation because (1) the
1
Section 13 of Clarendon's policy insuring UIA provides:
SUBROGATION
If payment is made under this Policy, Company shall be subrogated to all
rights of recovery therefore of the Insured and any persons entitled to
the benefits of the Policy, against any person or organization . . . .
4
subrogation right really belonged to UIA, not Clarendon, and UIA
had chosen to waive its right; (2) Clarendon and UIA violated the
Texas Insurance Code and thus could not seek subrogation; and
(3) the Texas Labor Code forbade Clarendon's claim for subrogation.
The district court scheduled a hearing on the motions, but at
the last moment Ditch Witch proffered new information, and the
court sua sponte referred the matter to a magistrate judge for a
report and recommendation. The magistrate judge did not hold a
hearing but recommended that summary judgment be denied to Ditch
Witch and granted to Clarendon.
The magistrate judge reasoned that, by the terms of the
contract, the Ferrells had agreed to subrogate their third-party
recovery to UIA; UIA had agreed to subrogate its recovery from the
Ferrells to Clarendon; and Ditch Witch had agreed to assume all of
the Ferrells' subrogation obligations to UIA. Concluding that
Clarendon and UIA did not waive any subrogation rights against the
Ferrells, the magistrate judge found it appropriate that judgment
should be entered against Ditch Witch for $250,000.
Although Clarendon had also raised equitable subrogation and
ERISA preemption as bases for its recovery, in addition to its
claim of contractual subrogation, the magistrate judge found the
contractual issue dispositive and therefore failed to address any
of Clarendon's other arguments. The magistrate judge also failed
to address Ditch Witch's arguments that this subrogation claim was
barred by the Texas Labor and Insurance Codes.
Ditch Witch objected to the district court; Clarendon did not
5
object to the report and recommendation. The district court,
conducting a de novo review, affirmed the magistrate judge's
factual findings and conclusions of law. Ditch Witch now appeals
in No. 97-41302 (referred to below as “Ditch Witch's appeal”).
Clarendon, after winning summary judgment on its subrogation
claim, moved for attorney's fees under state law and ERISA. The
district court referred the matter to the magistrate judge, who
recommended the motion be denied. Clarendon objected to the
district court, which denied the motion. The appeal in
No. 97-41354 followed (referred to below as “Clarendon's appeal”).
III.
We review summary judgment de novo. See Hanks v.
Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir.
1992). Summary judgment is appropriate “if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.” FED. R. CIV. P. 56(c). The
party seeking summary judgment carries the burden of demonstrating
that there is an absence of evidence to support the non-moving
party’s case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325
(1986). After a proper motion for summary judgment is made, the
non-movant must set forth specific facts showing that there is a
genuine issue for trial. See Hanks, 953 F.2d at 997.
We begin by consulting the applicable substantive law to
6
determine what facts and issues are material. See King v. Chide,
974 F.2d 653, 655-56 (5th Cir. 1992). We then review the evidence
relating to those issues, viewing the facts and inferences in the
light most favorable to the non-movant. See id. If the non-movant
sets forth specific facts in support of allegations essential to
his claim, a genuine issue is presented. See Brothers v.
Klevenhagen, 28 F.3d 452, 455 (5th Cir. 1994).
IV.
Ditch Witch argues that Clarendon has waived its right to
argue equitable subrogation and ERISA preemption, contending that
although the insurer argued these points to the magistrate judge,
it failed to object to the district court when the magistrate judge
failed to address these arguments in his report and recommendation.
“[A] party's failure to file written objections to the proposed
findings, conclusions, and recommendation in a magistrate judge's
report and recommendation within 10 days after being served with a
copy shall bar that party, except upon grounds of plain error, from
attacking on appeal the unobjected-to proposed factual findings and
legal conclusions accepted by the district court . . . .” Douglass
v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996)
(en banc).
Ditch Witch's argument rests on the premise that the
magistrate judge's failure to address these points constituted an
adverse ruling to Clarendon on these issues. Logically, however,
that assumption is problematic. More likely, the magistrate judge
7
found the contractual subrogation issue dispositive and had no need
to address alternate theories of recovery. Thus, assuming arguendo
that a prevailing party fits into the Douglass rule, we do not find
the magistrate judge's failure to address something constitutes an
adverse “conclusion of law” where, as here, resolution of that
issue was not necessary to the reasoning supporting the
recommendation and report. A contrary holding would risk, as
Clarendon puts it, mandating “any prevailing party . . . to appeal
omitted references of their arguments that were raised but not
expressly written in a magistrate's report.”
V.
The crux of Ditch Witch's appeal is its contention that
Clarendon, through UIA, does not have a contractual right of
subrogation against the Ferrells because UIA failed to demand in
writing the Ferrells' agreement to subrogate; it argues that
UIASSand thereby Clarendon standing in UIA's shoesSScannot now
assert subrogation rights against Ditch Witch, which is standing in
the Ferrells' shoes. Ditch Witch's argument turns on the terms of
the employee benefits plan agreement between UIA and the Ferrells,
and on United States Fidelity & Guar. Co. v. Valdez, 390 S.W.2d 485
(Tex. Civ. App.SSHouston [1st Dist.] 1965, writ ref'd n.r.e.)
(hereinafter “USF&G”).
The employee benefits plan that UIA offered its employees
provided, in relevant part:
(a) To receive any Plan benefits . . . the Participant or
the Participant's legal representative (or in the case of
8
the Participant's death, the Participant's estate) must
agree in writing:
(i) that the Participant's Employer (as the
sole source for payment of benefits under the
Plan) will be subrogated to any recovery
(irrespective of whether there is any recovery
from the third party of the full amount of all
claims against the third party) or right of
recovery against that third party . . . .
(b) The Participant's Employer will be subrogated to the
extent of Plan benefits paid because of the Injury,
Occupational Disease, or Cumulative Trauma.
(c) Subrogation rights of the Participant's Employer
under this Section 5.4 will not be jeopardized merely
because the Participant's Employer fails to recognize or
claim its right of subrogation until after paying Plan
benefits, or if the Participant's Employer recognizes or
claims its right of subrogation, but fails to obtain the
written agreement provided at 5.4(a) above, before paying
Plan benefits. Any Plan benefits paid to the
Participant, his legal representative, or his estate must
be returned to the Employer immediately if the Employer
requests the recipient execute, deliver, and fully comply
with the written agreement provided at 5.4(a) above, and
the recipient of such Plan benefits fails or refuses to
execute, deliver, or comply fully with such agreement.
(d) The Participant, by participation in this Plan,
agrees that his or her estate, and the legal
representative of such estate, shall be obligated to
agree that the Participant's Employer will be subrogated
to any recovery or right of recovery the estate has
against any third party with respect to the Injury,
Occupational Disease or Cumulative Trauma or with respect
to any wrongful death claim or action.
Ditch Witch's argument against contractual enforcement of the
subrogation right against the Ferrells concentrates on the fact
that UIA never requested or required the Ferrells to execute a
written assignment agreement to subrogate under § 5.4(a) of the
employee benefits plan. Ditch Witch maintains that UIA's failure
to obtain a written subrogation agreement either before payment, or
9
after, constitutes a waiver of its rights to subrogation under the
terms of the plan.
To buttress its point, Ditch Witch points to USF&G, in which
the court found waiver of a plan beneficiary's obligation to repay
the employer for amounts recovered from a third party for the
deceased's wrongful death. In USF&G, the court was faced with a
similar, unexecuted written release provision in the employee
benefits plan. The court noted:
[There] is a special provision for subrogation. It
contemplates that the beneficiary shall execute an
assignment. It is true that the provision says one of
the conditions precedent to payment shall be the
execution of an assignment but this contemplates
affirmative action by the beneficiary and not automatic
transfer by reason of payment. There is a very good
reason for such a provision contemplating the execution
of an assignment instead of automatic subrogation. The
beneficiary of a deceased employee who was not covered by
the compensation law has a cause of action against an
employer for negligence or he may receive voluntary
compensation payments. He might hesitate to accept the
compensation payments in lieu of a possible damage claim
against his employer for negligence if he was thereby
giving up his full rights against a third party. The
provision, therefore, contemplates that the insurer may
not want to insist on the assignment.
USF&G, 390 S.W.2d at 492. From these observations, Ditch Witch
urges us to conclude that unless the beneficiary executes a written
assignment agreement, we must find that the payor waives its
subrogation rights.
This conclusion, however, did not necessarily follow for the
policy at issue in USF&G, nor does it for this case. As in the
instant employee benefits plan, the policy in USF&G provided that
acceptance of the payor's subrogation rights would be a condition
10
precedent to payment to the insured. Here, the employee benefits
plan provides in § 5.4(d) that “by participation in this Plan, [the
Participant] agrees that his or her estate, and the legal
representative of such estate, shall be obligated to agree that the
Participant's Employer will be subrogated to any recovery or right
of recovery the estate has against any third party with respect to
the Injury . . . .”
Given such a clause, the USF&G court found:
Appellant [USF&G] here insists that appellees [the
beneficiaries] having accepted the benefits of the
contract must take the contract as they find it and this
includes the conditions under which they were entitled to
payment. This correctly states the general rule of law.
Were the facts in this case merely that payment was made
we would have to presume appellees accepted it under the
conditions provided and appellant could require the
execution of an assignment.
USF&G, 390 S.W.2d at 492 (emphasis added). The court, however,
found that USF&G had done more than just fail to obtain a written
assignment; it had also voluntarily waived that right in a judicial
proceeding.
In USF&G, the beneficiaries did not claim the payment outright
from the employer. Instead, they filed a “friendly suit” in state
court in which the employer agreed to pay the death benefit. The
judgment also provided, however, that nothing contained therein
would “release or prejudice any right [that the beneficiaries]
might have against any third party responsible for the death of
[the deceased].” Id. (quoting the judicial settlement).
The USF&G court read this as a release of the employer's
rights under the employee benefits plan to obtain an assignment:
11
“We feel it may be inferred from the facts in the record that by
not taking the assignment when the other condition precedent was
carefully stated in the judgment and the release that appellant did
not intend to rely on this condition precedent. . . . [T]his was an
express reservation by appellees of all of their rights against the
third party which includes the full amount of damages recoverable.”
Id.
Although UIA did not enforce the written request as a
condition precedent to payment, its waiver of its assignment rights
cannot be assumed. First, UIA has the right, under the employee
benefits plan, to insist on assignment either before or after
payment; the employee's participation in the plan is his
contractual acceptance of the employer's assignment rights.
Second, there is no comparable express waiver of UIA's
subrogation rights in a settlement document, judicial or otherwise.
The key fact that the USF&G court appeared to rely on was the
employer's decision to enter into a settlement agreement with the
aforementioned waiver language. Although the USF&G court was
sympathetic to the beneficiaries, the court had to acknowledge that
the “general rule” is that the beneficiary “took the contract as he
finds it” and that by accepting the money, they would otherwise
have opened themselves up for a claim of subrogation. See id.
Without the express waiver by UIA, under USF&G, Texas law holds the
Ferrells to the employee benefits plan contract. See id. That is,
when they agreed to take the $250,000, they also agreed, under
§ 5.4 of the plan, to assign any claims up to that amount to UIA.
12
Thus, under the convoluted assignments and reassignments of rights
and duties, Ditch Witch is contractually liable to Clarendon for
the Ferrells' receipt of the $250,000 from UIA.2
VI.
Ditch Witch argues that even if the Ferrells were
contractually bound to assign their third-party recovery to UIA,
the assignment was prohibited by the Texas Insurance Code.
Specifically, Ditch Witch contends that because this insurance
coverage is triggered by the participant's death, it is life
insurance. See TEX. INS. CODE ANN. art. 3.01 § 1. Therefore,
according to Ditch Witch, all of the state regulatory hurdles for
selling life insurance must be met by the “seller”SSUIA.
Otherwise, Ditch Witch argues, the life insurance seller is, or
should be, estopped from asserting any of its rights under the
illegal life insurance contract against the insured/beneficiary.
See TEX. INS. CODE ANN. art. 3.42(a); Mutual Life Ins. Co. v. Daddy$
Money, Inc., 646 S.W.2d 255, 257 (Tex. App.SSDallas 1982, writ
ref'd n.r.e.).
Ditch Witch's argument relies on an incorrect premise: Even
2
Ditch Witch also argues that, to the extent the Ferrells did
contractually assign their wrongful death claim, they were precluded from doing
so under Texas law absent a statutory grant of authority to do so. See, e.g.,
Carter v. Van Meter, 495 S.W.2d 583 (Tex. Civ. App.SSDallas 1973, writ
dismissed). Ditch Witch raised this argument before the magistrate judge, who,
although failing to address it, ruled against Ditch Witch. The magistrate judge
therefore necessarily rejected it, and Ditch Witch was obliged to raise this
objection to the district court under Douglass. Its failure to do so means that
only plain error review applies. See Douglass, 79 F.3d at 1428-29. Under this
standard of review, Ditch Witch has demonstrated no “manifest injustice” or
threat to the “integrity of the judicial process” necessary to justify reversal,
even if, arguendo, the district court erred on this point of Texas law.
13
though this insurance benefit is triggered by the participant's
death, and thus at first glance falls within the Insurance Code's
definition of “life insurance,” Texas courts have found that death
benefits awarded as part of an occupational injury plan are not
“life insurance” under art. 3.01 § 1. See, e.g., Ayre v. Brown &
Root, Inc., 678 S.W.2d 564, 565 (Tex. App.SSHouston [14th Dist.]
1984, writ ref'd n.r.e.).3 Instead, they are more properly thought
of as “accident insurance” under TEX. INS. CODE ANN. art. 3.01 § 2.
See id.
If this benefit is not “life insurance,” art. 3.42 and its
regulatory hurdles do not apply. Because the state has not, and,
in our view, would not invoke its art. 3.42 regulatory, police
powers over this “life insurance” contract in the first instance,
any argument that we should “supplement” those powers, by finding
this contract a nullity, is without force.
VII.
Ditch Witch avers that the state workers' compensation laws
prevent Clarendon's recovery. Specifically,
(a) A contract entered into to indemnify an employer from
3
The court added:
Although Appellant is correct in stating that the definition of a
life insurance company, found in art. 3.01 § 1, could reasonably
include payments for cessation of life by accidental death, TEX. INS.
CODE ANN. art. 3.01 § 2 (Vernon 1981), precludes us from so holding.
Section 2 defines an “accident insurance company” as a corporation
which pays money in the event of death resulting from traveling or
general accidents. A maxim of statutory construction is that a
specific provision governs a general provision.
Id.
14
loss or damage resulting from an injury sustained by an
employee that is compensable under this subtitle is void
unless the contract also covers liability for payment of
compensation under this subtitle.
(b) This section does not prohibit an employer who is not
required to have workers' compensation insurance coverage
and who has elected not to obtain workers' compensation
insurance coverage from obtaining insurance coverage on
the employer's employees if the insurance is not
represented to any person as providing workers'
compensation insurance coverage authorized under this
subtitle.
TEX. LABOR CODE ANN. § 406.052. Ditch Witch's argument is bipartite.
First, it asserts that Clarendon's policy “is void” under
subsection (a) because it does not provide for compensation to
UIA's employees under the workers' compensation laws. Second,
Ditch Witch maintains that subsection (b) precludes Clarendon and
UIA from enforcing their rights because the insurance policy
provided by Clarendon insures UIA, not UIA's employees directly.
Subsection (a) is not applicable, as no one contends that UIA
must provide workers' compensation insurance. By its terms,
subsection (a) applies only to those injuries that are
“compensable under this subtitle” of the Texas Labor Code. As
Ditch Witch acknowledges, UIA has the option, under Texas labor
law, to forego the workers' compensation scheme entirely and
subject itself to the full extent of the common law
liabilitySSabsent any common law defenses. See TEX. LABOR CODE ANN.
§§ 406.002, 406.033. UIA chose to exercise this option.
Accordingly, injuries occurring in the scope of its employees'
employment are not “compensable under” the state workers'
compensation laws.
15
The relevant issue thus becomes whether UIA comported with the
requirements of subsection (b). Ditch Witch argues that because
Clarendon's policy covered only UIA and not UIA's employees
directly, subsection (b) bars Clarendon's insurance coverage of
UIA. Subsection (b), however, cannot be read for all that Ditch
Witch suggests.
The statute “does not prohibit” non-workers' compensation
subscribing employers from obtaining “insurance on the employer's
employees” if the employer provides adequate notice and
representations to the employee that this insurance is not workers'
compensation. The crux of Ditch Witch's argument is its reading of
subsection (b) as an exclusive exception to subsection (a). That
reading is incorrect.
The structure of the law is more properly understood thus:
Subsection (a) provides that if an employer obtains workers'
compensation insurance (and thereby receives the statutory
protection from employee suit), it must cover all that the workers'
compensation laws say it must cover. Lurking in the background of
subsection (a) is the fact that Texas does not require employers to
have workers' compensation insurance. See TEX. LABOR CODE ANN.
§ 406.002.
Subsection (b) prevents employers from getting the benefits of
the workers' compensation laws without paying their full price.
For instance, in the absence of subsection (b), an employer might
opt out of the workers' compensation scheme but still offer its
employees some type of private insurance coverage for on-the-job
16
accidents.
Let us assume that this insurance does not cover the statutory
requirements of workers' compensation. Let us also assume that the
employer tells its employees that it is offering private “workers'
compensation.” An unknowing, injured employee might take the
private insurance benefit and think that he is thereby precluded
from also bringing suit against the employer by the workers'
compensation laws. The employer has no incentive to dispel the
employee's misperception and may even wish to foster it through
affirmative misrepresentations.
Subsection (b) is a statutory protection of these workers. It
allows employers the right to provide their own insurance, if it
is not represented as workers' compensation insurance. As a
result, there is less likelihood that an injured employee will
wrongly conclude that acceptance of the benefit also precludes his
own independent tort action against the employer. That said,
subsection (b) says nothing about an employer's decision to offer
its own benefits to employeesSSbenefits not represented to
employees as workers' compensation insuranceSSand then to have
itself insured on having to pay those benefits, as is the case
here. In such a circumstance, there is no need to protect
unknowing employees, and thus subsection (b) does not apply.
VIII.
Ditch Witch maintains that the magistrate judge erred in
ruling on the motions for summary judgment without a hearing and
17
with no notice that a hearing would not be held after the district
court referred the matter to the magistrate judge.
Rule 56(c) merely requires the court to give the non-
movant an adequate opportunity to respond prior to a
ruling. . . . Rule 56(c) requires neither an oral
hearing nor advance notice of a 'date certain' on which
a motion for summary judgment is to be decided; instead
'if there is not a hearing, the adverse party must have
at least ten days to respond to the motion for summary
judgment.' Daniels v. Morris, 746 F.2d 271, 274-75 (5th
Cir. 1984).
Jackson v. Widnall, 99 F.3d 710, 713 (5th Cir. 1996).4
Ditch Witch makes no claim that it was prejudiced by a lack of
notice; it merely asserts that there was lack of notice. Its
arguments are unavailing.
First, an oral hearing is not required. See id. Second,
Ditch Witch had more than ten days to offer a rebuttal to the
motion for summary judgment before the magistrate judge ruled on
the motion. Indeed, in considering the cross-motions for summary
judgment, the district court granted an additional ten days at the
originally scheduled hearing of July 7, 1997, for Clarendon to
respond to a last-minute filing submitted by Ditch Witch. Ditch
Witch could easily have used that time to respond to Clarendon
4
Jackson and Daniels, moreover, do not conflict with Capital Films Corp.
v. Charles Fries Prods., Inc., 628 F.2d 387, 392 (5th Cir. 1980), cited by Ditch
Witch. Capital Films, too, is concerned with giving the non-movant adequate
notice by making sure it has at least ten days to respond to the motion for
summary judgment. The later cases offer a more articulate standard of the one
introduced in Capital Films.
Also, the facts of Capital Films were egregious. The defendant filed a
motion for summary judgment. The court acted as if it were proceeding to trial.
The day before voir dire (a year after the motion was filed), it entered summary
judgment, apparently not giving the plaintiff a chance to offer additional
material in support of its contention, developed during the interim year, that
a genuine issue of material fact existed. Ditch Witch offers no similar showing
of reliance on the alleged lack of notice.
18
before the magistrate judge issued his recommendation. We
therefore uphold the summary judgment in Ditch Witch's appeal.
IX.
Clarendon cross-appeals, claiming attorney's fees under both
Texas state law and ERISA. We address the latter issue first.
A.
Clarendon's claim for attorney's fees under ERISA is easily
dismissed. An award of attorney's fees for cases “brought under”
ERISA is within the discretion of the district court. See
29 U.S.C. § 1132(g)(1).5
As far as we can tell from the briefs and the arguments, this
case has little to no nexus with ERISA; the “brought under”
requirement of § 1132(g)(1) is not met. The crux of the dispute
between Clarendon and Ditch Witch concerns state contract and
insurance subrogation law. ERISA supposedly arises only as an
affirmative defense, and it really does not even appear in that
regard.
The insurer's reliance on ERISA is ironic because, aside from
arguing that it did not waive the issue in the district court, the
issue appears nowhere in its brief in the related appeal on the
5
Clarendon points to a multi-factored test that the district court should,
or must, consider in determining whether to award attorney's fees under ERISA.
It claims that it was error for the district court not to discuss these
considerations in this case. We disagree. Clarendon cannot pass the threshold
showing that this is an ERISA case. Therefore, any further inquiry into what
ERISA requires the district court to consider in its award of attorney's fees is
necessarily unjustified.
19
merits. Accordingly, the district court was well within its
discretion in denying an award of attorney's fees under ERISA.
B.
The more difficult issue is whether the court erred in
concluding that Clarendon could not recover attorney's fees under
state law. We conclude that it did so err.
Under TEX. CIVIL PRAC. & REM. CODE ANN. § 38.001(8), “[a] person
may recover reasonable attorney's fees from an individual or
corporation, in addition to the amount of a valid claim and costs,
if the claim is for: . . . (8) an oral or written contract.” “The
award of reasonable attorney's fees to a plaintiff recovering on a
valid claim founded on a written or oral contract preceded by
proper presentment of the claim is mandatory” under § 38.001(8).
In re Smith, 966 F.2d 973, 978 (5th Cir. 1992).6
“The requisites to recover for attorney's fees under
[§ 38.001(8)] . . . are: 1) recovery of a valid claim in
a suit on an oral or written contract; 2) representation
by an attorney; 3) presentment of the claim to the
opposing party or a representative of the opposing party;
and 4) failure of the opposing party to tender payment of
the just amount owed before the expiration of thirty days
of presentment.” Sikes v. Zuloaga, 830 S.W.2d 752, 753
& n.1 (Tex. App.SSAustin 1992, no writ). The party
seeking attorney's fees must both “plead and prove that
presentment of a contract claim was made to the opposing
party and that the party failed to tender performance.”
Ellis v. Waldrop, 656 S.W.2d 902, 905 (Tex. 1983).
Triad Elec. & Controls, Inc. v. Power Sys. Eng'g, Inc., 117 F.3d
6
“[R]ecovery on a valid claim founded on a written or oral contract”
includes maintaining the award on appeal. See Humble Nat'l Bank v. DCV, Inc.,
933 S.W.2d 224, 236 (Tex. App.SSHouston [14th Dist.] 1996, writ denied). Our
affirmance in the consolidated appeal in No. 97-41302 satisfies this requirement.
20
180, 196 (5th Cir. 1997).
In its briefs, Ditch Witch does not contend that Clarendon has
failed to meet any of these requirements.7 Rather, it argues that
there is no contractual right or duty between Ditch Witch and
Clarendon. Essentially, it contends that this case really concerns
Clarendon's “tort” claim against Ditch Witch, not a “contract”
claim.
We disagree. At bottom, this suitSSas Ditch Witch freely
acknowledges in the related appeal on the meritsSSis a claim by UIA
against the Ferrells for reimbursement given their recovery from
Ditch Witch. There certainly is a contract between UIA and the
Ferrells in this regardSS§ 5.4 of the employee benefits plan.
The idea that Clarendon is suing Ditch Witch for its tort also
conflicts with the record: Clarendon's complaint in intervention
sues “all the plaintiffs” for subrogation on their recovery.
Therefore, UIA, via Clarendon, is suing the Ferrells, via Ditch
Witch, on the Ferrells' broken contractual promise under the UIA
employee benefits package made in consideration for their receipt
of the $250,000 payment.
Accordingly, under Texas law, Clarendon has recovered on a
“claim [that] is for . . . an oral or written contract.” TEX. CIV.
7
Ditch Witch does not argue that any of these requirements is unmet, and
our review of the record additionally satisfies us that all were. Although our
review of the record convinces us that Clarendon made a sufficient presentment
of its contract claim to the Ferrells and to Ditch Witch, Clarendon failed to
“plead” presentment in its motion for attorney's fees. Under Texas law, Ditch
Witch has waived any rights it may have in that regard, however, by failing to
object to the district court, or to raise it on appeal. See, e.g., Mendleski v.
Silvertooth, 798 S.W.2d 30, 32 (Tex. App.SSCorpus Christi 1990, no writ)
(“[F]ailure to properly plead presentment would be waived absent a special
exception . . . .”).
21
PRAC. & REM. CODE ANN. § 38.001(8). Once the aforementioned
requirements are met, the award of attorney's fees becomes
“mandatory.” See Smith, 966 F.2d at 978. Without a choice, we
therefore reverse, in Clarendon's appeal, and remand for
determination of “reasonable” attorney's fees. See TEX. CIV. PRAC.
& REM. CODE ANN. § 38.003.
The judgment in No. 97-41302 is AFFIRMED; the judgment in
No. 97-41352 is REVERSED and REMANDED.
22